Podcast Summary: A Book with Legs

Episode: Brian Potter – The Origins of Efficiency
Host: Cole Smead (Smead Capital Management)
Guest: Brian Potter (Author of "The Origins of Efficiency"; Structural Engineer; Senior Infrastructure Fellow, Institute for Progress)
Date: November 3, 2025

Episode Overview

In this episode, Cole Smead welcomes Brian Potter to discuss his new book, The Origins of Efficiency. The conversation delves into how technological and process efficiencies arise, why some industries resist them, and the mental models both investors and companies can use to understand or drive efficiency. Potter draws from his experience in structural engineering and his time at the construction startup Katerra to examine why “moving processes into a factory” often fails and what’s actually necessary to make meaningful efficiency gains. The conversation touches on lessons from manufacturing, construction, technology, and even the housing market, providing valuable insights for investors, business leaders, and the intellectually curious.

Key Discussion Points & Insights

1. Brian Potter’s Background and the Genesis of the Book

• Potter spent much of his career in construction and structural engineering, noticing a persistent inefficiency in the industry (03:16).
• His time at Katerra, a well-funded but ultimately unsuccessful construction startup, prompted a search for why simply transferring construction processes to factories rarely yields transformative efficiency (03:16–04:50).
• “Many, many other businesses had essentially tried the same playbook … and it's never really worked” – Brian Potter (03:48).

2. Optimism About Technological Progress

• Potter remains optimistic that technological change eventually seeps into even the most resistant processes:
  • “The people who say, 'it'll always be impossible to do this thing,' those sorts of predictions have a pretty bad track record. ... If it's not a law of physics, we usually figure it out.” – Brian Potter (05:53).

3. Penicillin: A Parable of Efficiency

• The origin story of penicillin is used to illustrate how dramatic cost reductions are usually rooted in mass production, not cutting quality (06:43–11:46).
• Example: Early penicillin was life-saving but so difficult to produce that initial patients died when the supply ran out. US-led industrial processes during WWII brought the price to pennies, saving countless lives:
  • “It got very cheap to produce, ... and as a consequence ... it basically became, you know, something that could like save lives and ... raise the life expectancy of entire countries.” – Brian Potter (10:43).

4. The Five Factors of Production Process Efficiency

Potter’s framework for creating efficiency revolves around five main levers (12:18–19:12):

1. New Technology:
   • Introducing fundamentally new production methods, e.g. the Bessemer process for steel.
     • “That's when you start seeing steel skyscrapers and steel ships, because before, it was just too expensive.” – BP (13:39)
2. Cheaper or Fewer Inputs:
   • Lowering input costs or substituting cheaper materials.
     • Example: Aluminum smelters moved to places with cheaper electricity, like Iceland (14:41).
     • “Labor is the classic example: companies move operations to find new sources of labor.” (14:43)
3. Economies of Scale:
   • Producing at higher volumes spreads fixed costs and justifies bigger, more efficient equipment.
4. Reducing Variability:
   • Limiting defects and process failures increases output and reduces waste.
5. Reducing Buffers:
   • Minimizing inventory and in-progress material between steps reduces cost and delay. Lean manufacturing principles apply here.

• Bonus – Eliminating Steps:
  • Sometimes steps can be cut out entirely if they're shown to be unnecessary.
  • “If you cut a step out, every cost associated gets removed.” – BP (18:18)

5. Inertia and Tradition vs. Innovation

• Many production habits persist simply because “that’s the way we’ve always done it” (20:55).
• True understanding of a process is often fragmented and opaque; opportunities for efficiency may only be clear to newcomers or outsiders (20:55–21:49).

6. Limits of Technological Improvement and Physical Laws

• Some products hit physical or theoretical efficiency limits, e.g., incandescent bulbs' lumens per watt (22:24–25:55).
• Other processes like making aluminum or ammonia haven't changed much in a century, demonstrating how some plateaus are dictated by physics, not lack of innovation.

7. Jevons Paradox: Efficiency Increases Lead to Greater Consumption

• Example: LEDs are vastly more efficient than incandescent bulbs, but instead of using less electricity, people simply use more lighting (26:55–27:17).
  • “The efficiency of something improves … but because it gets cheaper, people find more uses and total consumption goes up.” – BP (27:01)

8. Geography and Industry Structure Influence Process Adoption

• Technologies often succeed or stall because of local resources, infrastructure, or knowledge.
  • The UK’s Newcomen engine only made sense at coal mines where fuel was free; the US had difficulty adopting the more advanced Watt engine due to limited engineering expertise (28:19).

9. Unpredictable Trajectories: When Old Tech Survives and Thrives

• Technologies often deliver more than expected, outliving intended replacements. Photolithography for semiconductor manufacturing, thought obsolete for decades, keeps enduring (31:06–34:31).
  • “The end of optical lithography is six or seven years away. It always has been and always will be.” – BP (34:08)

10. Value Analysis: Small Changes, Large Impact

• The discipline of value analysis/value engineering looks for minor tweaks that deliver big cumulative savings (34:49–37:16).
  • “The cost savings … are not very large in absolute numbers just by itself. But if you're making a million of these things, that small saving adds up.” – BP (36:58)

11. Vertical Integration: Seasonal Utility

• Vertical integration (e.g., Ford in car manufacturing) is powerful in young industries but creates rigidity as industries mature (37:16–42:13).
  • “Over time, their system became … very tailored to producing a single product. ... When the market changed, it proved very difficult to pivot.” – BP (40:42)

12. Scale and Learning Curves Enhance Efficiency

• Quantity/scale is a huge driver of efficiency; with scale comes learning (43:40–46:12).
  • “For every doubling of production, you see a constant reduction in cost. ... These learning curves show up reliably across industries.” – BP (45:16)
• TSMC’s success is built on leveraging massive scale in chip fabrication.

