Life is beautiful: in memory of JP

JP had all of the energy and passion of the entrepreneur.
He was also a lovely man. Full of good cheer and resilient enthusiasm.

Being an entrepreneur and trying  to grow a business is a fight.  There is fun in it but at times the going is hard and the struggle all consuming. JP was up for it all and I admired him for that.

In his passing there is reflection. It makes me think how much is sacrificed in the building of a business. Without that struggle it would be hardly worth the effort. It is the struggle that defines and makes us. But in those quieter moments that can be so hard to find, we remember that there is so much more to  life: so much to wonder at, to discover, to experience, and to love. As JP’s skype profile put it: Life is beautiful.

Start Small

A CEO we are working with asked me today about how large a deal she should look to do with an agricultural foundation that could become a big partner. As her company’s technology solves a major problem for them, she was aware that there was the potential to do a big initial deal but her instinct was to start small.

 

I think she was very right.  We had a situation with another company for which we had opened a discussion with one of the largest surface materials companies in the world. We started by talking to one division, but other divisions within the company got wind of the technology and wanted to broaden the scope and raise the budget of the initial engagement.

 

Potentially very encouraging news, but as the scope widened, more stakeholders would be needed to approve the project and it would need to be synchronized with the work plans of more departments. What had been lined up as something relatively clean and straightforward was getting unwieldy and looking less and less likely to actually happen.

 

In the end, we were able to get back to the scope we had originally wanted ­– a modest project that could be both readily signed off and quickly executed. With the data generated from that first project, the internal champion we had nurtured within the company was in a much stronger position to set up larger projects for our client.

Creating International Currencies

Currencies enable commerce, acting as a recognised standard unit of exchange; they are closely associated with nation states – usually being either created or controlled by governments, within their (geographic) spheres of economic and legal influence.  What is interesting about the early cryptocurrencies is they have been able to address very large communities –  crossing many national boundaries in the process – and although we have seen certain countries seeking to dissuade the use of cryptocurrencies (for example China and Korea) – the growth of the populations ‘using’ (in the widest possible sense of the word) continues.  In this respect cryptocurrencies are functioning much like the multinational currencies of the past, for example the Spanish Real de a Ocho or the Bohemian Thaler, transcending national boundaries in their use as a medium of exchange.  What is also thought-provoking in this comparison is the Real and Thaler were made of gold and silver respectively – which many would recognise as having tangible value during their period of dominance – versus cryptocurrencies which would be considered ‘intangible’ under most classical definitions.

I conform to the view that, having moved away from being based on a tangible commodity, the value of modern currencies is defined by their ability to enable exchange – and thus those with the most developed usage networks or economies behind them are the strongest currencies (not necessarily from an exchange rate perspective, but from a longevity perspective).   In order to maintain the value of a currency, a government must ensure it is linked to a strong economy and is well used (both domestically and internationally).

Adam Smith and Tokenisation

This brings me to Adam Smith, who put forward the following roles of government:

  • Defence
  • Justice
  • Public works and institutions

Why? Because like national currencies, cryptocurrencies are also governed – and there is a compelling argument to view the relative value of cryptocurrencies and cryptotokens on the basis of the governance regimes that manage their use creation and use. These mediums of transaction can be apportioned value in line with their relative merits, when compared to Smith’s framework.

Defence of a territory (within which a currency operates) is the first responsibility of the state – and equally it should be the first consideration of those seeking to develop new cryptotokens.  If the environment within which the token is used cannot be defended, the token will lose its value (both as a store of value and as a mechanism for enabling transactions).  But what are we defending from?  There are a number of things that immediately come to mind:

  • Better substitutes e.g. cryptocurrencies with lower transaction costs – something that Bitcoin is frequently exposed to
  • More ‘attractive’ environments for use e.g. Coinbase versus Mtgox (more attractive security, in this case)
  • (Public knowledge of) poor integrity e.g. on the fork date of Bitcoin Gold, it was well publicised that the codebase does not offer protection against replay attacks (amongst other issues)

For the developer of a cryptographic token, the first question that should be asked is ‘how do I ensure the use case for this token is defensible in the long term, as countless other tokens will likely be brought to market to address the same use case(s) I am addressing if I am successful?’

