Houston: A Community in the Making

The Coming World of Manufacturing (for Houston)

?A few years ago, I began thinking about the future of domestic manufacturing. My ideas have been informed by a few observations over time. I’ve distilled them into three areas to consider:?

1.????Making something overseas is harder, slower, and more expensive than it seems.

I experienced this after running a company that had most of its manufacturing outsourced to China. Each time I would go back to China, the labor costs would be higher. This trend is born out in the data referenced at the end of this article. Increasing direct labor costs in China are ironically rooted in a labor supply issue (i.e., not enough people to make things). I know, strange, but true. Check out Chinese?demographic?trends referenced below for more insights on this.

Interestingly, direct manufacturing labor costs in Mexico are now likely lower vs. China. This seems to set up a compelling case for certain kinds of manufacturing to be done in Mexico, our very close neighbor. While Mexico might become the low labor cost manufacturer, the US and Texas, in particular, will make just about everything else that requires a more complex set of skills.

One way to think about this is to imagine the phone in your hands. It’s really layers of different kinds of manufacturing done by different sets of skills. Some more complex than others. Every product ever built is the sum of human skills over time applied to raw materials. You could say any product’s cost is 100% labor costs (if you consider raw materials in their natural state are free, albeit hard to reach). That means, the value of labor skills is the only thing that counts.

The geographically closer these different skill sets are to each other, the better you can organize a product's manufacturing in a network of discrete companies. Long supply chains are inherently unstable and?risky because they are complex. No ERP software can solve this fundamental issue (sorry, SAP).?

2.????Several important manufacturing technologies (3D printing, robotics, AI/ML, etc.) are emerging and are being “democratized”.

These technologies are increasingly requiring low or no code to apply them. Another way to look at this is by thinking about ordering an Uber using their app. Someone has built a user interface to make it easy to order. That kind of “above the API" innovation is happening in manufacturing tech: the user interface is getting better and easier so mere mortals like me can leverage emerging manufacturing technology. (Hint: it’s important to always be an “above the API” worker or community).

Much of this manufacturing technology is reducing the labor input costs in a product which, in turn, reduces the competitiveness of low labor cost countries. For example, if the product you’re making takes just one hour of labor due to automation vs. 5 hours before automation, you care less about how much labor costs per hour.

?You care more about the skills needed to automate.

3.????The world needs a lot of stuff.

Depending on who you ask, there are 2+ billion people around the world who still burn wood and other biomass for fuel and heating. What happens as these people start participating in the economy like so-called developed countries?

If only 10% of this group of humans starts buying at US-style per capita GDP levels, that is another United States’ size of demand. Someone must build all that stuff. Why not Houston? I first wrote about this a few years ago in an article referenced below called The Future: Make in Houston.

What do these three things mean?

There will be a reshoring wave that will impact every domestic economy around the world. I originally thought it would be a decades-long transition, but COVID has seemingly accelerated that change. Check out the Bloomberg article referenced below for a good read on this accelerated change.?

This represents a generational opportunity for Houston and its ours for the taking.

It will also yield?significant inflation in the “industrial plant” in the US so it will cost more to make the machines that make the products. At this point, that is unavoidable. I do worry about the supply of low-cost capital that will be needed to fund this kind of growth. My guess is that US capital invested overseas is going to come home in earnest. At least, I hope it does.

What must exist in Houston to be the World’s Manufacturer? A community of people.

We all have an instinctual need to be a part of a community. It’s a rare human that doesn’t want to belong to something or to be around other humans, especially humans that are part of a shared purpose.?While social media can provide a little of that sense of belonging, it’s no substitute for physically being around other humans. I think we have all experienced Zoom fatigue after the first 30 minutes of a meeting.

There is simply no substitute for human interaction.

Being part of something together with other people provides us comfort, encouragement, and an opportunity to learn. It also provides the means to love each other by working with each other. Personally, I don’t know how to produce something truly great without love. Anyone who has built something knows how incredibly hard it is. It takes deep relationships to pull this off.

A community also allows us to improve our ideas and increasing the quality of ideas over time is the only thing that creates real innovation.?David Deutsch talks about this concept of ideas in his book, The Beginning of Infinity. It’s a very meaty book. In summary: humanity thrives to the extent we produce increasingly better ideas over time.

Ideas tend to improve the most when they are in the wild and they interact with others. If you’re lucky, you are surrounded by enough people who want to create a new or better idea from conversations, debates, and arguments about our individual ideas.

In the world of manufacturing, we need a vibrant and active community of ideas. There is so much to learn and so much we can do together. While there is value in being a part of a broad community of thinkers across the country or even the world, the greatest value comes from acting local.

Communities are inherently local in nature and probably no bigger than a few hundred in size. Maybe even as small as a hundred. This idea was popularized by British anthropologist, Robin Dunbar, who posited that humans can only maintain about 150 relationships (and an even fewer number of friends). You can read more about his work in the BBC article referenced below. There is a level of social accountability that comes from people who know each other that you can’t duplicate with an HR manual. Good teams hold each other accountable (if they know each other well).

