Cut the Belts and Look for Capital and Talent in Your Own Backyard

Opinion

The first step in getting any venture ecosystem going is capital formation. With all the retired auto industry execs in the region, there should be no shortage of angel investors. But someone has to organize them and convince them that they are angel investors—and that investing in local innovation is a worthy expenditure of their time and money.

When the engineers at Ford were asked how to improve fuel economy in the early days of the Corporate Average Fuel Economy (CAFÉ) challenge, they would simply say “cut the belts.” By this they meant, get rid of the expensive “parasitic” losses caused by power steering pumps and air conditioning compressors (which were driven by belts that tied into the engine).

One of the things Detroit could do is figuratively “cut the belts” that drive all those ponderous and inefficient business systems, and look for new ways to promote and adopt broader use of new technologies. In that vein, here’s a specific suggestion: How about setting up smaller, and more user-friendly trade show events that make it easier for small companies to get their technologies in front of the big auto manufacturers?

In order for these technologies to provide the kind of long-term return on investment that investors will pay attention to, they must be able to sustain a competitive advantage over time. Detroit’s major automakers should pay heed to the way major companies like Qualcomm and IBM have helped to protect their ecosystem of suppliers and affiliated companies by encouraging them to patent and license their key technologies. One reason why Gentex (NASDAQ: GNTX) trades at 19 times earnings is because its patents protect its technologies for rearview mirrors with integrated electronics. Patents provide the ability to create a competitive advantage, and defend it.

In creating these investable vehicles based on sustainable technologies, Detroit also must leverage the large talent pool in its own back yard—this is particularly true for tactical and operational talent.

Value is created by making products that can be produced today using commonly available resources and leveraging available expertise. Scientists, governments, and venture capitalists are all enamored with the dream of changing the world with a new “shiny box,” but new shiny boxes cannot be made at scale for years. The reality is that the only way we will become oil independent is to make improvements to vehicles that can be implemented tomorrow. This means that the components need to be made from available materials with available manufacturing processes.

Sustainable and patentable technologies still make this possible, and Detroit has the innovative minds and manufacturing expertise to make it happen. In order to rebuild the “Detroit” supply chain, everyone must contribute—the machinists at toolmakers are some of the best resources for “makeable” ideas. Silicon Valley is filled with very smart people with great ideas, but those ideas often cannot be made affordably. No idea can impact the auto industry if it cannot be manufactured perfectly a million times at a price consumers are willing to pay. With all of the manufacturing experience in the Detroit area they have a distinct competitive advantage. All those assets just need to be organized.

[Editor’s note: To help launch Xconomy Detroit, we’ve queried our network of Xconomists and other innovation leaders around the country for their list of the most important things that entrepreneurs and innovators in Michigan can do to reinvigorate their regional economy.]

Bill Klehm is the chairman and CEO of Fallbrook Technologies, a San Diego startup developing a continuously variable transmission. He began his career with the Ford Motor Co., and has worked in the automotive business for 25 years in numerous leadership positions, including finance, marketing, sales, product development, and manufacturing operations. Follow @

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