CHAPTER 6

INNOVATION’S DIRTY LITTLE SECRET

Michele Romanow leaned forward in her chair and listened intently to the deal. At this point, she’d heard about 250 of these pitches over the last few weeks.

The founders in front of her—a father-and-son duo—had a great idea, a great business model, and great execution. They’d already sold about $1 million of their wooden iPhone cases. The metrics were excellent: $10 to make, $10 to advertise, $50 to sell. A proven, safe investment. At the end of their seven-minute pitch, they made their ask.

They wanted $100,000 in cash in exchange for giving the investors a 20 percent stake in their company.

Romanow sat back. That’s a bad deal for everyone, she thought.

A company in a small niche like iPhone cases wasn’t shooting for a high-dollar exit—the kind that investors are hungry for. Instead, this family outfit was likely to sit back and enjoy healthy profit margins and a steady stream of income and keep their small corner of the market on lock. But exiting for anything in the “illions” wasn’t in their future (nor necessarily what they wanted). Plus, no small business owner wanted to give up nearly a quarter of their enterprise—they’d eventually grow resentful and regretful of their investors.

The father-and-son pitch wasn’t a great deal, but it also wasn’t unique. It was pretty similar to the hundreds that Romanow had already heard during the last two to three weeks of filming: An established business needed cash to scale, and the investors would take advantage, offering liquidity for large equity stakes. But this time, even the other investors wouldn’t be interested in such a small deal.

So Romanow sat up and offered a bold, new type of arrangement.

She’d give the family the $100,000, but she wouldn’t take any equity. Instead, the money would be a loan, with modest interest. The father and son were elated and quickly agreed. The only caveat? Romanow wanted to take a peek at their social media engagement.

If you didn’t know any better, it may be easy to discount her move as naïve—after all, she was the youngest investor ever on Dragons’ Den, the Canadian version of America’s Shark Tank. Other “dragons” invited on the show would include mostly older men, such as Lane Merrifield, cofounder of the $600 million company Club Penguin (acquired by Disney), and Kevin “Mr. Wonderful” O’Leary.

Romanow knew what it was like to be a young, hungry entrepreneur who couldn’t get investment dollars. At 21, she’d tried to disrupt the most unlikely of businesses—caviar. It blew up in her face. But she then went to Sears as their director of strategy, and eventually started an e-commerce platform called “Buytopia.” Later she also started SnapSaves, which she sold to Groupon for twice its valuation.

She’d had a hard time getting cash from investors to bankroll social media ads for Buytopia, even though she had a proven conversion plan. So she used the last dollar in her personal bank account to buy the ads.

When she joined Dragons’ Den four years later in 2015, she heard from various other entrepreneurs that they were in the same boat—they had a proven business, with a tried-and-true conversion strategy, but they still couldn’t get the money they needed for their social media campaigns. So they’d turn to expensive money from investors—like the dragons—for the needed cash to scale.

The show films all the pitches in about a two- to three-week period, so Romanow had seen this go down over 200-plus times already. When she heard the father-and-son pitch, she had a lightbulb moment—why does the most expensive cash a founder will likely ever access go straight to what should be the most scalable, replicable part of a business? For investors, if the ad campaign was good, this was about as close to a guarantee as they could get—meaning it should be the cheapest and easiest loan for a founder.

No one likely realized it then, but Romanow had just offered the first $100,000 of a new billion-dollar investment industry, one based not on the haggling of sharky investors, but on hard data, social media campaigns, and low interest rates.

She took a lose-lose deal and turned it into a win-win by discovering something no one else could see.

About two years after that first deal, Romanow cofounded Clearco, on the same premise, to fund scalable marketing campaigns for established companies. The owner walks away with all their equity intact and still in control, while Clearco walks away with a predictable ROI.

To date, Clearco has funded 7,000 companies with a total of $3 billion.

By listening to 250 or so pitches, Romanow had discovered a small, simple secret, one that was out there for the taking, but that no one truly grasped: New businesses wanted money for predictable ads. Investors want predictable ROI. It should have been a match made in heaven. Instead, it became a match made in the Dragons’ Den.

