Podcast #120: H2Know

Good day, and welcome to another edition of our Digital Industry Leadership Series, today I’m pleased to welcome Mark Kovscek, the CEO of Conservation Labs, a company providing acoustic water conservation technologies. Conservation Labs is also one of our recent Momenta Ventures investments. Now, Mark describes himself as a mathematician, inventor, and entrepreneur, he spent his career consulting, building products, and delivering solutions to address multi-billion-dollar challenges. His passion however is mathematics and using advanced analytics to solve problems. Mark, welcome to our Digital Industry Leadership podcast today.

1:12    

Thanks, Ken, it’s really great to be included in the series. I’ve enjoyed listening to the others and learning about their journey and perspectives in the space, so I’m looking forward to our conversation today.

1:22     

As well, as well. So, I guess with that I always like to start with a personal digital industry leadership journey, maybe you can tell us a bit about your journey - call it the red thread that led you to Conservation Labs.

1:36  

Yeah, it’s hard to ignore the red thread being mathematics, and as you mentioned in the brief intro which I appreciate, thank you for that, I’ve been doing data science work for over 25 years so I’ve had the privilege of being the math guy in the room, to being the data mining practitioner back in the 90s, and now a data scientist some 25 years later. So that’s certainly the common thread, but when you think about what led me specifically to Conservation Labs as it relates to that, it actually started with a leak, and that leak was in my own home back in the summer of 2014. I guess we were fortunate that we lost only about $100 in water, and to make a long story short there is a bad pot valve in my boiler system, and in the summer I wasn’t thinking that that would be an issue. But after identifying that and looking at a product in the market to see if I could stop that from happening again, everything was really very expensive, over $1500 to acquire a plumber and of course, this is a bit over six years ago, and I thought there had to be a better way.

2:49    

It could have ended there, but the other thing that was happening at the time and this maybe means that there are multiple red threads, is the family favorite show at that time was Shark Tank, and the kids were always asking me what my big idea was.  So, one day I pitched this idea to have this non-invasive low-cost sensor that would monitor your water use, and I thought that’s actually kind of a clever idea, maybe there’s a way to make that a reality, and through a series of serendipitous events, I placed a bet that we could do that with sound. So, I found someone to rent this machine that would log sound data, and I spent the weekend flushing toilets and running water with the stopwatch, measuring water flow. Basically, what I was doing was building a training set to start to construct some machine learning algorithms. 

3:40     

Of course, it could have ended there because mathematicians are famous for solving problems on paper and then moving onto the next challenge, but this one was different because it was not only a beautifully complex maths problem, but it hit another passion which was sustainable living and conservation. So, I started architecting the solution and had to find someone, of course, to help me build our own sensor, I couldn’t afford the sensor that I rented, it was rather expensive like a few thousand dollars. Then after doing some more math and filing a patent, then forming a company, then we were off to the races.

4:12  

It’s an interesting story of how you converged via these multiple vectors there. I was really intrigued by your move from two decades in marketing analytics to this space of I’ll call IoT-enabled water conservation; beyond Shark Tank and your water leak, and some of the mathematics in there, that was a big jump to make from more retail-focused analytics if you will, your online marketing focus to working truly in the Internet of Things. Did you worry about the challenge of making the jump or was it relatively easy to do?

4:51   

The challenge from a data and a math perspective wasn’t easy for sure, and I could describe a little bit about that. I think the bigger challenge of course was moving from the security or safety of not being a founder and not being a start-up, that was certainly an adjustment that when I think about marketing analytics, I got involved in marketing analytics in the mid-90s when the data was really all around direct mail, digital was just starting to be a thing in the mid-90s. I remember the first day on a new job and starting to see all of the consumer data that was available, I was amazed – first I was amazed and then I was actually quite frightened by the amount of data that was being collected about me and you and everybody else in the world, even back in the mid-’90s. 

