Tag: business concept

Something to exploit subsequently

In my last three updates, I’ve been turning around one specific topic, namely the technology of wind turbines with vertical axis. Like three updates ago, in Ma petite turbine éolienne à l’axe vertical, I opened up on to the topic by studying the case of a particular invention, filed for patenting, with the European Patent Office, by a group of Slovakian inventors. Just in order to place this one in a broader context, I did some semantic rummaging, with the help of https://patents.google.com. I basically wanted to count how many such inventions had been filed for patenting in different regions of the world. In my research I have been using, for years, the number of patent applications as a metric of aggregate effort in invention, and so I did regarding those wind turbines with vertical axis.

This is when it started to turn weird. Apparently, invention in this specific field follows a stunningly regular trend, and is just as stunningly correlated with the metrics of renewable energies: the share of renewables in the overall output of energy (see Time to come to the ad rem) and the aggregate output of said renewables, in metric tons of oil equivalent (see Je corrèle). When I say ‘stunningly correlated’, I really mean it. In social sciences, coefficients of correlation around r = 0,95happen in truly rare cases, and when they happen, the first reflex of a serious social scientist is to assume that something is messed up in the source data. This is one of those cases. I am still trying to wrap my mind around the fact that the semantic incidence of some logical constructs in patent applications can coincide so strongly with the fundamental metrics of energy consumption.

In this update, I want to return to that business concept of mine, the EneFinproject. I am preparing a business plan for this one. Actually I have been preparing it for weeks, which you can find the track of in the past posts on this blog. Long story short, EneFinis the concept of a FinTech utility, which would allow the creators of new projects in the field of renewable energies to acquire capital, via a scheme combining the sales of futures contracts, on the future output of the business, with the issuance of equity. You can find more explanation in Traps and loopholes, for example.

I want to study this particular case, that wind turbine described in the patent application no. EP 3 214 303 A1, under the EneFinangle. How can a FinTech scheme like the one I am coming up with work for a business based on this particular invention? I start with figuring out the kind of business structure to build around this invention. Wind turbines with vertical axis are generally small stuff, distinctive from their bulky cousins with horizontal axis by the fact they can work in close proximity to human habitat. A wind turbine with vertical axis is something you can essentially install in your yard, and it you will be just fine together, provided there is enough wind in your yard. As for this particular aspect, the quick technological research that I documented in Ma petite turbine éolienne à l’axe vertical, showed that the really interesting places for using wind turbines with vertical axis are, for example, the coastal regions of Europe, with the average wind speed like 12 to 13 metres per second. With that amount of Aeol, this particular turbine starts being serious, at more than 1 MW of electrical capacity. Mind you, it doesn’t have to be coastal, that place where you install it. The upper storeys of a skyscraper, hilltops – in general all the places where you cannot expect your straw hat to hold on your head without a ribbon tied under your chin – are the right place to use that device shaped like a DNA helix.

This particular technology is unlikely to breed power plants in the traditional sense of the term. The whole idea of wind turbines with vertical axis is to make it more apt to being installed in the immediate vicinity of human habitat. You can install them completely scattered or a bit clustered, for example on the roof of a building. I am wrapping my mind around the practical idea, and I start the wrapping by doing two things: maths and pictures. As for maths, PW = ½ * Cp* p * A * v3is the general name of the game. ‘PW’ stands for electric power of a wind turbine with vertical axis, and said power stands on air, which has a density p = 1,225 kg/m3divided by half, so basically that air is dense, in the equation, at sort of p = 0,6125 kg/m3. Whatever speed of wind ‘v’ that air blows at, in this particular equation it blows at the third power of that speed, or v3. That half the density of air, multiplied by the cubic expression of wind speed, is the exogenous force that Mother Nature supplies here and now.

What Mother Nature supplies is being taken on the blades on the turbine, with a working surface of ‘A’, and that surface works with an average efficiency of Cp. That efficiency is technically comprised between 0 and 1, and actually, for this specific type of machine, between 59% and 72% (consult Bhutta et al.2012[1]), which I average at 65,5%. All in all, with that density of air cut by half and efficiency being what it is, my average wind turbine with vertical axis can take like 40,1% of the arithmetical product ‘working surface of the blades times wind speed power three’. Reminder, from school: power first, multiplication next. I mean, don’t raise to cubic power the product of wind speed and blade surface. Wind speed cubic power first, then multiply by the blades.

