Apr 16, 2012
Save for the era of Thomas Edison, it has never been a better time to be a cleantech entrepreneur. A new generation of forward-thinking entrepreneurs is making leaps and bounds as global regions update their energy infrastructure with new, “smart,” and “clean” elements. The “smart grid,” which is essentially an “energy Internet” and “cleantech” is hitting its stride as both consumers and electricity providers begin to see tangible benefits.
Many entrepreneurs will agree that energy, in general, and clean technology, in particular, present unique sets of challenges to technology commercialization – capital investments required are usually large, scaling takes a relatively long time, and policies and regulatory uncertainties create their own sets of challenges.
In today’s lean economic climate, what alternative strategies should entrepreneurs look for to bring their technology to successful commercialization?
As a workshop discussion leader at the recent MIT Energy Conference, I led an engaging discussion among researchers, entrepreneurs, investors and corporations to discuss and evaluate strategies for navigating the current landscape. We sought ways to confront a historically tight funding environment and an economy that demands we “do more with less.” Some of the discussions explored how alternative strategies such as partnerships with large strategic players, “lean” product development, or risk-sharing at the proof-of-concept phase can help early-stage ventures succeed in lieu of the traditional fundraising and operational models.
Here are some of the highlights of those discussions that I hope will provide a generation of budding inventors and entrepreneurs with practical lessons and strategies to call upon as they move forward with ventures of their own.
For those who are in very early stages of their ventures, explore alternative sources of funding such as government grants (both from the state and federal governments in the US and from foreign governments) before pursuing traditional venture capital. Use simulations and small pilots to test proof-of-concepts and create a technology platform that is modular and can be flexible with changing demands and environments. Given the nature of the energy industry, which is risk-averse, slow-moving, and regulatory-driven, incremental improvements may sometimes be favored compared to disruptive technologies.
Next, find a large customer and/or partner with a strong need for your technology who is willing to work with you through pilots and tests. The large customer’s or partner’s strong balance sheet, reputation, manufacturing capability and distribution channels can create tremendous synergies that your technology alone will not be able to realize. Your company should have a good IP strategy and understand that everyone is committed to be in it for the long haul, since payoff may not happen until later down the road. Sometimes, this large customer or partner may be the military or the government. Other times, it can be incumbents such as utilities and large industrial conglomerates.
There are some best practices and lessons learned that an energy entrepreneur should know to create successful partnerships with a large customer or strategic partner:
1. Understand how your particular company’s technology fits within the larger customer’s or strategic partner’s ecosystem of technology partners.
The strategic partner may be your main partner, but you are most likely one of its many technology partners. As such, both parties need clear, mutual agreements from the beginning to commit to a win-win situation. If not managed correctly, the partnership may become one-sided. What synergy does your technology offer to the large strategic partners’ portfolio? Can the large partner’s solutions deliver benefits faster, easier, more cost-effectively if combined with your technology? Can they serve more customers’ needs up and down the value chain if they offer your technology in addition to their current portfolio of solutions? For example, a large strategic partner who is an energy device manufacturer may want to move up the value chain and also offer software and other value-added services to their customers. Instead of building its own software from scratch, it may be attracted to a start up that has the potential to build a proven, universal software that can manage millions of devices securely. In this case, the large strategic partner may want to partner or eventually buy the software start up to integrate the software technology into its own offerings. Another example is a large strategic partner who wants to broaden the types of technology it is offering in order to dominate the global market. This large strategic partner may choose to invest in or buy other smaller companies who already offer these other types of technology and integrate them into their portfolio rather than building them from scratch.
2. Create publicity opportunities where both parties can benefit.
Many times, smaller companies would like to publicize their relationships with bigger companies visibly through press releases, exclusive testimonials, case studies, etc. This is understandable as the smaller companies usually stand to benefit more from the associations with larger companies through the larger companies’ credibility, capability, and channels. However, to make the partnership truly successful, the smaller companies need to also consider what is important for the larger partner. Larger companies usually have strict policies against appearing to favor one small company over the others. Start-ups can look to create mutually beneficial opportunities, such as a joint opportunity to win a customer (then do a joint customer win announcement), a joint center of excellence (where the larger company provides the capital for the center while the smaller startup provides content), a joint magazine article that shows how the large company and the small start-up help a joint customer succeed through leadership and teamwork. Find publicity opportunities where the large customer looks good for working with a smaller startup rather than opportunities that only benefits the smaller startup from the association with the large customer. This usually involves a joint customer, a publicity bent that shows the larger partners’ corporate citizenship in engaging with smaller startups, etc.
3. Find strong executive sponsorships within the relevant business units of the large customer or strategic partner.
Large companies often operate in silos. For your company to successfully navigate layers of management and bureaucracy, you need strong executive sponsorships advocating for your company within the various business units. This is crucial for getting things done in time.
Obtaining the buy-in and advocacy of senior management in a large company can mean an informal advocacy or formal committees whose business interests are aligned with yours. The executive sponsor often needs to be able to exert pressure within the organization to overcome resistance to the project. For this, partner with an executive sponsor who has credibility, competence, commitment, and engagement.
There are many ways to get an executive sponsorship, such as networking through conferences, events, and clean- tech competitions and asking for an introduction through a professor who has strong working relationships with executives at a large company. Some students get to know executives at large companies by working on projects during their studies. It is important to exceed expectations during these projects as this is one way students can get more commitment from the executives in the future.
I personally believe that the spirit of innovation is well and alive in the American energy sector and we have the opportunity to not only develop a strong domestic clean energy economy, but also to export that American ingenuity abroad and lead the world.