Building the Unbuildable

An interesting concept in architecture is the idea of “unbuildable buildings”. These are designs that when once finished would be able to stand on their own as sustainable structures yet cannot be built as the intermediate steps needed to create them are not technically feasible.

A good example of this may be a building that rests on concrete pillars in a wavy sea. Once built this may be a beautiful and stable structure, but if the intermediate step of pouring concrete into the sea and letting it solidify is not technically possible it cannot be built. Only as technology improves and develops sufficiently, pouring concrete into the sea may become possible, at which point the building can then be built.

Another example could be a colony on Mars – while a fully functioning dome with solar panels and atmosphere control could be a sustainable and self-standing structure, the intermediate steps of setting up a construction site on Mars and shipping workers and materials there is not economically and technically feasible, at least not as of yet.

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The same concept actually exists in the world of evolution as well. There are theoretical organisms that could possibly exist in our world, yet do not because the intermediate steps needed in their evolution were not possible. Put another way, any species that exist today (e.g. birds) do so because each step in their evolutionary journey (e.g. developing wings) was sustainable. Prior to wings, the ancestors of today’s birds developed wing-like appendages that enabled these bipedal species to leap higher into the air, and thanks to whatever small advantage that gave them, they were sustainable as an intermediate step to developing the full-fledged wings of today. If the intermediate steps had not been sustainable, wings would not exist.  

There is clearly a very interesting parallel here for the startup world. A founder’s end vision for their company may very much be possible, but if the intermediate steps needed to build the company from zero to one are not possible, the founder may never reach their end vision. These intermediate steps may not be possible for a whole host of reasons and include the current state of technology, availability of financial infrastructure, the funding environment, and the applicable legal and moral rules, to name just a few.

For example, if the intermediate step of creating the end vision requires a multiyear journey with heavy losses and lots of big investment along the way, that particular company may not be buildable in a bad funding environment, but could in fact be built in a situation where there are deep pocketed investors willing to fund these losses for many years. Similarly, if the technology or regulatory license needed is impossible to obtain for a small company, until the regulatory environment or technology improves, the company cannot be built.

The big takeaway here is that for a founder to have an end vision that is self-standing and sustainable is not enough. The intermediate steps needed along the way also need to be self-standing in their own right, and the founder has to pay very close attention to what those steps are.

By extension, successful founders are those with a very keen eye for changes in these constraints. Things like infrastructure, regulations, and funding environment are very much dynamic and in constant flux. As laws change, new technologies become available, or central banks decide to pump trillions of dollars into an economy, previous constraints may suddenly be lifted. The best entrepreneurs are the ones ready to pounce quickly when they sense these changes that make their previously unbuildable visions buildable.

To illustrate this point, an interesting example worth taking a deeper look at is the building of a new exchange for residential real estate investment properties. Known as buy-to-let investing in the UK, these are the kinds of properties where landlords buy them to rent them out for a profit.

Currently this is a fairly illiquid market, and rather than being traded on an exchange, it is traded in one to one transactions where buyers and sellers find each other via property listing sites such as Zoopla (which are a big improvement in their own right as in the past one would have had to go to the listings sections in newspapers). Once buyers and sellers find each other (after lots of viewings) and agree on a price (after tense negotiations), it may still take weeks, if not months before the transaction actually closes. When all is said and done, the process will have involved real estate brokers, lawyers, viewings, tons of paperwork, and lots and lots of costs for both sides.

Contrast this with somebody that has invested in a company via the stock market – they can buy and sell their shares instantly because the ownership certificates (shares) are standardized and their trading is regulated by the exchange (e.g. London Stock Exchange). We can think of these standardized certificates as “securities” and the process of taking a non-standardized, clunky asset and turning it into an easily tradable security as “securitization”.

But why should one not be able to “securitize” buy-to-let investing? The end vision is surely feasible with today’s technology: Each property could be owned within a legal structure (a company) with a standardized legal contract.  Then the shares in those companies could be traded on a big exchange that lists thousands of those companies with standardized and regulated ownership structures, and one could browse and filter properties, make an offer online, and trade it with a few clicks. While this process may still not be instantaneous like buying stocks today, the time to transact may nonetheless be cut down from the months and weeks that it takes today to days or perhaps even hours.

One obvious difficulty here is the intermediate step of bringing together the supply and demand (the buyers and sellers of property) under one roof on day one. If there is not enough supply then the demand will not show up, and vice versa. Hence, the entrepreneur that wants to build this new exchange will have to find a way to solve this conundrum by bringing the sellers and buyers onto the platform in incremental yet sustainable steps. If this can be cracked, the pot at the end of the rainbow surely is full of gold: buy-to-let properties represent an asset class of GBP 1.2 trillion in the UK alone and are currently housed in very illiquid structures. Solve the intermediate step, and the end vision is yours for the taking!  

To summarize, having the courage and stamina needed to be an entrepreneur is one thing, but the best founders also need to be the kind of visionaries that see changes as they are about to happen, understand how those changes enable cracking the difficult intermediate steps, and imagine what kinds of future structures all this enables. With that kind of vision, what was once impossible and in the realm of science fiction, becomes reality.

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