Anecdotes Archives

Innovation and commercialisation

How should research funding be assessed? What makes good spending on research? Should it be about patents filed? Or about the number of significant breakthroughs per dollar spent? How about revenues generated from licensing a technology? Or royalties on the patent? Is that really the best way?

What if a drug that could save many lives was discovered? But then it would take much more investment to get the drug tested and so on? What if the research funding itself wasn’t able to get innovation through to the stage where commercialisation would be successful?

The original question was really hard. And one of the things that my research into intellectual property rights regime revealed is that it never was about the patents system or the risk capital that drove innovations. Often, it’s merely the ability to disclose and disseminate information, especially knowledge that would otherwise have been kept a secret, that would have helped push an overall system towards being more innovative.

After all, the Industrial Revolution happened in Britain during a period when their intellectual property rights were terrible, and a patent was mainly used as a form of marketing rather than a way to achieve a monopoly.

So when National Research Foundation or even our A*STAR tries to properly steward taxpayers money by trying to figure out how to spend research funding wisely, they might want to take note that true innovation is the goal of the spending, and not so much the commercialisation value. The need to enforce some kind of ‘commercialisation’ target could very well destroy the very foundation and philosophical underpinnings of research and discovery. The reason government funding is needed is precisely because the market is unable to offer that same kind of funding directed to those activity – so to demand ‘market discipline’ from those activities will bring us back to square one. The underprovision of innovation and hence market failure. Only this time, it is the government who fails.

Capital’s bargaining power

Recently a friend and I was working on some business ideas. We were thinking through scenarios where smart people come up with great business ideas or business models that can generate impressive returns but require capital to do. If the capital markets work perfectly for the specific risk profile of the business (assume that it can be assessed correctly), then all capital should only be able to demand the market rate of return on capital.

We ran some simulations on this. To simplify the whole business and risk, we assume it is a very low-risk infrastructure project that returns constant cashflow across 10 years, one year after the initial cash injection. A project that can bring in >27%, when raising all of its funds from a capital owner, should be split 60-40 if the market hurdle rate is at ~12% for that risk and tenure. This means that though the capital holder is financing 100% of the project, he needs to give up 40% share of the returns to the ones who structured and pulled the project together.

Now, when the project returns rises to 33% over 10 years; and the market hurdle rate remains at 12%, then the capital holder needs to give up 49% share. This means that if the project that the smart guys are able to put together can return more than 33%, then the capital owner needs to give up more than 50% of the returns even though he is contributing 100% of the upfront capital. This is a hard bargain for the ‘entrepreneurs’ organising the resources to strike with capital holders.

This is perhaps how the Thomas Piketty argument about the relative bargaining power of capital gets played out. At the same time, capital can afford to be more patient because the cost of upkeeping capital isn’t as high as trying to upkeep a living person with the wits and capabilities to develop all the ideas and organise the resources. And because capital is more ‘tangible’ and ‘calculative’, it can keep forcing all kinds of cost upon labour side of the equation. In this blog post, labour basically includes the ‘entrepreneurial’ elements as well that is typically somewhat associated with capital.

This is where debt comes in. Instead of getting a co-investor, the project entrepreneur should be able to borrow to finance the project. And the debt tenure can be shorter. A simple solution could be to take out a 4-year debt at 7% interest; this would require the entrepreneur to sacrifice 85% of the project cashflow for the first 4 years, in exchange for the rest of the project’s cashflow. Technically, when structured as a debt, the market interest rate should be lower than the market hurdle rate. Yet because the ‘project’ is new and may not have a sufficient track record, financiers may demand collateral and other risk-management tools to enhance the credit standing. Technically, when structured as a debt, the market interest rate should be lower than the market hurdle rate. Yet because the ‘project’ is new and may not have a sufficient track record, financiers may demand collateral and other risk-management tools to enhance the credit standing. This means that the entrepreneur would have to give out more than he needs to reduce the risks of the capital holder further despite the risk profile of the project.

So, the entrepreneur who does not have any capital to contribute will be seen as having a mouth-watering return since there isn’t any ‘capital at risk’ for the entrepreneur, but the reality is that there is some opportunity cost. Yet if the entrepreneur’s salary is built into the project returns, then he doesn’t have the ‘opportunity cost’. The extra upside would be his ‘supernormal return’.

March to mediocrity

The challenge of industrialising some kind of process, expecting things to move in a “business as usual” fashion is that it tends to decline towards mediocrity. There would be people expecting to just pick up how to do things once and then coast to keep things as status quo.

