When Karl Popper meets Elon Musk
What do Karl Popper, Elon Musk, and Nick Lane have in common? They all trace the origins of creativity. Interestingly, they converge on the same answer. Novelty evolves through trial and error.
“True ignorance is not the absence of knowledge, but the refusal to acquire it.” Karl Popper
How do new things happen? Where did quantum physics come from? How did multicellular life forms evolve from single-celled organisms? How did Amazon, Apple, or Tesla become dominant players in novel industries? When looking at the previously disparate areas of biology, science, and business through the lens of creativity, interesting parallels emerge. All these fields are provisional, and the driving force behind novelty is the same iterative process of trial and error. At its core, technologically enabled disruption is a persistent application of try and error, as exemplified by Elon Musk’s approach to building Mars rockets, digitizing the automotive industry, and accelerating the advent of sustainable energy. Creativity is the process of iteratively finding better solutions to problems. The crucial question is: What is a solution? What is the yardstick by which to determine when a solution is found and when a new problem is solved? In order to answer this question, we lean on Nick Lane’s argument that biological evolution is determined by how organisms find solutions to the problem of energy harvesting. We generalize the energy concept and apply it to science and business. The analogy of energy harvesting in business is to find new markets where sales can be generated. A new market for an entrepreneur is what a novel biotope is to an organism. Market feedback is crucial. An entrepreneur needs market feedback as much as an organism needs energy to evolve. Crucially, markets aren’t static. They are provisional and evolve in a recursive feedback loop from a small niche to a large industry. When Amazon started online retail, it was a niche segment. Today, online retail is "retail." The same applies to electric cars. When Tesla started, electric cars were a niche. Today, electric cars are the gold standard of mobility. When Apple launched the iPhone, the smartphone was a niche product. Today, the smartphone is the "phone." New ideas emerge as niches in science as well. And like in biology, they require oxygen to evolve. A novel theory requires validation through experimental feedback. Validation is oxygen. Later, when the theory iteratively evolves and grows, the new field becomes the standard. Quantum physics first started as a niche field. Today, quantum physics is physics. Creativity is the underlying driver of these processes. Creativity is the thing that produces novelty through iteration and trial and error.
Nick Lane’s "The Vital Question" offers one vital answer
Nick Lane introduces the concept of energy as a determining factor in the evolution of life. He emphasizes the importance of mitochondria in cellular organisms. Lane argues that mitochondria are the result of two single cell organisms merging into one cell and continuing life in symbiotic fashion. This combination allowed for specialization, with the mitochondria specializing in harvesting energy from food. The merger of two procaryotes into a single cell with specialization in energy harvesting is the single most important development in the evolution of life. Mitochondria have their own DNA and are thought to have originated as a result of endosymbiosis, where a free-living prokaryote was engulfed by a host cell, with both cells eventually evolving into a symbiotic relationship. They have their own genetic material, which is inherited maternally, and their own protein-synthesis machinery. Because mitochondria are the organism's energy harvesting machine, its composition determines its ability to use energy. Lane further introduces the concept of the metabolic rate of an organism, which is a measure of the amount of energy an organism uses. Some organisms use more energy, some consume less. Each organism adapts to a specific niche. Birds have high metabolic rates, which allow them to fly. Rats have low metabolic rates, which allows them to live in low energy environments. Both species have advantages. Lane argues that high metabolic rates require a better match of female and male DNA to create optimal mitochondria. Lower metabolic rates allow for a larger margin of error. As a consequence, species with high metabolic rates vary less. In other words, birds cannot afford too much variation, whereas rats can. This is a testable hypothesis, and so far, it has held up against scientific scrutiny. Life is an optimization between high metabolic rates and high variability. You want both, so you have to optimize. Evolution is all about evolving new niches and optimizing for survival. High metabolic rates allow for high energy intake and therefore more advanced behavior. For example, birds can fly, gazelles can run fast, and humans use their brains for massive computation. Low metabolic rates have advantages, too. One of them is high variability in DNA and therefore better adaptability to environmental changes. Rats have a high rate of variability in their DNA, which gives them an uncanny ability to adapt to new environments and hence makes it hard to get rid of them. Dinosaurs are the opposite. They must have had high metabolic rates, which allowed them to dominate the planet. But when the environment changed, they couldn’t adapt. The tradeoff between high and low metabolic rates doesn’t just happen at the species level but also within a species. For example, Lane argues that within the human body there are parts that have higher metabolic rates, such as the brain or heart. Those are the ones requiring more energy. Others, such as stomach tissue, knee tissue, etc., don’t require high metabolic rates. Crucially, says Lane, the human body is optimizing for the stuff with the highest metabolic rates because those tissues will be most vulnerable. In other words, our life span is defined by the cells with the highest metabolic rates because those cells are the least to afford mitochondrial malfunction. The latter happens with age. This concept is extraordinarily powerful.