13. Process Knowledge is Geographically Tied

• Even for giants like TSMC, transferring process knowledge (e.g., to new fabs in Arizona) is challenging, as efficiency is embedded in local teams and routines (46:12–46:59).

14. Technological Innovation Replaces Entire Categories

• Example: Float glass process made high-quality glass so cheap it wiped out categories for lower-quality glass (47:44–50:39).

15. Controlling Variability – Obvious vs. Mysterious Production Problems

• Potter invokes a factory worker’s observation:
  • “All our production troubles can be divided into two classes. The obvious and the mysterious.” – Quoted by BP (51:04)
• Managing variability led to statistical process control methodologies and, later, Six Sigma (51:04–53:02).

16. Wright’s Law and Learning Curves

• Wright’s Law: With every cumulative doubling of production, costs fall by a consistent percentage—crucial for scaling new industries (54:55).
• Inspired Morris Chang to create TSMC’s foundry model for semiconductors.

17. Automobiles: Cost vs. Product Quality

• The real price of cars fell sharply in the early 20th century (Model T), but today’s cars are vastly superior for the price, and “quality-adjusted” auto costs haven’t risen above inflation (55:58–57:19).
  • “A Model T that cost $10,000 and a Tesla that costs $40,000—it's night and day difference.” – BP (56:54)
  • BYD and Chinese electric cars offer high quality at low prices, more evidence of process-based improvement (57:22–57:35).

18. Housing as the Final Efficiency Frontier

• Hard costs (labor and materials) make up ~60% of US new home construction costs (58:30–59:14).
• Prefabrication and factory-built methods (e.g., Sweden, Toyota Home in Japan) haven’t dramatically lowered costs—in fact, sometimes they’re higher:
  • “Toyota has not successfully used that to dramatically drive down the cost of building.” – BP (62:47)
• Regulatory quirks and labor costs play outsized roles; manufactured housing is declining relative to population despite being cheaper (63:15–65:18).
• Labor productivity in US housing construction has changed little in over 50 years.

19. Geographical Context and Housing

• Even America’s lowest-income homeowners often have larger homes and greater amenities than their European peers, highlighting the interplay of geography, policy, and process (66:49).

20. Can Robotics/3D Printing Transform Construction?

• Potter is skeptical about 3D-printed homes as a transformative paradigm for housing:
  • “I'm not amazingly optimistic … [printing] is only one part of a much bigger system that would need lots of advances in robotics.” – BP (67:41)

21. Where to Follow Brian Potter

• X (Twitter): @_brianpotter
• Newsletter: Construction Physics
• Book: The Origins of Efficiency

Notable Quotes

• On Penicillin and Cost Improvement:
  “Figuring out how to make this in large quantities, inexpensively, basically became something that could save lives and raise the life expectancy of entire countries.” — Brian Potter (10:43)

• On Predicting the End of Old Technology:
  “The end of optical lithography is six or seven years away. It always has been and always will be.” — Brian Potter (34:08)

• On Tradition and Inertia:
  “That’s the way we’ve always done it… As an engineer, you’re like, well, that’s not a good reason to do anything.” — Cole Smead (20:55)

• On the Limits of Physical Processes:
  “There’s only so much light that the laws of physics will allow you to produce.” — Brian Potter (22:53)

• On the Value of Learning Curves:
  “For every doubling of production… you see a constant reduction in cost. These learning curves show up reliably.” — Brian Potter (45:16)

• On Housing Construction:
  “Labor productivity in producing [homes] hasn't really improved terribly much… for 50, 60, 70 years.” — Brian Potter (65:53)

Timestamps for Important Sections

• Brian Potter’s Background & Katerra: 01:52–04:50
• Penicillin & Process Efficiency: 06:43–11:46
• Five Factors for Process Improvement: 12:18–19:12
• Jevons Paradox & Consumption: 26:55–27:17
• Industry & Geographical Constraints: 28:19–30:31
• Photolithography and Tech Trajectories: 31:06–34:31
• Value Analysis Example: 34:49–37:16
• Vertical Integration in Auto Industry: 37:16–42:13
• Learning Curves and Scale Economies: 43:40–46:12
• TSMC and Knowledge Transfer: 46:12–46:59
• Float Glass Example: 47:44–50:39
• Statistical Process Control: 51:04–53:02
• Wright’s Law: 54:55–54:55
• Auto Cost Evolution: 55:58–57:19
• Housing, Regulation, and Prefab: 58:30–63:15
• Housing Productivity & International Comparison: 65:18–66:49
• 3D Printing Skepticism: 67:31–68:24

This episode offers a sweeping, yet deeply practical look at how efficiency emerges (or stalls!) in real-world industries and systems, blending history, economics, and first-hand engineering insight. Perfect for investors, founders, or anyone interested in the hidden levers that make our world (and portfolios) more productive.