Yet the issue is less to do with this group than the leadership. Leaders who try to tighten things ad hoc rather than develop a culture of continuous improvement will discourage staff from improving themselves but instead see improvement as being able to guess what the boss wants. Yet if we are unable to see the mission of the organisation, only the boss, then the march stops when the boss is gone.

And the march towards mediocrity starts when leadership becomes weak and is formed from previous generations of followers who never learnt how to drive the mission independently.

When oil saved the environment

In Seth Godin’s new book, This is Strategy for, he had a chapter (the book has over 200 chapters, all of them short and highly readable) on killing whales.

He documented the rise of the whale-hunting industry in the 1800s where sperm whales were hunted down for their blubber. The activity was both dangerous and lucrative because a single sperm whale’s blubber could yield many barrels of lamp oil. The demand for lighting onshore and offshore fueled the whaling activity.

For a time to the mid 1850s, it seemed like they could just go on and hunt sperm whales to their extinction. Yet the earth today still has sperm whales. Thanks to the discover of petroleum and hence the advent of keroscene used in oil lamps. The cost of keroscene was much more competitive than lamp oil made from whale blubber and the petroleum industry was also costing less human lives.

Climate solutions that displace fossil fuels would need to achieve cost reductions to scale. But we could all inprove their chances by removing fossil fuel subsidies and pricing carbon. Of course, that will “hurt” the cost of living for many people. But if we think about it at system level, it is more about a sort of attachment to the current status quo of how we value different things, and refusing to change that.

I don’t think we could derive any sort of moral authority from the market to say we’re producing something that destroys our future because it is cheaper. We may not have a future to spend that surplus savings on. At the system level, we will have to help one another cope with changes.

Zacharias’ faith

It’s Christmas season so reading Luke 1 is both timely and revisiting old stories we thought we already knew sometimes bring about new perspectives.

One of the things that moved me from this season’s series of messages at my church was about Zacharias’ faith. Angel Gabriel visited him during his duties at the temple and became mute because of his unbelief. The lack of faith in what God was about to do in His and Elizabeth’s life was apparent in the sense that he was already witnessing the revelation from an angel himself and yet he was skeptical about the birth of his son happening at all (Luke 1:18).

Yet on the eighth day after John’s birth, Zacharias demonstrated his faith by writing on the tablet to those around him that the baby’s name is John. That seemingly trivia act was really important because it was the combination of everything that happened since the incident at temple. In putting down the baby’s name as John, he submitted himself to God’s plan for John the Baptist and, hence, the rest of his life. In having a son at his old age; and experiencing Elizabeth’s conception of John at an old age, he was witnessing a miracle. More than that, his wife Elizabeth must have conveyed to him the encounter with Mary and the fact that her baby was moved somehow in the presence of Mary and her baby.

Zacharias took all of these in, and gradually worked on his faith to this point when John was about to be circumcised. His name is John – those four words on the writing tablet, meant so much more than just the name of a baby.

The life and ministry of John the Baptist says a lot about God’s work and the earlier prophecies but it also reflected the faith of Zacharias and Elizabeth. They would have had to prepared John for that future ministry though they probably would not have grasp the full extent of how important it was. The life that John the Baptist came to live, was also testifying of his father’s faith.

David and Solomon

Growing up in a church kindergarten and then attending bible study as a child, I always had the impression that David, the king of Israel who properly ‘unified’ the Israelites after the period of Judges was a blessed man with a well-celebrated life.

Yet when you really read through the books of 2 Samuel and also the Psalms, you begin to see the flaws of David as a man, the countless mistakes he had made. He clearly became very depressed in different junctures of his life, whether it was during the time he was escaping from Saul’s pursuit, or dealing with the betrayal of his son. Nevertheless, he was described as a man after God’s own heart – evident from the occasions he bounced back from having acknowledged his great sins, accepted the consequences, and reconciling with God, each time he made the mistakes and sought to repent.

And skeptical scholar of history and the bible you might wonder why David is held up as a model or given so much credit. I think the exposure and place that David had was not so much a matter of giving him credit as he pointing to God and His ways.

David’s as he was simply a man chosen by God who had responded to God in ways that a very human, but faithful follower would. The achievements of David actually laid the foundation for the reign of Solomon that by secular standards would have been much more impressive than David’s reign.

From a secular perspective, Solomon would be held up more but he wasn’t. This was because we see so often that even though Solomon was given wisdom by God, he seemed to trust in his own wisdom more than God. And to that extent, most of his reign and his behaviours did little to point towards God. The book of Ecclesiastes, brings up the struggles, deep depression and sense of futility that exists in a reality without God.

