The fractal world of institutional innovation and waste

This post is built around a fantastic article called Institutional Innovation by +John Hagel and +john seely brown.

The article is such a rich source of ideas that it has had my head spinning for weeks. It has given me a vocabulary to clothe my ideas, along with some reputable sages who flesh them out. I've been thinking the ideas through in the context of waste, and as I explore I come to a fractal world where waste is dissolved down into its byproducts, a fractal process of looking deeper and deeper into details to extract ever increasing value.

It reminds me of the Mandelbrot set.

Mandelbrot set. Source: Wikipedia (jpg)

Another business model for second hand books

If you are looking to take waste and reuse it, then one of the materials that you are going to end up dealing with is second hand books.

Typically these books are listed and sold on an item basis, with each book having a different price depending on what the store thinks it's worth. Here's a different model: sell books by the kilogram. The greengrocer for books. You could play with this.

It's not my idea. I first saw it written up at Springwise (a website listing entrepreneurial ideas), with the article referring to the Spanish bookseller La Casqueria which apparently sells books by the kilogram. Unfortunately I don't read Spanish, but I believe them.

There is another store in the US that does similar: Market Fresh Books. Books there are $5/lb, or a bit over $10/kg. In fact, they have some really clever business models like book rental where you pay a deposit of the book's cover price, and get refunded the deposit less $0.75 per day. If you like the book, you keep it and everybody's happy. Cool approach!

You could have a bit of fun with this. Maybe romance novels are "in season", and so you can reduce the price. Greengrocer scales, people in smocks, books put in paper bags etc. Go the whole hog.

It certainly changes thinking about books, and that can't be a bad thing. You're certainly in front. At $10/kg, you are getting $10,000/tonne. That beats paying $100/tonne at landfill, or maybe getting $300/tonne as recycled paper.

Why do books go to landfill again?

The changing economics of waste

Waste has classically been an industry where labour is minimised at the cost of more landfill. This made sense when landfill was cheap. This dynamic is changing.

The graph below shows the cost at a Perth landfill, and the minimum wage per hour.

Landfill and labour costs - Perth, Western Australia

The graph shows a jump in landfill costs for 2010 coinciding with a jump in the landfill fee per how of labour. In 2000, each tonne of waste was equivalent to three hours of minimum wage labour. In 2012 it has jumped to over 6.5 hours on a landfill fee of about $110/tonne.

In Sydney, the Eastern Creek landfill charges twice this gate fee, making a tonne of waste equivalent to over 13 hours of labour. And trends around Australia (except, perhaps, Queensland) are for landfill costs to increase much faster than the cost of labour.

What does this mean?

In short, it means that the innovators in waste management can afford to invest labour to reduce waste to landfill. This will be difficult for established operators to acknowledge, as they are hamstrung by their existing operations.

As discussed in my post marginal thinking and waste, existing operators are all but forced to frame the problem in terms of how to marginally improve on what they have. Which is bulk handling systems that minimise labour at the expense of waste to landfill.

The field is wide open for new players to enter this market.

Marginal decision making in electronic waste

Yesterday's blog marginal thinking and waste referred to the lost opportunity in e-waste, with billions of dollars worth of precious metals going to landfill each year. That seems a bit flippant on reflection, and I'd like to explore a bit more on the cascading decisions that bring this to pass.

The first decision maker is the consumer who has a dead piece of electronics. There is simply not enough precious metal in the unit for it to be financially worthwhile to recycle themselves, through e-scrap is certainly valuable. They can decide to throw it in their bin, take it to the nearby waste facility, or take it to an e-waste recycler.

A waste wiki

I wonder if there has ever been somebody who has classified all of the different products manufactured, or at least the main classes, and identified:

1. What the materials making up the products are
2. What the materials might be converted to once they have reached their end of life
3. Who might buy the converted materials, and and quality is required
4. What processing is required to achieve this conversion

Of course, I've done a quick google search and there appears to be nothing. At least, nothing that systematically goes through products.