The human body is an optimization function where tissue with a high metabolic rate coexists with other tissue. High metabolic rates require more energy and are more vulnerable to mitochondrial DNA malfunction. Hence, they reduce variability and thus reduce adaptive capacity. You can think of an organism as optimizing for metabolic rates, the potential for variability and fertility. This is an optimization because metabolic rates are orthogonal to the potential for variability. The higher the metabolic rates, the less tolerance for error there is, and thus the lower the variability. Following the same argument, fertility rate is orthogonal to high metabolic rates since high metabolic rates have a low tolerance for error in mitochondrial DNA matching. In other words, organisms with a high metabolic rates cannot be too picky about their mates. They are limited to a small set of potential DNA matches. High metabolic rates reduce the potential for variability and/or fertility.
“It looks like if you bombard earth with photons for a while, it can emit a Tesla Roadster”. Andrej Karpathy
Trial and error drives novelty in everything from life to business
Metabolic rates and variability are powerful vectors in the evolution of life. What about the evolution of business? Businesses are lifeforms created by humans that evolve with similar underlying dynamics. At Orange Capital Partners, we introduced the concept of the Natural Sharpe Ratio, which is a formal representation of the fundamental drivers of wealth creation. It’s a corollary to the Sharpe Ratio, a widely used formula for portfolio optimization in investing. The crucial innovation of the Natural Sharpe Ratio is that we don’t look at market prices but at the actual dynamics of the business. When investing in technologically enabled disruption we look for businesses that have a high rate of iteration (lots of shots on goal), low rate of error making (low natural volatility) and reduce the cost of error correction. Like any other formalism, the Natural Sharpe Ratio is not a recipe for money making but a useful framework of how to think about the process of wealth creation. According to Clayton Christensen’s "The Innovator’s Dilemma," disruptors are entrepreneurs that come to market with something novel. No matter where the novelty comes from, it will not be perfect from the get go. It requires iteration. Christensen talks about market entrants who initially start at the low end of a market and then work their way up the value chain. This idea of "working their way up" is just another way to say they iterate. A similar idea is presented in Jim McKelvey’s excellent business book, "Innovation Stack." Here, McKelvey specifically emphasizes the importance of growing a business by iteratively solving problems, creating new, better problems, and continuously repeating that process. Both Christensen and McKelvey can be seen as applying Karl Popper's theory to business. In his seminal book "Conjectures and Refutations: The Growth of Scientific Knowledge," Popper argues that scientific knowledge is provisional and can be improved through a process of conjecture and refutation, where theories are constantly tested and modified in light of new evidence. Popper didn’t just limit himself to science. He argued that all our limits, standards, moral knowledge, and ethics evolve through trial and error. He didn’t specifically talk about business. That’s why Christensen and McKelvey are so crucial. They apply Popper’s ideas to business.
When Popper meets Musk
In this essay, we combine the ideas of Popper, Christensen, and McKelvey with the fundamental thesis of Nick Lane about the evolution of life. No matter whether you talk about eucaryotes, birds, humans, scientists, or businesses, it’s all life. And according to Nick Lane, the evolution of life is determined by the optimization of metabolic rates and variability. In other words, it’s about how fast you can go and how quickly you correct errors on that path. You want a high level of energy, but you also need to be able to adapt to changes in the environment. Entrepreneurs face the same problem on their path to growth. While increasingly absorbing resources (growing sales), they must remain nimble and adapt to changes in the marketplace. The larger they get, the less adaptive they become. Size is orthogonal to adaptability. Even the best and most nimble operators risk becoming dinosaurs. The goal of a successful disruptor is to find a way to grow, absorb resources, and simultaneously keep iterating to preserve adaptability. Some of the most successful wealth creators did exactly that. People like Thomas Edison, Walt Disney, Steve Jobs, Jeff Bezos, and Elon Musk found a way to grow on a large scale while still maintaining the necessary humility to iterate, make errors, correct them, and repeat.