There is so much to learn from David with regards to his approach towards struggles and challenges in life; because for most part, we allow ourselves to be like Solomon, going into a downward spiral of rationalising one brutal fact after another, ending with the declaration ‘vanity of vanities’. Depression is something Christians can face and there is nothing to be ashamed of. Whether in riches, or in poverty, through great circumstances or poor, the issues around mental health can strike us. Nevertheless, our response matters. And we can spiral out of control when we are not responding with the spiritual resources that our faith grants us.

Waiting for standards

There are lots of excuses to choose from for a business to avoid the sustainability pressures upon them. Especially those who doesn’t want to have anything to do with activities that are not geared towards generating profits. One of them is the lack of standards in terms of what constitutes being sustainable.

And so the wheel turns and regulators churn out a whole bunch of different kinds of standards: CSRD, TCFD, GRI, CDP, SASB, UN SDGs – and all of them are basically reporting standards.

Technically they don’t tell you exactly what being a sustainable business is about; but they do emphasize some aspects and bring to fore different aspects of the business that may not be captured in more traditional business disclosures.

Nevertheless, no one is going to be able to tell you what is the ‘sustainability standard’ threshold that marks your business as being sustainable. There are ways to look good in each of those disclosure standards of course – and businesses sure knows how to cherry-pick the ones. The whole industry could even gear up to pander to that kind of work.

Yet at the heart of building a sustainable business is really considering the relationship of the business with everything else other than profits. And only you as the leader, the business owner, the manager, the employee can make decisions that determine how sustainable the business it. The metrics that you care about will naturally be tailored to your business.

You don’t have to wait for some regulators or the ‘market’ to make up their mind.

Story of guilt

I was listening to this episode of John Dickson’s Undeceptions Podcast, in which he and his guests discuss Guilt. With sin being a vital part of the Christian faith, it is unsurprising that a Christian podcast will explore this topic of guilt. What is surprising to me is that the culture of victimhood that we find ourselves in today is so intertwined with the sense of guilt that is ever-present in our lives. I say it as though it’s a statement of truth, but don’t take my word here for it.

Playing the victim has become so much more acceptable, so it has become a way to avoid culpability. If you’re the victim, it’s hard to be in the wrong; in fact, you’ve probably been wronged by some perpetrator – whether it is the system or some rules and process that didn’t have you in mind or just someone else! Moreover, we are now more conscious of the ‘victim-blaming’ behaviours, so it is all the more advantageous to identify oneself with and as the victim.

Yet in trying to stave off our guilt about the conditions of life that we might have to go through, the sense that we did not live the best life we could have, we might also take away our agency. When you cast yourself as the victim, you’re just someone subject to others and everything else.

What if we don’t have to be the victim to be non-guilty?

Stress from uncertainty

There is a fair bit of stress that is associated with uncertainty and we know it. Yet modernity gives us a lot of tools to prepare, and make certain bits of the future which only makes us crave for more control and perhaps heighten our expectations that the uncertainty can be eliminated.

So part of our stress now comes from the expectation of certainty. We no longer how to enjoy flexibility, and embrace the dynamism that exists in uncertainty. And then when everything is under control, we find ourselves bored, craving for some kind of variation and so on.

As the aspects of work that has complete certainty slowly gets outsourced to computers, robots and perhaps even artificial intelligence, we are going to be getting the harder bits of work. The ones that require us to actually embrace uncertainty; the type that involves no one knowing the answer. We need to regain our ability to think and solve problems bit by bit as opposed to treating everything as though there has to be a right answer and we have to get it right.

The corporation

The faceless corporate had been painted as the enemy of man in popular culture and broader artistic endeavour. The idea is haunting. Some kind of machinery driving its machinations through its cogs and gears to achieve some broad vague goal that sounds appealing in concept but nefarious in practice.

Of course, the reality is that it is not just the corporate that can behave and seem this way. There is the bureacracy that is a manifestation if a “government” or even a non-profit. There is also loose organisations centered on single-dimensional stuff (hobbies, interest groups, certain kind of political activism, etc).

The point is this idea of a “corporate” or some kind of machinery is anti-thetical to being human. Why would that be so? Here’s the tricky part.

We are all complex and multi-dimensional that in creating singular objectives or goals and trying to relentlessly pursue them reduces us to something less than human. And those “big entities” essentially embody this limited dimensionality compared to what life really is. Same goes with money, when we make everything in business about that. We reduce richness with riches. What a shame.

We don’t have to be anti-corporate. But we probably would do better to understand why its reach should not be all-extending.