Modern Geekery

This Friday, I’m going to be speaking at Asheville Green Drinks about renewable energy. The event starts at 6 pm and I’ll start talking at around 6:30. The blurb about my talk is up on the AGD website already, but I wanted to write a little bit about why I’m giving this presentation.

Talking to lots of people has made me realize that it is easy to be overwhelmed by the quantity of information out there about renewable energy.   Energy production and consumption is a complex topic and it is made more complex by those who have the most financial interest in the field tossing out truths and truthiness, often out of context, in order to solidify their position. And without some kind of base level of knowledge, its impossible to think critically about the news and propaganda that’s flying around in the media.

What I want to do is to give a quick overview of the state of the art in renewable energy – pros, cons, myths, and challenges. In addition, I’m going to talk about the size and scope of the “energy problem” that the world is facing and why its of utmost importance that we solve it, rather than deferring it or succumbing to it. I’m going to talk about why energy is the only true measure of wealth and how access to energy is a human rights issue. And, I’m going to end up by giving my perspective on what the ultimate solution will look like.

Its shaping up to be an exciting presentation.

The capability and appropriateness of measurement systems and related metrics are not just things that scientists and engineers must care about. This seems to be obvious to just about anyone, unless you were on Wall Street before the financial crisis.

The Deloitte Center for the Edge has published a report on the decline in the return on assets of American businesses over the past 40 years. Jon Taplin, a professor at USC, posted a very insightful summary of the report, likening this decline and how it was hidden to a shell game. What was interesting to me in his post was how the blind obedience to a particular metric has been in large part to blame for our current financial insanity.

What the Deloitte report points out is that companies have been able to “juice” their return-on-equity (ROE) numbers by consistently taking on more and more debt. Meanwhile, their return-on-assets (ROA) have fallen steadily. If you are even a casual investor or small businessperson, you’ve probably heard of ROE and why it is important. You may not have heard of ROA. Let me briefly explain the difference

Return on equity is a company’s annual net income divided by total shareholder equity. Shareholder equity is essentially how much money investors have put into your company, so ROE measures how effective you are at generating a return on invested funds.  Return on assets, on the other hand, is your annual net income divided by total assets. ROA, therefore, measures your effectiveness at generating a return on everything the company owns and is in the bank.

You may already be seeing the disconnect, just based on my choice of words when I defined ROE and ROA above. Let me give you an example: Let’s say you have two companies, A & B. Each of these companies generates 1 M$ per year in net income. Each of these companies has 5 M$ in equity on the books, meaning that the investors have 5 M$ in them. In each case, the ROE of the company is 20%. Not too shabby. But there is an important difference between them. Company B also has 5 M$ of debt outstanding. Company B will thus have 5 M$ more assets on the books than Company A, and thus their ROA will be lower.

If you’re a CEO and you’re managed by your board on the basis of your ROE, you thus have a substantial incentive to leverage your company with loads of debt in order to have more resources with which to expand your business, since that debt doesn’t show up directly on your measurements. People will still invest in your company on the basis of your keen ROE (so long as they don’t look at your debt-to-equity ratio, or your actual return on assets.)

The bottom line here is that a lot of people had a warning right in front of them about what was happening with GM and other companies, but couldn’t see it because one of their chief metrics hid it from them. As with so many other things, relying on a few simple metrics is dangerous and sloppy. Simple metrics are useful, but they must be cross-checked and reviewed with a constant eye on exactly what they tell you and what they do not.

I get simultaneously amused and frustrated by the anarcho-capitalists with whom I interact when the discussion comes to economics. Most of them have enough economics learning to parrot back choice segments from The Wealth of Nations and to discuss the Tragedy of the Commons. Of course, they will immediately tag any sort of collective ownership and use scheme  as a potential Tragedy of the Commons, even when the potential for such misuse is vanishingly small, but so it goes. What is frustrating, though, are their ideological assumptions about incentives and the free market.

A recent article in The Atlantic served as an excellent illustration of this point. In the article, Megan McArdle points out that the most selfish (i.e. most libertarian) bankruptcy laws serve to make everyone worse off and that having society defray the cost of failed entrepreneurship serves as an incentive to more entrepreneurialism, which makes everyone better off -  including non-entrepreneurs. Further, she lays out simply and elegantly why the current regime of tightening bankruptcy laws to “stick it to irresponsible” do little to prevent people from running up too much debt and a lot to disincentivize people from taking rational risks.

I think this is particularly timely as we see a rise in more socially networked entrepreneurs – a sign that we are growing to understand that collaboration is as much a part of capitalism as competition. As this transition occurs, I suspect that a distinction will grow between folks who run up tens of kilodollars in consumer debt and folks who run up tens of kilodollars in debt trying to start a business.

Recently, the pharmaceutical giant, Merck, was caught having paid scientific publishing giant, Elsevier, to create a completely bogus “peer-reviewed” journal to help promote positive data about Merck’s products. The details are covered in this article from Bioethics.net.