The second role of government is the delivery of justice.  In the days of yore, justice and defence were intrinsically linked – on the basis of manpower availability.  A community’s ability to defend itself was proportionate to:

  • total manpower
  • its approach to defence
  • its technological capacity

Manpower and science would grow in permissive environments – think of the first Persian Empire’s reputation for legal process, scientific advance, and military might.  Contrast that with the fall of the Ottoman Empire hundreds of years later, which was a divided state with clearly distinct (and often marginalised) groupings in the population – often conflicting with the state’s own laws, which were poorly enforced.

So how is this relevant to the development of a cryptotoken?  Bitcoin was not the first form of electronic currency (see Chaum’s ecash for the first successful implementation) – but it does have a strong, simple governance model which ties the ‘miners’ into the model and incentivises them to behave in line with the community’s needs.  For a token to be successful, I would suggest developers consider a number of points (in line with delivering ‘justice’):

  1. Incentive mechanisms – how does the governance model encourage adopters to move to using the token?
  2. Dissuading poor behaviour – for example rent-seeking – is there a methodology that prevents free-riding or market abuse?  The token developer should consider their own potential role here (see the change in Ripple’s value in May 2017 when 55 billion of retained XRP were placed in escrow with a defined plan for their use)

Both of these points are congruent with how ‘laws’ operate within a nation – they either incentivise or dissuade behaviors.

Smith’s final role is that of public works and institutions – Smith advocated these for the facilitation of commerce and trade.  The time has now gone where a token can be created as a standalone, without a defined use, and still be attributed value.  Token creators must think as much about facilitating the use, as the use itself – for example:

  • Is the token launched such that speculators can engage with it in a secondary market via engaged exchanges?
  • Does the token creator provide ‘the market’ for the use case? For example, the Bristol Pound has a use case because Bristol has onboarded its consumers and retailers – but David Coin has no use case – I have no consumers nor suppliers prepared to use it.

Cryptotokens are, to my mind, the best current example of Metcalfe’s (and Beckstrom’s, and Reed’s, and Sarnoff’s) law on the value of networks.

Taxation

This brings me onto the second part of this blog:

How does the state pay for its functions, and what does this tell us about how cryptotoken communities can pay for themselves?

The simple answer, to my mind, is: tax.

A nation state taxes its citizens and economic operators, and the purpose of this tax revenue is the delivery of the functions of state.  Of course, the state must be aware:

  • Of Frédéric Bastiat’s comments on the state
  • Of the impact of rent-seekers
  • That if a ‘tax’ model is implemented to provide revenue to enable its functions, this is not done in a way that alienates its users (/citizens).

There will always be a temptation in any token-enabled environment to implement a simple tax model – 1% of all transactions, for example.  However, history has already shown that a simple levy is not the most effective approach – and in fact any modern tax system is used to both encourage and dissuade activities which, whilst legal, are considered more or less attractive to the population.  They can also be extremely complex (the US Federal Internal Revenue Code has 9834 sections; there are over 100 HMRC tax manuals) – which represents the extent to which the modern nation seeks to bestow benefit for certain activities, and discourage others.

The creators of cryptotoken(s) should bear these points in mind – as the governance model applied at the establishment of a new community have, to date, been shown to be difficult to change without significant disruption to the underlying population.  Recall the warnings not to transact in bitcoin for a number of days either side of the Bitcoin Cash fork.  Whilst mechanisms have been built into many cryptotoken models, I do believe these will continue to evolve in the coming years.

Closing

Closing any deal is an event created by a process. The event itself involves getting the deal over the completion line. It is no more than the summation of a process that starts once a degree of mutual trust and interest have been established. Opening is a fluid mix of sparking interest (i.e. potential but still unsubstantiated fit and benefit) and relationship building. Relationships matter as they create access and provide the agency that gets things done and the medium through which information and insight is channelled and processed. Importantly, they also allow us to understand first hand what is important to an individual and an organisation. That is where empathy starts. In dealmaking, to deal is to empathise; to be able to imagine things from your counterpart’s point of view. Empathy is not simply a matter of adding another invaluable perspective, it is that soft intelligence that can lubricate the process, help smooth the bumps, and resolve the thorniest of issues. While creating ‘an opening’ is a prerequisite to selling, it is not in my book selling. It is a skill apart and a high value one at that when there is a significant degree of complexity and multiple players involved.