Sometimes I wonder if you can intentionally build a community or if it just organically comes into being. Maybe it is a little bit of both. The one action we can each take is to find a way to intentionally contribute to someone or something else. Contribution is the one overt act we can take to crystalize the formation and growth of a community.

In Houston, there are many new innovation communities that are beginning to thrive. I’ve seen so much growth in the innovation community including places like TRXX Labs, The Ion, The Greentown Labs, and in our leading universities. It’s not surprising these communities are anchored in a real physical space. Yes, they have growing online elements about them, but at their core, there is “a place”. That is a lesson worth learning. Life only happens in... well... real life.

I’ve been in Houston since 1990 and the community of traditional manufacturing here has been loose and not especially well connected in the form of a formal community. There is community though. The real manufacturing leaders in this city tend to know each other. They tend to know who does the best work. Sometimes they end up in the same corner of the room whispering to each other. Like artists do.

This is good. However, it’s not always easy to access for outsiders. If you are new to manufacturing, ask yourself if it is easy to navigate the world of manufacturing in Houston. My guess is that it is not. Try googling “manufacturing in Houston” and you’ll get a bunch of nondescript and bland lists that don’t contain much in value.

All of this represents an opportunity. Not to replace the existing manufacturing community, but to be a part of its next stage in evolution.

Why is this important to me?

My “moonshot” is to help a billion industrial workers over the next 20+ years. I set this 25-year vision about 5 years ago during an Abundance 360 conference hosted by Peter Diamandis. At first glance, it might seem the antithesis of “local” when you talk about affecting a billion people. I get it. But I truly believe the Houston manufacturing community can positively affect a billion people (at least) around the world.?

This idea is driven in large part because I am?the son of a pipe fitter and a seamstress. I have immense respect and love for the work done by people like my parents. It’s honorable work.

What I’ve worked on so far

In the spirit of contributing, I have been thinking a lot about the manufacturing community here in Houston. Professionally, there is little else I think about on any given day.

I love the idea of a grand vision. But it’s easy to get trapped in vision land instead of bringing something real into being. I’ve found one of the best ways to bring a vision to life is organizing a business around bringing something of value to a community. That’s why we founded Alchemy Industrial. We want Alchemy to be a catalyst to reshore manufacturing in Houston and make good things for the people I love.

After launching Alchemy Industrial, we decided to launch the Manufacture Houston Podcast (https://www.manufacturehouston.com). We’ve released 20+ episodes with more on the way.

The idea behind the podcast is to elevate manufacturing in Houston (it’s why it's called the Manufacture Houston Podcast - double entendre, well, intended). We can certainly continue to improve the Podcast in several ways, including elevating the conversation and the development of ideas that drive manufacturing forward in Houston, but we are bullish about getting the conversation going with fellow peers and colleagues in the manufacturing space.

What can we do next to build community?

There are three ideas worth considering:

1. Create live event that includes a community of real practitioners to share ideas and to tell stories. These ideas can be sent into the wild so they can be improved by the community itself. Maybe it starts with just a coffee with a dozen or so real believers. I think it's important to share openly what this community of practice learns through an easy to access platform. This community should be elite, but not exclusive.
2. Develop a series of educational events for the up-and-coming products companies and innovators in Houston to help them take the first few steps of building and scaling products. I know Alchemy can help them because it’s what Alchemy is intentionally designed to do. Our tagline is: Your Product, Our Passion. (Yes, shameless marketing plug). https://alchemyindustrial.com
3. Bring some big thinkers to Houston who can help us grow and learn. Maybe Peter Diamandis. Maybe Mike Rowe. Maybe others? Who would you recommend? Why shouldn’t the best thinkers in the world come to Houston (and stay) since Houston?seems to be made up of people from somewhere else?

In the end, maybe one of the best ways to summarize the core idea of this essay is from JFK’s moonshot speech from Rice University over 50 years ago:

“We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.”

To emphasize, “…the best of our energies and skills….” (i.e., things only humans can do, together).

?Lots more in my head, but this is a beginning. I’d love to hear what you think so these ideas get better... for Houston.?If you think this note is worth sharing with someone who cares about this, please do.?I’d be grateful if you did.

The next?piece?I am considering is about?manufacturing talent and how Houston can win that battle. It might be the battle to win. Please share your thoughts with me. I would love to include them in the next Saturday Morning Coffee edition.

References

Rising labor costs:??https://www.statista.com/statistics/744071/manufacturing-labor-costs-per-hour-china-vietnam-mexico/.?

Declining birth rates in China: https://www.china-briefing.com/news/china-demographic-trends-2021-what-the-latest-data-says/.

The Future: Made in Houston:??https://www.dhirubhai.net/pulse/future-made-houston-mushahid-mush-khan/.

Bloomberg article on COVID caused acceleration in?manufacturing:?https://www.bloomberg.com/news/articles/2022-07-05/us-factory-boom-heats-up-as-ceos-yank-production-out-of-china.?

Dunbar’s Number:??https://www.bbc.com/future/article/20191001-dunbars-number-why-we-can-only-maintain-150-relationships.

?#manufacturing #manufacturehouston