This past Friday I drove up to Ft. Collins to check out the entrepreneurial scene in Northern Colorado. I did a quick tour of the Rocky Mountain Innosphere, which is a non-profit formed to accelerate the success of startups in the region. The Innosphere has hired new leadership and will be a meaningful resource to the entrepreneurs in the area. I plan to keep in touch.
The hidden gem of the trip was the tour of the CSU Engines Lab. Lab Co-Director Dr. Morgan DeFoot gave us a fascinating tour of the lab and showed us some of the intellectual property that was developed at the facility. More specifically, it was interesting to see how innovation in clean-tech differed from that in the software world.
Incremental Efficiencies vs. Market Disruption
As someone who invests primarily in software, I’m always looking for the product and team that is going to change the market. Market-changers are few and far between, and most of the time I get pitches focused on building a slightly different, yet better mouse trap: “Foursquare with automatic check-ins”, “Pinterest for pet lovers” or whatever other improvement you can think of. At High Country Venture we try and steer clear of software with incremental technology.
On the other hand, the CSU Engines Lab is all about creating efficiencies to the current infrastructure. A slight change in the efficiency of a disel engine can be worth billions in cost savings and have a significant environmental impact. Unlike software engineers who start from a blank slate these engineers are improving the current system. While this may not work in software, it’s a great model for clean-tech.
Why Does Incremental Innovation Work in Clean-Tech?
It really comes down to distribution and switching cost.
- Most of natural gas is pumped using giant 2-stroke engines.
- Ninety four percent of two and three wheelers in India are powered by 2-stroke engines, each producing 6.5 times more harmful emissions that a 4-stroke would produce.
- Around 3 billion people use open fire to cook most of their meals, causing sever health conditions and pollution
The massive distribution of the energy markets makes an incremental changes extremely powerful. The folks at CSU Engine Lab are laser focused on use cases with large existing network, ultimately making a huge impact with one modification.
When it comes to physical infrastructure it is more efficient to improve vs replace. Financially speaking, physical infrastructure has already been recorded under capex and amortized over a set of years. What this means is that there is a specific lifecycle for things like engines, and most companies will elect to repair over replace. This means that retrofitting the existing infrastructure will have more of an immediate impact than attempting to build a new network. We’re talking about the switching cost. This is very different from the software world, where the switching cost from Sugar CRM to Salesforce only takes a few man hours.
Unlike software development the engine has baseline metrics and the sole purpose of the engineer is to improve upon these metrics. This requires a lab like atmosphere where you tweak, test, find a new solution, test, improve, test, change and test some more. Although software is becoming more data driven through Agile methodologies and A/B testing, the problem is less direct and it can often be interpreted differently. When seeking increased efficiency the mission is straight forward and success is almost binary. An engineer at the CSU Engines Lab needs to ask themselves “Have I improved efficiency by 10X?” If the answer is no, keep working.
Dr.DeFoot and his crew are an impressive bunch. They’ve made modifications to the large engines used to pump natural gas that had cost savings worth a billion dollars. They are researching the use of lasers in engines to increase efficiency. They’ve designed a low cost stove to reduce harmful emissions in the 3rd world and distributed it to millions across the world. They’ve built a test electrical grid used for simulating different power sources and so much more. The Engines Lab is arguably the state’s most impressive research facility for clean-tech innovation. Congratulations to the team and the progress.