Determining the degree of fit, and the business case that may emanate from it, is a critical stage. The more thorough the work here the greater the probability that subsequent activities will progress smoothly. This is an evidence-based stage characterised by information sharing. The more structured this process, the better. Have a plan of what to share, with whom, and importantly, when to share. Building the business case – the ultimate measure of fit – in particular should never be presented as a fait accompli. Rather it is a very deliberate process. Agreeing a methodology (i.e. how value can be evaluated) is important because sellers are often guilty of presenting benefit cases that underestimate adoption costs while buyers may try and inflate them. The best form of persuasion (i.e. selling) are ‘facts’ messaged and presented in a manner that is compelling by virtue of being irrefutable. That is the subtle art of ascribing meaning to facts.

The basis of all sales is arbitrage: the buyer pays x for something potentially worth a multiple of x.  For the buyer that is the difference between cost and value.  This is where IP based propositions that are a multiple better than the incumbent technologies should be at a major advantage. The higher the multiple the greater and more transformative the potential value. Of course, the imperative here is transparency. Indeed ’radical transparency’, to borrow an acquired phrase, makes absolute sense. No bullshit required. Just detailed hard proof that for many of the companies RIG works with can only come through a period of collaboration. To fall short of ‘showing the value’ is to sell your technology short. Falling back on persuasion, however articulate and passionate the advocate, is a poor substitute for empirical, substantiated, indisputable, shared and accepted evidence of value. In this stage at least, the best way to sell is simply not to.

Beyond the core challenge of agreeing a methodology for establishing value, there is always an extensive list of associated ‘issues’ (not least those related to IP) that must be worked through before a closing event becomes a possibility. Failure to identify or anticipate an issue will delay ‘the close’ or lead to premature attempts to close a deal that is not yet closable. An apt metaphor might be borrowed from my boyhood:  compare this final stretch to building a model airplane of the type that predate the machines that you can order on Amazon and that are ready to fly straight out of the box. For the plane to fly the build had to be completed to spec and the little engine perfectly calibrated. Everything had to be just right, which took a fair amount of checking and tinkering, otherwise the plane failed to take off or crashed shortly after take-off. The most important tool was a comprehensive checklist.

The critical challenge of agreeing commercial terms is the penultimate activity before ‘the closing event’. This essentially involves trade-offs between cost and anticipated value. The buyside argues cost (and if procurement gets involved it will almost inevitably try to divorce cost from value as is their brief) while the sellside must stick to the language of value. To fall immediately into a pricing dialogue dominated by arguments around cost is to be seduced by the dark side. Instead frame your arguments using the language of value. How challenging this negotiation is primarily a function of how well you have executed the preceding stages. Though you will be frequently told otherwise, there is little in truth that cannot be anticipated or established before the negotiation to ratify final terms. An agreed methodology to evaluate value will at the very least enclose the discussion within parameters that make reaching agreement easier. The result we get may in part be down to our planning and negotiation skills but in much greater part it is down to leverage. Leverage is power and that power is found, created, built, adjusted, and understood as the process unfolds from first contact. In sum, the most skillful closers are those who know how to create leverage and use it to shape their counterpart’s decision-making, so that they seek in their own interest, terms that closely resemble the ones the closer set out to achieve in the first place.

 

A conversation with Ffion Rolph, Rapid Innovation Group Project Director

RIG’s summer intern, Nadya Kelly, sat down for lunch with Ffion Rolph, RIG’s project director. Over some pizza and coffee, they discussed Ffion’s time at RIG, technology interests, and gender issues.

NK: How did you end up working for RIG?

FR: Honestly, I came out of university, and like most people, didn’t really know what I wanted to do. I had a couple of ideas. I’ve always been into politics – I studied it at university and had been working at the Welsh Assembly for a while before I came across RIG. A friend knew someone who worked here. I decided it looked interesting and after meeting Shields a few times, it seemed like the right fit.

NK: What did you want to do as a kid, and how does working at RIG square up to your first aspirations?

FR: When I was younger, I was (and still am) really into sports. I wanted to be the first female Formula One champion. I’m a bit of a speed freak. As I got older, I wanted to be a barrister for a while, but I’ve always had a strong interest in science and technology. I feel like at RIG, I’m really engaging the geekier side of my personality and getting to indulge that.

NK: What do you say when you meet someone new and they ask you what you do?

FR: I tend to tell people about the tech and the specific challenges that I’m working on at the time. I find giving examples really helps. Most of the time people find those technologies interesting so it’s a great starting point!

NK: Do you enjoy having a broad scope of work at RIG or would you like to delve further into specific companies that really interest you?