DISRUPTION = INVENT DISCOVER

Isaac Newton didn’t invent gravity; he discovered it. It had been there all along, embedded in the DNA of physics. When you find a secret, just like Newton, you unlock something that changes the world.

That’s what a secret is: a truth waiting in plain sight, buried by psychological hindrances and status quo traditionalism. Once someone points it out, the palm hits the face (or the apple hits the head). Why couldn’t we all see that? When you find that secret, it unleashes power in the marketplace (and dollars in the bank account).

I was recently playing around with TikTok’s ad platform when I discovered a small secret to targeting. Today most social platforms won’t allow you to target your ads by ethnicity. I get why, but as a South Asian Canadian, many of my truest fans are fellow South Asians. They write notes like, “Love seeing another brown guy doing his thing.” I wanted to reach this group in a scalable method to invite them to one of my upcoming shows. It dawned on me: I could target by hashtags like #browntiktok, #Bollywood, or #punjabi. (Almost) anyone following those will be South Asian.

I tested my idea with $18 in ads. I got over 50 conversions, one of the best ROIs I’d ever seen using paid social media marketing.

Some secrets, like the TikTok hashtag, are small, leading to individual value. Others, like Romanow’s, are game changing and create entire industries

In this chapter, we’re going to take a look at the role secrets play in disruption. Here’s what we’ll unpack:

•   THE ROI ON SECRETS. Research shows that ROI is highest for companies on the most transformative initiatives. Yet, companies invest most of their money on incremental improvements. Instead, they should invest in “secrets,” discovering new ideas that can transform companies and industries.

•   THERE ARE THREE LAYERS OF SECRETS. Obvious secrets, hard-to-find secrets, and the deepest dark secrets. As you descend into another layer, you discover more and more value. The more difficult and less obvious a secret is, the more value it holds

•   THE DIRTY TRUTH. Ivory towers don’t discover secrets; practitioners do. To find a secret, you’ve got to get dirty. Be on the front lines, listen intently, get “in the weeds” on a subject, topic, or line of work.

By the end, you’ll have some tools to discover secrets at each layer, which will allow you to add to your own innovation.

THE ROI ON SECRETS

Some of my colleagues at Monitor Deloitte¹ did a large-scale study on innovation. They researched the market, and they found that institutions had three options when considering where to invest their resources:

1.   Optimize their core basket of offerings.

2.   Invest in new solutions that were different from the current offering, but not truly disruptive.

3.   Invest in transformational initiatives that would typically require a high level of research and development (or at least much thought, buy-in, and potential risk).

From there, they wanted to find out, “In what category do companies spend their resources? And from what category do they drive the most return on investment?”

Similar to the Contrarian Matrix in the previous chapter, as you may guess, the study showed that well over two-thirds of all new value comes from transformational initiatives. If you were an investor, it would make sense to put your money there. But in practice, companies invest in the exact opposite manner, giving only 10 percent of all resources to this category, opting instead to play it safe and invest in nondisruptive offerings.

Borrowing from their study, and from the work of Peter Thiel, I’ve created the Iceberg of Secrecy, shown in Figure 6.1. Essentially, secrets can indeed be categorized into three groups, with each one representing a different increase in value when discovered:

FIGURE 6.1 The return on value for the three layers of secrets. Overall, the total value you can derive from innovation is composed of the three types of secrets.

1.   OBVIOUS SECRETS. These secrets are hidden in plain sight and give you a jump-start on disruption.

2.   HARD-TO-FIND SECRETS. These are the second-layer secrets; finding these is harder, and requires you to take a deeper look into human psychology and habits.

3.   DEEPEST AND DARKEST SECRETS. These are the real game changers, potentially driving millions of dollars’ worth of innovation. To find these, you’ll need to think, watch, think again, and watch again.

If you live a bold, dangerous life full of disruption, by the end, finding obvious secrets will have unlocked about 10 percent of that value. Hard-to-find secrets will compose about 20 percent. Finally, a few deep and dark secrets will make up the vast majority—up to 70 percent—of all the value you ever derive from innovation.

Your ability to disrupt rests disproportionately on uncovering deep, dark secrets, and of course, these are the hardest to mine.