In my mind, this is a clear argument for open access scientific journals. While it would be possible to corrupt the process of peer review in an open access journal, it would be pretty difficult to hide the fact for very long.

Everyone, every business, has love affairs with technology. You may have too. Remember that feeling? The fluttering in your stomach, feeling alternately hot and cold, daydreaming about the places you’ll go, the things you’ll do. No, it wasn’t your first date, but rather, the last technology you looked at and fell in love with. And, odds are likely, just like that first date, your breakup with that technology was harsh and bitter.

I’m going to talk about how that love affair manifests, how you manage it, and how you move past it into a wonderful relationship that will hopefully last many years, bring in revenue, and perhaps even change the world.

Continue reading ‘Having a love affair with a new technology’ »

The summer is always crazy busy here and this summer is no exception. This year, a confluence of a project at work reaching a critical point, some added job responsibilities, and the usual summer craziness have conspired to keep me from blogging as much as I would have liked.

Recently, I’ve taken on the role of intellectual property champion for the central research division. This means that I’ll be keeping track of trends in what areas we’re inventing, what we’re filing on, and how well we’re doing in generating useful IP for the company. What’s most exciting is that I will be working to devise new, more useful metrics and measurements for the company’s IP performance. This has proved to be an interesting exercise thus far.

What strikes me most is how very little anyone understands about best practices in this area, despite the fact that IP has become central to most of the American economy. I’ve been perusing a report from the General Counsel Roundtable of the Corporate Executive Board that outlines what that group considers to be best practices and they are certainly good, but the implementation is very vague. I’m left with an outstanding question of whether the vagueness is due to the differences in best implementations that arise from legitimate differences between companies or due mainly to the inertia of corporate culture. I expect that I’m going to learn a lot from this.

This is way cool: Google Maps API now supports a wide array of geotagged sites. In the example given in the link, a properly geotagged Wikipedia article will display a link on Google Maps at that site. Very nice! I expect to see a lot of organizations tagging projects or sites of interest in this fashion. Think about the Nature Conservancy tagging potential new acquisitions or a local chamber of commerce highlighting attractions in their town this way.

I just read this piece by Alex Steffen on the WorldChanging blog and highly recommend it. The key quote from the piece, in my opinion, is this one:

[I]f we’re going to avert ecological destruction, we need to to not only do things differently, we need to do different things.

What he’s saying here is something that I’ve pointed out to my colleagues in the innovation community: sustainability is not about making things with less stuff, or that last longer, or that aren’t toxic, or even that can be infinitely cradle-to-cradle recycled. Sustainability requires us to invent things that make it possible to live more sustainably. If the things, the stuff, that we have and use make it easier to live sustainable lives than to not do so, then we will live sustainably.

Its not an easy problem to solve, for the same reason that truly groundbreaking innovation is not easy. It is pretty straightforward to imagine a novel solution for a market that already exists. It is much harder to invent a new market. I think that the kinds of products that will help people live sustainably are products for a market that doesn’t exist yet. Our business strategists don’t know how to value them, so our market analysts can’t compute a return on investment, so no investment is made. And truthfully, our scientists and engineers don’t always have the global perspective necessary to understand what types of solutions are necessary.

The point of Steffen’s article was to underline the importance of community in making these changes in our systems. I think that it is also important to understand the systems themselves. As we grow in our understanding the network of interactions and dependencies in our economy and our society, this understanding will allow us to break out of unsustainable patterns and replace them with ones that are equally understood, but are sustainable to the best of our knowledge. And because we’ll be building from a base of understanding, we’ll be able to look at them in a rational fashion 40 years from now when we understand the ways in which the new patterns are not sustainable.

It may be that at first, these more-sustainable patterns will be obvious. Things that folks like Steffen have been telling us for years, like community gardening, reducing sprawl, and increasing bike transport. But as with everything else, the low-hanging fruits will be quickly exhausted. At that point, progress will only be made by deeper understanding. It will be interesting to see how the tools for gaining that understanding develop.

I’ve been using Google Spreadsheets more recently to all the little one-pager list type spreadsheets that I make. When I noticed that they had added a notifications system, so that you can get an email when a collaborator updates a spreadsheet, or even a particular cell in the sheet, it sparked an idea. What if a cell could contain a short script, or a URL that points to a script on another server, that returned a number. The sheet could the update dynamically based on the result of the script.

This could be integrated with AdWords or Google Analytics, to return data from there that could feed custom analysis spreadsheets or could point to an internal database to use proprietary business data. I could also see data providers, e.g. the National Weather Service or Digg, providing statistics feeds that folks could slice and dice for their own purposes.

In a sense, this could be part of the long tail of the “super-cruncher”” phenomenon. Its hard to get good data to play with right now. A standard platform, or at least a standard access protocol, for raw numbers would open up opportunities to crowdsource data analysis.