Reflecting on the question of “what’s different?” for life after COVID, I am drawn to a lesson from trying to start a business in the power generation sector.
This venture started out with an algorithm we developed to detect very high consequence failures in combined cycle power plants. Turns out that these high tech pieces of equipment occasionally fail when a piece of hardware inside the engine shakes loose and goes flying through exquisite, single crystal turbine blades. While infrequent, these events can be catastrophic, costing more than $10 million per occurrence and leading to lengthy outages.
Our algorithm worked really, really well at detecting their precursors and successfully prevented them. We priced the software so that its cost was well under the cost of a failure multiplied by its probability of occurrence. We had demo’s and customer testimonials. I was on track to fame and fortune….
Or not. Turns out that we were trying to build a business model around resilience and I quickly learned the hard way that selling resiliency is a tough business. While my particular experience comes from the power generation sector, I suspect the same holds true in most any other sector. From a societal point of view, it makes good sense to invest in preventing low probability, high consequence events. But for a single asset owner, the low probability of occurrence may not pencil out. We found that the people who bought our software were generally those small number of unfortunates who had one of these major failures, certainly not enough sales volume to build a company around. We also learned that devising innovative products that could reduce near term costs or increase efficiency was a much better business, and adjusted accordingly. In other words, we pivoted from a focus on resiliency products to efficiency.
“Resilience” refers to the ability of a system to handle deep shocks, possibly highly improbable but very consequential events. Looking at the marketplace, the most successful ventures are structured around innovative products and business models, usually that work efficiently and are robust. Resilience has a clear cost, and often stands in tension with cost minimization and efficiency. For example, businesses are streamlined with minimal spare cash, optimized supply chains, and just-in-time delivery.
Which brings me to COVID. We are going through a grand experiment in resilience – the resilience of business and society as a whole. It is very clear that highly rational decisions we have made to build robust, streamlined operations and business across society, in the face of a competitive business environments and overcommitted government priorities, have also implicitly valued efficiency and cost over resilience. I’m not blaming anyone – If it were up to me, I would have made the same decisions.
So as we ponder lessons learned and what to do after the dust has settled, lets act now to make the policy adjustments. Resilience is something that the market won’t support, but yet is in clear societal interest. We need to develop the policies to incent resilience- the myriad of subtle tax breaks, incentives, write-offs, or depreciation schedules that will motivate hardwiring resilience into our supply chains, businesses, individual and family finances, non-profits, and local governments. We need to encourage savings and investment broadly. We need to take a top to bottom look at the implicit incentives our policy frameworks have in place, and make sure that there is a foundation that is promoting resilience. We need to do this now, before COVID is in the rear view mirror, and we get back to our focuses on efficiency.
I’m reminded of the phrase in banking: “Return of investment first, then return on investment.”Faced with a worst-case scenario of societal collapse, we are soberly reminded of the need to have resilient systems that form the platform for a prosperous society, where increasingly efficient and productive systems create wealth and well-being.
About the author: Tim Lieuwen is Founder and CTO of Turbine Logic. He is also Regents’ Professor, David S. Lewis, Jr. chair and the executive director of the Strategic Energy Institute at Georgia Institute of Technology. He is a member of the National Academy of Engineering.