There isn’t an exact formula for how to allocate your time, energy, and resources; occasionally, you should take baby steps to gain some quick, easy wins. However, it’s also important to keep the whole “iceberg” in mind—and remember that if you want to really change the game in your life, your company, or your industry, you’ll need to get deep.

LAYER 1: OBVIOUS SECRETS

Obvious secrets are loopholes—small little anomalies that, once exploited, offer immediate and real value. While these typically make up only 10 percent of the long-term value of innovation, don’t ignore them. They can be massively beneficial, particularly in the short run.

Sam Bankman-Fried (SBF) is the youngest billionaire in the world. He got there by exploiting something so obvious, it’s difficult to even call it hidden. He looked at the crypto exchanges in various countries and discovered that the same crypto was selling for different prices in different exchanges. So he’d buy in the United States and sell in Japan, or buy in Russia and sell in Germany, and so on. Soon he automated this process with rules and protocols, so his wealth just kept growing like the predictable swing of a pendulum. Today SBF is a multibillionaire, the CEO of FTX, and one of the most innovative leaders in the Web3 space.

An obvious secret can be as small as my TikTok discovery. There are little automations hidden in Excel files, slight adjustments to your customer experience, or fine-tuning in your marketing process that can unlock benefit for relatively little effort. Dan Martell, founder and CEO of SaaS Academy, says that he’s seen just one word in a marketing campaign dramatically change the ROI.

Here’s what I love about obvious secrets: They’re everywhere, and they’re available to everyone.

An obvious secret can kick-start your innovation brain. They’re like juicy, quick wins, powerful enough to entice you further down the rabbit hole of innovation, but temporary enough to leave you wanting more.

Over time, these little tweaks create massive value either by showcasing a broader pattern, or by simply seducing you even further down the rabbit hole.

Here are a few places to start your journey down the rabbit hole of innovation:

ASK BOLDER QUESTIONS

If you want answers, ask Alexa. If you want to find secrets, start by asking bolder questions. Start with the surface-level questions, the ones that feel almost too obvious to even ask. While these may vary by industry, here’s some good ones:

•   “Do we really need to use this so-called best practice?”

•   “Why do we use this process, strategy, or method?

•   “Can I streamline or automate some part of this process?”

CONSIDER THE DETAILS

Lowes Foods is an American grocery store chain. At one of their newest stores in Huntersville, North Carolina, Disneyland-esque decorations greet you at every station, while the employees wear highly themed uniforms depending on their department. On weekends, the store has live music. In the center, there’s a bar, with craft brews that rotate. Parents can pop a beer, listen to great music, and grocery-shop, all with a kid in the shopping cart. In the cake department, whimsical colors, decorations, and enticing items abound. In the corner, there’s a book of possible cake creations, with a single step just beneath it, so children can step up and turn the pages themselves.

Each of these details creates a profound customer experience, and each invites customers to stay longer, shop more, and return frequently. The details of the experience bring it to life.

In your own role, in your own life, think of the small, hidden ways you can create additional value for your customers, your audience, or your company. For example:

•   Is there a small amount of automation you can add that will take your work from good to great?

•   Perhaps you’re a sales rep; can you make a piece of content that handles clients’ top-10 objections even before they ask them?

•   Does your boss have a consistent weak spot that you can recognize that you can fill politely, to complement their work?

In these little ways, you can start to drive real value, build your own innovation muscle, and start to learn how to mine deeper secrets.

LAYER 2: HARD-TO-FIND SECRETS

The next layer of secrets is more difficult to discover. While you’ll find obvious secrets snooping around the edges of your own role, if you want to find the next-level secrets, you’ll have to go outside your entire company to dig deeper into the customer psyche. You’ll need to ask:

•   “How are others observing what’s going on?”

•   “How do they see the value I’m providing?”

•   “How easy/difficult is their experience?”

•   “What are ways I can improve that experience?”

•   “What is the end user really looking for?”

A case in point: In the late 1960s, coffee wasn’t just a commodity; it was an afterthought. The proverbial intern or assistant was responsible for keeping the pot boiling at the office, and you could pop into a 7-Eleven for a pick-me-up for under a buck.