FR: Deep down, I am probably a generalist. I really like variety but sometimes it can be rewarding or even essential for RIG to develop an intimate understanding of molecular level science. We have to get to know the industries in which we work, inside out. I enjoy new challenges, learning about new technologies, and maintaining the possibility of getting involved in many different fields.

NK: The natural next question is what are your specific interests in technology, and what do you think is particularly interesting right now?

FR: At risk of sounding cliché, energy is a huge challenge facing the world right now. There’s an emphasis on finding solutions for energy generation but that really is only half of the puzzle. Now we have a variety of renewable energy sources generating intermittent energy, there will be challenges to do with ensuring supply if we are to successfully transition to a renewable grid.

The automotive industry is really what is driving things forward in terms of battery storage but I think there’s also space for other solutions that might be more geared towards grid-scale storage; things like Compressed Air Energy Storage (CAES). I think that the energy storage challenge definitely needs a bit more attention and funding over the next decade or two. Once we match storage with generation, we will have a complete solution.

The other thing I think is probably water. I’m going for the big themes! We’re always told that the world has enough food to feed itself two or three times over but that we just can’t distribute it. With water, we will have to address increasing shortages otherwise we face significant political and humanitarian consequences.

I think people are starting to become aware of the issues around meat and how much energy it takes to create one serving of beef, for example. People are starting to think about sustainable farming, how we distribute food to the areas of the world that need that food. We might be looking back at subsistence farming, which is how agriculture started. So I don’t think food is so much of a problem, but water, especially with climate change, is going to become a very scarce resource, so making the most of the water that we have, being able to reuse it, treat it efficiently, to use less energy when treating it, is going to become very important. So, what’s interesting today is working with the technologies that address the treatment of water and the energy required to use it.

NK: Do you enjoy a particular part of the process of helping companies to grow the most?

FR: I think because I like learning a lot about new things, the first few months – which are all about having conversations with experts in the market, learning about why or why not a technology might be interesting, becoming an expert in that sort of space – is always very satisfying. If you have any intellectual curiosity, you’d love doing that kind of thing. Once you’ve got enough knowledge of the market to understand how the technology might succeed, it’s very exciting to put together significant commercial deals either with a large internationally recognised partner – the Veolias of the world – or to get involved in direct sales. There is a certain excitement involved in sales and a sense of achievement in completing any deal, so I think that’s probably where I would look to focus in the future. I’ll still retain the intellectual curiosity but I think putting together relationships to deliver technologies that make a sustainable and meaningful difference to people’s lives is fairly exciting.

NK: Given a good idea, do you think your experience at RIG means you would now be excellently placed now to become an entrepreneur?

FR: Definitely, and I’d like to think if I came up with an idea for a company and there was an opportunity to do something then maybe I could build that within RIG. I wouldn’t want to hand it over to anyone else. If I started a company tomorrow, I would grow it by following everything that I already do at RIG to the same principles. I would love to be able to do that one day. I mostly want to own a restaurant which is still being an entrepreneur but a bit more on your feet!

NK: Do you think there is a gender issue at RIG? Is it problematic?

FR: I think when you look at the company, yes, it is easy to think that there’s a gender problem because there aren’t many women, and all the equity partners and directors are male. I don’t think, however, that there’s any lack of desire to hire more women. We would really like to have more women on the team; we’d like it to look 50:50 at least.

While RIG has its part to play, there is also a societal challenge around getting women into STEM subjects and careers. We still want to do everything we can to change that. I play an active role in recruitment: I place vacancies for grads and interns, and the ratio of applications that we get is really five-to-one male to female. So, while we want to hire more women, when the pool is so biased, it can be difficult. That isn’t to say that we don’t make a concerted effort to hire women but it does highlight part of the challenge faced by RIG and companies like it.

So yes, there is a challenge around gender at RIG but the company undoubtedly has several feminists, including men. Everyone, including women, can be guilty of internalised sexism but RIG is definitely an atmosphere where those notions can be challenged. People are very open to new ideas.

NK: What’s been the most challenging thing for you at RIG?

FR: Learning to understand that not every company we work with will succeed. Obviously, what we are interested in is building companies that solve macro-challenges, global challenges. Some of those companies may grow to be very big but Shields has always said we’re quite good at keeping companies going or maintaining a reasonable rate of growth, but that’s not why we or any of the entrepreneurs we work with are doing this. It’s a cliché but it comes with the idealism of entrepreneurs: they want to either ‘change the world’ or build huge financially successful companies. I still do and will always find it difficult when we stop working with a company. There are many reasons why: the company stops being successful; we discover that there is no market for its technology; or there is a technical issue which cannot be resolved. Regardless, it always feels a bit like a break-up.