Humility
Disruption in business is when entrepreneurs come up with something that hasn’t been done before. This is precisely why incumbents don’t care. Because they don’t even know that they should care. Christensen talks extensively about this point in his book. For example, he describes the dynamics in the US steel market after disruptors introduced scrap steel furnaces. Incumbents such as US Steel didn’t care because there has never been competition like this before. They looked at the product and concluded that it was way below the quality standard of their high-quality steel products. But scrap steel makers were new. They knew something US Steel didn’t know. They knew that their goal was to eventually reach the quality of US Steel at much lower prices. That’s disruption. But how did they get there? By iterating relentlessly. Trial and error. This is the process of creativity. This is where Karl Popper enters Clayton Christensen’s world of disruption. Both men think hard about how novelties come about. And neither Popper nor Christensen have an explicit answer to how this happens. Interestingly, both settle on the same iterative process of trial and error. That’s what we call creativity. Creativity is when humility, persistence, and intelligence combine to produce something novel. Crucially, these novelties start in small niches and are typically neglected by incumbents. When Elon Musk launched the Tesla Roadster, BMW couldn’t care less. Why should their sales managers and engineers care about a luxury electric sports car? "It’s a toy," they probably said. Yes. It was a toy. But Musk knew something they didn’t know. Musk knew that he would relentlessly iterate around batteries, software and manufacturing until he comes up with a mass market vehicle (the Model Y) that is better, lower cost and much more fun to drive. Even Musk didn’t know exactly how to get there but he knew he’d try. Iteration. Error correction. Repeat. That’s creativity. Add to that humility. Accepting errors requires humility. Humility is key to disruption, and disruption is what drives wealth creation. Hence, humility is essential for wealth creation. Humility is the evolutionary tool that allows a species to evolve.
Niches evolve, the are not found
In Nick Lane’s world, the focus is on life and the evolution of species. His use of words is geared toward biology. Instead of "wealth," Lane uses the word "energy," and instead of "iteration," he says "variability." In essence, those words mean the same thing. Conceptually, there is no difference between a species evolving its own niche and growing from there to dominate other niches and a business finding its own market and then growing to dominate much larger industries. Lane talks about archaeological intermediaries, which are species that bridge the gap between one life form and another. For example, an intermediary must have existed to bridge the gap between living in water and living on land. How did this happen? Which water based animal got the idea to crawl on land, and why? This is arguably the most important disruption in the history of the Earth. Neil Shubin, a professor at the University of Chicago, has written a book about this. Shubin conjectures that there must have been a species similar to fish that had the capacity to absorb oxygen from the air and form limbs. What’s most exciting about Shubin’s work is that he first formulated his theory and predicted that such a species must have existed. And then, after years of research, he actually found the fossil remains of exactly such a thing. He called it the Tiktaalik. Shubin believes that the Tiktaalik probably lived in shallow, oxygen-poor parts of the ocean where competition for food wasn’t as harsh and predators were few. When the Tiktaalik decided to go on land, it must have been an awkward crawl. slow and cumbersome. But eventually it succeeded and laid the foundation for life on land.
