Occam's developing world

In the past I have written a few things about Occam's Razor and how, to paraphrase, it is stupid. Recently Rebound has been diving head first into our work in Mozambique. While we have been there a very striking example of Occam's Razor has manifested itself. In short, what has struck me is the way people developing and funding technology for the developing world tend to subconsciously oversimplify the issues the developing world face. In lieu of this oversimplification, we default to an Occam-style approach to tech development: make it simple, make it stand alone, and make it clever. Ironically, this approach often leads to technology that is inappropriate, expensive, hard to upkeep, and just down-right silly.

I will get to Rebound's experience in a second, but I want to highlight one example that has received a bunch of press in the developed world. Enter, the Soccket: a soccer ball that charges a small internal battery that can then be used to provide light at night. This solution defines the classic problem with developing world technology: it pre-supposes that the developing world is a blank slate where a technology must be developed from the ground up and handed out from the back of a truck.

The Lean VC

Today, nothing is hotter than a “Lean Startup”. The general concept goes something like this:

The runway of a startup is not defined by a period of time, but by a number of pivots. To be successful, the startup should therefore, aggressively pursue pivot opportunities through early commercial exposure through “minimum viable products” (the clougiest thing that the startup can get anybody to actually buy). In other words, guessing what technology is going to work in the market is hard, so it is better to setup your company so you can aggressively test your ideas. 

At Rebound we have tried (as difficult as it is in Cleantech) to adopt this strategy in each of our technologies. Still, we get a LOT of pressure to do things "leaner" and I think that we are reaching the point where, at the very least, every entrepreneur on the planet has at least heard of the "lean" concept. The next step is obvious, and will likely be significantly more difficult: create a lean VC process to accompany the lean startup. So, what would that look like? Lets figure it out!

Optimally Naive

It's never feels good to be called Naive. But when it comes to startups, I want to propose the idea of Optimal Naiveté. This idea has been cooking around in my head for a few months on two levels.

First, I think any person doing something that is actually disruptive has to be incredibly Naive about how easy it will be. I know this is true about myself. Even today, after spending 2 years running full speed into walls, I still feel like, if I just sprint a bit faster, I could really change the world. Every day it occurs to me how stupid this is, but I just can't shake the Naiveté. But this is just the obvious "startups are hard" kind of statement that everybody says. I don't think this Naiveté actually helps Rebound be more successful outside the fact that, if I was more down to earth, I would have just gotten another job after the first wall / Russell interaction.

The more important  way that Naiveté effect success is on the technical / idea level. I think for any industry, if you had an impossible amount of data, you could construct a plot that looked like this:

success or not, hard to tell...

Several months ago, I purposefully stopped writing in this blog due to my own frustrations with the difficulty of getting Rebound funded. This frustration stemmed from several consecutive failures in a period already filled with other, more personal and impacting failures. In the end I stopped writing in the middle of several posts (which now I will try to finish) because I no longer cared to try to improve such a terribly impossible system.

That feeling has now ebbed a bit. And as it passed, I wanted to capture one side of it: the realization that, due to our own human limits, it is hard to even imagine what success looks like.  

A great analogy for this observation is the way we think about evolution in nature. For even the minority (pathetic right) of Americans who understand evolution to be the way all current living things have come to be, we tend to think about it in terms that we can understand: “survival of the fittest”.

The blind helping the blind build our future

A blind man stands at the edge of a busy street clearly wanting to cross. Other pedestrians crossing stop and ask him if they can help. To each he asks "can you see?" and when the pedestrians answer that "yes, I can" he sends them on their way without crossing. Eventually, a pedestrian answers that "no, I can't see because I am also blind". The bind man quickly grabs the hand of this pedestrian and ushers them towards the road. "great, I feel much more comfortable crossing this road with someone who I have so much in common with!" 

We are all blind to something. Nobody knows everything or has such a diverse set of skills that they can look at a problem from all the angles at once. This is why diverse (I will define exactly what I mean by that world in just a second) teams are more creative, adaptive, and successful than homogeneous ones.  But in the investment world, this homogeneous approach is what persists: The folks who must make the decisions assemble blindly homogeneous teams to help them make those decisions. The result is predictable... failure. 

Efficiency: to much of a good thing

Efficiency is a concept that all people, not just engineers, grasp onto: an increase in efficiency is always good. While I have no issue with the general concept, it is dangerous oversimplification that implies efficiency is somehow a better metric. In reality, efficiency is only the easy metric, not the best metric and an over reliance on efficiency to sort technology into good and bad ideas leads to higher overall cost solutions and extreme waste. The problem is one of path functions. When a technology is created it starts somewhere on its cost-efficiency curve based on the constraints of the day. It is improved from there, at an increased cost, until we have a large understood technical space built up around the technology. This works great when constraints stay the same, but when the constraints change, the technology is now up a curve without a paddle. 

Blind Decisions

The extent to which we fail to choose good companies to invest in is often understated. Instead, it seems to be accepted that VC, grant, angel, or any other type of funding method just can't do that much better then other markets. Sure, a hotshot VC may outperform the stock market, but they are not going to get a 10x return on every investment they make. On average, VCs only get that kind of return on 20% of their chosen companies and the rest given them more or less no return at all. So overall, most give boring returns in the 10% range. In cleantech especially, investments has really failed to return the types of returns LPs were expecting (see mass exodus of LP support for cleantech based VCs) 

However, the simple fact that some investments do give yield massive returns should still encourage us to pursue better ways of choosing the companies that are invested in. This should be even more compelling in the cleanteh space where the potential markets are well established and gigantinourmous. But before we can really invent a new investment decision mechanism we need to take the current method, stab it in the heart with a wooden stake and put it in the ground.

To that end, I have recently been experimenting with very simple model that illustrates just how bad the current decision mechanism is at picking companies that will go on to be successful. The model is based on an allegory for our decision mechanism based on the "blindness" of the people choosing which companies should be invested in and which should not. The model gives some interesting insights into how terrible the current system is at really finding good companies to fund.