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Product innovation is one long, strange trip
What psychedelic drugs can teach us about product innovation
The year is 1938. Swiss chemist Albert Hoffman is in the lab, hunched over a petri dish, looking for a cure. A cure for what, he isn’t sure. He’s isolated a chemical compound called lysergic acid and he’s mixing molecular cocktails, hoping to discover something with a medical use. On his 25th variation he goes with lysergic acid and diethylamine. Unceremoniously, he jots downs some notes and sends the concoction to the lab for testing. Such was the humble beginnings of one of the most celebrated recreational drugs of the twentieth century, LSD-25. Americans may remember an ominous police officer coming to their middle-school classroom to explain, in the gravest tones, the dangers of LSD. The problem, of course, was that all the side effects the officer listed sounded awesome. Listen kids, you think this drug is cool? Imagine your essay on Where The Red Fern Grows melting into a sensational psychedelic rainbow road to Nirvana.
Despite the federal government’s best (and stupid) efforts, the Holy Church of LSD has a faithful congregation that’s as impressive as it is eclectic. Artists, industrialists, athletes, Nobel laureates - the appendix has an incomplete list of mega-successful people from all walks of life who not only tried LSD, but attribute their success to it.
As an investor, this fascinates me. LSD is a product. A discretionary consumer product. What other product is revered this way, has this cult of mysticism around it? Donald Trump loves Big Macs, Warren Buffett loves Cherry Coke, Ellen Degeneres loves berating assistants, but these are preferences, not spiritually foundational experiences. Steve Jobs calls his youthful acid journeys “one of the most important things in my life.” Francis Crick was tripping (acid trips = taking LSD) when he thought of the DNA double-helix. Acid is the muse of artists from The Beatles (Lucy in the Sky With Diamonds) to A$AP Rocky (L$D). What’s more, for all its commercial success, today’s acid is chemically identical to what Albert Hoffman fabricated a century ago. iOS is on version 14.5, cars are running on batteries, even plastic water bottles have changed shapes a half-dozen times this decade, but LSD-25 is still LSD-25 (rarified air, alongside the TI-83 calculator). All of this makes LSD a great case study for product innovation. Let’s take a trip!
Stage 1: Commercialization
Okay, so Albert Hoffman accidentally discovers LSD and then it’s off to the races, right? Actually, no. An idea or a discovery isn’t a product. Edison didn’t get credit for the lightbulb until he tested a million filaments and made it a reality. Likewise, none of the 30,000 bros who claim they thought of Uber before it was a thing get any credit for their ingenuity. In this case, the lab pharmacologists took a quick look at LSD-25, called it useless, and life moved on. This is totally normal. Commercialization is the very beginning of what’s commonly referred to as the product lifecycle, a conceptual framework that economist Raymond Vernon created to explain the volatile growth and seeming impermanence of commercial goods. Here’s the framework recreated for LSD:
For five years, LSD was discovered but not commercialized. The LSD formula sat in a filing bin until Albert Hoffman decided to re-synthesize it. Why did Hoffman revisit a useless drug? Nobody really knows. Hoffman’s explanation sounds religious, not scientific.
“I did not choose LSD. LSD found and called me.”
-Albert Hoffman in a 1976 interview with High Times Magazine
A lot of great products have a sort of mystical eureka origin story like this, where a neuro-divergent scientist or industrialist conceives, by way of inexplicable epiphany, the next big thing. More broadly, many of our favorite products were discovered accidentally, inadvertently, or confoundingly.
On the other hand, many great products aren’t stumbled upon by chance. A pioneer of innovation as a practice is Clayton Christensen, who coined the term job-to-be-done. Christensen eschewed unstructured creative processes and argued that the most innovative companies figure out what customers want and give it to them, also known as market research. This concept has been aggressively embraced by the cult of Silicon Valley, which is why tech companies always, always, always frame their businesses as “solving problems.” The job-to-be-done framework is responsible for lots of great innovations, although sometimes it goes too far. Obsessive problem-solving is how we ended up with things like Soylent, the meal-replacement that solves the problem of food not tasting like an IV bag, and Juicero, the company that spent $120 million dollars to solve the problem of not having a $400 machine to squeeze juice out of a packet.
