Mar 3, 2013
In an industry long dominated by a few major players, entry is not only difficult but daunting. For companies that ship fragile products half way around the world, cost oversight is always imperative but nearly impossible. And for a CEO trying to sell a product far more expensive than the popular equivalent, it would seem he’s absolutely in the wrong business. Yet, for Green Ray International CEO Fernando Cancela, these are the challenges he faces every day with his LED start-up.
And he wouldn’t have it any other way.
“LED will be ubiquitous in 10 years,” says Cancela. “Almost 100% of lights will be LED.”
The revolution may not be televised… but it will be well lit. LEDs, or light emitting diodes, are beginning to vastly change the way the world sees lighting. Since the advent of the florescent tube in the 1930s, the lighting industry has stayed relatively stagnant even as the rest of the mechanized world has progressed. Over the decades the incandescent quickly took hold, mainly due to the extremely low cost of mass manufacturing. However, these bulbs have always been inefficient, wasting most of their energy in the form of heat as they pump electricity into filaments to make them glow. The first big alternative to ever emerge – compact fluorescent bulbs – have a harsher light quality, are difficult to dim, and most importantly, contain toxic materials. LEDs, on the other hand, are based on chip technology, enabling them to last 5 to 7 times longer while consuming 90% less energy. As the cost curve for LEDs has decreased, many major players have been taking notice. According to a recent McKinsey and Consultants report, LEDs will penetrate 63% of the general lighting market by the year 2020 (up from the current 6% market penetration). In the commercial and industrial sector, use of LEDs is already on the rise, primarily because companies are doing the long-term cost-benefit analysis of light-based purchasing.
And they’re definitely liking what they’re seeing.
Looking to capitalize on the LED boom is Fernando Cancela, a young serial entrepreneur. Cancela was in China for a different enterprise when he stumbled upon LED lighting in 2008 and immediately recognized its potential. He founded Green Ray International a week later.
“The thing about light bulbs is, they’re literally everywhere,” Cancela quickly realized. “Everything is your market.”
Cancela decided that owning the LED factory, coupled with overseeing the LED sales force, would be the key to achieving economies of scale, setting competitive pricing, and controlling the production quality all at once. Today, Green Ray manages its entire supply chain, allowing it to be uniquely capable of customizing various LEDs according to the particular needs of each client. It has honed in on selling to businesses with many lights and long hours, such as fast food restaurants, hospitals, convenient stores, and parking garages. After landing a few major clients, Green Ray attracted venture capitalists, who have since begun funding the expansion of the company.
Yet like any start-up, the challenges are perilous and at times overwhelming. Above any other barrier to entry, the LED price tag is precipitously steep, so Green Ray must convince clients that they are not simply buying lights but making an investment — an investment that pays for itself in reduced energy, maintenance, and replacement costs. Another barrier is the century-old lighting industry, dominated primarily by powerhouses such as Philips, Osram Sylvania, and GE. Finding a competitive advantage against this field is no easy feat.
Regardless of which company succeeds in tackling the red-hot, green-friendly LED market, a new challenge will soon emerge: since LEDs are so effective, people and companies will be buying far fewer bulbs – of any sort. The Energy Information Administration estimates that total light bulb sales will fall 40% by 2015, to under one billion from 1.52 billion bulbs, and will continue declining to 530 million bulbs by 2035. In other words, LED might almost be too good for its own good. As a result, lighting manufacturers need to act quickly to establish themselves. Green Ray is very aware of this fact. “The future of Green Ray depends on being a sales, service, and marketing company,” says Green Ray COO Josh Eaves. “We need to become the go-to industrial and commercial LED retrofitter. A lot of the big companies we work with want to make sure the retrofit runs as smoothly as possible, so when problems inevitably arise they want to know we will be there to fix the issue.”
So, is the future bright for Green Ray? That all depends on timing. Since LED lights last for so long without any need for replacement, whoever gets in earliest will reap the benefits of the illumination transition. There will be no second chances.
The question then becomes: as a rising tide lifts all ships, which ones will remain when the LED storm has subsided? Does the ocean have room for sleek skiffs and stealth canoes, or will massive cruise-liners continue to rule the high seas? As in many industries, it is a battle of David versus Goliath – of the agile, aggressive, outmatched beginner against the established, bulky, been-there-done-that veteran. No one knows who will emerge victorious, but size often overpowers entrepreneurial advantage via superior funding and global distribution. By that logic, Green Ray must hone its focus to find its niche. One strategy would be to serve only fast food chains, or only parking garages, or only hospitals, in specific countries less served or noticed by the big players, so that Green Ray can become the expert in one particular LED market, thereby remaining below-the-radar while reaping considerable profits. By employing this ‘judo’ strategy, Green Ray will avoid fierce competition (and a lose-lose situation) to ultimately position itself for a large and lucrative exit (if it so chooses).
Regardless of its approach, the only certainty is that Green Ray has its work cut out for it.
Just the way Fernando Cancella likes it.