5:46  

But then as digital came to be a thing and of course social media, data continued to grow, and analyzing that data is absolutely fascinating; so, understanding consumer behavior, what makes us tick, what motivates us, and using this massive amount of data to do that is really quite challenging, right. But there was always some push – well not always but maybe in the last 5 or 7 years of my career even there was a push that there is something more interesting to do, or more problems to solve, or bigger challenges?  You start to do something after a while and it’s the same problem just with different data and different names. I was looking for something new and when that leak happened with my furnace and starting to look at that data, that initial challenge was this is a new dataset, and some big problem and it’s a challenge. I didn’t realize how big a problem water was at that time, I was just learning about it, but I knew it was an incredibly complex data and math problem and that’s what really first grabbed my attention, thinking about that move away from marketing analytics and consumer data to new data, which is sound data.

07:03   

It’s not something I would have conceived of and would attract my career, that one day I really want to look at sound data and solve problems with it.  But it wasn’t being done, and outside a voice like Alexa for example it’s still not being done on any large scale. So, we really feel like we’re at the frontier of a lot of very-very interesting work using sound data from the human audible sound range.

07:26

As different as your trajectory might sound moving, as you know there’s an acronym called SMACT out there, which is Social Mobile Analytics Cloud and IoT, the T in IoT of course. That’s many times shown as a spectrum of how the technologies are building up, and also how we’re moving from information around people to information around systems, and ultimately devices. So, in some sense you’re dead-on with that trajectory which is the reason I wanted to call that out, because a lot of people would say, ‘Hey, I’m doing marketing analytics, IoT is just so different right?’ it’s really not, and so in some sense, you’re a good archetype for that. 

You mentioned that you and your team's passion is for solving complex and multi-billion-dollar challenges, can you highlight maybe some of your early wins in doing this?

08:23

Yeah, here’s an interesting thing, there are 11 of us on the team, soon to be 12, hopefully as early as this week, and most of the team and I have worked together in the past, some of us for over 20 years.  In fact, Dr. Palmiser who is one of the authors of our patent, we met initially at Price Waterhouse all the way back in 1993, and we worked pretty intensely together back in the 90s, and then over the course of the next few decades off and on, but there’s also Julie and Mathias and Jodie, and we’ve all worked together 5, 10, 20 years. So, we’ve been solving problems of varying size and complexity together as a team in different capacities. I’ll give you a few examples, certainly, in the media and analytics space there are a lot of large problems, in fact, I had the privilege of doing some work with P&G for a while and optimizing their media budget, and if you’re familiar with P&G’s spend you’re looking at a billion-plus dollars just in what they spend, let alone in the revenue that’s generated from that spend.  So that’s again a very interesting and complex challenge and a large one. 

09:36    

Before that Paul and I worked building forecasting and supply chain optimization routines for the McDonald’s supply chain. So initially we were looking at Happy Meal toys and our goal was to order enough toys on a global scale month a month in advance, and then run days of supply to zero every week. So that is quite a complex and large challenge as well.  Another interesting one that I worked on with some of the team members in a past life was… goodness this is way back as part of the IRS’s tax modernization 2000 program, where we were building algorithms to identify tax cheats, and it wasn’t just if you cheated, of course, the IRS runs as a business too, so its if you cheated, how big you cheated, and what was the likelihood that we would get dollars from this. So that was an interesting, large, probably approaching multi-trillion dollars – actually most of these may be multi-trillion dollars when you count them up over multiple years.

10:41

They’re great examples, it reminds me of - I was at the coke company probably at the time you were working with P&G, and it was the same deal. The old adage from Marsh & McLennan was ‘Half of my marketing spend is wasted; I just didn’t know which half’! And absolutely right, and the more real-time signals you can get, the more true feedback loops you can close, the better the opportunity to be more efficient at the spending.

11:08

Yeah, for sure.

11:09  

So, let’s dig into Conservation Labs and your first product H2KNOW which I absolutely love. What is the complex and multi-billion dollar challenge you’ve set out to solve here?

