 So I'm here to talk about innovation and how innovation happens. I'm not in medicine, but I do help Jeff with a project at the Muses Institute we call Economics for Business, which is the application of Austrian economics insights and principles into business. What we think is going to have a huge application and we think we can hugely expand the audience that understands Austrian economics and its importance by talking to a business audience. And Austrian economics is very much the economics of innovation because we understand change, we understand uncertainty, we understand that there's a constant search for betterment, and so we're very focused on innovation in Austrian economics. Joe Maderasi said something to me interestingly at lunchtime and he said, the enlightenment is over. That's probably a good thing, but I asked him, well, why is that? And he said, well, the scientific method is no longer applicable. The government denies all the science or its fiat science, it tells us what science we should believe, and we can no longer believe the data that we get to base any science on because it's all corrupted or it's got some special interest behind it. So if you can't use the data, you can't use the scientific method. Well, there's a method of innovation which is much better than the scientific method. It's the entrepreneurial method. And I say that in a non-trivial sense. The entrepreneurial method will help us make more progress in the coming years and decades than the scientific method has done since the Enlightenment. And we're seeing a lot of it today. There's been a lot of wonderful talk about innovation already today. So you can see it happening and it's accelerating. So let's tell a little story. It's a while ago now, but I was involved in the development of an innovation called Minute Clinic. I was a partner in the venture capital fund that was investing in the medical arena. A lot of medical devices. But medical devices are really hard to get to market, especially if they have to be implanted or there's any skin penetration of any kind because of the FDA and because of bureaucracy and so on like that. So when you're a venture capitalist, you try and get some diversity in your investment portfolio, a number of things that since you have no idea which one of them is going to work or when you can get it to market, you have lots of options. And it turned out that actually our best investment was a sleep apnea device that we could sell directly to consumers. So a medical device, yes, but direct to consumers. But also in our portfolio was this clinic called Minute Clinic. It didn't start that way. It started out with a name called QuickMedX, but the entrepreneur couldn't get nationwide approval for that name, so he called it Minute Clinic. And Minute Clinic was an idea of an entrepreneur, not necessarily a doctor, although he knew what he was doing, that took the role of nurse practitioners and physicians assistants, analyzed what you could deliver through those kinds of roles, thought about where you could deliver those kinds of services, thought about which kinds of consumers and customers would be interested in the combination of that kind of delivery. And the early clinics were located in, it was in Minneapolis where the program started, so in cub foods, in Best Buy, and in a couple of other retailers around there. And so they treated common health problems like ear infections and strep throat and so on like that. They could refer patients to physicians if necessary. They offered walk-in appointments and a flat rate, much as we heard with the last presentation. The entrepreneurs started to add locations like Target and more Best Buy stores and so on like that. But then the massive piece of acceleration was, as you do scale up in innovation very often, is through corporate acquisition. So Minute Clinic wasn't growing very fast because of the cost of expansion. It wasn't actually profitable. It did have growing revenues. But CVS was keeping an eye on it. In fact, by this time about 60 of the stores were in CVS locations. And CVS boarded for an infinite multiple of EBITDA, because it wasn't profitable, and a very high multiple of sales. So why did they do that? Well, they had a bigger vision. They were thinking about making CVS stores into what they thought of as health and wellness centers. And so they were seeing a bigger picture. They were seeing a system that they could grow this thing into. So interestingly, that systemic view of CVS was a very positive one based on an Austrian principle that we like a lot, which is consumer sovereignty. You think about the consumer first. The consumer is the attractor of innovation. The consumer is the one where you're going to source the ideas for what innovation is needed. And they said a couple of things. The first line is just corporate hyperspeak. We're going to transform the industry. Everybody says that. There's not such thing as an industry. That's another issue we can deal with another time. And nobody ever transforms anything. People hate transformation. They like improvement. But if you look at the last line, he said, I think there's an opportunity to organize around the consumer. So these are retailers. They're thinking about consumers all the time. And that principle of consumer sovereignty is where a lot of innovation can come from. So let's go back to the previous slide and whether you can read that little sign there inside the minute clinic. And it says, I can't read it anyway, it says, the care you need. So that's a nice expression of empathy and understanding what the consumer is looking for on your schedule, which is an innovation in terms of timing and delivery. So consumer sovereignty is the first step in innovation. The next thing I'd call your attention to is this was what the textbook would call a combinatorial innovation. It combines things. Didn't invent anything new. Just combines them in different ways. But in fact, that's the essence of innovation. And there's an interesting way of looking at technology. It's Darwinian. It had to start somewhere. It started with the wheel and fire or something like that. And then you combine different things and then you extended them and added to them and so on like that. It's combinatorial. You don't have to invent anything new. So in this case, physician's assistants and nurse practitioners, they existed. They could perform various services. Maybe it was differently regulated in different parts of the country, but they're still able to deliver service. There was retail. The retail stores physically existed. There was space. There was also activity, which is shopping. Moms shop. Maybe their kid has an ear infection. They got to figure out how they can get the ear infection attended to while keeping their job and not wasting a lot of time or a lot of money. And maybe this was a good solution for them. So shopping and then just the whole partner strategy