Uncertainty and Innovation


INNOVATION REPORTS AND PAPERS

 

 

ORIGINAL POST

 

The one certainty in entrepreneurial space ventures is tremendous uncertainty. For commercial markets, it's not knowable whether the current commercial satellite industry will be big enough to support RLVs once the prices come down, whether we need an anchor customer like space-based solar power (SBSP), or whether something new will be necessary. In suborbital markets, it's not knowable whether there are multiple markets or whether the tourism market is large enough. In ISRU, it's not knowable whether to pursue pyrolysis, hydrolysis, hydrogen reduction of ilmenite, or some new technology never thought of in order to justify investment. My inclination as an engineer is to pursue more information to resolve these questions. From a practical matter, this is exactly wrong.

 

If we were to ask what technology to pursue to harvest oxygen from the moon, for example, we'd hear answers like, "that depends on how transport back to Earth would be handled and how much it would be used." If we were to ask actors like Odyssey Moon or LunaTrex or the Constellation program how transport back to Earth would be handled, we'd get three different answers, not to be self-serving but because their different approaches are a reflection of their belief is more likely. This continuous multiplying of the possibilities would proceed the farther we go pursuing all of our questions and each of their sources of information. In the book Black Swan: The Impact of the Highly Improbable, Nassim Taleb points out that, from the point of view of a decision-maker, there's no difference between the truly random and "deterministic chaos", circumstances like the "butterfly flapping its wings that causes a hurricane". That is to say, there's no difference between the truly random and a deterministic system so complex that we can't know enough to determine its outcome.

 

That's not a satisfying fact. The discussions I've seen at industry conferences in recent years have often focused on trying to predict which technologies to pursue, and to attempt to build such a strong case for them to justify investment. But trying to describe certainty in this environment increases, rather than decreases, risk, while reducing perceived risk. If it truly is impossible to know who will win, claiming better is risky.

 

Most think that Finance is a craft regarding money. However, it is really the study of risk; money is simply a tool. The recent troubles bring out some ways in which we don't know yet how to do it well, but there's a great deal of Finance that does work. It's a surprise for many technical personnel, but the handling of uncertainty and risk is a "business" decision and not an engineering problem. A company is a ultimately a group of people choosing to come together for a purpose, and that purpose needn't be the pursuit of a particular technology. Both Built to Last: Successful Habits of Visionary Companies by Jim Collins and Jerry I. Porras and Innovation and Entrepreneurship by Peter F. Drucker are key books devoted, in part or in whole, to designing companies with an eye towards innovation and, therefore, uncertainty as all innovation represents some uncertainty. They both, for instance, discuss 3M, an incredible company whose main purpose is, and has been for almost a century, managing innovation and uncertainty.

 

Managing uncertainty is a key element of the signals that prices communicate to larger society. The proper question in relation to this level of uncertainty mustn't be "what outcome is most likely?", but "how do we best manage uncertainty without needing a resolution?" Often, technical people wonder what the point of an MBA or a "business" people is; this is the most important answer. It's always better to be the casino than a gambler, and to be a bookie rather than to bet on the horses.