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1 Feb 2023
Think Big and Fast with Climate Tech
Posted with permission from ESG Impact Zone.
By Rob Shelton
The urgent need to transition away from carbon-intensive energy sources has become increasingly clear, as delays in the past have shortened the relevant timeframe. We cannot afford to slowly implement emerging climate technologies. Despite the declining costs of such technologies as wind, solar, building management and geothermal, it is not guaranteed that they will quickly replace the need for fossil fuel energy. Even with increased public- and private-sector investments in new green opportunities, rapid scaling is not guaranteed.
Scaling is different. Emerging companies that have new technologies often assume that scaling and exponential growth can be managed in the same way as when they were in startup mode, which can be a costly mistake. Rather than quickly expanding operations within five to seven years, per their business plan, these companies may end up spending a significant amount of time addressing operational and leadership gaps that should have been identified and addressed prior to scaling. This can turn scaling into snailing and prolong the time required to achieve impact to 15 years or longer.
According to projections from the World Resources Institute, climate tech needs to undergo a huge, rapid increase of the rate of implementation across many sectors. Here’s an example of what we need to speed up to achieve the 1.5 degree C target by 2030:
- Phase out coal power generation six times faster than historic replacement rates, equivalent to retiring 925 average-sized coal power plants for many years while ensuring clean energy sources replace the displaced coal energy without disrupting vital services.
- Improve energy intensity of building operations five times faster than current rates for commercial buildings and seven times faster for residential buildings. The built environment is a major consumer of materials that contribute to carbon emissions, such as cement, aluminum, steel and plastic.
- Expand public transportation systems at rate that’s six times faster than we are going, including lightrail, metro buses and rapid transit networks across the highest-emitting cities in the world.
The availability of funding is not the main issue for scaling climate tech. Governments have committed billions of dollars to the sector, venture investment has grown 40 times in the past decade, and 83 climate tech unicorns are valued at over $180 billion. However, ample funding and high valuations do not guarantee timely and successful commercialization and implementation.
The current challenge for climate tech companies is restructuring and reorganizing to scale and effectively implement new technologies. As Jigar Shah, a cleantech entrepreneur and now head of the U.S. Department of Energy's loan program, stated, "The money is there, but where the world has not caught up is in creating the projects."
Snailers are unprepared scalers. Snail-scaling comes from lack of preparation. Leaders are unprepared for the different roles and challenges they will take on. Brian Chesky, co-founder of Airbnb, said, "During scaling, you have a completely new job every six months. It’s like if you were a pro bowler, then became a pro football player, then a pro hockey player."
Scaling not only requires the ability of leaders to adapt to changing roles, but also to address strategic and operational transformations. Achieving higher growth rates in new markets requires shifts that impact all aspects of the enterprise. For example, leadership needs to upgrade to an organization capable of producing, selling and delivering larger volumes of the product or service across new markets while maintaining quality. Processes need to be strengthened and standardized to support the demands of scaling. Furthermore, leadership must become ambidextrous to manage both the current operations and lead the scaling initiative.
For the unprepared, scaling can be a daunting task.
FIRE is a four-step diagnostic I developed and refined over the past 10 years working with companies and accelerators around the world. It assesses a company’s Fit, Ingredients, Recipe and Execution and prepares the team for scaling by identifying and addressing potential issues before they impede growth. Conducting a FIRE assessment prepares an enterprise for scaling quickly, effectively and efficiently.
1. Fit: Is the "job to be done" the same in the target markets?
Being aware of market realities can prevent being blindsided during scaling. Disney's failure to understand the cultural differences in France when it opened Euro Disney (now Disneyland Paris) in 1992 is a prime example. Despite its success with theme parks in California, Florida and Tokyo, Euro Disney’s opening faced cultural clashes, financial difficulties and marketing mistakes. Attendance and revenues were exceedingly low and Disney initially incurred colossal losses. In a humbled posture, it was forced to adjust its approach to accommodate the unique needs of the French market. After these changes to the "job to be done," Euro Disney became one of the most visited attractions in Europe.