approach of combining. So we had Best Buy and we had Target. Eventually it became CVS. That was the ultimate partner. But partner strategy is a big part of innovation. Who do I connect with that has an interest that maybe is complementary to my interest that can develop a joint solution? So it's the second part. The next part about understanding the consumer is that they're not going to tell you what they want. But one of the things that we understand very deeply in Austrian economics, it's a big part of human action. It's a big part of a lot of the other textbooks is this concept of dissatisfaction. The consumer is actually a genius. You can never deliver everything that they want because they will always have an instinct of this could be better. That's a genius point of view. That's scientific in the sense of I'm optimistic, I'm hopeful, I know what I'm dissatisfied with. I think something can be better. They cannot tell you what the solution is. And so they articulated around whimsical things like things would be better if or I wish. So you've got to be able to diagnose, we actually call it empathic diagnosis, diagnose what it is that they think that they want to make things better. And we've talked a lot about subjective value in between today's. It's an experience. Value is an experience that the consumer has in their own mind. And you've got to be like a doctor empathically able to diagnose how to make that experience better. And you really don't know in advance. So you have to create the mental model as we say of how the consumer is thinking. How can I fix that condition? How can I make things better for the consumer? Dissatisfaction is a wonderful resource. We say in our economics for business teaching courses, it's the infinite resource. It never runs out. They're never satisfied. It's wonderful, but it's really hard to get specific. So the other thing that you need at the beginning of every innovation is a specific problem to solve. A very well specified problem to solve. That's hard to get to, but you've got to try that. You've got to try to get to that specific problem to solve. The way we do that is an interesting function. And it's available to everybody, but it's an entrepreneurial skill. And that's imagination. Imagination is not fluffy. It's not wishful thinking. In fact, if I read my quote here, if I can from human action, it's the specific method of economics is the method of imaginary constructions. That's in human action. I even noted the chapter of the section 14-2. It's a cognitive piece of work. It gets into the details of imagining if I could solve that consumer's problem, if I could build this new system, what are all the components of it? What are all the details? What is going to be like for that woman to go into a CVS store or a minute clinic with her crying child with an ear infection? How did she find out about it? How did she get there? How did she carve out the time? What kind of an experience would she like when she gets there? How does the physician's assistant have to be trained in order to deliver that experience in the best way possible? That's all in the imagination. I've got to imagine it. Then I've got to build the system backwards to have all of the components to deliver all of that experience in every detail. And when we talk about marketing these kinds of solutions, we talk about branding them, it has to be perfect. We talk about a brand being a promise, and the thing about a promise is you've got to keep it. Once you make it, you've got to keep it every time. There's no forgiveness. And so the imagination to design the system is very, very specific. It's a model. You build a model in your mind. So a model just like an economic model is not reality. It's got to leave out some of the details. You've got to keep the most important parts so that you're modeling what is critical, but then you've got to make the model work. You've got to have the structures and the flows and so on like that. It's business model innovation, if you like. And the way people who do business model innovation suppress it down to, you've got to have the what. What is the new service that I'm going to deliver? You've got to have the how. How am I going to deliver that? You've got to have the who. Who's going to deliver that? But you also have to have the why, which is the value logic. Why is this going to be better for the consumer than what Kiyoshi had before? So you can build that as a business model imagination or you can build it as what they call a value proposition. Who's it's for? What's the benefit? Why are they going to want that benefit? But it's imagination. That's the entrepreneurial skill. The next step is to go into design and the next step is going to testing and then we'll see if it works in the marketplace. But imagination is the entrepreneurial skill. And everybody in this room has expressed great imagination and they've also executed wonderful action. That's the next part of the entrepreneurial method is the action. The other thing you want to point out is that we have to fit in. Now we're all talking about the various dislikes and unhappiness we have with the medical system, but it's a system. It exists. And you can't innovate by not fitting into the system. You have to fit into it somehow. And the system emerged over time. It took a long time. There are many components. There are many vested interests. There are many established processes and so on. You can't just blow it up. But the system is also a nested and network set of subsystems. And so if you narrow things down to a subsystem that you can relate to, you can create what they call networks on neighborhoods. A little part of the system where you have introduced an innovation, whether that's the Surgical Center of Oklahoma or whether it's the DPC system that we just heard about. Those are what the system economics people call extreme variations. It's not the normal system. I introduced an extreme variation. But those innovators did it, right? It's connected to the system. The Minute Clinic was connected to the system. It didn't disrupt the system. It didn't put the hospitals out of business. It maybe moved some relatively low-cost activities to a different location. And it could refer patients back to the hospital system if necessary. But it was a little neighborhood of extreme variation. And then if you can prove that, then maybe it'll spread. Maybe we can go from 1,500 DPC clinics to 15,000 or 1.5 million, whatever the right number is, but it'll spread. And it can correct itself. The little neighborhood, it will find some of its initiatives that don't work. It will get better. It will improve. It spreads a very Darwinian kind of approach in the marketplace that the best able to adapt, the best to be successful for their particular audience, are going to get transmitted and spread through the system. So actually the system is our friend. Because if we can build this little