Eliminate the Safety Director

Wednesday, February 24th, 2010

The way to improve safety is to eliminate the Safety Director:

More years ago than I care to admit I became a plant manager at the ripe age of 29 with a mandate to fix a serious safety problem. I worked at it night and day in every way I could and after a few months, had absolutely no improvement to show for my efforts. After an epiphany moment, I decided to eliminate the Safety Director’s position — not fire him — just eliminate the position. He was a great guy — very hard working and knowledgeable. I just came to the conclusion that the problem was the position. As long as there was a Safety Director, safety was his responsibility. Once the job was gone, safety clearly became the responsibility of everyone else.

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Utilities Are Slow to Make the Most of Smart Meters

Tuesday, February 23rd, 2010

Utilities are slow to make the most of smart meters — which measure not just cumulative electricity usage but when that electricity gets used — because consumers don’t understand the economics of electricity:

By making variable pricing plans possible, smart meters are expected to play a big role in getting customers to reduce their peak-hour energy consumption, a key goal of utility executives and policy makers. Electricity grids are sized to meet the maximum electricity need, so a drop in peak demand would let utilities operate with fewer expensive power plants, meaning they could provide electricity at a lower cost and with less pollution.

Utilities have run dozens of pilot tests of digital meters and found that people cut power consumption the most when faced with higher peak-hour rates. But utility executives and regulators have been reluctant to implement rate plans that penalize people for too much energy use, fearing that if customers associate smart meters with higher bills, they will stall the technology’s advance just as it is gaining traction. Only about 5% of U.S. electric meters are “smart” today, according to the U.S. Department of Energy, but that figure is expected to grow to about one-third in the next five years.

So, many utilities are trying an approach that is less controversial, but also less effective: offering rebates to customers who conserve energy in key periods of the day. By doing things like turning off clothes dryers and adjusting air conditioners on hot summer afternoons, customers earn credits that can reduce their electricity bills.
[...]
Pacific Gas & Electric Co., a unit of PG&E Corp., got a taste of the public-relations risk last summer when it installed smart meters in Bakersfield, Calif., as part of a broad upgrade in its Northern California service territory. When customers — who weren’t participating in any sort of experimental rate plan — received dramatically higher bills shortly afterward, they blamed the meters for what they assumed was faulty billing. The San Francisco utility investigated and concluded that the meters were functioning properly. It found that the higher bills were simply a case of unfortunate timing: An increase in conventional rates had taken effect just ahead of unseasonably hot temperatures.
[...]
Pepco Holdings Inc. recently did a pilot test in Washington, D.C., of three rate plans designed to gauge how customers respond to different price signals. One plan pegged the price, which ranged from a penny to 37 cents a kilowatt-hour, to the wholesale cost of electricity. One charged a “critical peak price” of 75 cents a kilowatt-hour during certain hours on a handful of days, and 11 cents per kwh at other times. The final plan gave customers 75 cents for each kilowatt-hour of energy saved and charged 11 cents per kwh for power used.

Results showed that people responded most when threatened with the 75-cent-per-kwh peak pricing. Those customers cut their overall energy consumption between 22% and 34%, depending on whether they also had programmable thermostats that could automatically change temperature settings. Customers offered rebates reduced their usage 9% to 15% — again, with the deeper cuts among those who had smart thermostats.

Despite evidence that sticks are better motivators than carrots, the utility intends to offer rebates in the future in an effort to change behavior. “Our general sense is that consumers would prefer a rate structure with no downside,” says Steven Sunderhauf, a program manager for Pepco. “From a purist’s standpoint, I may prefer critical peak pricing because it gets the boldest response… but using rebates will help people get comfortable with smart meters.”

Electricity demand varies tremendously throughout the day and throughout the year, but electricity capacity is largely fixed and very expensive — more than $1,000 per kilowatt.

So an off-peak kilowatt-hour — a constant kilowatt of energy usage from, say, 1:00 AM to 2:00 AM — costs the utility the price of one kilowatt-hour’s fuel, but a peak kilowatt-hour — a constant kilowatt of energy usage from, say, 3:00 PM to 4:00 PM, on the hottest day of the summer — costs the utility the price of one kilowatt-hour’s fuel plus an extra $1,000 to increase capacity.