I’ve worked with a few technologies which, on paper, sounded great. There was one which had a great story… We were setting up conversations with global players across a number of industries. Things were progressing well but once we started testing programmes with some of these potential partners, the technology did not perform as expected. That was sad and it’s fair to say I found it tough.

NK: How do you address the subtle diplomacy involved in dealing with clients?

FR: I think you have to be fairly emotionally intelligent and have a good deal of empathy. I think you have to remind yourself that even though it may be clear that the market is saying one thing (i.e. it challenges the entrepreneur’s views), you have to imagine that if you had developed the technology over 3, 5, 10 years like some of our clients, it would be like your child. If someone tells a parent their child is naughty or does something wrong, the parent doesn’t take kindly to it. It might be a weird analogy but I think you know what I mean.

All of us want to see the technologies that we work with succeed, but it’s all about how you deliver messages. We’re all on the same team at the end of the day. We have the same objectives but the honest feedback is not always what people want to hear.

It is important to appreciate they (our clients) are experts in what they do; visionaries who’ve developed something entirely novel. They’ve seen an opportunity, they’ve developed a great idea, they’ve built a technology. That requires a great deal of capability so you have to be conscious that some of their objections are quite valid. It doesn’t mean it’s not sometimes frustrating!

The draw of a silly assumption

On paper it might make sense: hire a commercially minded executive who has ridden the tiger at a fabulously successful growth company, who has been there and done that, and low and behold the same result will transpire. Unfortunately, this will rarely happen in practice (at least not in the formative stages – see below) yet it is an assumption that in the sweaty heat of entrepreneurial aspiration is alluring.  It follows a predictable path in how we seem to process success and failure. If a project or indeed a company is hugely successful it is all down to us; if it fails it is because of someone else or some external factor. The ‘us’ part in business (most especially in the mythologising realms of entrepreneurship) tends to be reduced to the individual ‘hero’ leader and while individual agency and inspired leadership are critical, this is the most demeaning of fallacies to co-workers – as if they were simple appendages in constructing success. The art of building the successful venture company is a team sport. There can be no leader without a team and no team without a leader.

Of course, if we bet that hiring the battle-hardened veteran (the ‘grown-up’ as some VCs might put it to shepherd the innocents), will put the world to rights then the odds are high that a mismatch is on the cards. No matter how brilliant the manager, if the product sucks there is no salvation. If the new manager has led a team that grew from 20 to hundreds and built revenues from a few miserable millions to tens of millions then it will matter not one jot if that difficult-to-find first market has not been found.

In truth, growth managers who know how to build a company are valuable. They matter but they only matter once the company has located itself in the slipstream of a market that will pull it from being a start-up to a venture scale company and beyond. Before that, there is nothing to build on. All too often the ‘been there done that manager’ is hired too early. Their experience and competence has been forged in harnessing and exploiting the demand unleashed by locating a breakthrough market. Their expertise is in scaling – in driving and underpinning growth with structure and process. Their challenge is not the pioneering and discovery work that must always be undertaken and which so often limits the growth prospects of aspirant company.

Competent growth management will determine the parameters of a company’s success. They enable the scaling process. But they are not the answer to finding strong organic growth or to addressing product design challenges. That is not their role.

 

First impressions of life at RIG

It’s the end of week two working here for me at RIG (well, it was at the time of writing) and it’s time for me to give a little bit of detail to what I’ve been up to, what I’ve learnt, and first impressions of the company.

It’s started as a little bit of acronym bombardment, full of TAMs, IPPs, OEMs and IPOs and a healthy dosage of blockchain chat from David. Slowly, I feel like I’m getting accustomed to how things work in the office, small company culture and RIG’s careful line between scrupulous professionalism and the informality fostered by the no rules, less job titles and meritocratic culture. A session on RIG’s unique business model went a long way for helping me to get my feet, and, along with sitting in on a few calls and process meetings I’ve been well informed by all on the overarching picture of how exactly RIG executes their whole range of varied tasks for clients; as Ffion described it- how RIG gets to be the commercial branch of start-ups in practice. Besides from gaining better insights into what everyone else does (including, importantly, what James has been doing as a member of the jury on a murder trial), I’ve been given my own overarching projects to carry out- a client project and an internal project. It certainly hasn’t been a slow acclimatisation to the task- I’ve certainly been flung into a market validation task for the client project just like everyone else does regularly, which involves a lot of intense googling, Linkedin (and Viadeo (?)) searching, and occasionally translating into French, but it’s pretty great to be given the freedom and responsibility to take charge of what I’m doing here and (hopefully!) create a valuable piece of work by the end of it, where I’ve had a chance to really get to grips with all aspects of the tasks execution.