This lesson is important to remember when scaling climate tech companies. There can be significant differences in user needs, regulatory environments and competitive ecosystems in different markets, and what works well in one market, region or country may face critical new challenges when expanding.
2. Ingredients: Are the operational pieces ready for scaling?
This includes doing a sanity check the entire business model, including:
- Is the value delivered by the technology or service a clear winner with distinct advantages over alternatives? Trying to scale a product or service that is good but not great is a prescription for snailing.
- Are operational and supply chain processes repeatable and efficient? Expanding inefficient processes to new markets slows adoption.
- Are the capabilities in place for talent acquisition? Adding, motivating and retaining high-quality staff in the new markets often plagues scalers and slows expansion.
Groupon, launched in 2008, allowed users to purchase discounted goods and services by buying individually but with a group discount. Initially, the company saw extreme success and was named by Forbes as the "fastest-growing company ever." However, as it rushed to scale quickly, things took a turn for the worse. After a successful initial public offering in 2011, the company faced continual reports of problems and took huge losses, which drove the share price lower. In just a few months, shares dropped from $20 to $9.
Groupon's mistake was in rushing to scale quickly without addressing pre-existing issues with the business model ingredients. As a result, the company failed to grow the value it provided to customers, struggled with scaling and never reached its full potential. The lesson for climate tech companies is that an operational setup that is sufficient in the startup phase will not be adequate for scaling.
3. Recipe: What parts of the business model create the essential value and differentiation of the product or service?
- What parts should be maintained to differentiate and ensure success in the new markets?
- Which parts of the model change to fit the market characteristics?
Climate tech must adapt to the different characteristics of the targeted markets, regions and countries. But some elements that differentiate and are core should not change — technology, financial model, partners and channels to market all can be keys to success. Knowing what to keep and what to change is one of the most important strategic elements.
Husk Power Systems is an example of a company currently scaling renewable energy-powered solutions. As a leading mini-grid developer with operations in India and Sub-Saharan Africa, the company recently signed a UN-Energy Compact, committing to build 5,000 mini-grids by 2030. But according to Manoj Sinha, the company's CEO and co-founder, "We underestimated the amount of time and effort it would take to discover the right business model, right team and right technology platform to build a commercially viable mini-grid company on two continents." Husk's focus on finding the essential elements for success in has helped its African team scale at a much greater rate.
4. Execution: Are the organization and leadership ready to scale? Among other operational concerns, they need to be on the path to:
- Collaborate effectively. Nobody scales alone; it takes partners and an aligned in-house team to navigate the course and help when demand surges
- Conduct fast prototyping in the new markets to work out kinks before going full throttle
- Manage cash flow. Scalers are slowed by cash shortages.
Fracture, an Internet-based photo finishing service, experienced the execution strains of scaling during rapid growth. As founder Abhi Lokesh states, "During rapid growth, it's much easier for messaging to get misinterpreted, key points to get lost and dangerous assumptions to be made. To ensure success, it's crucial to make sure everyone is on the same page." Shifting the startup organization and aligning it to the scaling imperatives is crucial.
Fear the snail
Over the past 10 years, thoughtful, data-centric FIRE diagnostics have shown enterprises what to expect and how to prepare when they scale. One Watt Solar, which installs, maintains, operates and manages expansive solar rooftop systems in a way that entails zero upfront cost, said FIRE "opened us to wider possibilities and horizons from a global best practice standpoint — what we had not considered as a critical recipe for our scaling plan. The perspectives and inquiries immensely strengthened our business operationalization structure and model."
Scaling climate tech can deliver what we need when we need it. But lack of proper preparation results in scaling snails — slower than wanted, much slower than needed. Snails are a nuisance in your garden, but in scaling climate tech, they stunt and slow the growth we need.
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