Howard Schultz was watching Americans drink lots of coffee, but none of it was very high in quality. He visited Italy to learn from world-renowned coffee roasters. He then considered how to increase the shelf life of coffee beans across the United States. Many of these were small, perhaps even obvious, adjustments. But then a game changer occurred in how he looked at the end-user experience. By watching customers and their consumption habits during his first trip to Milan, he was “captivated by the sense of community” at the espresso bars between the staff and its customers.

Plus, while customers in America were paying pennies for coffee, no food item there was as customized as one’s coffee: Emily likes it with no sugar and a bit of cream, Brandon wants his with three sugars and lots of cream, and Nick takes his with two Splendas, no cream. People who order filet mignon at high-end restaurants aren’t even that choosy.

So, Schultz repositioned Starbucks’s latte, and the coffee experience in general, as a luxury purchase. A special drink, and indeed an experience, worth the spend. Utilizing these secrets, Schultz built an empire of 31,000 stores across 80 different countries.

In your own industry, if you want to upgrade from just making minor tweaks in your own role to capitalizing on how others behave, you’ll need to dig a little deeper and discover something more profound.

Here are a few ways to unlock those hard-to-find secrets:

FOLLOW PEOPLE AROUND

Henry Ford famously said, “If I had asked people what they wanted, they would have said faster horses.” Users have no clue what they want. If you ask them, they’ll offer a theory. At best, that theory will be obvious; and at worst, they’ll tell you to train faster horses.

Instead, stalk customers. In a noncreepy way, of course. I mean to truly observe human behavior. Only then will you discover how people think and how they operate.

•   What are they doing on the subway to work?

•   Could you make their commute more efficient?

•   Is there a way to eliminate friction in their internet searches?

•   What is it about their favorite meeting spot that makes it so desirable?

•   How do people stand in line at their favorite lunch spot?

•   At what time are there lulls on the highway?

I want you to follow people around in the wild. Literally. Systematically document in depth the details of your customers or audience. From speech to habits to facial expressions, the deepest secrets are in the most mundane actions.

As a final tip: Record everything. Every year, we’re blessed with seemingly better video quality. In the most ethical way possible, record your subjects, events, or settings, and let the video run.

PAY ATTENTION TO WEIRD HABITS

In the last chapter, we talked about not dismissing the odd, strange, or even “creepy” ideas, as they may just be weird enough to work. But now turn your attention to human behavior. Are customers or colleagues in your field consistently behaving in an odd way?

•   Does virtually every customer make the same mistake when interacting with your software?

•   Have you noticed that people always walk in a certain fashion when they come into work?

•   In the broader marketplace, can you see a psychological trend stemming from how people search for a topic?

At first, just pay attention. Sometimes the answers don’t have an immediate payoff, but it’s good practice to build your secret-hunting skills. And people’s odd habits often stem from a deeper psychological need.

REPOSITION A PRODUCT OR SERVICE

You can find a ton of value by taking a necessity and making it exciting and desirable. The repositioning of coffee, from a commodity to a luxury product, was key for Starbucks. After observing customer behaviors, Schultz was able to understand that the product everyone saw as cheap was actually an in-demand item that they habitually craved and to a high level of specificity. So, he flipped the script, turning commodity coffee into luxury lattes.

Look outside your daily routine to consider how your value is perceived by the marketplace. With new lenses on, can you reposition your product or service, and capitalize on that value?

Say you’re an accountant—what some see as a commodity, but truthfully, you’re a necessity. As you crunch numbers all day, you may be able to find small ways to speed up your process, automate your findings, or unlock processes that compound over time. Obvious secrets.

But then, what if you took a step backward and considered how valuable the insights you’re driving really are? Could you reposition your role from the service they must pay for to the partnership that increases revenue? With unique access to raw data, you can exactly where resources are being underutilized, or where money could be invested differently to increase revenue streams. You know about hidden inefficiencies, redundancies, and untapped resources. If you can change the perception of your value, you could reposition yourself from bookkeeper to advisor—and likely triple or quadruple your fee.

As a tip: Intellectual laziness or marketing hype simply won’t cut it here. Only reposition yourself for the value that already exists.