Imagine what such a resource might provide for people wanting to set up a business to pick off a small part of the waste stream. 

For instance, I know that mattresses are made of spring steel, polyurethane foam and either a cotton or synthetic textile cover. The spring steel can be recycled with scrap steel, and the foam can go into carpet underlay and foam for furniture. To get to this point, the mattress is dismantled by hand.

Knowing this, I can pretty quickly develop a business model around potential waste sources, likely prices to be attained for converted materials, and the processing costs.

Sounds pretty cool to me. If anybody knows of this sort of a thing, let me know. If anybody wants to start one, also let me know. If not, I might need to start one myself to help me in my own business development. 

Freely shared, this knowledge could enable guerilla recycling organisations that pop up almost fully formed to cater for a small niche in the waste market. Bringing the power of the information revolution to waste.

Social media, entrepreneurship and waste

Sometimes it's fun to grab three apparently dissonant ideas and rub them together. So here we go: social media, entrepreneurship and waste.

If we take social media and entrepreneurship as orbiting waste, then the two almost contradict what we currently do.

A common thing in rubbish is to have an education campaign. This goes something like this: an educator prepares a waste minimisation or recycling message, delivers it, and then perhaps measures the effectiveness of that delivery a while later. It is a megaphone. It is not a social media.

Instead, social media would require the educator to be educated as much as he/she educates. Social media in waste management would involve creating the space where a community can speak with itself, and the educator becomes facilitator. This space is, so far, unmapped. It has remained so for fear of "blow back", where the failings of the host organisation are reverberated and amplified through the community until the host reputation is shattered. The Western Earth Carers is feeling its way through the space through a series of facebook pages: Western Earth Carers and Plastic Free July. Together with twitter feeds, this is not for the faint hearted. However, it has been quite amazing thus far.

Throw entrepreneurship into the mix, and it gets even more interesting. For me, this is where social media starts to move outside the realm of communication, education and facilitating community action, and begins to move into the realm of building up new businesses. Nimble business, with social media at their core, in the field of waste management.

I'm not sure what this looks like exactly, but suspect it is the space between people taking personal action for the environment, and business doing things environmental things for people. I think it is people enabling businesses who enable people. It might manifest in viral campaigns to drive a particular business model around the environment, perhaps "gamification" of some environmental activity, maybe a deeply personalised waste service.

To get to this point, I suspect there is a fair amount of design work to enable network effects to be unleashed for a business. A lot of thinking is needed to understand what might actually resonate, and how. It must be driven by ethics rather than morality (a future blog surely rests on ethics and morality in waste management).

There needs an immense amount of authenticity - the bullshit detector runs red-hot when people can see everything you do. But it is only by seeing what you do that people trust to engage their own passions around "your" cause. And only then can this precious space at the intersection of three dissonant concepts form and thrive.

You don't know quite how this space will turn out, or even if it will form at all. It is a bit like the "scenius" described by The Technium in "Scenius, or communal genius". A bit different too, but the idea is that it erupts when the conditions are right, and also easily dissipates where it is forced into formality.

So they are my thoughts. I'd like to develop them further over the coming months, and would love any comments or suggestions for further reading, case studies, ideas.

What will the IT revolution look like when it hits waste?

I often wonder about different perspectives on something I'm looking at.

One perspective that has been bugging me lately is the IT revolution and how it might affect waste. Specifically, the sort of hyper-innovation that has ripped computing from the basement and lab coats into smartphones and cloud computing in the space of 50 years.

This is not a question of how computing per se is affecting waste. Of course, there are some interesting things going on with data management and so on, but it is fundamentally a business built on people circling big and expensive plant: lab coats circling big, expensive machines. Computing has not changed this, and isn't really what is bugging at me.

What bugs me is how and when waste will make the shift from mega-machines to become personalised. When will it become something that we can all find out self-expression through? It is the shift in attitude that interests me.

