Water is a surprisingly data-poor industry, even in California, home to Silicon Valley and a longtime hotbed of innovation. Yet somehow the water business, relatively speaking, has missed out on this trend.
This is largely because water is still delivered the same as it was a century ago – by pumps, valves and canals that are simple mechanical devices, untethered to information networks. Thus it is simply not possible in many situations to even collect data on water management, not to mention analyze it in any meaningful way. This is especially true in agriculture, where water is still largely moved by gravity flow, not by pump pressure.
Yet these water systems are aging, leading to more catastrophic failures. And water scarcity makes tracking every drop more important than ever. As a result, there is an unavoidable need in the industry for good data on system condition and water management to track leaks and plan large-scale infrastructure upgrades.
ImagineH2O is a small San Francisco startup accelerator that aims to fill this void. Since its founding in 2009, the firm has worked to nurture and launch entrepreneurs in the water sector. Each year, it runs a program in which startups apply for one of 10 slots to receive three months of coaching to refine their business while they compete for a pot of money at the end of the program. Last year’s program, for the first time, focused on water entrepreneurs offering data-driven solutions.
Tom Ferguson, ImagineH2O’s vice president of programming, said the need for more data management in the water industry is so great that this year’s accelerator program is likely to focus on data innovations again. Ferguson recently spoke with Water Deeply about this water-data gap, and the challenges of water entrepreneurship generally.
Water Deeply: How did you get interested in water?
Tom Ferguson: I worked as a sustainability consultant for ERM (Environmental Resources Management) for three years, fresh out of university. I worked with 300 global companies scoring them on their water use. That was my first introduction to water issues and I thought it was fascinating. Over the next three years I worked with 20 companies to help them think about their exposure to water risk and their sustainability.
The constant battle was with the CFOs saying, “Water is so cheap, why on Earth would I want to invest in this?” Let’s say it’s a mining company, and then a tailings dam breaks in Brazil. And you say “There you go, that is why you invest in water.” Everybody thinks water is just the value of what you pay when the water bill comes. No. The value is what you pay when things go wrong. There is a massive and almost existential risk to your company from really adverse things happening. What price are you willing to put on that?
Water Deeply: Why focus on water data?
Ferguson: I guess the answer to that is we’re starting from such an unbelievably low base. The American Water Works Association recently ran an audit of its member water agencies by state. It was not cutting edge, but they ran an audit on the accuracy of flow in drinking water delivery – how much water is coming through each system. Texas came in on top at 41 percent accuracy. California came in at 27 percent. It’s crazy.
The U.S. Geological Survey recently published a comprehensive survey of water use in the country. It covered one year, 2010, and was published in 2014. It took four years to publish.
Water in general, as an overall entity, if it was a single company, everybody would have been fired by now. It’s not the fault of the people that are working in it, because they are unbelievably dedicated, fantastic professionals. It’s just that they are fighting against structural constraints.
When you turn on the taps, clean water comes out, and that by itself is a miracle. But when you are setting it next to the standards of a properly well-run, efficient industry, it’s not there.
Water Deeply: Why is that?
Ferguson: Partially, it’s because it’s been ignored. It’s not been as sexy. And that, I think, is completely crazy. When you’re talking about California or the U.S., there is such a massive opportunity because the need for water infrastructure is not going away. So there are opportunities to have American companies in technology at the forefront of what is going to be a massive global connection between people and their water systems and upgrading water infrastructure in the U.S. and Europe.
Water Deeply: What are some of the big opportunities in water data?
Ferguson: We had 93 applications from 18 countries, and everybody’s doing amazing stuff – remote sensors in cattle troughs in the Australian outback all the way to companies that want to retrofit current meters to make the data accessible. The big opportunities, I would say, are in food and agriculture, which is always going to be a massively important market. Our winner was Ceres Imaging, which came out of Stanford. It’s like an MRI for plants that can be taken from the air. You get an amazing granularity of biological information on a farm field that you can usually only get by being up close and personal with the plant, but they can get it from the air.