Imagine getting that electricity bill in the mail in September! Instead, you get a blackout. And you pay high prices all year round, night and day.

Posted in Business, Policy, Technology | No Comments »

General Atomics’ Energy Multiplier Module

Tuesday, February 23rd, 2010

General Atomics is launching a 12-year program to develop a commercial reactor that runs on nuclear waste:

The General Atomics reactor, which is dubbed EM2 for Energy Multiplier Module, would be about one-quarter the size of a conventional reactor and have unusual features, including the ability to burn used fuel, which still contains more than 90% of its original energy. Such reuse would reduce the volume and toxicity of the waste that remained. General Atomics calculates there is so much U.S. nuclear waste that it could fuel 3,000 of the proposed reactors, far more than it anticipates building.
[...]
The EM2 would operate at temperatures as high as 850 degrees Centigrade, which is about twice as hot as a conventional water-cooled reactor. The very high temperatures would make the reactor especially well suited to industrial uses that go beyond electricity production, such as extracting oil from tar sands, desalinating water and refining petroleum to make fuel and chemicals.

The technical hurdles are dwarfed by the regulatory hurdles:

High-temperature reactors place special stress on the metals used in reactor components, and there isn’t any commercial certification process at the NRC to assess the reactors’ unique characteristics and to verify that they could operate safely for an expected 40- to 60-year life. That process would need to be developed or such reactors couldn’t be certified.

The regulatory agency would also have to decide how to handle license requests from companies that might want to locate reactors near industrial facilities, such as oil refineries, something that current regulations don’t contemplate and that could pose special safety risks in the event of an industrial fire or explosion.

General Atomics was founded in 1955, by the way, when a name like General Atomics seemed perfectly natural.

Posted in Business, Policy, Technology | 2 Comments »

Bloom Box

Monday, February 22nd, 2010

Bloom Energy received $400 million from Kleiner Perkins and others to develop its $800,000 fuel-cell power plant in a box, the Bloom Box:

The box consists of a stack of ceramic disks coated with green and black “inks.” The disks are separated by cheap metal alloy plates. Methane (or other hydrocarbons) and oxygen are fed in, the whole thing is heated up to 1,000 degrees Celsius, and electricity comes out. Bloom estimates that a box filled with 64 ceramic disks can produce enough juice to power a Starbucks.

As of right now, Bloom isn’t angling for the residential market — the box is far too expensive. But major companies like eBay, Google, Staples, and FedEx have already secretly started using the boxes. So far, the Bloom Box has been a success — eBay has already saved $100,000 in electricity costs since its 5 boxes were installed nine months ago. EBay even claims that the boxes generate more power than the 3,000 solar panels at its headquarters.

So, a $4 million investment has saved $100,000 over nine months. Well then, it should pay for itself in “just” 30 years. (Does a Bloom Box last 30 years?)

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Do you know anybody who makes anything?

Friday, February 19th, 2010

Shannon Love talks about makers and talkers:

Way back in the ’80s the columnist William Raspberry wrote about a conversation he had at a Washington party.

Looking around at the collection of lawyers, bureaucrats, journalists, academics, etc., he turned to a friend and asked:

“Do you know anybody who makes anything?”

It had suddenly occurred to Raspberry that his entire professional and social circle was comprised of people who more or less did nothing but talk for a living. He had no personal contact with anyone who participated in the creation of any material good. After asking around, he found that he didn’t know anyone who even made things as a hobby. He said, “I couldn’t even find anyone who had made so much as a bookcase.”

That little newspaper column opened my eyes up to the most profound division in modern society. It is not rich vs. poor or ethnic-group/race A vs. ethnic-group/race B or male vs. female etc. It is the division between those who create the real physical wealth of our civilization and those who merely manipulate others by persuasive communication.

The trouble is that the manipulators are always inherently more politically powerful because politics is about persuasion not creation. Worse, the manipulators are completely oblivious to their own ignorance about the materially creative and the process of material creation. Even when they approach a problem with a sincere, unselfish intent to do good, their lifelong restriction inside an insular subculture prevents them from understanding the practicalities of material production.