Obvious secrets provide the jump-starts to innovation, and usually, you find them by considering your daily work. However, take it up a notch, and start observing your customers’ behaviors and needs. That’s usually where you’ll find the more valuable secrets. If you can make changes (or reposition yourself) to better execute on a needed or wanted service or product, you can find increased value.

LAYER 3: DEEPEST, DARKEST SECRETS

You only find deep, dark secrets when you walk so far into the jungle, you’ve wandered outside your own industry. Now, you’re considering how trends are building across industries and patterns are emerging. When you seek out the commonalities underlying seemingly unrelated developments, you may just stumble upon something so universal, so central to the terrestrial experience, that you create a new world.

It takes a true scholar, journalist, or scientist to understand these broad trends. But you don’t need letters after your name to be a scientist, at least not when it comes to innovation. You just need to observe closely:

•   What’s the connecting point between new government policies and developments in music?

•   Is there an underlying ingredient between pop culture and economics?

•   How does the emergence of social media relate to an increase in solopreneurs?

Most credit Cai Lun as a key ingredient in the world’s development of modern paper. Instead of silk, he suggested to the Chinese emperor that tree bark and other ingredients could be combined to create an inexpensive, replicable, and writable surface. Where did he get his idea? Supposedly from observing wasps and how they make their homes.

Here you have a Chinese eunuch serving the palace by producing instruments and weapons, and he stumbles upon one of the greatest innovations in history, one that didn’t just change an industry, but humanity. A deep, dark secret of mass communication, discovered by watching insects.

Tough questions take a real journalist willing to follow the story, even if it isn’t quite clear where it’s going. Dr. Isaac Asimov, a biochemist and award-winning science fiction writer, once said this:

The most exciting phrase to hear in science, the one that heralds new discoveries, is not “Eureka!” but “That’s funny . . . .”

Often you’re not quite sure what you’re looking for. You’re opening the hatches to various compartments and just exploring disparate fringes. You’re asking open-ended questions, not quite sure where they’ll lead, if anywhere at all.

If you know what you’re looking for, then you’ll find it. But be willing to dig so deep that instead of understanding what you see, your first reaction is, “That’s funny . . . .”

Creating a “That’s funny” experience is difficult, but I have two tactics that can help:

•   EXPLORE WITHOUT EXPECTATION. You know what I love about kids? They do things “just because.” Adults have traded playtime for work time, and it keeps us from discovery. Sometimes we just need to play, to click, to research, read, visit, and explore, all without an agenda. Set aside an hour or two every week to research a new topic, simply because you’re interested in it. Make exploration the goal, not the means to an end.

•   CONNECT THE DOTS. Here’s an experiment for you: Look at changes happening in two disparate industries—say, social media and banking—and try to see if you can find one singular rule about human behavior that is causing both changes. If you can relate the disruptive happenings from two different worlds and boil them down to a singular component, perhaps you can then apply that component to another industry to predict the next disruption.

THE DIRTY TRUTH

There is one more thing I didn’t mention about Clearco.

Interestingly, because of Romanow’s innovative intervention into banking, she solved one of the industry’s leading problems: She eliminated gender bias.

At Clearco a human is essentially uninvolved with the decision to fund or not fund a business. Instead, just as Romanow requested from that first deal, Clearco wants a peek at your social media, and now, it’s all automated. If your social media campaigns have ROI, Clearco gives you funding.

Since no humans are involved, a positive side effect of this automation is that women-owned companies receive more investment money than the industry standard, because their process eliminates human bias and potential sexism from the process. By 2022, Clearco bragged that it funded at least 10 times more women than the average VC fund did.

People had discussed the issue of sexism in funding for decades.

They talked about it, Romanow solved it.

She did it by getting her fingers dirty.

When Romanow discovered the secret to unlocking Clearco’s billion-dollar investment strategy, she was in the trenches, day after day, listening to pitch after pitch in the Dragons’ Den, a name that showcases exactly how deep and dark you really must go to unearth the diamonds in the mine. In the den, you may find a lot of useless coal, maybe even some danger. But eventually you’ll discover a gem.

So get dirty.

SECRETS OF THE BOLD ONES