Wednesday, January 27, 2010

How to Avoid another Firepower

The backstory here is a complex web of companies known collectively as Firepower which has, for at least the last 10 years, been claiming they have a "fuel pill" technology that decreases a car's fuel consumption, decreases emissions and increases performance. No credible proof of these claims has ever been tabled, while hundreds of investors cluelessly shelled out up to $120 million Australian dollars.

The following is a synopsis of a Guest Column published in the Jan 28, 2010 issue of the WA Business News.


How to Avoid another Firepower

The Firepower story was possibly the first Australian newspaper article I read upon arriving on these shores nine years ago this March. I was deeply annoyed by it then, and continue to be so today.

Hadn’t we learned from the Dot-Com bubble and the Enron disaster that a business based on fiction is simply never a good investment at any price? Aren't such businesses and their claims worthy of harsher scrutiny in the press?

Without individual “sophisticated” investors handing over at least $120 million to fast-talking promoters without any proof that the product actually worked, there never would have been a first Firepower.

Properly-conducted tests that would demonstrate conclusively whether the product worked could easily have been performed, and should have been insisted upon by investors. In one week and for $3000, we could have tested two identical hire cars using two drivers, locking fuel caps, and a properly-designed double-blind experiment. But for investors to realize that this is both necessary and possible, they must possess at least some basic science literacy.

Then, for the work to be carried out, a person is needed who has the right training, experience, and understanding of the basics of commercial research.

When science has a more prominent place in our everyday social discourse, then fewer people are taken in by jargon, wild claims, or fishy statistics. It’s not a matter of being super brainy, either. We can easily agree on what constitutes a fair and conclusive sports contest, but are unaccountably fuzzy on what constitutes a fair and conclusive scientific test. There’s really not that much difference.

Another consequence of greater scientific literacy in the community would have been less media indulgence of Firepower’s claims without proof. Newspapers balk at printing anything even remotely technical-sounding for fear of alienating their readership. Yet in their pages we regularly read quite sophisticated financial, legal and political information that is just as demanding intellectually. If that irrational fear of science were set aside and if editors and reporters were themselves more scientifically literate, then patent rubbish like perpetual motion, cars that run entirely on water, and magic fuel pills (not to mention a whole host of health-related mumbo-jumbo) would not be reported as though it were factual.

When the public reads those sorts of naively credulous articles in print without expert comment or mention of proven facts, the unchallenged claims become endowed with authority and legitimacy that are undeserved. As a result, the public becomes even more confused about the facts of nature, and even more money gets wasted on nonsense.

But who can the media turn to for reliable information? Who can perform the kind of independent testing investors need? In places where more businesses have the foresight to invest in their own internal R&D operations, reporters, managers and investors have closer relationships with experienced research specialists. Engineers and scientists who are especially trained in for-profit commercial research and product development are available to respond to questions with straight, plain-English answers. One such question might have been, “Does this fuel pill thing have Buckley’s chance of actually working?”

Universities and the business community are worlds apart in terms of culture, goals and incentive structures. This means that technology research expertise is not always well integrated into the business and investing community.

Because of this, businesses and investors may remain unfamiliar with ideas which are standard best practice in R&D. An example is the R&D third-party review (see an earlier post). Someone who is neither the customer nor the vendor and who possesses the relevant expertise provides an independent, confidential assessment of R&D plans, progress and results. Where I come from, managers and investors absolutely insist on having these at regular intervals. They do it because in the long run it’s cheaper than not doing it.

Far from being unique, Firepower is only the latest case of money lost on a fictitious product wholly unable to back its claims. In the 1970’s, an investor friend of mine lost a lot of money to a man who claimed his special device could produce unlimited free energy. When I explained to him in detail why that sort of thing doesn’t work in this universe, he said after a few choice words, “Where were you in 1975? You would have saved me $300,000.”

Sadly, this sort of scam will almost certainly happen again. Rather than more laws and greater policing by the State, I suggest that a higher level of science literacy in the community would go a long ways towards protecting the life savings of everyday mums, dads and grandparents. It begins with an earnest investment in science education in schools at all levels, and is helped along by greater acceptance of science and its language in the news media.

If the ultimate outcome of the Firepower saga is that we learn these lessons, then it may have been money well invested, after all.