So we end up with an elite political/culturally-creative class that functions as did the mandarins of traditional China, who were so prideful of their distance from material production that they grew their fingernails to ridiculous lengths to intentionally cripple their hands. They did so to demonstrate that they worked only with their minds. They could not even feed themselves and were proud of it. When the subculture of the mandarins reached that state, their administration of the empire became actively delusional and the collapse of the dynasty soon followed. Then a new crop of mandarins who did value the materially productive would rise from the ashes, but within a generation or two they also would grow just as distant and insular as their predecessors and the cycle would repeat itself.

Now, we too are governed by a class of people who see no value in material production. Oh, they value nebulous “jobs”, but they think any job is as valuable as any other, and so see no problem with driving the materially productive out of their communities (and eventually the country as a whole) and replacing their jobs with jobs in which people just talk to each other. They are actively proud that they shut down factories, farms and prevent the construction of infrastructure. They sneer at the materially productive for being greedy, even while their own lives are fully devoted to obtaining more coercive power over their fellow human beings.

Perhaps, as in many things, the Chinese are the template for all human civilizations. Perhaps the talkers are in the long run always destined to dominate and then destroy every polity. Perhaps we too must suffer through collapse, destruction and rebirth.

While I share the disdain for manipulators, whose rent-seeking behavior — as economists obliquely call it — destroys wealth, it’s a bit too easy to side with those who create concrete things over those who “just” buy and sell or “push paper” — when allocating resources is immensely important for creating wealth.

Posted in Business, Economics, Policy | No Comments »

Xalisco Business Model

Thursday, February 18th, 2010

The Xalisco business model has changed heroin distribution dramatically:

Immigrants from Xalisco in the Pacific Coast state of Nayarit, Mexico, they have brought an audacious entrepreneurial spirit to the heroin trade. Their success stems from both their product, which is cheaper and more potent than Colombian heroin, and their business model, which places a premium on customer convenience and satisfaction.

Users need not venture into dangerous neighborhoods for their fix. Instead, they phone in their orders and drivers take the drug to them. Crew bosses sometimes call users after a delivery to check on the quality of service. They encourage users to bring in new customers, rewarding them with free heroin if they do.

In contrast to Mexico’s big cartels — violent, top-down organizations that mainly enrich a small group — the Xalisco networks are small, decentralized businesses. Each is run by an entrepreneur whose workers may soon strike out on their own and become his competitors. They have no all-powerful leader and rarely use guns, according to narcotics investigators and imprisoned former dealers.

Leaving the wholesale business to the cartels, they have mined outsize profits from the retail trade, selling heroin a tenth of a gram at a time. Competition among the networks has reduced prices, further spreading heroin addiction.

Competition among Xalisco (pronounced ha-LEES-ko) dealers has cut prices from $25 to $12.50 per dose of black-tar heroin:

The dealers have been especially successful in parts of Appalachia and the Rust Belt with high rates of addiction to OxyContin, Percocet and other prescription painkillers. They market their heroin as a cheap, potent alternative to pills.

There are no official estimates of how much money Xalisco networks make, but narcotics agents who have busted and interrogated dealers say that a cell with six to eight drivers working seven days a week can gross up to $80,000 a week.

Among the idiosyncrasies of Xalisco dealers is that they generally do not sell to African Americans or Latinos. Instead, they have focused on middle- and working-class whites, believing them to be a safer and more profitable clientele, according to narcotics investigators and former dealers. “They’re going to move to a city with many young white people,” Chavez said. “That’s who uses their drug and that’s who they’re not afraid of.”

Again, heroin is a cheap, potent alternative to pills:

OxyContin pills cost $80 apiece and addicts needed five or six a day. Black-tar heroin was stronger and cost less than $50 for a day’s fix.

Xalisco is now among the top 5% of Mexican counties in terms of wealth, according to a government report.

