Where Einstein Meets Edison

Entrepreneurs, Look East

Entrepreneurs, Look East

Nov 22, 2010

The MIT Entrepreneurship Review is pleased to introduce our new team of topic experts to our readers. Over the next four weeks, we will be publishing the articles that each topic expert submitted in their application to join the MITER team. Today’s article is from Robin Bose, a topic expert in the Energy/Cleantech group.

In the US, entrepreneurs, investors, and policymakers eagerly await projected growth in the energy, waste and water markets. Green startups are America’s triple play: high-quality jobs, energy independence, and a cleaner environment. Politicians cite these startups as the panacea for a stalled American economy.

In the rest of the world, entrepreneurs meet the hype with a small, but collective, yawn.

For years, entrepreneurs in Israel, China, and India have dealt with scarce resources, rapidly growing cities, and hostile ecosystems. Their experiences in emerging markets hold lessons for their counterparts in the US to learn.

When working to maximize scarce resources, look for abundant ones. TaKuDu, an Israeli startup, sells utilities a water-monitoring software service that detects potential system leaks, bursts, and other failures. Given Israel’s geographic constraints, the country’s entrepreneurs have vigorously attacked its water scarcity. TaKuDu found an underutilized resource in meters – water turbidity, temperature and acidity data that utilities already collect but don’t comprehensively use. Developing complex mathematical algorithms to analyze the data, the company works to minimize leakage and waste, making systems more water-efficient. Saving water also lowers maintenance overhead expenses and prevents costly water damage to facilities. TaKuDu has expanded its markets to serve utilities in Europe and Australia and looks to launch in the United States and other international markets. As water markets around the United States begin to experience the strain that other countries already face, American entrepreneurs would benefit from understanding how startups abroad have tried to solve for scarcity.

Design for your markets, not just for the system. Technology innovations in American markets often anchor on improving existing systems rather than reinventing models. For example, many entrepreneurs seek to make building heating systems more sustainable by mildly tweaking the existing systems to provide incremental savings. Chi Sage Systems, which originated in Shanghai, China, re-imagined the heating system to its source. The company developed a reversible heat pump system for both cooling and heating that can use any water source, including oceans, lakes, rivers – and, significantly for its market – sewage systems. Given the special constraints of China’s rapidly growing cities, Chi Sage designed for not only large catchments, but also smaller areas of large cities, looking for volume to achieve scale. Designing for multiple smaller catchments, including individual buildings, Chi Sage achieves structural reliability that prevents a single failure from crippling overall performance. The company has taken its work to global markets, seeking clients in both developed and emerging countries.

Small can be beautiful. In India, the Solar Electric Light Company (SELCO) has spent the last 15 years bending the conventional wisdom that cleantech entrepreneurs cannot profitably serve poor people. Targeting micro-segments such as street vendors and rural households who are off the national grid, SELCO customized small solar photovoltaic systems, complete with door-to-door maintenance service, for their users, and partnered with banks and cooperatives to provide financing. 75% of SELCO’s clients earn less than $1 a day, but the company continues to be commercially viable in a marketplace that includes both private and subsidized models. (Government subsidies skew power supply sources in the Indian market, much in the same way they do in the United States.) To capture additional lifetime customer value, the company has diversified into heating and cooking solutions for the same customer segments. SELCO’s lesson for American cleantech entrepreneurs? Build new product and service models for micro-markets, and you can skirt around or beat macro-level obstructions like grid connectivity, low information access, or poor existing service models.

Looking for creative solutions abroad is one simple source of innovation for American entrepreneurs. However, the breadth of startups overseas should also concern investors and policymakers in the United States. Compared to American firms in the energy, water and waste sectors, startups in overseas markets are solving big problems with fewer resources. Technology policy in countries like Israel, China and India, as well as Singapore, South Korea and Ireland, has widened the space available for great entrepreneurs to grow their businesses. Once mature, these businesses may compete at an advantage to American startups.

However, the US does not need to go it alone. One potential step for policymakers to take may be enacting the bipartisan Startup Visa Act, which will re-allocate existing visas to immigrant entrepreneurs who will bring their expertise to found or develop significant technology startups in the green space. Another step for investors may be to actively encourage joint ventures between startups overseas and local entrepreneurial talent that can bring innovations to American markets. Like developing nations in the 1970s and 80s, the United States must build up its domestic capacity to acquire significant knowledge critical to growth in the ‘10s.

Moreover, as entrepreneurs overseas build solutions at scale, they reduce the cost of building technologies and making wrong turns in the American market. Likewise, American startups solving problems at home are building out products and services that may be viable abroad. Global markets will benefit as much from collaboration as they will from competition. Underserved and overstressed consumers await the solutions.