#12: The hard stuff: where volatility creates technology opportunity
🎨 Shotgun houses 📊 Volatility creates opportunity 🧘♀️ Be happy anyway
🎨New Orleans
Thinking of those in New Orleans managing the aftermath of Hurricane Ida. The above is part of a study I’ve done on New Orleans shotgun houses.
📊 When tech gets hard
Volatility is the “liability to change rapidly and unpredictably, especially for the worse”. We often reference it in regards to public market investing.
Volatility in a stock price makes it hard to predict what the future price will be. It means you take on more risk in buying or selling the stock. With more risk, there is opportunity for more reward.
Volatility creates opportunity.
Volatility applies to more than investing. It applies to technology. Just like volatility makes predicting stock prices hard, it makes building technology difficult. In volatile environments, those with high variability, technology problems get harder to solve. Technology works best in stable environments with predictable access to resources.
Variability = f(environment, resources)
A system can experience variability stemming from external factors and internal factors.
The environment drives external variability. Does the device have to work in the heat and cold? In the water? Does it have to move?
Internal variability comes from resource constraints or scarcity. How much processing power will it have? Does it need to connect to the internet? Will it be hard-lined or have to use WiFi and Bluetooth and 5G?
The more variance in a system, the more difficult it is to build technology that operates well. The more difficult a technology is to build or operate, the more basic its functionality.
To illustrate, consider consumer electronics made by Apple. We plot environmental v. resource variability from least to most. The devices with the most variability should have the most limited functionality, a proxy for being difficult to create.
The x-axis describes a device’s access to power. Constant access to power indicates a low variability in access to resources.
Desktops are always plugged in.
Devices that have consistent access to charging and big batteries come next
On the far right are those expected to live on their own for a long time
The y-axis describes a device’s need to survive under different conditions.
At the bottom, a desktop sits on a desk
As we move up, your iPad may travel with you but has many of the same limitations as a computer
Your Apple Watch may be able to withstand water
The color indicates relative functionality.
[Red] Least functional — AirPods and AirTags are useless without other devices
[Yellow] Medium — Your AppleWatch may need to tether to your phone. Other times it operates on its own. It can do more than the above devices but falls short of phone functionality
[Green] Most functional — Your laptop can run queries and handle powerful design software
The more stable our access to power and connectivity, the easier it gets to advance technology. When you hear about the push to deploy 5G or the demand for advancing battery technology, this is the driver.
Software gets harder as people get volatile
The same premise applies to the adoption of software in the B2B space.
Here, we describe environment variability as the consistency in where people work. Office workers (or at-home office workers) rate very low in variability. Field workers whose location varies by the project (e.g. construction) or by the hour (e.g. plumbers) rate very high. This variability makes technology adoption difficult. With a disperse workforce, training and distribution are a challenge. As workers move, connectivity, power, etc. become a factor as we saw above.
Resource variability describes the nature of your workforce and workforce stability. I've created a "labor fluidity" measure as a proxy for workforce stability. It’s a combination of turnover rates and proportion of the workforce that is contract v. salary. Turnover adds friction in technology adoption because training and acceptance never stops. A salaried workforce has access to more stable tools and can be forced to adopt in cases where a contract workforce may not.
Here we plot industries by their relative environment and resource variability:
The coloring represents current software adoption by the labor force according to HBR's How Digitally Advanced is your Sector?. Red indicates the least digitally advanced and green, the most.
We see a correlation along these dimensions. High resource variability signals low adoption. Low environment variability indicates high technology adoption.
Volatility creates opportunity
These “volatile” industries correlate with where there is high potential for tech innovation. Each industry highlighted below has automation potential >40% (McKinsey Global Institute). Font sizes have been adjusted to account for relative market size.
Some of the larger markets here have already started attracting venture capital. Additionally, the recent volatility introduced by COVID accelerated technology adoption. For example, at CV we have spent a lot of time investing in Trade, Transportation, Utilities (project44, OneRail, Veryable, CognitOps), and some in Retail Trade (Interior Define, Sunbit, CoPilot).
Technology will increasingly support operations in these industries. I'm excited for the next wave to empower, make more efficient, upskill and reskill employees across the construction, trades, and other hardline industries. Especially as it makes for some of the highest demand for talent over the next 10 years.
Where other industries embrace technology over time, Arts & Entertainment crashed into it. New methods of distribution and ownership (e.g. Masterworks, NFTs) picked up steam this year. We're only at the beginning. First, A&E is an expanding and fragmenting market, ripe for startups. Second, NFTs-or-the-like will drive new business models and expand participation in the sector.
These are broad strokes in big categories, but ones that I'm confident will undergo great transformation over the next decade.
🧘♀️Life is hard, be happy anyway
