I am digging two holes at a time, so to say. I am writing that business plan for the EneFin project, the FinTech platform for the market of renewable energies, and I am preparing educational material, both for my classes at the university, next academic year, and for this website, Discover Social Sciences.

Just to have an idea: how many components of the business plan do I already have like nailed down and very nearly ready to present? Firstly, the market of renewable energy. This one is practically done. See “Fini de tourner autour du pot”. I could enrich that part with case studies of small, local projects based on radically new technologies. Next: the market of FinTech and the broad financial context. Same thing, as it seems: the big picture has been sketched, and this part could benefit of some details and case studies. See “The essential business concept seems to hold”. Now comes the business concept and the definition of the products to sell. Here, I think that it is the foggiest part. I approached it from different angles: how to generate the profit margin (see “The essential business concept seems to hold”), how to construct the capital base of the project and its balance sheet (see “Protège-cul, pardon, stratégie de réduction de risque” and “The art of using all those small financial margins”), and, finally, how to structure the essential contracts of that business (see “The art of using all those small financial margins” and “Gymnastique légale niveau contrats” ).

What follows are the financials: prospective income statement, prospective balance sheet, same for cash flow. It is just as with the business concept: sort of sketched and studied, but still sort of foggy. F***k! I have just realized how closely connected those two parts are, in a business plan. I mean the business concept, on the one hand, and the financials, on the other hand. I teach it to my students, every year: “Remember to have your business concept well-nailed down!”. Yeah! Saying things is one thing, and doing them is another. I think I understand why some part of my brain decided, in January this year, to start doing real business plans for concepts that I am interested in.

Now, the takeaways, i.e. the essential observations and conclusions. The European market of renewable energies is growing quite quickly, comparatively to other regions of the world, but its two essential pillars, namely innovation and monetary base, seem to be fading. It looks like a market, which is just being overshooting its local resources with its own growth. With all the fiscal support that many European governments give to renewable energies, the market seems to be lacking solid, private, market based institutions to take it from governments, in terms of financing the market of renewables.

The assets of the EneFin project will be mostly financial ones. Whilst there is a lot of technological competition in the FinTech sector, there is little capitalization on the corresponding current expenses. The money that FinTech companies spend on research and development of technologies seems being spent just to stay in the race, for the most part, with little durable value. Now, value is really in the contracts. Pinning down the optimal structure of contracts, for any national, legal regime looks like a major factor of success.

There are two essential ways of earning money, or capturing value, in the FinTech business in general. On the one hand, there is the price of technology. FinTech companies can sell the access to their technology in three forms. Transaction-based fee, i.e. a percentage of the value transacted, is the first option. For big customers, who do a lot of transactions in a unit of time, and the lot is predictable, that fee can be transformed into a subscription to the transactional platform. Finally, if the technology underlying the transactional platform is really performant and competitive, it can be sort of lent or licenced to other financial operators.

On the other hand, capital margins are another way of earning profits in FinTech. Whatever legal structure you turn towards, in FinTech, you have monetary balances on customer accounts, i.e. on the current accounts that your customers hold with you. Those short-term, highly liquid liabilities need to be invested in similarly liquid, current assets, like overnight deposits, and here comes the first tiny little margin to earn. Then, the short-term, highly liquid assets based on the customer accounts: a) can leverage some long-term borrowing and b) need to be properly counterweighed with longer-term assets endowed with lower liquidity, low risk and reasonable yield, like sovereign bonds. Another bundle of financial margins to earn.

The business concept for that EneFin transactional platform seems to need two essential pillars. The first one is legal, and it consists in the general structure of the complex contract, i.e. one futures contract on the future supply of energy + one package of shares in the supplier’s capital = one complex contract, converted into a digital token and thus tradable online. This complex contractual structure needs to be adapted to the local legal regime, which, in turn, is made of two types of legislation: the law regarding the market of energy, and that governing financial markets, including corporate law. The second pillar is financial, and it means a model structure of the balance sheet, which can generate a maximum of financial gains. Whilst the latter (model balance sheet) seems to be essentially an exercise in mathematical modelling, maybe with a zest of artificial intelligence, the former is really challenging. My intuition is that once you have that complex contract precisely laid down, you got the whole business.