11:23   

Good question. Like I mentioned, when I started working on H2KNOW which goodness I wish I could remember the first thing we called it because that name came up much later in our journey! I knew water was big but I didn’t really appreciate how important it was or didn’t monetize, and of course, some of my training as a consultant is, okay let's first figure out and put a dollar amount with this. And so, we did our research, we looked at the challenge with water just in the US as a $70-billion challenge, meaning that there is unwanted water use largely in the built environment, but it extends of course to conveyancer distribution of water at $70-billion in lost value. To put that into perspective with water itself, just unwanted water use – so unwanted water use could be a leak, it could be that you left the shower on, it could be a catastrophic leak or a leaky toilet, we look at that and we see about 2 trillion gallons of water that are lost. To put that into perspective, 1 trillion gallons of water can meet the needs of the 50 largest cities in the US, so that is a lot of water that is lost in some shape or form. And then on top of that, there are about a million catastrophic leaks in the US every year, and that’s actually 10 billion of those $70-billion in cost, and actually that 10-billion is growing.  

12:50

So, we look at that from a financial perspective, but we also have to look at it from a resource and sustainability perspective, of course, the 2 trillion gallons of water is quite a bit. But then on top of that, and this is something I learned through my journey, is there’s something called the water-energy nexus, and so in many parts of the US and in fact the world, up to 8% and sometimes more than 8% of our energy use is from water use, and of course, water is a big driver of energy, and of course, energy is driving carbon emissions.  So when we did the analysis and I was fortunate to have a member of my team who is a theoretical ecologist and theoretical physicist, I didn’t know there was such a thing as the former, but he and I sat down and started building some mathematical models to connect all of this because there’s a lot of research out there, but it doesn’t always agree and the assumptions are different, so we really worked hard to analyze other people’s work.

13:45

But anyway, the short of it is that we think water creates up to 3 gigatons of carbon emissions on a global basis every year, so it’s a significant part of the carbon emissions challenge that we have. So, that’s the problem that we’re setting out to solve, it actually gets even more complex than that, but that’s kind of the way we think about it in terms of dollars, water, carbon, and energy.

14:08

Now that is certainly complex and multi-billion dollar. I can now envision you in front of Shark Tank given that last spiel that you did because your pitch is pitch-perfect! I’ve got to invest in this one. I know when we as Momenta Ventures looked in this space, we’ve been looking at a range of solutions, and mind you we’ve worked with some very large water, both utilities and equipment providers, so we know a little bit about the space, and of course, we were looking both in the space or commercial and residential water management as well. What differentiates Conservation Labs from some of the other companies that are looking to address this space?

14:48

I think a lot of it is built around, I’ll call it the vibe, the vibe that we’re a data and analytics company, that we are a machine learning or data science company, we’re not a plumbing company, and our innovation is around the machine learning and creating a highly scalable and extensible way to do something that’s incredibly complex. I’m really proud of how we initially architected it and more proud of what the team has been able to do with that architecture because what we are doing from a machine learning perspective is new, it's innovative, it’s exciting. So, all of that leads to some differentiation.

15:28

The reason why we’re so focused on the machine learning is because we are using a very inexpensive sensor, that sensor is called a MEMS microphone, it’s a nanotechnology, it’s in every cell phone in the world, and that cost has allowed us to create a very affordable technology. So for just over $100 we can have one of our sensors installed in a home or in a restaurant, or in a commercial property, and that’s super-important because although the numbers are really big when you look at it in total, $70-billion is a big number, but on an individual basis its drips and drops really. So, you really need tens or 100 million folks with technology like ours to start saving money because the value that’s created at a home is about $400 a year. It’s hard to justify spending $1,000, or $1500, or even $500 to save or create $400 in value, but our research, and of course our go-to-market suggests that there is a strong demand at about $100 to $150 for this kind of technology.