The Tiktaalik IPO
In my podcast episode about Neil Shubin’s book from June 8th, 2020, I indulge in a role play between two stock market analysts 380 million years ago assessing the IPO of the Tiktaalik. Imagine a roadshow where the Tiktaalik pitches its vision of leaving water and conquering land. In business lingo, this means there is a disruptor who is creating a new market, i.e., land. The analysts argue about the value of the IPO. Mario, who likes the IPO, tells August, "Don't you think that the potential for the Tiktaalik is enormous? Imagine what can be done on land," he says. August is not impressed. "Look, there is nothing on land, just a few plants and insects. How can you grow with food like that? All the action is in the water, where sharks, whales, and all the other species fight for energy and protein. What are you going to do on land? If land was so good, sharks, the kings of water, would have figured out a way to go on land and conquer it. But why? There are only plants there and a few tiny insects." Mario counters, "Yes, but think about the potential. The Tiktaalik is a pioneer species. Later, other animals will follow. Then you can learn how to domesticate plants and animals and develop something completely new. Land gives you much more optionality. You can build farm houses, cultivate land, and, most importantly, you can figure out how to better use oxygen for energy harvesting. Imagine respiratory technology that absorbs oxygen from the air instead of water. What an innovation that would be! It would revolutionize life as we know it." Mario pauses and lets that sink in: "Oxygen from air is so much more efficient than the gill-based technology in water. And that’s just the beginning. On land, you can learn how to harness many other resources, such as metals and oil, and do amazing things. Just think about the potential." Both analysts are right. Mario is right about all the potential, and August is right about the futility of leaving water for land at this point in time. But Mario knows something August doesn’t. Mario knows that through relentless iteration, the Tiktaalik and its offspring will evolve a much richer ecosystem on land and eventually conquer the planet. Mario doesn’t know exactly how. But he is sure that the process of selection, iteration, variability, and error correction will lead to many new niches being developed on land. Eventually, something like a mammal with a brain, the human, will come along and develop the ability to accelerate natural selection by thinking creatively.
Creativity is accelerated evolution
Creativity is just another word for "accelerated evolution." When we create things, we do exactly what nature does, but we do it faster. One tool we have at our disposal is computation, which is just a fancy word for iteration. Take the example of batteries or solar cells. Solving these types of material science problems requires scientists and engineers to try to assemble atoms in an optimal way to either store or generate electricity. This problem of "how to assemble atoms" can be solved with computation. In our essay, "Fusion is Illusion, Abundant Energy is Not," we argue that research into new forms of energy sources can be accelerated by applying Moore’s Law to physics. Here is an illustration. Imagine a world where photovoltaic cells reach 99.999% efficiency, which is to say they capture all the energy from sunlight. Now, consider a cable that conducts electrons with almost no loss and a low-cost, extremely efficient battery storage device. All these things can be achieved. There are no laws of physics that prohibit such technologies. It’s just a matter of figuring out how. Let’s assume three paths towards that kind of future. Path one is when evolution and natural selection alone do the job. In other words, we humans don’t put any of our own creativity into it. We just live our lives and wait until mutation, selection, etc. bring about a technology like that. Path number two is when we humans start tinkering. We just combine atoms, day in and day out. Take a lithium atom, combine it with nickel, add some copper, and see what happens. We keep tinkering and tinkering until somehow the desired specifications of our solar panels, cables, and batteries emerge. Even though path two is much faster than path one, both approaches will take a long time. Now, let’s consider path three. Here we develop a quantum computer that is capable of simulating how elementary particles interact. A quantum computer would allow us to work backwards from the solution to the actual problem. In other words, we’d specify the desired property of a solar panel, and the computer would calculate the exact combination of atoms needed for this type of solution. The computer would calculate the chemical composition of the material necessary to achieve such high efficiency in our solar panels. Hopefully, this illustrates how much faster computation is at finding solutions. Computation accelerates creativity because it accelerates iteration. Instead of iterating in the physical world, which is costly and takes time, we can simulate stuff in digital space and then implement the solution in physical space. There are attempts to take path three today. One is quantum computing, the other is artificial intelligence, in particular reinforcement learning, which is applied to solve physics problems in material science. The key to creativity is iteration, and computation accelerates iteration.
Why does Andrej Karpathy like Nick Lane’s books?
