I sneaked away from my desk this week to attend a few sessions at the Emerging Technologies conference on the MIT campus. Even in small doses, the event can overwhelm with its rush of ideas, opinions and latest updates from people working on the cutting edge of technology. I want to mention one term I had not heard before that was intriguing and romantic: black swans.
Black swans are important events, either good or bad, that are highly improbable but happen nonetheless. The idea of using black swans as a metaphor for weird events has its origins in the 1600s when the discovery of the first non-white swan was made in Australia. Asteroids hitting the earth and wiping out dinosaurs or Apple making the iPod might be considered black swans.
I probably should have known about the term black swans, as it was popularized in The Black Swan: The Impact of the Highly Improbable, a book published last year by mathematics professor and trader Nassim Nicholas Taleb about why it is hard to predict the future. For those of us reporters and CIOs who prize our ability to be in control of what we are doing, black swans offer particular challenges, as by definition they fall outside the status quo. Taleb contends that human nature being what it is, we base our reactions on what we experience and often overemphasize these black swans, believing erroneously that they will repeat. We see someone win the lottery and think maybe it’s a good idea to try it for ourselves-foolish, but we can’t help thinking this way.
At EmTech08, the expression was used by Sun founder-turned-venture capitalist Vinod Khosla to explain his investing approach and as prelude to a lengthy promotion of the renewable energy companies backed by Khosla Ventures.
Market predictions for renewable energy wield little clout in Khosla’s investment decisions. The truth about many forecasts is that they turn out to be false, Khosla said, pointing to long-term price predictions for oil and for the U.S. market for cell phones, to name two forecasts that were very wrong, exponentially so in the case of cell phones. Khosla would rather not have a forecast and instead “be prepared for everything.” Forecasters, “mostly economists,” he dissed, use yesterday’s technology to predict the future.
The failure of the market to accurately predict the market offers an important lesson for non-economists like him and fellow technocrats in the audience, Khosla said. Rather than worry about predictions for the future-invent it. Indeed, technology is a classic black swan-generating activity, he said.
Black swans aside, Khosla employs some pretty familiar tangibles to measure whether a renewable energy technology is worth his dough. What matters is cost (it had better be cheaper than fossil fuels), scalability, low adoption risk. So, in his view electric cars are irrelevant unless new battery technology comes to fruition, biodiesel fuel is no good unless algae technology is perfected, food ethanol takes too much land to produce, wind and photovoltaics are useless unless we figure out a way to store that energy … and so on. You can read about Khosla’s companies and more about his investing philosophy at KhoslaVentures.com.