16:42

So, affordability is a huge differentiator, but it’s also that its super-easy to install so there’s no pipe-cutting, you don’t have to hire a plumber, it is only one sensor, and if you can put a wrist-watch on your arm you can put H2KNOW on your pipe, it is really that easy. So, I guess the third one is actionability, so there’s the affordability it’s easy to install it’s adaptable to many environments, but also our guiding principle here is actionable. It’s not just enough to say, ‘How much water are you using this hour?’ or classifying which is actually even in and of itself a differentiator, so we can tell you if it’s a shower or a toilet, or if it’s in the kitchen, if it’s in a commercial kitchen is it the combi-oven or the tri-sink or those pre-rinse, we’ll tell you all of that.  But all of that gives us the opportunity to have actionable insights or actionable recommendations, so I’ll give you one example of that.

17:33

So instead of saying, ‘Hey you had a leak in the last hour,’ what our technology allows us to do is, say within seconds or minutes depending on the type of leak, ‘Your upstairs toilet is leaking, and if you don’t address it, it’s going to cost you an extra $49 this month.’ And so, we want to create these actionable insights to create a recommendation to drive action. We can’t fix the toilet for you, we can’t turn off the water or fix the leaky faucet, but what we can do is give you an actionable very conversational piece of information that allows you to address the problem.

18:06  

Can you tell us about some of your cancellations and the results that your customers have seen with your technology?

18:13

There’s a couple of good examples, so one – we’re actually in the middle of a research study right now with a large plumbing manufacturer, and we’re really analyzing and understanding how having this information as well as other insights and actionable insights changes behavior. So, a little bit too early to publish those results, but we are seeing reduced water usage just by having a knowledge of what you’re using. That’s consistent with other studies and other utilities that knowledge of your use in creating awareness changes behavior. So, we’re starting to see that and I think we’re going to see some other very interesting findings from that study coming up.

18:53

One study that I’d like to maybe share and give you some more numbers with is in the multi-family space. So, that key to our go-to-market strategy, is multi-tenant and specifically multi-family properties, there’s a lot of opportunity in those large buildings for water savings. But what we found is, it’s not only water savings from improved efficiency, it can be water savings of course from leaks, its related expanse reduction from heating that water and water waste, it's mitigating the damage, it’s also reduced maintenance. If you’re a property owner there’s also the opportunity for income gains from that, because if you’re promoting sustainability there’s an increasing attractiveness in the market for companies, including property owners and landlords, that provide for ways to live more sustainably.

19:49

So, what we have seen is that in one study, and this actually happens to be in the UK where we’re doing this with social landlords, we saw in a landlord who had about 200 properties, so when we were doing the pilot we’re obviously not doing it on all 200, but when we scaled the results we saw over half a million dollars in reduction for unnecessary maintenance visits. We saw better energy efficiency, savings approaching $1-million, this is on an annualized basis, we saw an opportunity for 4 million gallons of water to be saved. So, when you look at that in a typical midrise property that’s approaching $40,000 a year in value creation in the multi-family space.

20:32

Great use cases there, and especially as you hit more toward high-density if you will housing and residential and commercial, which is really where our sweet spot tends to be.  But having been in companies that have a foot in B2C and B2B you can see the effects of driving adoption and cost reduction by exploring the B2C side of it, and then of course monetizing around the B2B side, and so the strategy of having a foot in both actually makes a lot of sense. 

21:01

At the time we’re recording this, mid-November, COVID-19, unfortunately, continues to be a real challenge for a lot of nations now with whole areas being locked-up.  For us, in some sense, it’s also been a digital accelerator at least for most of our portfolio companies. What are some of the changes you’ve seen in client requirements since the start of the pandemic, and what do you think will be the long-term implications on this space?