I pass to pictures, now. A picture is mostly a picture of something, even if that something is just in my mind. My first something is a place I like very much: Lisbon, Portugal, and more specifically the district of Belem, a good kick westwards from the Praca de Comercio. It is beautiful, and really windy. Here below, I am giving a graphical idea of how those small wind turbines with vertical axis could be located. Reminder: each of them, according to the prototype in the patent application no. EP 3 214 303 A1, needs like 5 m2of space to work. Let’s make it 20 m2, just to allow the wind to pass between those wind turbines.

belem-tower-2809818_1280

In Lisbon, the average speed of wind is 10 mph, or 4,47 m/s, and that gives an exogenous energy of the wind like 54,72 kilowatts, to take whoever can take it. That prototype has real working surface of its blades like A = 1,334 m2, which gives, at the end of the day, an electric power of PW = 47,81 kW. In Portugal, the average consumption of energy at the level of households (so transport and industry excluded) seems to be like 4 214,55 kWh a year per person. I divide it by 8760 in your basic year (the odd ones make 8784 hours), which yields 0,48 kW required per person. My wind turbine could power 99 people in their household needs. If they start using that juice for transport, like charging their electric cars, or the batteries of their electric bicycles, that 99 could drop to 50 – 60, probably not less.

Hence, what my mind is wrapping around, right now, is a business that would manage the installation and exploitation of wind turbines with vertical axis, in groups of a few dozens of people, so like 20 – 50 households. Good, let’s try to move on: Lyon, France. Not very coastal, as the nearest sea is more than 300 km away, but: a) it is quite windy, due to the specific circulation of air along the valleys of two rivers, Rhône and Saône b) they are reconstructing a whole district, namely the Confluenceone, as a smart city c) I f*****g love the place. Average wind speed over the year: 4,6 m/s, which allows Mother Nature to supply around 52,25 kWto my prototype. The prototype is supposed to serve a population, where the average person needs 7 291,18 kWh for household use, whence 63 people being servedby my prototype, which could drop like to 20 – 30 people, if said people power their transportation devices with their household juice.

Lyon

Good, last shot: Amsterdam. Never been there, mind you, but they are coastal, statistically speaking quite energy consuming, and apparently keen on innovation. The average wind speed there is 5,14 m/s, which makes my prototype generate a power of 72,72 kilowatts. With the average Dutch consuming around 8 369,15 kWh for household use, 76 such average Dutch could use one such turbine.

 Amsterdam with text

Maths and pictures made me clarify a business concept, or rather two business concepts. Concept #1is simple manufacturing of those wind turbines. Here, EneFin(see Traps and loopholesand the subsequent ones) does not really fit. I remind you that the EneFin concept is based on the observable discrepancy between two categories of final prices for electricity: those for big institutional users (low), and those for households and small businesses (high). Long story short, EneFin takes its appeal from the coincidence of very different prices for the same good (i.e. electricity), and from the juicy margin of value added hidden behind that coincidence. That Concept #1 is essentially industrial, and the value added to expect does not really blow one’s hat off. Neither should we expect any significant price discrepancy between categories of customers. Besides, whilst futures contracts on electricity are already widely practiced in the wholesale market, and the EneFin concept just attempts to transfer the idea to the retail market, I haven’t seen much use of futures contracts in the market of typical industrial products.

Concept #2, for exploiting this particular invention, would be complex, combining the engineering of those turbines so as to make the best version for the given location, their installation, then maintenance and management. The business entity in question would combine manufacturing, management of a value chain, site management, design and engineering, and maintenance. Here, that essentially cooperative version of the EneFinconcept would have more space to breathe. We can imagine a site, made of 200 households, who commission an independent company to engineer a local power system, based on wind turbines with vertical axis, to install, manage, and maintain that facility. In the price paid for particular components of that complex business scheme, those customers could progressively buy into that business entity.

Now, I am following another one of my research routines: I am deconstructing the business model. As truly enlightened a social thinker, I am searching online for the phrase ‘wind turbine investor relations’. To the mildly initiated: publicly listed companies have to maintain a special type of website, called, precisely ‘Investor Relations’, where they publish information about their business cuisine. This is where you can find annual reports, for example. The advantage of following this specific track is the easy access to information I am looking for, like the basic financials. The caveat is that I am browsing through relatively big businesses, big enough to be listed publicly, at least. Hence, I am skipping all the stories of small businesses.

