Measure twice & cut once

By Anonymous

Many people will be discussing the fact that relying on government to create vibrant communities from scratch flies in the face of thousands of years of human development. I do not disagree that the concepts behind these “planned” cities – the Masdars, KAECs and Tianjians – is a fundamental departure from the spontaneous growth of old, but I would argue that the raison d’être for cities has changed and disruption is necessary. In the past cities were built around resources – fresh water, ores (irons etc), fuels and forests – or transportation – natural ports and trade route nodes. When resources dwindled and trade routes changed cities died (Fatehpur Sikri – water, Gunkanjima Japan/Centralia PA – coal).

However, in a world of over-crowded cities, over-stressed public infrastructure, declining natural resources, widening inequality, environmental degradation and steadily rising seas, the disorganized organic conception of cities might not be the best solution. The average population of the 10 most populous cities in the world has risen almost ninefold (from ~2.5M in 1900 to 21.4M in 2005) as the mix of cities in that ranking has shifted from the developed to the developing world (see below – only 4 of the top ten are now in the developed world.) As most of the future growth will be in developing world countries already struggling with infrastructure provision and access to capital, creative solutions must be found to build new and “better” cities and distribute the pressures of urbanization. While I am naturally skeptical of the power of government to make efficient and effective decisions, I think government can play a significant role in hastening the genesis and spread of more livable and sustainable cities in areas of greatest need.

Top 10 most populous cities in 2005 (1)

My issue with the current crop of unsuccessful “planned” cities is their fundamental lack of planning. Returning to the framework that Ted began developing in class on Thursday, in many of our “failed” cities, there was a foundational misalignment in the goals & skills of the founders, existing market opportunity, context and actual financial assets. KAEC, for example, was blessed with opportunity in spades. Not only did Saudi Arabia lack a scale port and non-hydrocarbon natural resources, but there were significant political and economic pressure for diversification away from oil dependence, affordable housing and local employment. In fact, the markets believed the opportunity enough to provide $2.4B in capital to fund the initial stages of investment.

Now, if you had $2.5B out of an expected $100B budget, would you start building everything at once? No. Thus, where KAEC went wrong, the people chosen to plan and execute did not have the requisite skills for the task at hand. First, they failed to focus initial investment around winning the “early adopter” and decided to build a city that had something for everyone. This strategy prevented them from forming a focused value proposition that could then be translated into narrow and achievable objectives.

Instead of acting like a disciplined start-up and building a plan for phased investments, prioritized based on cash flow-focused milestones, the organization tried to build out the entire 65 square miles at once. And, once it was clear that the expected investment was not going to materialize, the fact that the team was ready to dismiss capital-lite partnerships for fear of losing potential future cash flow (the expected probability of actual capture was near zero), showed a serious lack of judgment. The team themselves admitted (in the case) to lack the expertise necessary to get the project off the ground; is it any wonder that there had been three CEOs in two year?

In many ways Phu My Hung proves a good foil to KAEC. Long/conservative time horizons, phased investments with cash flow milestones, reliance on area-experts and a focused value proposition were the foundations of Phu My Hung’s economic, social and political success.

Top 10 most populous cities in 1900 (2)

10 most 1900

  1. Th. Brinkhoff: The Principal Agglomerations of the World,, Oct. 1, 2005.
  1. Four Thousand Years of Urban Growth: An Historical Census by Tertius Chandler. 1987, St. David’s University Press.