Hiroshi Yamauchi’s grandfather had just had a stroke. And so he was called on to quit his studies and help run the company. When his grandfather passed away, Yamauchi inherited a small company in Japan that made playing cards. The company was profitable but not upto Yamauchi’s ambition.

Yamauchi took a few years to get his footing. And then suddenly doubled the company’s net profit. He got licensing rights from Disney to print Mickey Mouse behind the playing cards. Created nice packaging along with a booklet that taught a few card games people could play. And saw sales go through the roof!

To see what else he could do, Yamauchi went to America. And he toured the world’s biggest card manufacturer: United States Playing Card Company. And was extremely underwhelmed with the small scale of the office and factory. He realized that even if he became the leading manufacturer of playing cards in the whole world, he wouldn’t be as successful as he wanted to be.

And so, back in Japan, Yamauchi started parlaying all his profits into other ventures. He bought a small taxi company which failed. Started selling instant rice and failed. Even bought a love hotel. But nothing worked. And he was worse off than before.

Striking gold with a pivot

Finally, he found luck back at his home base itself. One day, while walking through his factory, he saw a mechanical claw toy that a mechanical engineer had made to pass some time. Yamauchi instantly asked the engineer to focus his time working on a plan where a proper version of the toy claw could be made and sold.

This toy was an instant hit! Margins were higher because Yamauchi could use the same distribution channels he had set up to sell this toy as his playing cards! Yamauchi asked the mechanical engineer – Gunpei Yokoi – to make other mechanical toys. When asked what he was looking for, Yamauchi simply answered: “build something great!”

And that’s how Nintendo ventured from being a playing cards manufacturer to a novelty toy manufacturer!

Nintendo and the gaming consoles

Hiroshi Yamauchi was still looking for expansion opportunities. And so when he saw the electronic gaming console that Magnavox had made, he licensed it and started selling it. But Yamauchi soon realized that people don’t buy the gaming consoles for themselves. They buy it for the games. The consoles were more expensive, but they wouldn’t sell if the games weren’t good. And so, Yamauchi spent a lot of money to make Nintendo a software powerhouse.

Nintendo created some amazing games that did very well in Japan. But when they were exported to other markets including the USA, they failed. Yamauchi assigned Shigeru Miyamoto to build something for the American markets. But Miyamoto wasn’t a games developer. He was a mural painter Yamauchi had hired because he knew his father. 

Yamauchi simply told Miyamoto: “build something great!” The resulting game Miyamoto built became the first blockbuster video game that put Nintendo on the map: Donkey Kong!

Yamauchi time and again has given young people a chance to do something great. He didn’t look at people’s experiences to see what they could do. He looked for the creativity that they showed. He emphasised on lateral thinking. 

In fact, when Gunpei Yokoi is asked: what’s Nintendo’s secret sauce? He replies: lateral thinking with withered technology. The aim is not to use the best graphics and the best that technology has to offer. But to work on the most innovative gameplay. Focus on novelty of game mechanics.

Hiroshi Yamauchi saw how new video games could fail. He wanted more innovative games to come out of Nintendo much faster than before. He was looking for creative breakthroughs – and not just me-too innovations. He realized that this push for creativity means he would have to make multiple bets, some of which would fail. And so he did something drastic.

Yamauchi broke Nintendo’s development team down into three sections. There were 3 research and development teams within one company! And they all had to compete with one another!

People thought of it as wasteful and expensive. But Yamauchi thought it is what pushed Nintendo to become more creative than bigger companies. 

Does creativity thrive under competition?

Daniel Gross from Harvard Business School started researching graphic design competitions that take place online. Where designers compete against one another to create a logo or a banner for a company. And the company selects and pays for only one of the designs.

Gross observed something marvelous: when there was just one highly rated designer working on a competition, all the ideas he created were simply incrementally better.

But when 2 or 3 highly rated designers were in a competition, each of them would create multiple highly innovative graphics. Each new graphic idea would be radically different.

When the competition had 6 or 7 highly rated designers however, a discouragement effect took place. And the quality of innovation reduced further!

There is a sweet spot for creativity to thrive under competition. And Yamauchi understood this inherently. The idea was to have tension between teams so that they would compete and try to outdo one another. And at the same time, facilitate the exchange of ideas between teams so creativity would cross pollinate.

It is this competitive creativity that made Nintendo come out with unusual game mechanics at a consistent speed. It is what has given us Mario and the Legend of Zelda and Guitar Heroes and the Wii console!

Action Summary:

• Bet on multiple creative ideas because some of them will fail.
• Bet on them at the same time because creativity thrives under competition.
• Hire people from different fields and you will get lateral breakthroughs. Hire people, not based on their background, but based on how creative and imaginative they can be. And then make them playfully compete with one another.