The In­no­va­tion Jour­ney: Les­sons from Clean Tech

Policy - - In This Issue - Au­drey Mas­caren­has

The term “in­no­va­tion” has be­come such a rhetor­i­cal com­mod­ity in pol­i­tics and busi­ness that it risks be­com­ing an ab­strac­tion. Au­drey Mas­caren­has has been pres­i­dent and CEO of Questor Tech­nolo­gies since 2005. In more than three decades in the en­ergy sec­tor, first in the oil patch, then in clean en­ergy, Mas­caren­has has learned an enor­mous amount about in­no­va­tion. She shares that in­sight, from how to nav­i­gate the in­no­va­tion path to how the gov­ern­ment can im­prove its in­vest­ing strat­egy.

The on­line Busi­ness Dic­tionary def­i­ni­tion of in­no­va­tion is: “The process of trans­lat­ing an idea or in­ven­tion into a good or ser­vice that cre­ates value for which cus­tomers will pay. To be called an in­no­va­tion, an idea must be repli­ca­ble at an eco­nom­i­cal cost and must sat­isfy a spe­cific need.”

In other words, the in­no­va­tion cre­ates a change by im­prov­ing on the way things were. Many think of in­no­va­tion as a bright idea, but much of in­no­va­tion is re­ally about in­cre­men­tal change—see­ing a bet­ter way. When you see a bet­ter way, that is just the start of this in­no­va­tion jour­ney. There is a long, tough road ahead to fig­ure out how to prove and con­vince oth­ers that this is the bet­ter way. Once you do, the next step is de­ter­min­ing how to grow and scale up the idea so it is adopted glob­ally, cre­at­ing world­wide change. It is at this stage that Canada fails be­cause it does a poor job sup­port­ing its in­no­va­tors.

In­no­va­tion is a very tough road if you think of it be­yond just the bright idea. It is a jour­ney fraught with many chal­lenges and pit­falls—of­ten re­ferred to as “val­leys of death”—of which there are many on the path to suc­cess. Gov­ern­ments fund the early stage be­cause it’s ex­cit­ing and sexy and the eas­i­est part of the jour­ney. In Canada, the ma­jor­ity of our gov­ern­ment fund­ing goes to start-ups and demon­stra­tions. The next part of this jour­ney is where the go­ing gets tough and needs an in­no­va­tor/ leader with tenac­ity.

The team that trav­els this next part of the jour­ney has to be strong and en­tre­pre­neur­ial be­cause noth­ing goes ac­cord­ing to plan and ev­ery­thing takes twice as long as you ex­pect it to. In this seg­ment of the jour­ney, the team is try­ing to con­vince ven­ture cap­i­tal­ists, banks, gov­ern­ment fun­ders, clients and employees that the in­no­va­tion idea is a bet­ter way. There are mo­ments of joy and de­spair and the team that sur­vives this is now ready to scale up. It is at this im­por­tant and vi­tal junc­ture, where value gets cre­ated, that Canada drops the ball.

In the prod­uct world, scal­ing up means hav­ing clients that re­peat­edly buy your prod­uct be­cause it adds value to them, which gives you the trac­tion and team to grow the com­pany. This sounds pretty sim­ple but de­ter­min­ing the team that is go­ing to be suc­cess­ful is not that easy. The pri­vate mar­ket lives and dies on be­ing able to do pick the winners and losers. If they don’t pick well, then they lose their in­vest­ment. Prior to mak­ing an in­vest­ment, they meet the team and eval­u­ate many things; the CEO, the man­age­ment team, track record, abil­ity to ex­e­cute, size of the mar­ket, what clients are say­ing, the “pull” for the prod­uct or idea, etc. Many in­vest­ment houses are start­ing to use quants to de­sign com­plex math­e­mat­i­cal models and al­go­rithms to iden­tify the stars. The list of things to look for in pick­ing winners is long and most in­vestors have made mis­takes and lost money but have learned from ex­pe­ri­ence.

To the cur­rent gov­ern­ment’s credit, there is a recog­ni­tion that we have a sig­nif­i­cant prob­lem in Canada, as we are not scal­ing up the com­pa­nies we in­vested in at the early stages. These com­pa­nies were sup­posed to cre­ate fu­ture jobs and gen­er­ate the GDP Canada needs for a sus­tain­able econ­omy. They are leav­ing Canada and grow­ing their com­pa­nies else­where. These en­trepreneurs are leav­ing be­cause of a lack of growth capital, min­i­mal ap­petite for change in Canada, bu­reau­cracy, poor/cum­ber­some reg­u­la­tion, lack of ap­pre­ci­a­tion and red tape. In other words, Canada is fund­ing the rest of the world’s GDP

growth and de-risk­ing other coun­tries’ in­no­va­tion cy­cles be­cause we do not un­der­stand the full and dif­fi­cult in­no­va­tion jour­ney.