It sounds absurd to even propose that something like waste could ever become personalised, ever be a medium for self-expression. Just as a basement full of wires and punch cards and blinking lights could never be the genesis of an awesome flowering of personality. But it is, and so too waste might not only be disrupted forever, but might even disrupt everything forever.

How? Imagine first a series of business models that permit the citizen to easily take control of his or her waste for financial reward. The resource value within the waste drives this new perspective, and you start to see the sort of massive reverse logistics that so characterises scrap steel. You start to see a self-reinforcing loop, not needing capitalism to be overthrown for it to make sense.

Imagine this then driven by high-tech. You can imagine little bins that don't just store your rubbish, but deconstruct it for sale of the components, pocket sized units that deconstruct your rubbish when you're on the go. Tiny micro-factories at every street corner replacing the vending machine, taking materials in from people walking by and using them to make your next purchase as you wait, bleeping out little calls to people who have the stuff they need. Credits automatically credited for this, the end of bulk logistics, the ushering in of personalised consumption.

But it doesn't need high-tech, and it certainly doesn't need this high-tech, for the disruption. All it needs is a disruptive business model to start us down the path. That little disruption, that upstart, will set us on the path to changing everything. Just like the clunky mini-computer led us to the PC to the smartphone and cloud computing.

I wonder about this stuff. I'm not so egotistical to think I need to make it happen, but I can't help feeling it is about to happen and now is the perfect time to be involved. I am sufficiently egotistical to think I can be part of the happening.

Government in waste - help or hindrance?

Whenever there is talk of waste and recycling, there is talk of how the Government can assist. Should it?

On the plus side, Government obviously has loads of cash, and can make all sorts of laws to reinforce the business model of a recycling business. It can mandate recycling of particular materials, put in place landfill bans, impose landfill taxes and subsidise recycling business.

But should it? Perhaps, under certain circumstances, however this is going to naturally lead to a certain type of industry. It will favour the large and established over the small and nimble. It will favour those who control the market over those who would disrupt it. It will favour the bureaucratic over the free-wheeling. It will favour monumental infrastructure over human scale business model innovations.

Government will take a risk averse approach and channel money to organisations that, whilst they might lead to significant improvement, will not lead to great improvements. Organisations that are exciting and disruptive, that might make massive changes, won't attract support because they could equally fail hugely. Government will look to minimise downside, not maximise upside.

Be this as it may, I would argue that the question is posed the wrong way. Instead, the better question is "should waste and recycling businesses seek Government support?" And I suggest that the answer is resoundingly "No!"

Chasing Government support takes a lot of effort. More importantly, the things you have to do to your business model to meet Government funding requirements will also cripple your business. You will start as a nimble organisation, reliant on none, and end up gummed up with a bureaucracy that you never believed possible. And certainly never needed.

In this field that is ripe for disruption, ready for upstarts, primed for somebody to change everything, you don't need to be wasting your time convincing the Government. Use that time to surround yourself with investors who get what you are trying to do and will help you get there.

Incineration and the future of waste

Today I was at a seminar on "waste to energy", otherwise known as incineration.

It was quite surreal. Listening to great speakers from the US and UK (and they were excellent - thank you) on video-conference, in a packed room (had to be well over one hundred there), I couldn't help the feeling that I was watching the justification of mainframe computing in a personal computer era.

You see, the presentations were all about how incineration is fine environmentally etc. I get that environmental and health factors concern people. It's easy to get frightened of the "pollution factory" down the road, especially when you can't see the pollution. But I don't think this is the problem with incineration.

For mine, the problem with incineration centres on its philosophy of bulking everything into a furnace and then cleaning up the back end. In doing this, you pretty much have to cater for the worst case.This is expensive. And the best fuel (plastic, timber, cardboard) is so easily recycled through much cheaper avenues. You are desperately vulnerable.

So the problem becomes how do you finance these things? Especially now in the post GFC world where banks are risk averse (!?). Incinerators are immense capital investments (several hundred million dollars just to build) that require waste feed secured over decades. And that, to me, is why incineration will fail.