What’s struck me quite a lot is both the breadth and depth in RIG’s remit- Simon may develop a very in depth understanding of banking regulation system in Romania for one client; but as well as the variety that comes with swapping to different subject matters, such as suddenly becoming an expert on non-invasive diabetes diagnostics technologies, he also gets to dictate and execute a varied range of different tasks for each client: whether it be closing client acquisition deals, deciding routes to market in a new geography or applying for grant applications- which are just a few of the tasks I’ve seen people working on this week.

After this fast-paced start, I’m really looking forward to getting stuck in to my project over the next six weeks, and learning more about the business and tech people at RIG are excited by- hopefully picking up some more acronyms on the way!

Thoughts on Crypto Assets, Initial Coin Offerings, and the Utility Value of Blockchain Technology

Thoughts on Crypto assets, Initial Coin Offerings, and the Utility Value of Blockchain Technology

New to Bitcoin, blockchain, and cryptocurrencies? Read this primer

A new asset class

I am a believer, or maybe I just want to believe. Is this Amsterdam in the 17th century? My view is: no; a new asset class is emerging, and we are about 45 seconds into the evolution of the species.

I have read yet another sceptical article on Seekingalpha this morning, specifically focussed on the Bitcoin (BTC)/Bitcoin Cash (BCH) split.  The author’s supposition is that there is evidence of a bubble in Bitcoin because the combined value of the two coins (BTC and BCH) straight after the split did not closely equate to the value of Bitcoin before the split. Discuss.

It is a reasonable argument that someone coming from equities perspective would (or perhaps should) make. However, there is a large debate to be had around the utility value of the new coin (and the original coin) – this is not a stock split, after all.  Then there is a further debate to be had regarding the value of an asset that is perceived to be neither created in significant quantities, nor destroyed or consumed in significant quantities; this is the gold (aka ‘store of wealth’) argument.

As I see it: Bitcoin (as well as other cryptocurrencies) is currently acting as a store of wealth; the bet you place is that in the future it will remain worth something to someone who also wants to store wealth (or to whom Bitcoin has utility value). From the wealth manager’s perspective, I can also see the portfolio diversification argument: to date, cryptocurrencies have not moved in line with any of the major asset classes (unless we make the argument that quantitative easing related asset value expansion-which appears to have taken place in most asset classes in many major markets- has driven cryptocurrency values upwards).

From a personal perspective, I agree with the portfolio diversification and store of value arguments.  From a professional perspective, I continue to seek to understand how this emerging technology fits in with businesses, which for me, is anywhere it has utility value.

A view on utility

Over the last three years the investment community has made an argument that value lies in the underlying blockchain concept as much, if not more than, the individual ‘currencies’ – and that blockchain use cases can drive value in cryptocurrencies/assets/ tokens (some of the many terms applied – and from here in this article, ‘crypto’) through giving them utility.  Off the back of this narrative we have seen a diverse group of businesses emerge where the phrase ‘blockchain’ appears, to some extent, to be relevant to their business models.  That word alone has led to millions of dollars of capital has been raised through initial coin offerings (ICOs), preselling crypto before its utility value can be unlocked – normally because the environment for its application has not yet been created.

The value of these ICOs has become so significant that major regulators have taken an interest in the market.  I would argue that the prior lack of interest related not so much from a failure to recognise some of these ICOs as ‘pump-and-dump’ schemes, but more because the value involved is low with very few (retail) investors involved.  Not a place to deploy the limited resources of any national regulator.

The first thing that readers should understand is that, as I currently perceive this technology class, there are two aspects that provide utility to businesses: one is as a currency, i.e. as a tool for enabling transactions.  The second is through the crypto token concept, where ‘tokens’ represent a play which is either equity-like (so get regulated if you want to participate here), or as single use objects that can be applied in a specific ecosystem.

Initial coin offerings

These tokens are interesting: one could use these purely to raise capital for a business, and in fact with good governance regime it may make the concept ‘shares’ significantly less relevant – why seek to operate an international business, yet confine business ownership to those who can access the confines of a single regulatory domain (which may not be easy to access to all those who wish to participate in the business)? Instead, one can buy-in at the inception of the business via a token (usually exchanged for Bitcoin), which is subsequently easily transacted on exchanges in the major markets i.e. China and the United States.