Someone could legitimately ask where is digital technology in all that. Well, as I have just written, the “Tech” part in FinTech seems to consist essentially in keeping up with the pace of the race in functionalities at the level of customer experience. There are technological bases available, like Ethereum and its open-source language “Pragma Solidity”. Other languages, like Python, are available, and I think it is mostly about finding the right match between the actual group of IT engineers hired for the job and the needs of the moment. Whatever exact digital technology is chosen for EneFin, we return to the same point: the contract. Any programming language will, at the end of the day, digitalise the contract, as structured in the business concept.

Now, I am deconstructing that bloody contract. I am trying to stay as ground-to-ground as possible. As we speak about ground, the contract makes grounds for a business process. The process has an input, and an output. The input is made of two simple contracts, both issued by the supplier of energy: a futures contract on energy and a share (a set of shares) in the equity of the supplier. The output consists in easily and unequivocally enforceable claims, on the part of the customer, most probably a household or a small business. In the ‘easily and unequivocally enforceable’, both parts of the expression are important. On the one hand, those claims the customer buys must be like bullet proof. There mustn’t be any doubt whatsoever about the rights and obligations attached. No third party claim should weigh on the participatory deeds, for example.

In order to have those claims fully enforceable, they must comply with the legal rules in force. I am referring here mostly to the claims on equity, as they are usually subject to relatively more stringent a set of regulations. It is about the law on securities, financial markets etc. I intuitively feel that this is the toughest part to nail down, in terms of legal technique. I am thinking about presenting the business plan for the EneFin project in two phases: an outline would come as first, and then, for each national market, the structure of a locally specific, complex contract would follow.

As for the ‘easily enforceable’ part, the easy enforcement of a claim means, in practical terms, that subjectively perceived difficulty, on the part of the customer, of acquiring those futures on energy, combined with shares in the equity of the supplier, must not exceed the average level of difficulty that people perceive in financial, online utilities. Now, the trick consists in measuring objectively the subjectively perceived difficulty. As we are talking (OK, I am talking) about an essentially online functionality, the typical metrics are: total number of clicks necessary to complete the transaction, total time passed in front of the screen, total number of distinct webpages to go through etc.

There is a hurdle to jump over, here. The ideal of easy transaction would be to have that complex contract sold in one click, on one webpage. Right, there are the General Data Protection Rules, which adds at least one click. OK, the customer should also have a separate click, to click, regarding the acceptance of rules pertaining to the transactional platform EneFin in itself. That makes at least three clicks and three screens. Once those preliminary rituals are over, interaction with the customer should unfold according to the principle that each distinct click is a choice (a decision) on the part of the customer, and each screen represents an amount of information important for making that choice in a sensible manner.

I am summarizing distinct decisions on the part of the customer. I am showing it graphically, below, and further below I develop a discussion.

 

I imagine a customer who just starts using EneFin. After having gone through GDPR, and in parallel with the acceptance of general rules to be followed with EneFin, the customer makes his(her) first big decision, i.e. the creation of a customer account. Next, a sequence of recurrent decisions follows, when the customer decides about the amount of money to be held on the customer account, and about using (or not) credit, made available by EneFin.

Once the balance on the customer account has been provisionally settled, the customer selects one or more complex contracts to purchase. Here, I can see a dilemma to sort out. If the customer selects and buys just one complex contract, like 100 kWh of future energy + €3 equivalent of shares in the supplier’s equity, it is simple. One contract, one decision. Still, if the customer selects more than one complex contract, should the customer’s final decision ‘BUY’ expressed in one click for all the contracts in the basket, or each contract should be click-purchased separately? The former is simpler and faster, the latter is sort of more transparent and fair. As I think about my own investment account with the brokerage house at the Warsaw Stock Exchange. When I buy stock, I go through a sequence of two click-decisions for each security separately.