It is no accident that incinerators are only built when underpinned by government. This might be finance, subsidies or waste feed,or more likely all of the above. Absent one, the business case gets very dicey. Large mixed waste incinerators are not built commercially.

Commercial incinerators do exist, but they are smaller and focused on a specific waste stream. Why? Because it requires less pollution control, feedstock is more secure and the business case is stronger.

But it comes back to this. Why would you invest hundreds of millions of dollars on technology that is forever at risk of new pollution control standards, when you can invest a few million and make a highly focused plant hum. A portfolio of these little plants dealing with discrete parts of the waste stream - now there's a business I'd want to build!

A business model for timber recycling

Let's imagine that you have a market where there is a lot of timber waste, be it pallets, furniture, general construction and demolition waste. You want to do something better than landfill, because

1. Timber in landfill consumes a lot of airspace. A length of seasoned pine has a specific density of 0.5. To put it another way, a tonne of seasoned pine perfectly stacked takes up 2 cubic metres. It's even worse when it is in the form of crushed pallets or furniture
2. It's the right thing to do

You don't want to start this unless there is a market, a business model.

Ideally, you'd have a particle board manufacturing plant close, but that is relatively unlikely. Particle board is made where the timber is grown, and most pine plantations are not near the cities where timber waste is generated.

This leaves you with the need to think laterally. In fact, this leaves the need to think up a business model that makes money in a number of ways.

One approach is to charge to accept the timber waste, chip it, produce a clean mulch (a bit more on the how of this in a future blog), and then sell the mulch. 

Timber mulch on its own is not an especially high value product. Timber mulch is competing with raw mulch, which can be as low as free at sites that specialise in linking tree lopping contractors with gardeners. 

Where it gets clever is when you add value to the mulch. A perfect way to add value is to colour the mulch using mineral oxide dyes. A company selling coloured timber mulch is Mossrock in Melbourne, converting timber waste into a high value product. It looks for all the world like expensive red gum (red colour) or peat (black) mulch, and retains its colour for years.

Red coloured hardwood timber waste. Image from Mossrock

To colour chip cost effectively, you need to remove the sawdust that comes about through the chipping process. If sawdust is in the mulch, it soaks up the dye and makes it all very expensive. Sawdust is easily removed through a screen (such as a trommel).

Having removed the sawdust by screening, you have a new product - sawdust. Sawdust is much easier to find a market for, especially in urban or peri-urban areas. It makes perfect animal bedding. Certainly for poultry, perhaps not for horses. A nail through a horse's hoof could lead to the horse being permanently lamed, and nobody would want this on their conscience.

But poultry bedding. There are invariably a lot of poultry farms near any large urban area, and they need bedding to be replaced with each batch of chickens. It is an expensive exercise, but one which ultimately produces a bedding rich in nitrogen (manure) and carbon (sawdust). Perfect for composting. 

Broiler shed, typically bedding is sawdust. Image from Australian Chicken Meat Federation Inc

So you contract with the poultry grower to maintain the bedding (supply, spread, remove) for a fixed fee. Turning the sawdust byproduct into a valuable fertiliser, and getting paid to do so.

And on the cycle goes. With clever thought, you add value throughout the chain for a business model that bootstraps itself.

What would a Silicon Valley for waste look like?

We are all familiar with the awesome reputation of Silicon Valley as a hotbed of entrepreneurship. It is a classic example of the synergistic effects of an ecology of excellence growing up around an industry. Ideas attract brilliant minds attract venture capitalists.

More important, however, is the prevailing ethos that you have a crack. Trying and failing is better than never trying for fear of failing. Or trying to cover yourself against all risks before you begin. Business is risky. Good business people accept that, minimise their risks and then begin.

This sort of culture is sorely missed in waste management. It is a field that has managed to convince itself that it needs government support, that it is only able to succeed if it is big. An enormous risk averse edifice that grinds out incremental improvement only when led by the nose by government. An industry that leans heavily on public underwriting of private profits, and even then manages to get it wrong (no names here, of course).

