• Valedor Partners

Giving Birth to Digital Twins

Introduction


The Digital Twin concept is the cornerstone of digital transformation efforts in companies around the world. While definitions abound, the basic idea is to create a digital replica of an asset, a function, or a system that exists in the real world. This could be a simulation model of a supply chain as a practical example. The purpose of the Digital Twin is a) hold the real asset’s data, and b) to provide a safe, low cost place to experiment with and understand the behavior of the system under a wide variety of conditions. The subsequent insight from this experimentation can then be layered back onto the real asset as a means to increase its value or to make it safer to operate.


The Idea


What if this Digital Twin idea was extended to entire companies? Larger, established firms struggle with digital transformation in spite of their best efforts and considerable investment. Many of the failures of these firms to transform can be traced to their size and entrenched thinking. How can we marry the aspirations of leaders with the reality of corporate atrophy? Perhaps one solution is the enterprise form of the Digital Twin. What if a company created a smaller, sister company as a means to learn and experiment with advanced analytics and automation?

The idea is not without precedent. Faced with ever eroding market share from foreign competition and an inability to react with due haste, GM founded the Saturn division in 1985. Saturn broke many norms of GM in product design, factory location (GM’s first plant in the mid-South), and dealer networks. It was an experiment, that, for its time, showed GM a very different way to manage a car brand. Many of Saturn’s innovations came back to GM in later years. Shouldn’t Tesla have been the brainchild of the established automakers, rather than Elon Musk? Shouldn’t Airbnb have been borne out of Hilton Hotels? Uber from Yellow Cab?


How Does it Work?


A large, industrial firm makes widgets, and has been doing so successfully for many years. Yet this firm has not changed its fundamental systems in many years (nor its talent inventory for that matter). We will call it The Mothership. Leadership is desperately eager to build a more forward-thinking, innovative firm, but all the efforts to date have been mostly ineffective. Alpha growth remains elusive.


Valedor assists the company in standing up (or buying) a smaller version of the firm as a means to experiment with entirely new methods of producing widgets. The Newco uses a balanced combination of widget expertise from The Mothership and new thinking from a more vibrant talent pool at Newco. The ethos of Newco is a respect for the legacy while constantly questioning assumptions and beliefs using data-driven arguments. As time goes by and Newco is successful, proven practices from Newco are slowly adopted back at The Mothership, with assistance from Newco personnel. The Mothership holds an option to buy out the Newco from capital investors.


All of this requires expertise in Launchpad investing, corporate finance, capital sources, deal structure, and automation. These skills are prominent at Valedor.


Valedor “clients” then become The Motherships of the industrial economy. There are many of them out there that fit the above description.


References


https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/building-new-businesses-how- incumbents-use-their-advantages-to-accelerate-

growth?cid=other-eml-alt-mip-

mck&hlkid=4af894a2c719412eb577abd804c76d29&hctky=100 70348&hdpid=a017cea5-5467-4f3f-ae81-630426d80e57


https://en.wikipedia.org/wiki/Saturn_Corporation


https://articles.bplans.com/small-businesses-increasingly-helping-large-companies-innovate-can-company-take-advantage-trend/

Disclaimer


This presentation is being furnished on a confidential basis to a limited number of investors for informational and discussion purposes only and does not constitute an offer to sell or a solicitation to purchase any security. The information set forth herein does not purport to be complete and is subject to change. Investors should be aware that an investment in any transactions discussed herein involves a high degree of risk, including the potential complete loss of their entire investment.


This presentation does not constitute an offer or solicitation in any state or other jurisdiction to subscribe for or purchase any securities. Recipients of this presentation agree that Valedor Partners LLC, a Delaware limited liability company (“Valedor”), its managers, partners, agents, affiliates, and assigns shall have no liability for any misstatement or omission of fact or any opinion expressed herein.


The information contained herein must be treated in a confidential manner and may not be reproduced, used, or disclosed, in whole or in part, without the prior written consent of Valedor, and is not intended to be relied on as the basis for an investment decision.

Valedor, its managers, partners, agents, affiliates, and assigns make no representations or warranties whatsoever, nor are any such representations or warranties to be implied, concerning the accuracy, completeness, or correctness of the information supplied hereunder.


Calculations and economic illustrations presented herein are based on various assumptions, including forward-looking expectations, but Valedor, its managers, partners, agents, affiliates, and assigns do not make any representations, warranties, or guarantees as to the future financial performance or the economic returns that any investor can expect. Certain investments identified in this document have not yet closed, might close on different terms from those assumed, and/or are subject to factors that may affect Valedor’s willingness or ability to close these investments. As stated above, this document is not intended to be relied on as the basis for an investment decision.


In considering any performance data herein, each investor should bear in mind that past performance may not be indicative of future results, and there can be no assurance that unrealized investments will be realized at the valuations assumed as actual realized returns will depend, inter alia, on future operating results, the value of the assets, market conditions at the time of disposition, any related transaction costs, and the timing and manner of realization, all of which may differ from the assumptions on which the valuations contained herein are based. Results herein may be subject to subsequent adjustment. Except where otherwise indicated, the information herein is based on matters as they exist as of the date of preparation of the information (which might differ from the date of preparation of this document) and not as of any future date. Due to various risks and uncertainties, actual events or results or the actual performance of any investments discussed herein may differ materially from those reflected or contemplated in such forward-looking statements. The information in this presentation about prior investments and investment strategies is provided solely to illustrate investment experience. Prospective results included in this presentation may not take into account fees, costs, or other charges, and do not represent the results of actual investments.


An investor should consult its own attorney, business advisor, investment advisor, or tax advisor as to such matters concerning the information contained herein.



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