In the same way Turbotax helped individuals deal with the vagaries of the IRS, we’ve got two companies that are using that as an opportunity by putting software around the regulatory burdens. Complying with EPA regulations is a total nightmare, and stormwater runoff compliance is one. It’s the entrepreneur who can see that kind of barrier and see regulation as an opportunity, then create software that can automatically populate data into EPA regulatory forms.
Water Deeply: Why is the water business so challenging for startups and investors?
Ferguson: The first thing is the misalignment of incentives. If you are running a water utility, bottom line is don’t break anything. Because we’ve seen what happens when things go wrong, like in Flint (Michigan). There’s a real focus on “If it ain’t broke, don’t fix it.” But unfortunately over time things gradually become broke. But still the incentive is not to mess with things if it’s delivering clean water to the tap, even if you are losing an unknown amount of money and your finances are getting to a point where you literally can’t reinvent.
So what we think needs to happen, from a utility point of view, is good behavior needs to be rewarded. The second thing really is knowledge. I come from a consultancy background. Even working with some of the biggest corporate names in the world, because water is cheap, they undervalue it. But nobody wants to have a messed up system that’s leaching water left and right. They want it to be properly managed. And the deployment of technology is really allowing them to do that.
Water Deeply: Will the water business be dramatically changed in 10 years or 20 years?
Ferguson: I think it will be different in a few key ways. Firstly, it can’t carry on as it is, otherwise we’re going to be in a real crisis. Bad things happening will be the norm rather than the exception. I don’t think anyone is stupid enough to let that happen.
In 10 years we will not have this issue of getting data from 2010 five years late. It would be a real breakthrough, but it’s so sad to have to say that because it’s totally fundamental.
I think the focus is shifting. I think the main thing we will see is the way in which utilities are supported to upgrade their own infrastructure. What is going to be a trigger for deployment of data is that people are going to look at the amount of money that has to be deployed and say, “Wow.”
Either way, it’s going to come from the pockets of the public. You can’t spend the amount of money that’s required to be able to upgrade overall systems if you are only making decisions based on the data you have available at the moment. Once people really understand there is going to have be a concerted effort to upgrade their systems, we are going to see a crazy deployment of at least the most rudimentary data. And we can’t do that now. There are some really interesting companies that allow people to target maintenance work. At a cost of $20,000, it tells people where to save $20 million. The technology is there and we just need to get it deployed. When you buy a data solution, you’re not buying data. You’re buying the ability to make better decisions.
Water Deeply: Is the industry prepared to embrace data like that?
Ferguson: Frankly, the average age of people working in the water sector – it’s certainly people of more mature years. And in 10 years that’s going to be a major problem. They’re going to need to bring in new talent fast to get people up to speed on what is really a complex problem. So I think there is an opportunity for talent to come in, because these are great jobs.
It’s not a sexy sector at the moment. It’s getting more sexy. I’ve never seen an industry where the fundamentals for growth are better. In the words of Wayne Gretzky, you are skating to where the puck is going to be. If you’re someone coming straight out of college, and you’re looking for an industry that is going to see crazy, crazy growth and is extremely important, there are mad, mad opportunities. Of all the opportunities for people who are young and hungry, water is it.
Water Deeply: What should the average person know about investing in water?
Ferguson: There are three times at which you can get into an investment position: too early, right on time or too late. As an investor, this is too early but in a relatively short period of time it’s going to be pretty much verging on too late. We are really starting to see the shift. We’re contacted every week by people with large amounts of capital asking about this water investment thing. We’re seriously at that stage.
If you are interested particularly in early-stage water, there is no substitute for experience. There is a real opportunity to understand what the dynamics of the sector are by participating in it over the next two, three, four years. Do it now, because you’re going to learn the good and the bad about being in water. As the money comes into the sector, you are going to be in a much better position to take advantage.
I think companies like ours give a great lens into understanding what can work. Because this is not just a couple of people in a room deciding arbitrarily which companies are the best. We have a phenomenal network of judges that make the decisions for us. They are investors in water and technology. This is a stamp of approval from them.
Top image: Tom Ferguson, center, of ImagineH2O, speaks to the finalists in the firm’s recent accelerator program to support entrepreneurs aiming to bring data management tools to the water industry. Also shown are his colleagues Safiyyah Abdul-Khabir, left, and Nimesh Modak. (Nick Otto)