Rec­og­niz­ing the gap and lack of scaleup capital, the gov­ern­ment set aside $1.4 bil­lion dol­lars in the last bud­get specif­i­cally for scale-up, al­lo­cated to a va­ri­ety of gov­ern­ment or­ga­ni­za­tions. Each of these or­ga­ni­za­tions has been grow­ing their in­ter­nal in­vest­ment teams to man­age the funds so there will be an ad­min­is­tra­tive (G&A) cost, which has typ­i­cally run at 29 per­cent, leav­ing ap­prox­i­mately $1 bil­lion to in­vest. To gen­er­ate a re­turn on this in­vest­ment it would re­quire a team of in­di­vid­u­als with a strong in­vest­ment skill set and ex­pe­ri­enced track record to de­ter­mine the winners that are wor­thy of in­vest­ment. It is quite un­likely that peo­ple of this skill set would be sit­ting around wait­ing for a job in gov­ern­ment. So how do we lever­age the bright minds mak­ing smart in­vest­ment de­ci­sions in the real world?

The bu­reau­cratic process cur­rently in place is ap­pli­ca­tion-form based and does not leave room for the de­ci­sion mak­ers to meet with and un­der­stand the com­pa­nies they would be in­vest­ing in. In other words, the $1 bil­lion will be in­vested in com­pa­nies good at ap­pli­ca­tion form writ­ing and not nec­es­sar­ily in en­trepreneurs run­ning great com­pa­nies ready to scale. The lack of un­der­stand­ing of the in­no­va­tion jour­ney means that there will not be a re­turn on the tax dol­lars in­vested. If we truly want to be suc­cess­ful at scal­ing up and cre­at­ing great com­pa­nies, we have to take a tai­lored, fo­cused ap­proach to the winners and in­vest strate­gi­cally to gen­er­ate a great re­turn on the in­vest­ment for the fu­ture of Canada.

Canada has cho­sen to strate­gi­cally in­vest in clean tech­nol­ogy. Bud­get 2017 in­vested over $2.3 bil­lion in this seg­ment and de­mand is pro­jected to grow from $1 to $3 tril­lion glob­ally and be the 3rd largest in­dus­trial sec­tor by 2020. This large mar­ket op­por­tu­nity has the po­ten­tial to cre­ate sig­nif­i­cant GDP growth for the country. Clean tech is not a sec­tor on its own but a mega-trend that will af­fect most sec­tors as the world tran­si­tions to a low car­bon econ­omy. This is what makes this sec­tor unique but also very im­pact­ful. It is im­per­a­tive here that we are thought­ful and strate­gic on our in­vest­ment de­ci­sions in this space.

The tech­nol­ogy so­lu­tions that we cham­pion and in­vest in must make busi­ness and tech­ni­cal sense. It is im­per­a­tive that a bal­anced ap­proach is taken. If we only in­vest in moon­shots and start-ups, we will lock our­selves out of a fast-grow­ing global op­por­tu­nity. His­tory has shown that it takes eight to 20 years for a com­pany to de­velop trac­tion, there­fore, if we do not take a bal­anced ap­proach and in­vest in the en­tire in­no­va­tion value chain we will waste that money and gen­er­ate a neg­a­tive re­turn on the in­vest­ment. This sec­tor also needs clear reg­u­la­tion that en­cour­ages adop­tion and lead­er­ship that em­braces change.

Here are my rec­om­men­da­tions:

1. Pick winners: En­gage the pri­vate sec­tor. Pub­lic/pri­vate partnerships. A “Scale-up Bank” per­haps. Change the cur­rent process that only sup­ports the ones that are strug­gling. Meet with the com­pa­nies. Cre­ate an ad­vi­sory board with re­tired suc­cess­ful CEOs and en­trepreneurs. “Own the podium”

2. Bal­anced ap­proach: In­vest in the en­tire in­no­va­tion ecosys­tem.

3. Fail fast: Stop prop­ping up strug­gling com­pa­nies. Let them fail when they should.

4. Reg­u­la­tion: See what other coun­tries are do­ing—pick the best rather that rein­vent the wheel— use it to cat­alyze change rather than kill it.

5. Act­ing faster: En­trepreneurs not hear­ing back for 8-12 months is too late. The pace of change is ex­po­nen­tial.

6. Be strate­gic: Fig­ure out where you have a strate­gic ad­van­tage and go for it. If we are to suc­ceed in cre­at­ing a great fu­ture for Canada and our young peo­ple, we have to re­think how we are sup­port­ing the full in­no­va­tion cy­cle and take a bal­anced ap­proach across the whole con­tin­uum. It is a tough jour­ney that is much more than the idea alone. Canada needs to find its “gazelles” and nur­ture them to en­sure we have a strong vi­brant country for our chil­dren.

Questor Tech­nol­ogy photo

Questor Tech­nol­ogy’s Plug­ging and Aban­don­ment (P&A) Trailer, an in­no­va­tion cre­ated in re­sponse to the thou­sands of wells re­quir­ing aban­don­ment in Colorado.

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