Thus, the data my internal curious ape can find by peeling those ‘investor relations’ bananas is representative for relatively big, somehow established business structures. It can serve to build something like a target vision of what is likely to be created, in a particular field of business, after the early childhood of a project is over. And so I asked dr Google, and, just to make sure, I cross-asked dr Yandex, what they can tell me if I ask around for ‘wind turbine investor relations’. Both yielded more or less the same list of top hits: Nordex,Vestas,  Siemens Gamesa, Senvion,LM Wind Power,  SkyWolf, and Arise. I collected their annual reports, with the exception of SkyWolf, which, for some reason, does not publish any on their ‘investor relations’ page. I followed this particular suspect home, I asked around who are they hanging with, and so I came to visiting their page at Nasdaq, and I finally got it. They are at the stage of their IPO (Initial Public Offering), so they are still sort of timid in annual reporting. Still, I could download their preliminary prospectus for that IPO, dated April 20th2018.

There is that thing about annual reports and prospectuses: they are both disclosure and public relations. Technically, an annual report should, essentially, be reporting about the things material to the business in question. Still, this type of document is also used for, well… for the show. Reading an annual report is good training at reading between the lines, and, more generally, at figuring out how to figure out when people are lying.

Truth has patterns, and lies have patterns as well, although the patterns of truth are somehow more salient. The truth that I look for in annual reports is mostly in the financials. Here is a first glimpse of these:

Revenues Net profit (loss) Assets Equity Ratio assets to revenue
Nordex 2017 EUR mlns 3 127,40 0,30 2 807,60 919,00 0,90
Vestas 2017 EUR mlns 9 953,00 894,00 10 871,00 3 112,00 1,09
Siemens Gamesa 2017 EUR mlns 6 538,20 (135,00) 16 467,13 6 449,87 2,52
Senvion 2017 EUR mlns 1 889,90 (121,10) 1 808,10 230,10 0,96
LM Group 2016 EUR mlns 1 059,00 52,00 1 198,00 445,00 1,13
SkyWolf 2017 USD (!) 49 000 (592 600) 139 730 (673 500) 2,85

As I see it, the business of doing business on installing and managing local power installations can go in truly divergent directions. You can start as SkyWolf is starting, with a ‘debt to assets’ ratio akin to the best (worst?) years of General Motors, or you can have that comfy financial cushion supplied by a big mother ship, as it is the case for Siemens Gamesa. One pattern seems to emerge: the ‘assets to revenue’ ratio seems to oscillate around 1,00. In other words, each dollar invoiced on our customers needs to be backed up by one dollar in our balance sheet. Something to exploit subsequently.

I am consistently delivering good, almost new science to my readers, and love doing it, and I am working on crowdfunding this activity of mine. As we talk business plans, I remind you that you can download, from the library of my blog, the business plan I prepared for my semi-scientific project Befund  (and you can access the French versionas well). You can also get a free e-copy of my book ‘Capitalism and Political Power’ You can support my research by donating directly, any amount you consider appropriate, to my PayPal account. You can also consider going to my Patreon pageand become my patron. If you decide so, I will be grateful for suggesting me two things that Patreon suggests me to suggest you. Firstly, what kind of reward would you expect in exchange of supporting me? Secondly, what kind of phases would you like to see in the development of my research, and of the corresponding educational tools?

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[1]Muhammad Mahmood Aslam Bhutta, Nasir Hayat, Ahmed Uzair Farooq, Zain Ali, Sh. Rehan Jamil, Zahid Hussain (2012) Vertical axis wind turbine – A review of various configurations and design techniques, Renewable and Sustainable Energy Reviews 16 (2012) 1926–1939

Hammer, stretch, repeat

My editorial

And so I came with that idea, yesterday: that centre for experimental research that I want to create could act as an investment fund (see Loin dans le domaine d’idées originales). I take a prototyped technology, very roughly adapted, or even not adapted at all to being used by the non-initiated, and I run it through experimental research in order to discover behavioural patterns in users as they try to figure out the best way to handle the prototype. In other words, the experimental centre transforms something promising but essentially not marketable (yet) into something marketable. If the creators of this technology have no money to finance the research, my centre can act as an investor and take a participation in their venture.

