How Cognitive Dissonance Plus Technological Advances (Can) Lead To Innovation

This article originally appeared on Forbes on February 28, 2022.

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In my roles as a CIO, entrepreneur, investor and Professor (I teach a course at Berklee called “The Innovator’s DNA”), I think about innovation constantly. I know from personal experience (”What exactly is it that you do, George?”) and from anecdotal evidence that the concept of innovation as a discipline is often greeted with skepticism. Too often it’s presented as more of a mindset than a science. The reality is that it’s both. There is no denying the importance of a “growth mindset” bias with respect to innovation; Carol Dweck’s excellent book, Mindset: The New Psychology of Success is required reading not only from an entrepreneurial perspective, but also for personal development. But the psychology of innovation, absent a concrete thesis with which to execute, leads too often to suboptimal results. That is, a lot of well-intentioned people who have the requisite growth-mindset often fail when trying to identify innovative opportunities or strategies.

In order to address this and hopefully provide a useful and necessary corollary to the growth mindset, I’ve developed a lens that I use to focus my efforts on opportunities that can yield true accretive value/disruption.

The formula on the surface is simple: Cognitive dissonance combined with technological innovation leads to entrepreneurial breakthroughs. That is, when there is a “felt need” (i.e. dissatisfaction) in the marketplace with respect to a current offering, or lack thereof, upon the arrival of a new technological paradigm emerging, often new business opportunities evolve.

As an example: There was cognitive dissonance amongst a subset of Blockbuster customers (”I’m not truly happy with the Blockbuster experience, but have no real viable substitute”), that, upon the emergence of technological innovation— first in the form of being able to browse for movies on the websites, and then, more materially, in the form of an increased availability of high-speed internet at a decreased cost— led to the viability of a new business model that acted as a substitute: NetflixNFLX.

Another example: There was cognitive dissonance amongst a subset of taxi riders (”I’m not truly happy with the taxi experience, but I have no real viable substitute)”, that, upon the emergence of technological innovation— first in the form of an increased amount of trust and ease with respect to online payment; then via an increased number of smartphone owners; then in the form of cheap compute that allowed for a UX that for many resembled magic (seeing a little car drive around on your phone) —led to the viability of a new business model that acted as a substitute: UberUBER.

Perhaps this idea —cognitive dissonance plus technological innovation leading to business opportunities —is obvious. I find it a useful, but incomplete heuristic. Why incomplete? Because absent a third component, while this may be helpful in the short term, it is not terribly durable. That is: sure, Netflix, Uber and countless others that realized leveraging tech to create an alternative that remedies cognitive dissonance can create a wedge for market penetration. However, the cruel irony of business is that the moment you do this others follow suit; and those that do often benefit from the initial market mover’s time and money that they spent educating the later-adopter consumer base about these new technologies. Uber begets LyftLYFT and countless adjacent companies (i.e. those damn scooters); Netflix begets literally anyone with content standing up their own monthly streaming platform. Commoditization.

There is a variable that can, however, provide at least some degree of protection from this commodification for the innovator who solves for cognitive dissonance via technological innovation: purpose. I’ve written at length about “Purpose, not Product,” but it’s important to clarify that the “Purpose” must be bigger than yourself.

There is a great deal of cognitive dissonance in our collective lives right now. Who among us doesn’t experience it when purchasing something from Amazon and wondering if the benefit we derive from the convenience and affordability is justified when, by numerous accounts, the working conditions of many employees who facilitate this convenience are certainly not those which we would personally endure. Similarly, who among us doesn’t feel some degree of tension when taking an Uber and marveling at the convenience, while also contemplating if they would trade their “gig” —whatever it might be— for that.

In the music industry, there has long been cognitive dissonance. Historically, it’s been vis-a-vis the artists and the labels. As an example, I ask the students in my Introduction To The Music Business class the following questions:

1. How many of you believe that you require a major label record deal to be a success?
2. How many of you believe that if you were presented with a record label contract it would be objectively fair to you?

Of the hundred or so students I pose this question to every semester, almost no hands go up to indicate either the need of a label or the belief in the fairness of a contract.

I then ask them another question: “If [insert well-known major-label A&R person/record label president name here] walked into this class and offered you a deal, how many of you would sign it?

Nearly every hand goes up. Cognitive dissonance.

I won’t bore anyone with my belief that the technological innovation needed to provide a substitute for this is blockchain....I wrote a book about it; it’s coming true. There’s now a new degree of cognitive dissonance emerging for both artists and consumers of music, and for that we have Joe Rogan to thank. Artists (not labels) have long felt that they “needed” to have their music on Spotify even though most didn’t believe that by doing so they would be fairly compensated. Now, it’s gone deeper than just finances. Some artists simply don’t want their music on the same platform that others whose values are adverse to their own are, but — unless you own and control your own masters (and often publishing) and feel you can afford not to be there — you don’t have a viable alternative.

Now there are also listeners, who for some time have enjoyed the bounty that is essentially all the music in the world for something near free, questioning the dynamics between the platform and the artist with respect to compensation and their own relationship with the platform’s ideology (or lack thereof).

Bluntly, listening to certain streaming services is causing the same cognitive dissonance that some people feel when they purchase from certain online retailers or take rides with certain ride sharing companies.

Certainly, this cognitive dissonance when combined with technological innovation will lead to substitutes that will provide an anodyne for customers’ conscience, but unless these alternatives are combined with purpose, they will be no more durable than their fore-bearers (c.f. Innovator’s Dilemma).

To be sure, there are mass numbers of people who either could not care less or actively support the choices of these firms.

But, and this is how it always starts, that “small” number of people who feel the dissonance strongly enough will seek alternatives, and as technologies— blockchain, or otherwise— begin to present entrepreneurs with the tools to build businesses that address this dissonance, and make people feel better about themselves for choosing these alternatives, these people will tell their friends, and the small number will become large. It will happen— as Hemingway said of bankruptcy— “gradually, then suddenly.” It’s coming.