All this to say: there seems to be no agreement as to whether innovation is an art or a science or something in between. In my opinion, there’s no bad way to have a good idea.
Let’s get back to the Albert Hoffman mysteriously rediscovering acid. This time, while baking LSD, Hoffman accidentally doses himself and takes the world’s first acid trip, which was literally a psychedelic bicycle trip. When he recovers, he doses himself again, intentionally this time, and takes the world’s first bad acid trip (a doctor had to convince him he wasn’t dying). Hoffman then convinces Sandoz, his pharmaceutical-giant employer (now Novartis), to take LSD seriously.
Ok, so Sandoz starts seriously testing LSD, and now, five years later, it’s off to the races, right? Still no. The University of Texas identifies an eight-step process for turning a new technology into a commercial product. If you’ve invented a pool noodle, this process might go quickly. If you’ve invented a mind-altering potion that sounds like something Rasputin would slip the Tsarina before asking a big favor, then that process is going to take some time. Some rats have to overdose on it, then some monkeys, then maybe even some expendable humans, etc. It took until the late 1940s for Sandoz to market LSD-25 as a psychiatric therapeutic treatment.
Ok, so now it’s off to the races, right?? Still no!
Stage 2: Growth
Even after it was commercialized, LSD was a bit of a dud. The biggest buyer in the 1950s was the US military-industrial complex, which was convinced LSD could be weaponized. The CIA ran a clandestine operation called project MK Utra where it procured the entire global supply of LSD and experimented on unwitting citizens. Today, MK Ultra sounds like a cold-war fever dream. The idea was to use LSD as a mind-control serum to turn communists into Machurian Candidates. The project was ultimately shut down as results were “unpredictable,” which I assume means the subjects wanted to plan a music festival instead of murder Fidel Castro. In fact, the plotline from Zoolander, where the fashion elites brainwash models to become assassins, is barely crazier than MK Ultra (which it is satirizing):
Project MK Ultra languished, and by the late-fifties LSD was destined to rot in the wasteland of failed miracle cures but for one very important detail. Through extensive testing, the United States military had inadvertently propagated LSD to the one population that had an actual use for it. A lot of the patients of MK Ultra were on the fringes of society, the type of people who respond to dodgy advertisements for compensated medical testing. These people, who included the beat poet Alan Ginsburg and the novelist Ken Kesey, saw LSD not as a weapon but as a tool to unlock creative and spiritual potential. Kesey, Ginsberg and other very early recreational users of LSD were what’s called product champions, customers who have an obsessive interest in a product and spread the word like gospel. Without champions, a product won’t last long. Even the most amazing product is worthless if it isn’t connected with its core user, that target customer (see: The Wiggles Universe). That’s why branding is so important - most businesses spend more money on branding and marketing than they do on R&D. Innovators can’t always rely on serendipitous governmental overreach to connect their products to champions - they need to connect with those customers themselves.
As far as product champions go, early LSD users made Crossfit vegans look like Walmart greeters. And they kept popping up. Harvard psychologist Timothy O’Leary became a cultural sensation when he began to encourage people to “turn on, tune-in, drop-out,” and author Alduous Huxley called for a dose on his deathbed. Ken Kesey put together a group he called “The Merry Pranksters,” who drove cross-country in a trippy school bus to share acid with the nation. All of this coincided with the emergence of the 1960s counterculture. The fringe-society types that initially signed up for MK Ultra were suddenly part of something bigger - the hippie movement. In the early 1960s the counter-culture co-opted LSD from the military. They took what was the Minimum Viable Product - a lightly tested medicinal vial with no clear use, and rebranded it as a recreational product (in mostly black market labs).
By doing this, the counterculture pushed LSD into the growth stage of the product lifecycle:
Another way to understand the widespread adoption of LSD is through Everett Rodger’s diffusion of innovation model, which seeks to understand how products and ideas disperse through society.
The early test subjects and their initial friends group, the ones who discovered recreational LSD, are Rodger’s innovators. In this case, innovators refers to innovative customers, not the people who create the product. Innovators pave the way for early-adopters, the hard-core hippies who heard about LSD from the original innovators and jumped in. This video, from a Ted Talk, illustrates the diffusion of the innovation model perfectly.