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Space Invaders Enterprise Edition

Wednesday, February 17th, 2010

The whole notion of Space Invaders Enterprise Edition is jarring, but it’s meant to demonstrate a particular technical approach to solving business IT problems:

I’ve separated out the game logic from the Java source into a file parsed by a rules engine. This means we can easily view the game design, without it getting muddled with too much implementation code.

Rule engines are commonly used in enterprise-level companies to decide things like how much your car insurance premium will be. Let’s start using this for something more fun!

The “business” rules are written for the questionably named Drools engine:

rule "Reverse aliens if one reachs the edge of the screen"
 when
     $alien : AlienEntity()
     exists (AlienEntity(x <> 750))
 then
     $alien.setHorizontalMovement(-$alien.getHorizontalMovement());
     $alien.setY($alien.getY() + 10);
end 

rule "Process bullets hitting aliens"
 when
     $shot : ShotEntity()
     $alien : AlienEntity(this != $shot, eval($shot.collidesWith($alien)))
     $otherAlien : AlienEntity()
 then
     game.getEntities().remove($shot);
     game.getEntities().remove($alien);
     $otherAlien.setHorizontalMovement($otherAlien.getHorizontalMovement() * 1.04);
end

rule "End the game when all aliens are killed"
 salience 1
 when
     not AlienEntity()
     exists ShipEntity()
 then
     game.notifyWin();
     game.getEntities().clear();
end

rule "End the game when an alien reaches the bottom"
 when
     exists AlienEntity(y > 570)
 then
     game.notifyDeath();
     game.getEntities().clear();
end

I’m sure if we just write code in an English-like language, non-technical business experts will be able to write their own business rules, right?

Posted in Business, Games, Technology | No Comments »

Death By Revenue Plan

Tuesday, February 16th, 2010

Steve Blank describes Death By Revenue Plan:

We were at the board meeting of company building a radically new type of communication hardware. The company was going through some tough times. It had taken the company almost twice as long as planned to get their product out the door. But that wasn’t what the heat being generated at this board meeting was about. All discussion focused on “missing the revenue plan.”

Spread out in front of everyone around the conference table were the latest Income Statement, Balance Sheets and Cash Flow Statements. The VC’s were very concerned that the revenue the financial plan called for wasn’t being delivered by the sales team. They were also looking at the Cash Flow Statement and expressed their concern (i.e. raised their voices in a annoyed investor tone) that the headcount and its attendant burn rate combined with the lack of revenue meant the company would run out of money much sooner than anyone planned.

The VC’s concluded that the company needed to change direction and act aggressively to increase revenue so the company could “make the plan.” They told the CEO (who was the technical founder) that the sales team should focus on “other markets.” Another VC added that engineering should redesign the product to meet the price and performance of current users in an adjacent market.

The founder was doing his best to try to explain that his vision today was the same as when he pitched the company to the VC’s and when they funded the company. He said, “I told you it was going to take it least five years for the underlying industry infrastructure to mature, and that we had to convince OEMs to design in our product. All this takes time.” But the VC’s kept coming back to the lack of adoption of the product, the floundering sales force, the burn rate — and “the plan.”

Given the tongue-lashing the VC’s were giving the CEO and the VP of Sales, you would have thought that selling the product was something any high-school kid could have done.

What went wrong?

What went wrong was that the founder had built a product for a New Market and the VC’s allowed him to execute, hire and burn cash like he was in an Existing Market.

Posted in Business, Steve Blank, Technology | No Comments »

It Must Be A Marketing Problem

Friday, February 12th, 2010

It must be a marketing problem, they always say to Steve Blank:

After I retired I would get calls from VC’s to help with “marketing problems” in their portfolio companies. The phone call would sound something like: “We have a company with great technology and a hot product but at the last board meeting we determined that they have a marketing problem. Can you take a look and tell us what you think?”

A week later I was in the conference room of the company having a meeting with the CEO.

“So VC x says you guys have a marketing problem. How can I help?” CEO – “Well, we’ve missed our sales numbers for the last six months.” Me – “I’m confused. I thought you guys have a marketing problem. What does this have to do with missing your sales plan? CEO – “Well our VP of Sales isn’t making the sales plan and he says it’s a marketing problem, and he’s a really senior guy.”