It seems interesting, and I feel that in my process of concept-pitching I have come to the point where a bit of hammering and stretching would be useful. By hammering I mean trying to look at my own idea in a negative, essentially sceptical way, asking the type of questions that someone really mean would ask. In other words, hammering means criticizing and trying to find weaknesses in my idea. On the other and, stretching an idea consists in artificially hyperbolizing its different aspects, and seeing what happens. Thus, I start hammering. Why would any high-tech company use the services of such an experimental centre? What is the point for them? After all, they have their engineers and their market researches. Good point. Assuming that any high-tech company would be interested in the services of my centre would be preposterous. I have already profiled some typical customers for this centre, and I can logically argue that using the services of the centre would be interesting for them. Type #1 is a team of engineers who either have just started a business around a technology they invented, or they are about to start. The technology is in a prototyped phase, i.e. it has the essential functionalities it is supposed to have, but the external appearance to the user (interface, fool-proof devices, customer support etc.) is still not quite marketable. For this type of customer, my experimental centre would be a facilitator in the process of launching their product. Type #2 is an established provider of technologies, who can easily notice that something in their customer relations is deteriorating, e.g. the payment lag in commercial receivables is stretching disquietingly, and they attribute this negative change either to the properties of some freshly introduced technology, or to the behaviour of their engineers. The value added that my experimental centre can provide to those customers consists in both optimizing the utility of their technology for the customers, through behavioural testing, and in training their engineers in responding to customers’ observable behaviour. I intuitively guess that Type #1 businesses would make the bulk of my customer base in like the first 2 – 3 years of existence in that experimental centre, maybe even longer. Only as some reputation will have been built, big players of Type #2 would come.

That precise question I am hammering my idea with, right now, has two other aspects. When I ask ‘Why would anyone use the services of my experimental centre?’, the ‘Why?’ hides two other questions, namely the ‘how?’ and the ‘what for?’. The ‘how?’ means ‘How will those customers know about you and how will you form relations with them?’. That venture of mine is at the limit of science and investment, and so I gather there should be some kind of marketing in both fields: scientific conferences, business conferences and congresses etc. The customer Type #1 is more likely to develop an interest in working with my centre at some sort of start-up congress, or even in a start-up incubator, which, by the way, could be a separate product of this experimental centre. As for customers Type #2, they will probably get in touch of their own initiative, they just have to be aware of our existence, and it should be that kind of persistent, dependable existence, sort of ‘Those guys are just there when we need them’.

The ‘what for?’ translates into the direct, tangible gain my customers would derive from using the services of my experimental centre. Type #1 customers will gain by making their technology (more) marketable, which they should find, sooner or later, in their balance sheet, under the heading of ‘equity’. I mean they will be able to find more investors, or keener investors, or just less mean investors, with good behavioural a pitching of their technology. They would have a capital gain. Additionally, a technology well-tested from the behavioural side can help in optimizing their business processes. Type #2 customers could expect better customer relations, thus shorter payment lags in commercial receivables, possibly better prices with their customers. The former means lower a circulating capital engaged in receivables, the latter means better a gross margin. Once again, those Type #2 customers would have both a capital gain, and an operational gain. The (partial) moral of the fairy-tale is that prices in my experimental centre should be calibrated so as to be proportional to those two types of gains.

Good. That first round of hammering has allowed me to form a vision of development for my experimental centre. It should start as an incubator of small start-ups in smart technologies, possibly focused on the environment of a smart city. The incubator would offer both the experimental environment for testing, pitching and developing those technologies, and the capitalist structure of an investment fund to finance those ideas. A few years of working in this business model will hopefully allow developing an outstanding research capacity, which, in turn, will make the centre competitive enough for working with the big players of smart technologies. It is possible to attract the attention of one among those big players right from the beginning, as a strategic investor in the centre. On the other hand, such a big player could be interested in spinning the most advanced and the least customized technologies out of its own structure and form some kind of joint-venture with my experimental centre.

I am moving on with hammering and I am asking myself another mean question: why should anyone invest in this centre? what’s in this business that other businesses don’t offer in terms of return on investment? Good question. My personal vision, which I started to develop in my last update in French (see Loin dans le domaine d’idées originales) is that my experimental centre would be representative for a whole class of businesses, observable right now, which invest heavily in the development of new technologies, without necessarily making profits. The whole idea is to have claims on the future proceedings of those promising technologies. Thus, as I am pondering the question now, the interest an investor could have in putting their money into my business would be to acquire indirect control over or participation in a range of highly promising technologies. The price(s) my customers would pay on a current basis could make the basis for an operational profit, but not necessarily.

Still, this particular hammering question hides another one underneath. Stands to reason: I am being mean to my own idea, it is just as usually when people are mean. They are mean for many reasons. Anyway, that kind of hidden question is: why should investors put their money in my experimental centre rather than in another experimental centre? Honestly, I can hardly give any reliable answer to this one right now. I need reviewing some of the most up-to-date behavioural research, sort of ‘what kind of fancy methodology are we wearing this year?’. This is a topic for a separate update on this blog. See? This is how you can creatively corner yourself, when asking yourself mean questions about your own ideas.