Tokens also have a single (/limited) use utility model, i.e. as a non-equity type instrument, enabling an entity to buy in bulk a token at an ICO that will provide utility in markets that currently do not exist, and through doing so providing upfront capital to enable that community to come into existence.

A key part of the process for those seeking to raise capital through an ICO is the ‘white paper’, and I see no likely change to this approach soon.  Somewhat like a share prospectus, a white paper demonstrates to readers how a team (primarily a technology team) intends to use crypto technology (blockchain) to create a marketplace, often to replacing existing markets. The quality of this white paper cannot be understated – it is critical to raising capital in an increasingly educated market.  Other critical elements that support capital raises are emerging to support the white paper – particularly a detailed track record of those on the team (because now some individuals are into their second or third crypto business), as well as the existence of a quality advisory board (and the existence in that team of those with significant experience in the proposed market operation adds considerable weight).

One challenge I foresee for the ICO marketplace is that of credibility – we will have a bust, or a series of busts, because many of the teams who have raised tens, if not hundreds, of millions of dollars in funds will either squander the capital (or incompetently deploy the capital, depending on perspective) whilst seeking to create markets. Investors will lose confidence on many occasions.

Practical application within growth technology businesses

Coming back to the companies I work with, the concept of blockchain and crypto is less interesting from the perspective of ‘imagining’ a new business (and running speculative ICOs), as it is to supporting businesses that already exist.  Many companies, although they will not be aware of it today, will need to implement this type of technology in the future.  This will be either to retain competitive advantage or to source new funds.  Where I believe companies that I work with can leverage significant advantage is where they have an existing business and a proven business model.  Given the nature of crypto tokens – they can be created, destroyed, and traded – and the enthusiasm that exists around ICOs today-they represent an extremely interesting way to propel a business forward.

Yesterday I presented one company I work with to a group involved in fundraising for crypto.  To say that the response was ‘enthusiastic’ would be an understatement.  What they saw was a valid application for blockchain technology (as opposed to paying ‘lip service’ to the concept), along with a significant number of market participants already working within the defined ecosystem – which to me is what these blockchain-based technologies best enable, given their role as a medium of exchange.  To someone seeking differentiation during fundraising in a market dominated by ‘get rich quick’ scheme noise  selling ‘ vapourware’, seeing a real business is something that creates significant excitement.

My subsequent call with another business I am working with moved to crypto.  Within two or three minutes we were discussing how this type of technology could apply to his business – where two days previous there was an awareness of blockchain, but no detail around how support could be provided by the technology class – and within five minutes we had identified how blockchain technology could be leveraged by their business (again, a business with a considerable number of customers, and a strong blockchain applicable model foundation) to provide differentiation, and utility.

The Future

I am a strong advocate of blockchain and crypto, and will continue to be so.  The ICO market is increasingly hard to ignore – if only because of the vast amounts being raised through these crypto sales.  It is certain the crypto market will go through a few booms and busts, but where there is utility value within well understood marketplaces there is a significant opportunity for businesses.  I expect to be working with several companies over the coming months of projects to investigate how this emergent area can bring value to their work.

 

The economic challenge that must be incorporated into design

Recently I have been working in the renewable energy field and two pieces of insight highlighted two key mistakes that innovators, but particularly engineering and science based start-ups, are prone to making.

Mistake 1: talking to the market after key design elements have already been locked down.

Mistake 2: failing to consider the economic envelope in which their innovation needs to perform.

Payback hurdle

The first insight we received from several market participants, in multiple geographies, was that the product in question would need to payback in under 7 years. The reason for this was that each of them had previously tried to play in the segment and had been burnt by products that failed to live up to their production and economic claims. Consequently, potential adopters wanted something that came with a lower risk economic profile. The line that was drawn in the sand was that it must have a payback below that of a comparable substitute technology that was well established and had a payback of around 8-9 years. It is important to note that whatever the hurdle rate to be successful, the technology in question must be able to achieve this without reliance on incentives or subsidies (these should just be cream on top) due to the unstable nature of government policy.

