28/01/2010 - 00:00

How to prevent another Firepower

28/01/2010 - 00:00

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Basic science research could have prevented the Firepower saga

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 just been through the do.com bubble and the Enron disaster? Didn’t we learn back then that a business based on unverified financial, scientific or commercial claims is simply not a good investment at any price?

There are two circumstances that favour the appearance of another Firepower in the future. The first is a lack of science literacy in the business and investing community.

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

Those investors did not receive any properly conducted research to back up the Firepower claims.

Why not? Did everyone believe it would be “too hard” or could only be performed by institutions with potential conflicts of interest or negative bias? Or that it would take too long and be too expensive? Or is it that too few people know the difference between proper research and marketing blurbs?

We could have obtained conclusive results right here in Perth within a week and for less than $3,000. All it needed was a double-blind trial involving two hire cars, two drivers, lockable fuel caps, and some basic R&D methodology.

However, it does require someone with experience and training in conducting this kind of for-profit R&D. Academics do not have that specific training. Technicians and tradesmen are not trained to conduct research of any kind, though they are often willing to give it a go.

I have watched businesses attempt to rely on both, with the result that they never get useful answers before the money runs out.

In this kind of situation, best practice is for an investor to initially put in a small amount specifically for independent testing and third-party reviews.

The investor is in control at this stage, made possible by relationships with reliable science, technology and engineering advisers who speak their language.

On completion of the testing and if the results are independent, conclusive and favourable, then a larger investment is warranted.

It doesn’t end there.

Investor should not simply hand over some cash and hope for the best. Smart investors stipulate that part of the money be used to access experienced management, reliable skills, and the best advice. It is the investor’s right to insist upon and to help select those advisers.

But before money ever changes hands, there is due diligence.

Didn’t investors think to ask trained engineers and scientists to give an opinion? Is it because investors don’t know anyone qualified they can trust? Or do they distrust the scientific “establishment” generally?

I have come across this disturbing attitude in business and investing circles too often.

With so much money lost through the Firepower misadventure, people naturally ask how the authorities could have allowed such a fraud to occur.

My suggestion is that it is not really the government’s responsibility.

Rather than more policing by the state, what is needed is a greater level of scientific literacy in our community.

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 agree on what constitutes a fair and conclusive cricket match, 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 baulk at printing anything even remotely technical sounding for fear of alienating their readership.

Yet in these 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 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.

The other circumstance favouring the likes of Firepower in Australia is an almost complete monopoly on technology research held by the universities and government labs.

This places an artificial and harmful gulf between the technology creation world and the business and investment community.

This gulf does not exist in places where more businesses have the foresight to invest in their own internal R&D operations.

Managers and investors there have 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 in Australia is not well integrated into the business and investing community, especially here in WA.

Because of this, business here remains unfamiliar with ideas, which in other parts of the world are standard best practice.

An example is the R&D third-party review. 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 product wholly unable to back its claims.

In the 1970s, 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 can never 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.

This annoys me because: 1) it is so totally avoidable; 2) it unfairly makes Australian investors look like a bunch of suckers; and most importantly, 3) it unfairly causes investment opportunities in legitimate technologies to be viewed with suspicion.

There is a real possibility of scaring off much-needed investment in real technologies that are essential for coping with the challenges this country and the world are now facing.

A higher level of science literacy in the community begins with an investment in science education in schools at all levels, and is supported by greater acceptance of science and its language in the news media.

Additionally, we need more integration of research-trained experts into the business community.

When management learns and adopts international best practice, the result is that investments in R&D cost less, take less time and involve less risk.

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

n John Jacob is a research engineer with more than 25 years’ experience in commercial R&D. He is active as a research consultant, writer, blogger and public speaker and can be found at www.p-r-o-system.com.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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