Imagine if the norm in waste management was for entrepreneurs to get out there and start creating little eruptions of businesses. Or, more accurately, little disruptions. What might that look like?

You might see some very nimble companies focusing on serious product differentiation in otherwise bog standard markets. This would be great for customers. You would certainly see exciting solutions to avoid the capital intensive and largely monopolised landfill. Indeed, clever ideas would sidestep high capital requirements and barriers to entry across the board. I reckon you'd also end up with an ecosystem that drove landfill close to its deathbed.

A Silicon Valley of waste would emulate the start-up process for technology companies, starting as bare bones business that delight their customers, and growing into business that are so prevalent that you can't imagine the world without them. It would also provide the space for ideas to be tested and abandoned without disgrace.

To get to this point will be a tricky chicken and egg problem. Some sort of venture capital is required to get this off the ground, but that won't happen until there is a track record. And a track record is hard to achieve without funding. And, finally, brilliant minds are especially tricky to attract in the absence of a track record or funding.

I think it is a nut that can be cracked, and will be cracked by innovation in business models. I will blog on this in a later blog. I will also blog on what a constellation of small waste businesses might look like.

Thanks for following this tale, and I welcome any comments or suggestions you might have.

Murray Bookchin, waste and recycling

It is the classic story. Several years ago I was browsing through a second hand bookshop, one of the great pleasures in life, and stumbled across Toward an Ecological Society. It was a collection of essays by an author I'd never heard of, Murray Bookchin. It proved to become one of my favourite books of all time, and especially the title essay.

In brief, Bookchin argues that society needs to move from a central approach of domination - dominating women, people, animals, nature in general, and recognise itself as a part of a whole. He contrasts ecological thinking with environmentalist thinking. Ecological thinking is revolutionary, seeking to reform society in a technologically advanced harmony with nature. Environmentalist thinking is geared around maximum exploitation (or domination) of nature.

I get this. As an environmental engineer, my career is all about doing what is required to minimise environmental impact. It presumes it can know the impacts of actions in extraordinarily complex and non-linear systems. It never asks how the question can be reframed such that the question of environmental impact becomes inconceivable. An analogy - we don't walk down the street looking to minimise broken limbs. It is inconceivable that we should harm ourselves.

Bookchin also writes of human scaled technology. This is where things come close to home for waste management, and indeed, he makes explicit reference to the failures of centralised, monumentalist waste management. To take it further, he is critical of the "economies of scale" and "leave it to us" approach of waste management which ultimately leads to monster landfill, incinerators and other base level waste systems. This is everything a human scale waste system is not.

A human scale system involves humans. It works with humans to reduce their waste in the first place, then engage in sorting their waste, and ultimately using high technology to process waste. It is an approach of great subtlety.

It doesn't need these elaborate efforts at "community engagement" to convince people that they really do need this big plant which will solve their problems. Instead, it responds to the desires of people to actually engage. It is increasingly plausible as people move from trusting "experts" to trusting the crowd, increasingly likely as technology leaps forward. Our waste plants are getting smaller, and people are doing more themselves.

Toward an Ecological Society, Murray Bookchin. Image courtesy of Amazon

Ultimately, the tale of Bookchin is a tale of hope over despair. We can control our destiny. It is reasonable to know your world. We can live in a world that is not free of waste, but rather enables each of us to put out waste back into the productive economy. We can change the world one decision, one action at a time.

And most importantly, we can build business models around this. We can build business models that engage with people, deliver on their core values, prevent waste to landfill and are profitable. All at the same time. This is only impossible if we lock ourselves into the domination mindset, the "grow or perish", "big is best", "economy of scale" inanity.

It is an opportunity that is set to become real as intelligent people gather around heretical ideas. It is the future I want to live.

As for Bookchin, he passed away in 2006, 85 years of age and having lived a life filled with crystal clear polemic.