neighborhood and if it can expand, systems absorb those improvements and they spread. And eventually there's a tipping point where it takes off and becomes more of the norm than it does become the extreme variation. And so the system is our friend, but we have to fit into it. The ultimate guarantee that we can do something effective is again the textbook word is social proof. People like it. People use it. People go to the minute clinic. They're social proof. As soon as you can say, hey, my friend went to that direct primary care doctor, got her costs reduced, had great treatment, loves her doctor, that word is going to spread. And in fact, while there's a lot of decrying of social media in this day and age, like Joe Matarazzi said, it can be our friend. Because it can spread this social proof, if we get it right, that we've got better ideas. We've got better innovations. People are enjoying it. It's available to lots of people. The word can get out in this very natural kind of a way. It's like a pandemic, right? It can spread. And the other thing we have to think about is, again, the $100 textbook word, fine grained measures of success, i.e., think of individuals that we can help. Think of small situations that we can improve. Think of small neighborhoods and really understand what it means. What's the measure of success? So when you think about these complex systems, as they call them, it's the measure of success, which is the transmission of the social proof that starts the whole network to absorb the variation. So if we can help one person, if that one person can talk to another person, or we can start one practice, or we can start one surgical center, anywhere we can start, don't try and change the world, try and change your neighborhood. I'll try and make that person's life better, and that be able to measure it by all means, but be, as they say, fine grained. So we don't understand these complex systems, but somehow some individual effort with some new strategy, working in some local neighborhood, can spread through the entire system eventually. We don't know how fast, but it certainly can. It's a very optimistic and positive kind of way of looking at things. Interestingly, it's not scientific because you can't do experiments with it. It's entrepreneurial. You try things and you see what happens. In fact, the strategy that has been developed from this whole complex systems way of looking at things, and Austrian economics, is the source of a lot of this complex system of understanding. It's called explore and expand. Actually, the textbook is called explore and exploit, but we don't like the word exploit, so we called it expand. And it's this whole point of you cannot know what is going to work. You cannot predict the future. And again, that's the whole point of Austrian economics. We understand uncertainty. We embrace uncertainty. We figure out how to work in an environment of uncertainty. So you change one thing, which changes another, which begins a cascade that's unpredictable. So the method first is explore, which means do lots of stuff. Try lots of things. You've got your creative idea. You may have a number of ways you could express it. You may have a number of locations that you could go to to do what you do. You may have a choice of partners to make up your venture, but do something. Explore. So the entrepreneurial method is action. It's doing something. That's the explore part. And that's hard. You've got to figure out the resources. You've got to make your commitment. You've got to take all of the risk that you do with that. If you think about Minute Clinic, a lot of different outcomes could have been the result of that. It might not have worked. It might have been regulated out of existence. It might have been a different set of retailers that became the partners. There are all kinds of things that could have happened, but somebody started it and the result was positive. But having said that, you can't look at history. History is not your guide. You can look for some entrepreneurial stories. You can look at various case studies like the business schools do, but that won't tell you what the future is. It may give you some ideas and you can keep working at those. So this idea of the entrepreneurial method, explore and expand, is very much trial. I don't like the word error. It's trial and learning. And that's the other piece that Austrian economics understand, is that the economy, the entrepreneurial method is a learning process. You learn something every time. You get better every time. And you don't worry about the ones that don't work. I think it was Edison who said, I know 10,000 ways not to make a light bulb, right? So that's good. He's a learner. So the entrepreneur looks at this, sees this, this roiling change and bubbles and currents and so on like that and seizes them and says, I can take action in this area and this neighborhood. I can do this in spite of the uncertainty. So there is an entrepreneurial method. It is based on sound economics and innovation comes from all of us trying lots of little things and eventually they become the new system. So I just wanted to mention, so Gail Bracky is going to speak next has written a little book for us about paying for primary health care. She didn't write it for us. She wrote it for herself, but we've adopted it. And we've put the brand name of economics for business alongside the free market medical association there to get those brand names out. We have permission from Dr. Smith to do that. And we're offering this free e-book, which is about a lot of the subjects that we've talked about today and Gail explained it more. We'll give it away free and let's aim for thousands of downloads. So this is your network and your neighborhood and it's not quite ready for publication yet, but if you go to Mises.org slash PPH, Paying for Primary Health Care, or if you can't remember that, send an email to my buddy Ricky at Mises.org and say, hey, I want to find out about that book thing. We'll register you and we'll give you a copy of the book. But we'll also ask you to think about who do you know that you could send a copy of this book to? Who do you know that you could tell about this? Who do you know that you could start a conversation with about this movement in free market medicine and in cash payment for health care? And anybody at the FMMA, Dr. Smith, if they have email lists, let's harness them as well. And let's do a little bit of innovation in our network and our neighborhood that will start to get the word out. It's one of those tiny little things that may get a lot of people noticing. It may lead to a lot of other things. It may get people asking. It may get new groups forming. It may encourage anybody else to start innovating. So the message is that the entrepreneurial method is the way forward. There is a method. We can follow our understanding through acting, learning and expanding. So thank you.