And so I come up with the last hammering question I could come up with: why a centre? Why not a dispersed structure? Couldn’t we imagine some sort of movable technology, possible to put anywhere, like in the middle of a smart city under construction, and serving to run behavioural tests on new technologies? Good question, once again, and honestly don’t know what to answer. Maybe it is possible. If it is, then my business idea can take new colours. Now, I see that one of the next steps I need to make on my journey with this dream of mine is to study the state of the art as for behavioural experiments.

The cursory hammering of my concept brought me a vision of development, and a tough question to study. Good, this is what a good hammering should bring. Now, I pass to stretching. In heuristic terms, the stretching of an idea means, in a first step, expressing it as a finite set of dimensions (as a vector, if you want), and then extending it along each dimension separately. For the moment, I can see two scalable dimensions in my concept: the size of participation, and the technological scope. As for the size of participation to take in those technological start-ups that my experimental centre would take under its wings, it can technically range from a minority interest (like 5% of equity), all the way up to 100%, and possibly with a beach head in their liabilities (the German style: invest in a business and lend them money in the same time). I guess that if the input of my experimental centre is partly intangible, as behavioural know-how, then I’d better have control over the further implementation of that know-how. Still, as my research centre will gather experience and momentum, it is possible to accumulate some kind of meta-knowledge about technological start-ups in general, and build a portfolio of passive, profitable, minority participations, just as a source of cash.

Regarding the range of technologies to be studied, one extremity of the scale would be like focusing on one, very precise technology (e.g. smart balancing of energy in a local power grid). The opposite end of the spectrum would be a crazy place, where people can book like experimentation rooms on an hourly basis, they come in with their prototype and some other people, keen to be their Guinea pigs (by the way, my centre could offer them our own Guinea pigs), and they just to some behavioural testing of their own. This end of the spectrum looks really practical, workable and possible to implement right from the start. It could help paying the bills of that centre. As for the super-narrow focus, I am intuitively ebbing away from it. Maybe, if we have like a whole bunch of start-ups to give a kick-start to, and all of them in the same technological field, then, maybe… Still, the comparative advantage I intuitively perceive in my concept is the capacity for behavioural testing as such. Broader, faster, cheaper etc.

What you could have just seen, in my writing, is what Frank Knight used to name ‘thinking about thinking’. In his book entitled ‘Risk, Uncertainty and Profit’, first published in 1921 , Frank Knight argued that people who are successful in business have the ability to be both passionate and distanced about their ideas, and thus they can put both passion and cold calculation to work, in the same time. I am testing my capacity in this respect. I am reviewing the whole process that has brought me to the here and now of my business thinking. By the first days of January, 2018, I formulated for the first time my concept of creating, like that, from scratch, a business connected to the phenomenon of smart cities (see for example Une courbe élégante en « S » aplati ). Then, I started turning and returning that idea, and I initially studied smart cities in general (see My individual square of land, 9 meters on 9 or Le cousin du beau-frère de mon ami d’école as well as Smart cities, or rummaging in the waste heap of culture ). In the meantime, I had been working on another idea, namely on designing economic experiments for the sector of FinTech. Together with a friend of mine, we are writing a book about FinTech, and the topic is so turbulent that it just beckons me to think in experimental terms. Thus, for like 8 weeks, I have been ruminating those two ideas sort of side by side, and then, on the 23rd of February, the coin dropped, finally: I realized that the business I want to create is an experimental centre for behavioural research on the interaction between humans and smart technologies (see And so I ventured myself into the realm of what people think they can do). Finally, this Sunday, I mean the 4th of March, I decided to do some benchmarking for this concept, i.e. finding some real businesses and organizations and study them, to have an idea what my organization could look like. That little round of benchmarking brought me to the conclusion that pairing this research centre with an investment fund could be really interesting (see Loin dans le domaine d’idées originales).

Now, the dots in my head are connecting at growing a speed. This whole process of inventing a business, as I am considering it now, is like some sort of accelerating learning. I started slowly and gently, and then, after 8 weeks of crystallization, ideas started taking shape really fast.

I am consistently delivering good, almost new science to my readers, and love doing it, and I am working on crowdfunding this activity of mine. You can consider going to my Patreon page and become my patron. If you decide so, I will be grateful for suggesting me two things that Patreon suggests me to suggest you. Firstly, what kind of reward would you expect in exchange of supporting me? Secondly, what kind of phases would you like to see in the development of my research, and of the corresponding educational tools?