How to pick winners and losers


Last week I was deep in fossil fuel country, sitting in the back of the room at an energy conference at 8:00 a.m. As I desperately wished my third cup of coffee would clear the fogginess of jet lag and the mental exhaustion of leading a workshop the day before, I heard the first presenter say something better than the strongest espresso.

It was this: “Our investments in R&D have not reached their full potential because of the Valley of Death, and we need to have the political will to try to pick some winners.”

A tired refrain in the world of energy innovation is that “we shouldn’t pick winners and losers.” It began as an argument for why government should keep its focus on basic research and let the market determine the rest. Over the years, I always grimaced when I heard the phrase touted even by some of the strongest supporters of government-funded R&D.

The problem? The phrase itself inherently contradicts how innovation happens. I sometimes joke that if we already knew what solutions would work, we could “pick winners, not losers.” But the truth is, we don’t already know. We can’t.

We can hypothesize, make educated guesses, analyze data, and extrapolate about the future. These are valuable, and they can guide what technologies the government or the private sector chooses to support. But they won’t give us the answers we need without something else: experimentation.

A popular phrase used by Silicon Valley types is “fail fast, fail often.” Sometimes this idea is taken to the extreme and can lead to rash or impatient investments. But it’s also the most effective pathway to innovation.

When you’re trying something new, there will always be more losers than winners — ideas that don’t work, missteps, diversions, distractions, and choices that in retrospect were just plain wrong. But most of the time, we can’t know the difference between a loser and a winner until we test it out. Until we try. Until we pick.

To solve technical problems, to prove a new business model, to drive change through policy, you have to do something that might feel uncomfortable or risky. Say your idea out loud. Act, even if you’re not sure how. Start.

When you try and fail, you learn things, often critical things that inform the next step. And the step after that. And the step after that.

I have also seen there can be extra magic in experimentation if it’s done a certain way. If you experiment publicly, you can inspire and empower others to try new things too. If you do it collaboratively, you create a community around a common goal that can have exponentially more impact than you might alone.

The nature of innovating — whether in technology, business, policy, or life — requires accepting the risk of failure and the opportunity to learn. The alternative — staying paralyzed by the false dilemma of picking winners and losers — means being stuck in the Valley of Death forever.

This post originally appeared on Medium.

The end of a commodity?


Do you remember the first time you heard about the sharing economy and how it would disrupt everything? For me it was at an energy workshop in the Bay Area several years ago.

At the time, the idea seemed very abstract. I had worked closely with cleantech companies like SolarCity who were implementing innovative financing models, and I knew traditional utilities were becoming uneasy about the popularity of distributed energy resources.

Still, energy felt like a difficult thing to “disrupt.” The energy sector has long been dominated by big, conservative industries with billions of dollars in physical assets. These industries reliably deliver a commodity that (at least in the industrialized world) is not a “nice to have” but an absolute essential to everyday life and business. Was the energy system something we even wanted to disrupt?

Fast forward to today. A hot phrase right now is “energy services.” This term used to refer to a narrow set of energy companies (ESCOs) that helped clients design and retrofit facilities to be more energy efficient and save money. But increasingly, new energy services companies are thinking much broader: microgrids to boost resiliency; lighting-as-a-service (LaaS); crowdfunded community solar; the energy cloud; even blockchain technology.

Individually, these services may be unremarkable. But collectively, they have the power to change the way we think about energy.

Recently I was at the VerdeXchange conference in Los Angeles, at a panel put on by the LA chapter of Young Professionals in Energy (YPE) entitled “Renewable Procurement: Disruptive Financial Models.” An alphabet soup of approaches were discussed: ESPCs, QECBs, REITs, and OBF.

Here’s the exchange that stood out to me. An investor on the panel described a financing product he had helped develop — one that takes a new approach to underwriting and a more holistic view of projects. In describing it he asked, “what if your equipment always stays new?” Meaning, what if you paid for a level of service rather than a piece of equipment that requires ongoing maintenance and eventually must be replaced. There were a lot of skeptical responses to this proposition — a lot of (perhaps legitimate) reasons why the approach wouldn’t work.

A strong or negative first reaction to new ideas is normal. No! That won’t work because that’s not the way we do things! New ideas, new models, and new technologies have something in common — they all require experimentation. Experimentation can be uncomfortable because it challenges our established beliefs and the outcome is unknown.

It’s worth paying attention to first reactions because they often highlight where there are real risks associated with change. But what if acknowledging those risks was the beginning of the conversation rather than the end?

Back to the question I was asked to consider years ago. What if the sharing economy could disrupt energy? The answer is, it already has. How successfully will depend on our ability to have an open mind about the future of energy itself — not as a commodity, but instead as something completely new.

This post originally appeared on Medium.