Here, we come to that delicate balance between speed and efficiency of customer experience, on the one hand, and the legally viewed fairness and conclusiveness on the other hand. We sign contracts in that special window of social relations, where we already, basically trust the other party enough to do any business with them, but we steel-plate our ass just in case that trust proves somehow unfounded regarding small details. A contract is an expression of will, on the part of both parties. When it comes to suing each other in court, said court will strive to assess, among other things, whether each party took fully informed decisions in connection with the contract in question, and whether the consent of each party had been expressed in a legally valid way. In other words, when a customer clicks something important, two questions arise: was that click sort of sensible and rational, for one, and has it been fully valid in legal terms.

The other hole I am digging is education. I am preparing educational materials and syllabuses for the next academic year and I feel like really making a difference. I am rethinking what do I want to teach, what do I really am able to teach, and what the process of teaching should look like. Those of you who have been following my blog for a while might remember that I have that mild obsession of teaching social sciences as sciences in the strict sense of the term, i.e. I want my students to learn theoretical concepts, like market equilibrium or institutions, in the same time as they learn how to use those concepts to study social reality (see “The other cheek of business”, for example).

Thus, here is my general educational concept. I want to create educational modules based on the classical scientific method. Firstly, the student gets acquainted with a set of facts and empirical data. The first challenge consists in using basic analytical tools for identifying and describing patterns observable in those facts and numbers. The student will describe those patterns as hypotheses. In the next step, the student takes on checking if the hypotheses he or she has just phrased out are verifiable at all. In other words, this is the moment of learning the distinction between the speculative, non-verifiable hypotheses on the one hand, and the verifiable ones. This is the moment of checking how exactly those verifiable hypotheses can be checked.

Finally, once the hypotheses have been verified, the student makes and presents a conclusion. This is the ‘ice bucket’ moment. I did all that research and all that thinking, and now, why the hell should anyone bother? What is really important in what I have just done? Are there practical applications of my findings? Are there new openings in research as such, possible to explore on the basis of my research?

The actual shape of this educational process is being formed on the basis of three essential components: the empirical data I give my students to analyse, the analytical methods I propose them to use, and the complex theoretical constructs I want them to understand. My personal philosophy is that science is first of all a method of figuring things out, and my personal knowledge regarding the history of science is that the greatest scientists, remembered today, were first of all really good at methodology. Method comes first.

As I am trying to select the most fundamental methods in scientific research, my first choice is a couplet of sequencing and categorizing. As I study any given set of phenomena, my most fundamental understanding comes from grouping those phenomena into categories, and from identifying sequences in their happening. Anything else, in terms of methodology, comes next. Logically, I should present my students, in sort of first part of each course, with data they can sequence and categorize, and with a goal to define categories and sequences.

I have a nice philosophy of scientific education here, and it is high time to see how it could work in practice. I teach microeconomics, among others. What sorts of categories and sequences are essential in this specific field of social sciences? Microeconomics are basically about prices, quantities, markets and businesses. My educated guess, informed by years of research and teaching, is that each given social system has sort of a core business process, possibly, fractally reproducing itself in processes of lower order. One of the founding fathers of microeconomics, Adam Smith, used to make that fundamental distinction between markets that grow quickly vs. those growing slowly or remaining stationary.

When I compare Europe to China, for example, I intuitively associate Europe with sustainability, and China with expansion. Our core social process in Europe is centred on assuring sort of a sustainable homeostasis, whatever the market, the business, or the country. In that core process, we essentially replace one thing with another thing: we modernize, we change diets and fashions. There is a sequence of substitution. The interesting thing to discover, for a student, is to reconstruct any such path of replacement and substitution, e.g. how some goods are being pushed out of the market by other goods, and how it affects their prices and quantities. In China, the core social process is assuring enough food, energy and goods for a quickly expanding population. This is a society, where adding more of the same seems relatively more important than in Europe, and maybe more important than the sequence of replacement.

OK, enough science for today. 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 version as 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 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?