21:29

The short-term issues are the same for all of us, just a lot of precaution when we’re entering a property doing a site visit. We’re finding folks to be very amenable to those visits with of course appropriate precautions taken. We really haven’t seen a slowdown in terms of interest, in fact, I would say it's accelerated. We’re also doing a lot of things remotely, so we can’t do a site visit for everyone, it’s not really as much of an issue with COVID as the fact that Conservation Labs is a distributed company, and we’re selling literally all across the globe, so it’s not cost-effective for me to go to the hotel that we’re piloting in Cairo Egypt, or to Australia, or even to a different city in the US.  So, what we’ve done is developed ways to secure blueprints and schematics, and work virtually with our partners. I think that’s certainly helped folks, its helped us in the sense that the expectation of always being onsite to do a visit has gone away, and we’ve proven that we can do a lot of this work virtually, as long as somebody is able to do the installation of course, which because of the simplicity of what we’re doing it’s not been an issue.  So, that’s been the near-term effect, I think there’s been some acceleration with our opportunities.

22:57  

But I think longer-term to answer the other part of your question if you look at COVID as… I hate to say it simply because it’s not simple, it’s a complex and serious situation, but if you look at it historically as a massive disruption, meaning when there have been other massive disruptions in the past whether it was pandemic or something else, that what happens is the trends that are emergent tend to accelerate. I don’t mean just specifically digital trends, I mean things like we were seeing a trend such as control of property, or control of home, sustainability, of course, a desire to reduce cost, those trends have definitely been accelerating, and I would say interest has been much-much higher for H2KNOW in the last few months than even a year ago.  I think it’s important because there is this acceleration of trends.  But the downside of that, well interest is high because what we’re building or what we’ve built is new, the tech is new, to some extent the digital aspects of what we’re doing is new, so the buying processes are not mature and we do have to work through that aspect of it. I think that would have been true with a pandemic or not that we’re just seeing it in a way that creates a lot – a lot of work right now, and the days are quite long because of it. Not complaining, for sure!

24:19

Back to that Shark Tank moment, way back when -  Be careful, you might actually get what you wished for.

24:26

Exactly, exactly.

24:30

And I guess speaking to that and setting aside COVID for a minute, what would you say has been your biggest hurdle, or perhaps I should say the biggest learning you’ve encountered on this journey with Conservation Labs?

24:37

The hurdles I think are the normal ones, it’s fundraising, building products, sales, doing it all at the same time, the learning for me out of all of that is that every day is an opportunity to address those challenges, and it actually gets harder not easier because the mountains are higher. The good news is the team is growing and we’re with each other, we’re conquering those mountains together. I think when I realized that it’s a daily grind, that there are no real peaks, there’s no opportunity to rest at the top and then to pace accordingly, that was a big learning for me and it changed my mindset quite a bit. Another metaphor that just came up recently with the team, I don’t know if you’re a golfer if you happened to see John Rahm’s hole-in-one at the Augusta course, where he skimmed the water and the ball just meanders into the hole. I showed that to the team the other day, it was hey every day we get to do a hole-in-one and that gives us to get a hole-in-one tomorrow! That’s the daily grind that I think about that every day I feel like the Conservation Labs’ team is accomplishing the impossible.

26:06

Yes, solving as you like to say, complex and multi-billion-dollar problems, absolutely great mantra to live by. So, as digital industry investors we always like to ask what other start-ups beyond Conservation Labs, of course, have you see that you would say are the ones to watch?

26:26

My bias of course is water, smart property, to some extent voice, there’s a lot of interesting things going on in the space for sure. There’s a company that I’ve gotten to know called Simple Water, they’re doing what we’re doing with water quality, and so they have developed really an approach to do water quality analysis at scale. It’s pretty interesting that they’re digitizing water, now that they have a number of these under their belt they can digitize this water quality and help them not just provide peace of mind for an individual home but look at ways to improve water quality in a more general sense. So, I like those guys.