I often wonder why Andrej Karpathy is so interested in Nick Lane’s books. Maybe Andrej just likes evolution. But I believe it’s because he got excited about his own work at Tesla by looking elsewhere. Elon Musk and his companies are the closest we get in business to accelerated evolution. Musk has this uncanny ability to iterate. In Boca Chica, Texas, where Space X is located, they literally blow up rockets just to figure out how to better design them. At Tesla, they often does abrupt things like get rid of physical stores, then reintroduce them; get rid of radar, then get it back, get rid of steering wheels..., and repeat. The business press interprets this as some sort of immature child king playing video games. I am sure Karl Popper would disagree. He would see in Musk the incarnation of his own ideas about trial and error as a fundamental driver of knowledge creation. I believe Nick Lane sees the same thing in Musk—an incarnation of natural evolution in business. That’s why Karpathy is so fond of Nick Lane.
It’s the energy, stupid!
Lane’s innovation in natural selection is focused on energy harvesting. That’s where the rubber meets the road. Darwin spoke about mutation and selection, but it’s not clear to me what the criteria are. Lane solves that problem. It’s the energy, stupid! Energy in Lane’s world of biology is what business people call resources or capital. In business, you want to iterate around the problem of how to scale while continuously accumulating resources. In other words, find ways to grow while selling to real customers. That helps you accumulate capital and also gives you feedback about being on the right track. In one of his interviews, Karpathy talks about the importance of FSD (Full Self Driving) being a customer-focused product that generates revenue. It’s not just about cash flow. "What matters for the team," says Karpathy, "is getting feedback from real customers." All of Musk’s businesses work like that. Space X created a satellite launch business and Starlink to finance further expansion on the way to Mars. Tesla started with the Roadster but eventually wants to dominate new car deliveries across all relevant categories. This is reminiscent of Nick Lane’s approach to the evolution of species. It’s the way they harvest energy. Consider our friend the Tiktaalik, the archeological intermediary between water and land. The Tiktaalik knows how to harvest oxygen from water and from air, which allows it to venture out on land. It also has some sort of limb that can be used to swim and crawl. It’s a start. Lane would predict that the Tiktaalik, in order to succeed and conquer land, has to iterate around the problem of better harvesting energy from air while optimizing for the metabolic rate required to crawl and walk. For that to happen, it must figure out ways to eat plants and metabolize them to better harvest energy. Later on, the Tiktaalik might figure out ways to digest insects, then larger plants, then larger insects, etc. It’s an iterative process around resource accumulation, variability, and the harvesting of energy. The same applies to business, and Musk is a master at this. Customer value is the oxygen of business. Always iterate around customer value.
Tell me what I don’t know!
This brings me to the meat of this essay. Creativity is when we figure out something previously unknown. How do we get something from nothing? Peter Thiel asks a similar question in "Zero to One." It’s fascinating how all these people—Popper, Christensen, McKelvey, Musk, Thiel, and Nick Lane—end up with similar conclusions, even though they start from different vantage points. Lane studies biology and the evolution of life. Popper's work is about how science works. Christensen wrote a book about disruption, which is the answer to the question: "Why do incumbents let startups create new markets that end up displacing them as industry leaders?" Musk and many entrepreneurs before him asked a similar question: "How can I create a successful business that impacts large markets?" They might begin at different starting points, but they all end up in the same place. Like small creeks flowing into one large river, a river we call evolution.
Conclusion
Evolution happens everywhere, not just in biology. We draw parallels between the works of Karl Popper, Nick Lane, and Clayton Christensen by tracing the origins of creativity. Popper argued that science is provisional and improves through a process of conjecture and refutation, where theories are constantly tested and modified in light of new evidence. The same iterative process applies to any other field where new things happen, from biology to business and beyond. Nick Lane even questions the distinction between living and nonliving organisms. Fundamentally, there is no difference between the driving forces of a crystal forming and those of an organism evolving into a new ecological niche. All these processes are driven by the iterative dynamic of finding better ways to harness energy and evolve with the corresponding environment. We apply Lane’s argument to the world of business, and building on Clayton Christensen’s work about disruption, we find interesting parallels. Business disruptors, much like novel organisms, evolve new niches by iteratively adapting to the environment. Crucially, the environment evolves with the disruptors. It’s a reciprocal process. One takeaway for business disruptors and investors is that startups increase the likelihood of a positive outcome by focusing on early customers and simultaneously setting up processes to iteratively expand the market. Elon Musk exemplifies this approach.