Thanks,

Lee

cokerlee (at) gmail (dot) com

I attended the ARPA-E energy innovations summit last week.  ARPA-E is under the DOE and funds early stage research and companies in clean tech.  There were over 100 "companies" (some were universities/one person/etc) that exhibited and many of the solar companies had banners that said something to the effect of "we can do this at 10 cents a kWh".  I didn't get into what if they had compromised their tech or their supply chain or if it simply wasn't true but I imagine it was at least one of the three. 

The problem is that everyone is racing to the 10 cent solution.  But what this recent Harvard study shows us is that coal is likely not even the cheapest form of electricity that we have, it's just that we are willing to pay for it with negative externalities like childhood asthma. http://inhabitat.com/harvard-study-reveals-coal-energy-to-be-one-of-the-most-expensive-forms-of-power/

I would argue that grid parity is also somewhat of a false choice.  By that I mean it's not just either we have solar at 10 cents or coal/nat gas at 10 cents and no other reality is possible.  What if we relied on true cost accounting to determine the price of our electricity?  If we factored in the negative externalities of fossil fuels, most renewables would likely be at grid parity right now.  

At the same time I understand the argument that increasing the cost of electricity affects the poor in a greater proportion than the wealthy, much like a sales tax.  However, the negative health and environmental impacts of fossil fuels also have a greater financial and social impact on the world's poor. 

In the end, the best thing we can do is tax what we don't want.  While incentives and subsidies are a compromise until the true cost of fossil fuels is clear to the consumer it will continue to be difficult for clean tech to grow to the size we need it. 

He had a great line of questioning for the large group of MBA's in attendance that relates strongly to investing:

1) How many of you think you're in the top quartile of intelligence in the room?

2) How many of you think you're in the top quartile for looks in the room?

3) How many of you think you're in the top quartile for height in the room?

He said for the first question about 85% would say yes for number two about 60% and for number three about 50% even though you can look around and know if it's true or not. 

That's stuck with me for the past couple of weeks.  I think one of the things I've learned the most in business school is the need to really understand one's strengths and how they add value.  It's important to leverage those strengths to also generate confidence in your work but not to let your ego allow you to think there's more to you than there really is. 

When investing time or money it's important to be able to gauge your own ability and work from there.

We sit, we "listen", we occasionally say something smart, and then we go back to checking our blackberry or daydreaming depending on our age.  I can count the number of impactful experiences I've had in the business school classroom on one hand.  Honestly, that's fine with me because I've done plenty of experiential learning outside the classroom and will continue to do so once employed because I'm to the point that I understand that is how I learn the best.  The problem is that many people don't, especially 5th graders.

So how do we build experiential learning into a curriculm filled with standarized testing?  In a way, we're trying to catch up to China and India's math and science skills. (Check out Freakonomics for some interesting facts about how kids there go to school for 1.5x the time that kids here go to for and then you understand a piece of the gap)  We'll never get there. I haven't seen "waiting for superman" yet but I know they talk about American students being the most confident in being smart even though we rank like 35th.  And many of my friends and wife have talked about how bad that is. 

I argue that is what America's entrepreneurial culture has been built on.  It's that belief that we can do things others see as impossible that's made our country what it is.  That understanding of our true capability doesn't come from a standized test, it comes from rapid prototyping and getting something real out to the world.  Kids don't often do that in school, but they increasingly have the opportunity and tools to do it on the internet.  As those two merge it's going to be interesting to see what happens. 

*Defering judgement helps build trust

*When designing something, start with desirability

*Try to find the extreme users of things to understand the possibilities that may exist for that product or new products

* Frame questions in a way that encourages people to tell stories and doesn't lead people in a specific direction.  For example, why don't you brush your teeth?  would be a leading question where as Can you tell me about how you take care of your teeth?  might help you get a better idea of how to solve the problem. 

* People appreciate someone that really listens to them

* Innovation requires one to follow a disciplined process

In many ways design thinking is complementary to business thinking if you can slow down the business brain enough.  Many will say they are opposite but I would argue it's just a different process that uses many of the same filters of decision making just in a different time frame.  I think the hardest thing about it is waiting to solve the problem.  With design thinking the solution comes weeks after the initial challenge has been discussed.  In business thinking we are taught to solve the problem as quickly as possible and rarely question the question.  However, I would argue that these two disclipines are beginning to merge as each side sees the value in the other.

*There are now more people on earth with mobile phones than toilets

*SOCAP is going to do a conference in D.C. with Hillary Clinton

*USAID spends $26B a year in 90 countries

*Generation now has 7B AUM!

*Right now they're generating about 8% alpha using publicly available ESG data to assist in their valuations/due diligence

*5% of their profits go to their Generation Foundation

*Campaigning NGO's keep all business honest

*Career Advice: keep your values in tact even if you have to take a lesser position and remember that hard work and luck both matter a lot, consider your career a marathon

*The real business case (increasing revenue or decreasing costs are the only two options) is not being made strongly enough at business schools

I think history will reveal the main reason behind the BP spill was not profit seeking greedy capitalist pigs but rather total incompentence on the part of large corporations to organize effective systems to manage environmental and social risk (as well as a host of other things). 

So what does BP do now that they have realized that this is a problem?  Create a safety department.  Now, isn't it this heavily departmentilized culture of silos that caused the distaster in the first place and also caused such a slow, poor response on behalf of BP to ameorliate it. 

I would argue it's not that they need a safety department but they need to ensure that each department throughout the business is assuring the safety of what they are doing AND talking with the other departments that are working on the same project.  I would be willing to bet of the 100ish people that worked on the development of the Manoco project, over 50% of them never talked to each other. 

http://www.guardian.co.uk/business/2010/sep/29/bp-bob-dudley-new-safety-division

I wonder if they are considering this value when making decisions related to the oil spill.  Obviously, they are concerned with brand reputation with all their advertisements but I wonder if they actually try to put a value on the depreciation of their brand equity when they put out reports blaming the other companies vs. how much they will save if Halliburton or Transocean has to pay out some of the claims.  It seems like you wouldn't need many more assumptions than a standard corporate finance problem. 

It's also interesting to consider how BP got to be the most respected brand of oil company (not a huge feat).  Now that this has happened everyone seems to be saying, "oh we knew all along that BP wasn't safe with their history of neglect".  I guess we just loved the beyond petroleum commercials too much. 

see Interbrand rankings here: http://www.interbrand.com/en/knowledge/best-global-brands/best-global-brands-2008/best-global-brands-2009.aspx

Nonetheless, this is a great article on some of the nation's largest banks rejecting or withdrawing financing for mountaintop removal of coal and other environmental destruction.  I am taking a lot of entrepreneurship courses right now and I will donate some MBA wisdom to the likes of Massey Energy (one of the main mountaintop removal companies);

If the big banks (none of whom are really known for risk aversion) are unwilling to loan your balance sheet rich business money due to how you make your profit, it might be time to alter your business model. 

http://www.nytimes.com/2010/08/31/business/energy-environment/31coal.html?hp

http://www.carbonprinciples.com/