27:13

I like what Adam Wilson and his team are doing over at Divirod, again they’re similar to H2KNOW but they’re looking at resources in mass, meaning they’re looking at the natural resources, lakes, and groundwater, and they have a very clever satellite system in which they use to do that, I really like what they’re doing. Voice is interesting right now, I think about H2KNOW as interpreting sound data and creating insights from any non-verbal sound, but we’re really inspired by what’s happening with Voice and there are a number of companies out there that are building great ways to create content and voice, like Jargon, maybe shopping with a voice like Blue Tag, and then another company that I know and like is Robi, that is using voice as a way to interact and create more efficient building operations, whether that is something as simple as changing the temperature in the room, to something more complex with a maintenance process. There’s a lot going on in Voice, it’s a pretty interesting space when you think about not just digitizing voice, but digitizing activity and action, and robots using voice.

28:21

Great suggestions there, Simple Water, Divi, Jargon, Blue Tag, and Robi, if I got it right. If you don’t mind maybe I’ll put you on the spot for a minute, prior to starting the podcast we were talking about your new favorite little chatbot, and if you don’t mind me putting you on the spot maybe you can tell us a little bit about that because that started a nice conversation on the use of voice and some of the power around it.

28:46

Yeah, we were joking about Clippy from back I guess it was in the 90s, as maybe one of the first little bots out there. It didn’t go very well for Microsoft at that time, but they and we have all gotten better at it. So, in honor of Clippy the team surprised me over the weekend and created a chatbot called Drippy, and Drippy is a way to interact with our data and our sensors in a very conversational way. It’s an internal tool but now instead of looking at a report, so say our reports are run every six hours and we can analyze it, but if I have a question right now I’d actually have to go to the database. But Rich came up with a little flatbot called Drippy, that I can just ask Drippy what the status of a sensor is, is it active? How much water was used today? So, a really clever little thing, just a very first generation, first version of it, but another great way to use technology to our advantage internally, and then of course that ultimately served as some guiding principles, or as a guide to how we might ultimately want to interact with our customers. Using conversational chat to do that I think is an important part of the user experience going forward.

29:58

Yeah, and a good way to exemplify the convergence of these trends you talked about earlier in some of the companies you’re looking at as well. So, in closing can you provide recommendations of people, books, and/or resources that inspire you?

30:12

Yeah, maybe I shouldn’t admit this, I’m not a great reader but I do like people, as a mathematician that’s not always a given! I would say my general recommendation especially if you’re an entrepreneur is, to find other entrepreneurs that are grinding it out and just not stopping. I’m inspired by them and I seek other entrepreneurs out, I talk to them, I learn from them, I stay accountable with them, and that is something I do on a very regular basis, weekly for sure. I inform different small groups to do that, so that’s absolutely something that I do and I recommend to anybody, whether you’re building a business from the ground up, or managing a business, or however, that level of accountability is pretty important.

31:07

The other really non-conventional way that I am inspired is by doing things entirely outside of the business world and the start-up world, and I was mentioning to Ken that I’m in a musical, and I would say that’s a very inspirational aspect for me. I admit I have to work twice as hard to be half as good as anybody else, and I’m just the third guy on the right! But I’m amazed at the talent and the dedication and the spirit of theatre that brings an amazing about of coordination and choreography and harmony and this diverse talent together, and ultimately to create this magical moment. I just want to be a part of that, no matter how small the role is.  So, I’m really inspired to create that same magic in Conservation Labs, it’s a lot of fun to see that happen, whether it’s on the stage or this year virtually on film, or in the virtual halls of Conservation Labs.

32:04

Yes, a lot of common patterns there as you describe, choreograph, harmony, and all those things, all for that great moment i.e. hitting your revenue targets or exiting your company, whatever your target may be.

32:18

So Mark, thank you for providing this insightful interview.

32:23

Thank you, Ken, really fun to talk about Conservation Labs, and appreciate the questions today.

32:28

Oh yeah very much so. Well, this has been Mark Kovscek the CEO of Conservation Labs, and I’ll just call him Mr. H2KNOW because I think it very-well describes him and the company and the products.  Thank you for listening and please join us next week for the next episode of our Digital Industry Leadership Series.

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