Now, I’m intrigued. The CEO asks the VP of Sales to join us in the conference room. (Note that most VP of Sales’ have world-class antenna for career danger. Being invited to chat with the CEO and an outside consultant that a board member brought in creates enough tension in a room to create static discharge.)

“Tell me about the marketing problem.” VP of Sales – “Marketing’s positioning and strategy is all wrong.” Me – “How’s that?” VP of Sales – “No one is interested in buying our product.”

If you’ve been in marketing long enough you recognize the beginning of the sales versus marketing finger pointing. (It usually ends up bad for all concerned.) Sales is on the hook for making the numbers and things aren’t looking good.

“How many salespeople do you have?” VP of Sales – “Six in the field, plus me.” Later I realized six salespeople without revenue to match was a proxy for an out of control burn rate that now had the boards serious attention.

“Is there a salesperson in Boston?” VP of Sales – “Sure.” Me – “What sales presentation is he using? VP of Sales – “The corporate presentation. What else do you think he’d be using?” Me – “Let’s get him on the phone and ask.”

Sure enough we’d get the sales person on the phone and find out that he stopped using the corporate presentation months ago. Why? The standard corporate presentation wasn’t working, so the Boston sales rep made up his own. (I asked for the Boston sales rep because in the U.S. they’re furthest from the Silicon Valley corporate office and any oversight.)

We call the five other sales people and find that they are also “winging it.”

I learned that the founders received their initial product orders from their friends in the industry and through board members personal connections. These “friends and family orders” made the first nine months of their revenue plan. With that initial sales “success” they began to hire and staff the sales department per the ”plan.” That’s how they ended up with seven people in sales (plus three more in marketing.)

But now the bill had come due. It turned out that these “friends and family orders” meant the company really hadn’t understood how and why customers would buy their product. There was no deep corporate understanding about customers or their needs. The company had designed and built their product and assumed it was going to sell well based on their initial early orders. Marketing was writing presentations and data sheets without having a clue what real problems customers had. And without that knowledge, sales essentially was selling blind.

You can imagine how Blank’s advice was taken:

My report back to the VC? Missing the sales numbers had nothing to do with marketing. The problem was much, much worse. The company had failed to do any Customer Discovery. Neither the CEO, VP of Sales or VP of Marketing had any idea what a repeatable sales model would look like before they scaled the sales force. Now they had a sales force in Brownian motion in the field, and a marketing department changing strategy and the corporate slide deck weekly. Cash was flowing out of the company and the VP of Sales was still hiring.

I suggested they cut the burn rate back by firing all the salespeople in the field, (keeping one in Silicon Valley,) and get rid of all of marketing. The CEO needed to get back to basics and personally get out of the building in front of customers to learn and discover what problems customers had and why the company’s product solved them.

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A Portable Cash Register

Tuesday, February 9th, 2010

The iPad, like the Kindle, is a portable cash register, Arnold Kling says:

With a Kindle, wherever you are, you are in a bookstore, with your credit card handy. There’s nothing wrong with that. I own a Kindle, and I’m happy with it. But it’s really not necessary to have to pay for one. I’ve shelled out much more for books on my Kindle than I did for the Kindle itself. The only reason not to give the Kindle away for free is that you would wind up putting it in the hands of consumers who are not all that interested in books.

Regardless of the price at which the iPad is sold, it is going to generate plenty of revenue. For Steve Jobs, getting people to pay for it is a bit like Tom Sawyer getting his friends to pay for the privilege of doing his whitewashing work for him.

Except that Apple and Amazon don’t make much profit off of media sales — yet.

Posted in Arnold Kling, Business, Technology | No Comments »

Bogota’s Bulletproof Tailor

Sunday, February 7th, 2010

Miguel Caballero is Bogota's bulletproof tailor — and business is good in Latin America.