Price elasticity of the segment

The second insight related to the price elasticity of the market. We were told that no matter how much better the new product was compared to the existing direct competition -or substitute technology- there was an implied capital ceiling that buyers would pay for such a product, beyond which the number of buyers would reduce dramatically. For example, even if product A gave 2x or 3x more output than product B, customers would never pay more than £YK (~ 20% greater than the price of product B) for a product, no matter how better it looked or how better it performed. So potential channel partners took this implied market ceiling as their starting point and then looked at what margin they would need given their cost of sale and likely sales volume (which was ~20% of Y) and said you need to sell us the new product at £0.8YK.

The new challenge

Therefore, the engineering challenge is now not solely how do I get x output or x% increase in output compared to existing products to give me an improved cost per unit of measurement. But how do I do this within the envelope of the key economic performance indicators used by those who have the ability to adopt my technology at scale (e.g. payback in under 7 years) and below the perceived maximum capital budget that the market deems as value for that size/type of product. If you are able to engineer a solution backwards from these constraints, then you potentially have a winning proposition that can dominate a market.  The obvious inference here also, is that this is as much a supply chain challenge as an engineering design one. And this does not remove the need to have improved performance compared to competition or to address any aesthetics challenges that existing products may have, these too need to be overcome in the design.

Bringing the market into the design stage

So then, comes the question, how do you know what is the economic performance and capital budget envelope within which you need to play? The answer is simple, speak to the market from a very early design stage and find out what needs to be true economically for them to adopt your product at scale. The challenge here, and one which Christiansen identifies in The Innovator’s Dilemma, is identifying the right people to speak to who will give you the correct insight. By developing an ideal profile of who likely adopters of your technology may be, and what an evangelistic adopter might look like, you can mitigate this risk of false insight.

The key at this early stage is not to lock down your design, supply chain or revenue model until you know they enable you to meet these key metrics or until you can show a route to these (e.g. via economies of scale that potential customers could deliver).

 

Air pollution: a public health concern

Cycling home over Waterloo bridge a couple of weeks ago I was surprised by my breathlessness and coughing fit that ensued. At first I thought it was a testament to my fitness levels, but turning on the news that night my concern grew from its initial trivial and personal worry.

The cause of all this, as I am sure you have all been reading about, was the unprecedented levels of air pollution which set upon the capital earlier this month.

london smog

Some claimed it was a result of the weather: low wind and high air pressure. While weather contributes to high air pollution episodes, this isn’t an issue to be dismissed.

The UK has broken EU air quality regulations every year since 2010.[1] We often complain about China’s level of pollutants and smog which engulfs its cities. Well, on several occasions between 17th and 24th January, air quality was worse in the UK capital than in Beijing. It is estimated that air pollution causes almost half a million premature deaths in Europe alone.[2]

Hopefully my aggregation of recent news facts should convince you that this is a serious issue.

Indeed, more needs to be done on the international stage with stricter enforcement of legislation. Coming down hard on car companies involved in recent emissions scandals is a good start. Governments also need to be held accountable to ensure they stay under legal air pollution limits.

These reactive punishments will hopefully deter such practices in the future. However, to effectively combat air pollution a proactive policy is necessary; a policy at a political and institutional level but also at a personal one.

In a recent discussion about a circuit-level electricity monitoring technology we are working with, part of its value was neatly summed up by the simple sentence: “you can’t make decisions with your eyes closed.” The same sentence applies here too. A range of air quality sensors and geo-mapping technologies are being utilised to understand where and when pollution is at its worse.

This data alone, though, is not the complete solution to combating air pollution and technology will play a significant role in combating and limiting air pollution in our cities. Chemists and physicists are applying smart technologies to remove toxins from the air. For example, Metal Organic Frameworks, a class of porous nanomaterials, could be used to adsorb certain gasses from the atmosphere or to scrub waste gasses from industrial processes. These porous nanomaterials could also be utilised to make viable alternative fuel sources for transport e.g. Natural Gas Vehicles.

On the topic of transport and vehicles, the proliferation and uptake of battery technology will be significant over the next few years. Cars contribute greatly to the pollutants in the air, and advanced battery technology will enable Electric Vehicles viable for the mass market. Batteries will also be hugely significant in developing  sustainable grid infrastructure, unlocking flexibility in consumption and generation assets.

Air quality is a major public health concern. These technologies will play an important role in reducing the amount of pollutants in the atmosphere.

[1] http://www.independent.co.uk/news/uk/home-news/london-sets-modern-pollution-record-air-quality-sadiq-khan-a7550961.html

[2] http://www.bbc.co.uk/news/world-europe-38078488