Rodger’s model is helpful for understanding why products often have S-curve growth. At first, a small population tried LSD. The ones who liked it tell all their friends, and a recursive process ensues. There’s a non-linearity to the growth here. Products like LSD spread like a cat video makes its way through Facebook, although pre-internet the pace of growth was slower.
Stage 3: maturity
By the mid-1960s, LSD had reached maturity as a product. The counterculture movement was a cherry blossom in full bloom and LSD’s fate was intertwined with it, a groovy weed coiled around the branches. Lava lamps, Grateful Dead concerts, Volkswagen busses, bell-bottoms, most Pink Floyd albums - none of that really makes sense without psychedelics, and LSD is the marquee psychedelic.
The hype cycle
Product maturity doesn’t mean the product fades into the ether - that comes later. One way to identify the maturity level of a product is the hype cycle, the idea that every technology goes from underrated to overrated to underrated to properly rated. The hype cycle was popularized by research firm Gartner, which does a really cool charting of current technologies along this cycle:
What did this look like for LSD? At first nobody knew what LSD was - expectations were low. In the early 1960s, users of LSD promoted the drug as a way to raise the collective consciousness, catalyze a creative revolution, and attain world peace (high expectations). What happened next? In 1968 LSD was banned in the United States, and in 1970 it became a Schedule-1 narcotic, carrying harsher penalties. This was part of a broader pushback against LSD and other drugs, which was informed as much by health concerns as by concerns about social stability. Promises to change the world excited the counter-culture but terrified the establishment, and that fear led to a lot of misinformation about a drug that, today, many experts consider less harmful than alcohol or cigarettes. All of this meant that by the 1970s, most of the population lowered their expectation LSD - they believed a relatively harmless hallucinogen was capable of turning America into a nation of polyamorous socialists.
Maturity = market saturation
Products rarely saturate 100% of the market. The iPhone is one of the most successful products in history but even today it has less than ⅓ of global market share of smartphones. Maturity in the product lifecycle often means that there are no new customers to reach, and that’s why growth flattens out.
That’s what is interesting about all this fear, paranoia and regulation - it probably didn’t decrease the use of LSD. If anything, it increased it. LSD is a hardcore recreational drug. Effects can last up to 24 hours. This is not something you take at a happy hour and it’s not something most people would have interest in even if it did fit into their lifestyle. This drug was never going to become mainstream. Today, 1% of Americans try it each year and the majority of users try it a few times in their lives at most. By overreacting and categorizing LSD as lethal as heroin, and by funding aggressive anti-drug campaigns targeting LSD, the U.S. government just provided free advertising. Writing this post is the first time I’ve really understood the phrase “no press is bad press.” No matter how great a product is, most people won’t like it. The goal of a successful product is to find the minority who appreciate it. Bad press helps with that almost as much as good press. Here’s how I see it:
Controversy and antipathy can also create brand loyalty. There were hundreds, maybe thousands, of drugs that were popular in the 1960s. Read the first chapter of “Fear and Loathing in Las Vegas'' by Hunter Thompson if you want a list. What made LSD special? Part of it was certainly the product itself, but another part was the mystical aura around LSD, a combination of the hype of the hippies and the prohibition of the powers that be.
Stage 4: decline?
About a century after its creation, LSD is still around, but it's clearly in decline. Kids these days are more interested in helium balloons (I don’t know what kids are into). Hippies are boomers now, too busy saddling future generations with crippling debt to indulge in fun drugs. Over time LSD’s hooks in the public consciousness will loosen and post-WWII era psychedelics will fade into the ether.
Wait, twist! LSD is pulling a fast one. Occasionally products reboot, rebrand, and refresh, and if all goes well, restart the product life cycle. When this works, you get Spiderman: Into the Metaverse. When this fails, you get Venom.
As the dust from the War on Drugs starts to settle, researchers have finally given LSD the time of day. It’s still early on but psychedelics like LSD could have real medical uses for all sorts of mental illnesses. First pot, now LSD? Ok Boomers! It’s still early, but this could create a whole new class of users for LSD, and the product itself could evolve in any direction. The future of LSD, like its effects, is unpredictable.
No matter where it goes from here, it’s been one long, strange trip.
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Appendix, Sources & Additional Readings
As promised, here’s that list of people who attribute some kind of enlightenment to LSD:
Ken Kesey Merry Pranksters
Billie Joel Armstrong