Posted in Business, War | No Comments »

Van Riper On Leadership

Wednesday, February 3rd, 2010

Lt. General Van Riper describes three leadership styles — one too hard, one too soft, and one just right:

Posted in Business, War | No Comments »

‘Forced Features’ Drive Up Hybrid Prices

Wednesday, February 3rd, 2010

The Union of Concerned Scientists — with all the credibility of the Super Friends — has released a Hybrid Scorecard that faults automakers for selling their fuel-efficient cars with forced features that drive up prices:

These features [DVD players, keyless entry systems, heated power mirrors and other pricey gadgets] are standard equipment, not options, and add an average of $3,000 to the bottom line. That’s on top of the “hybrid premium” that typically adds three to four grand to cover the cost of the electric motor and battery pack.

“Consumers shouldn’t be forced to take features on the hybrids and pay thousands of dollars more because manufacturers don’t want to offer them a choice,” said Don Anair, a senior analyst in the vehicles program at the union. “People are looking for fuel-efficient vehicles, and they shouldn’t be forced to pay thousands more for them.”

The automakers can only make so many hybrids, which use new technologies and exotic raw materials, so they can’t make up low margins with volume. If they took out all those “unnecessary” high-margin add-ons, they couldn’t, and wouldn’t, sell the cars for thousands less.

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In Command, But Out Of Control

Tuesday, February 2nd, 2010

Lt. General Paul Van Riper (retired) is a fascinating character. Here he discusses being in command, but out of control:

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Leonardo da Vinci’s Resume

Tuesday, February 2nd, 2010

Leonardo da Vinci’s resume, written to Ludovico il Moro, Duke of Milan, in 1482, describes what the 30-year-old weapons-engineer could do:

Most Illustrious Lord, Having now sufficiently considered the specimens of all those who proclaim themselves skilled contrivers of instruments of war, and that the invention and operation of the said instruments are nothing different from those in common use: I shall endeavor, without prejudice to any one else, to explain myself to your Excellency, showing your Lordship my secret, and then offering them to your best pleasure and approbation to work with effect at opportune moments on all those things which, in part, shall be briefly noted below.
  1. I have a sort of extremely light and strong bridges, adapted to be most easily carried, and with them you may pursue, and at any time flee from the enemy; and others, secure and indestructible by fire and battle, easy and convenient to lift and place. Also methods of burning and destroying those of the enemy.

  2. I know how, when a place is besieged, to take the water out of the trenches, and make endless variety of bridges, and covered ways and ladders, and other machines pertaining to such expeditions.

  3. If, by reason of the height of the banks, or the strength of the place and its position, it is impossible, when besieging a place, to avail oneself of the plan of bombardment, I have methods for destroying every rock or other fortress, even if it were founded on a rock, etc.

  4. Again, I have kinds of mortars; most convenient and easy to carry; and with these I can fling small stones almost resembling a storm; and with the smoke of these cause great terror to the enemy, to his great detriment and confusion.

  5. And if the fight should be at sea I have kinds of many machines most efficient for offense and defense; and vessels which will resist the attack of the largest guns and powder and fumes.

  6. I have means by secret and tortuous mines and ways, made without noise, to reach a designated spot, even if it were needed to pass under a trench or a river.

  7. I will make covered chariots, safe and unattackable, which, entering among the enemy with their artillery, there is no body of men so great but they would break them. And behind these, infantry could follow quite unhurt and without any hindrance.

  8. In case of need I will make big guns, mortars, and light ordnance of fine and useful forms, out of the common type.

  9. Where the operation of bombardment might fail, I would contrive catapults, mangonels, trabocchi, and other machines of marvellous efficacy and not in common use. And in short, according to the variety of cases, I can contrive various and endless means of offense and defense.

  10. In times of peace I believe I can give perfect satisfaction and to the equal of any other in architecture and the composition of buildings public and private; and in guiding water from one place to another.

  11. I can carry out sculpture in marble, bronze, or clay, and also I can do in painting whatever may be done, as well as any other, be he who he may.

Again, the bronze horse may be taken in hand, which is to be to the immortal glory and eternal honor of the prince your father of happy memory, and of the illustrious house of Sforza.

And if any of the above-named things seem to anyone to be impossible or not feasible, I am most ready to make the experiment in your park, or in whatever place may please your Excellency — to whom I comment myself with the utmost humility, etc.

Posted in Business, Technology, War | No Comments »

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