Knights, Warlord Entrepreneurs, and Innovation

I am invigorated by the amount of innovation that is flowing today, no matter how crazy the associated business valuations may be; there is nothing more exciting than dealing in ideas that may change things for the better—from the individual to the global scale. To keep the momentum and motivation going, we can learn a lot about entrepreneurship, innovation, and where we should focus from Medieval Knights and modern warlords whose histories and stories serve as further inspiration to keep pushing.

The lesson they teach us is that one of the best advantages in life, business, and thinking is not being the incumbent, not having some existing paradigm to protect.

The key to innovation (and creativity) is living on the bleeding edge. Less energy spent maintaining what is already established (which we are prone to guard) means more energy to spend creating uniquely new methods, ideas, and companies.

Medieval knights are one of the best examples of the cycle from innovation, to incumbency, to irrelevance. The four stages of this evolution are laid out quite brilliantly in the new book Warlords, Inc. and provide a framework for thinking about the world today.

A key point made by the authors is that “most established organizations—whether in government, business, or civil society—are poorly positioned to adapt.” As you read through these stages, think of the investing industry—there are many related examples.

The first stage of this process is that of entrepreneurism and experimentalism. A weapons system was required to contend with the barbarian raiders that had plagued Western Europe for centuries. These raiders were greatly responsible for the destruction of the Roman Empire and precipitated the shift from the classical to the medieval age. By the Battle of Tours, it was apparent that heavy cavalry was the solution to this threat. This required taking infantry and mounting them on horseback. The Carolingians and other empires of the era—essentially lead by local warlords and strongmen who had seized power—had to go through a trial-and-error process to make this new system work. The entire arms and armor, training and organization, and logistical support system (like the mass breeding and sustaining of warhorses) had to be created from the ground up. As this system was established, heavy cavalry forces grew increasingly deadly.

So, step one, innovation to solve a pressing problem. Like most innovation, tinkering was a key to find a successful solution. This is almost always the case in the creative process.

The second stage in this process is institutionalization. In this stage, not only have “things been worked out” but also standard operating procedures have developed. Mounted cavalrymen not only became the first line of defense for western Christendom but also gained position and privilege on their way to legitimacy within the new civilization that had formed. Lands were won, castles erected, and ultimately the knight allowed the empire and kingdoms of the West to go on the offensive in what were essentially crusades in eastern Europe and the Holy Lands.

Step two, the innovation matures and reaches the peak of its usefulness.

Ritualism characterizes the third stage of this process. The effectiveness of the knight on the battlefield began to be severely degraded as technological threats matured. Dogma and oppressive bureaucracy set in, with armor becoming heavier and heavier and with cumbersome ornamentation beginning to appear. In this stage, things are done because that is the way they have always been done; process becomes more important than progress. Further, a climate of zero tolerance and risk aversion exists. Questions about the efficacy and logic of directives are suppressed while new and creative ideas are stifled.

Step three, institutional bloat creeps in. Can you imagine fighting in this thing below? Me neither, but many companies have the equivalent of this suit of armor’s ornamentation—superfluous fluff that indicates complacency and incumbency. ornamental armor

An investment analogy here: closet indexing. Here is the “active share” (percent of the portfolio unique vs. the benchmark, where higher means a better chance of very unique returns) of Fidelity’s Magellan Fund through time under different managers. Small, nimble, and daring to start. Large, bloated, and risk-averse later. Read Michael Kitces on this topic for more.

magellan active share

The final and fourth stage of this historical process is satirical in nature. That visionary brute with a hunger in his eyes, quite willing to kill quickly and without remorse, who existed in the first stage has now been fully neutered. Strong arms and armor and a stout warhorse have given way to orders based on fluff, the wearing of gaudy dress, and cushy saddles. Once heroic figures, embodied in images such as St. George the Dragon Slayer, devolved into old men on broken-down mounts fighting monsters made out of windmills. The time of knights had passed and to field them now in battle would be blatantly suicidal.

The cycle repeats—new entrants dethrone the knights:

In fact, the knight had been stalked for some time by a new visionary businessman and killer, one wielding early firearms and siege cannon. This warlord entrepreneur was not of polite society and was not an agent of the state; in fact, he was considered little better than a common criminal—if not worse, as his weapons smelled of fire and brimstone and suggested that dark and demonic forces were at play. His weapons were strange and disruptive, he had no stake in the prevailing status quo, and he would readily kill if disrespected or if the contract was lucrative enough. Against such entrepreneurs and their brethren, the technologically inferior knight was no more than prey and was eventually hunted into extinction.

The types of weapons—physical, financial, or technological—that dominate at a given time have a huge impact on society. An analogy can be drawn to finance and banking. Carroll Quigley explores the consequences of weapons technology in his book Tragedy and Hope.

Periods of specialist weapons [e.g. knights] are generally periods of small armies of professional soldiers (usually mercenaries). In a period of specialist weapons the minority who have such weapons can usually force the majority who lack them to obey; thus a period of specialist weapons tends to give rise to a period of minority rule and authoritarian government. But a period of amateur weapons is a period in which all men are roughly equal in military power, a majority can compel a minority to yield, and majority rule or even democratic government tends to rise… The medieval period in which the best weapon was usually a mounted knight on horseback (clearly a specialist weapon) was a period of minority rule and authoritarian government.

Think of access to information, trading, markets and finance in general. Often through history,

[the] parts of the system concerned with the production, transfer, and consumption of goods, were concrete and clearly visible so that almost anyone could grasp them simply by examining them, while the operations of banking and finance were concealed, scattered, and abstract so that they appeared to many to be difficult. To add to this, bankers themselves did everything they could to make their activities more secret and more esoteric. Their activities were reflected in mysterious marks in ledgers which were never opened to the curious outsider.

This opaqueness and privileged access is a type of weapon itself, one wielded most powerfully in the early 20th century, when a group known as “Society” or the “400” (as in 400 people total) controlled most of the global banking system. “Sailing the ocean in great private yachts or traveling on land by private trains, they moved in a ceremonious round between their spectacular estates and town houses in Palm Beach, Long Island, the Berkshires, Newport, and Bar Harbor; assembling from their fortress-like New York residences to attend the Metropolitan Opera under the critical eye of Mrs. Astor; or gathering for business meetings of the highest strategic level in the awesome presence of J. P. Morgan himself.”

So now the key question, where are today’s knights? And what can be done about neutering their weapons? These are the questions that innovators and entrepreneurs should be (and are) asking. It is already happening in the realm of financial technology and elsewhere, so young people and entrepreneurs should take note.

Back to Warlords Inc. One final quote stirred me, as it seems applicable for anyone’s role in their business, large or small:

Everybody else has a policy. Warlord entrepreneurs have obligations. Everybody else has a hierarchy. Warlord entrepreneurs are accountable to the situation.

Obligations and accountability are advantages over policy and hierarchy. They allow upstart Davids to dethrone Goliaths. The next decade will be fun to watch, hopefully we can all participate.



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