The economic challenge that must be incorporated into design

Recently I have been working in the renewable energy field and two pieces of insight highlighted two key mistakes that innovators, but particularly engineering and science based start-ups, are prone to making.

Mistake 1: talking to the market after key design elements have already been locked down.

Mistake 2: failing to consider the economic envelope in which their innovation needs to perform.

Payback hurdle

The first insight we received from several market participants, in multiple geographies, was that the product in question would need to payback in under 7 years. The reason for this was that each of them had previously tried to play in the segment and had been burnt by products that failed to live up to their production and economic claims. Consequently, potential adopters wanted something that came with a lower risk economic profile. The line that was drawn in the sand was that it must have a payback below that of a comparable substitute technology that was well established and had a payback of around 8-9 years. It is important to note that whatever the hurdle rate to be successful, the technology in question must be able to achieve this without reliance on incentives or subsidies (these should just be cream on top) due to the unstable nature of government policy.

Price elasticity of the segment

The second insight related to the price elasticity of the market. We were told that no matter how much better the new product was compared to the existing direct competition -or substitute technology- there was an implied capital ceiling that buyers would pay for such a product, beyond which the number of buyers would reduce dramatically. For example, even if product A gave 2x or 3x more output than product B, customers would never pay more than £YK (~ 20% greater than the price of product B) for a product, no matter how better it looked or how better it performed. So potential channel partners took this implied market ceiling as their starting point and then looked at what margin they would need given their cost of sale and likely sales volume (which was ~20% of Y) and said you need to sell us the new product at £0.8YK.

The new challenge

Therefore, the engineering challenge is now not solely how do I get x output or x% increase in output compared to existing products to give me an improved cost per unit of measurement. But how do I do this within the envelope of the key economic performance indicators used by those who have the ability to adopt my technology at scale (e.g. payback in under 7 years) and below the perceived maximum capital budget that the market deems as value for that size/type of product. If you are able to engineer a solution backwards from these constraints, then you potentially have a winning proposition that can dominate a market.  The obvious inference here also, is that this is as much a supply chain challenge as an engineering design one. And this does not remove the need to have improved performance compared to competition or to address any aesthetics challenges that existing products may have, these too need to be overcome in the design.

Bringing the market into the design stage

So then, comes the question, how do you know what is the economic performance and capital budget envelope within which you need to play? The answer is simple, speak to the market from a very early design stage and find out what needs to be true economically for them to adopt your product at scale. The challenge here, and one which Christiansen identifies in The Innovator’s Dilemma, is identifying the right people to speak to who will give you the correct insight. By developing an ideal profile of who likely adopters of your technology may be, and what an evangelistic adopter might look like, you can mitigate this risk of false insight.

The key at this early stage is not to lock down your design, supply chain or revenue model until you know they enable you to meet these key metrics or until you can show a route to these (e.g. via economies of scale that potential customers could deliver).

 

Water: it’s a precious resource, let’s start treating it as such!

I initially started writing this blog in the summer when it was so hot that I was struggling to sleep and was drinking water like it was on tap (but it is on tap Peter!).

It was late June at the time and I had decided that it was time for my second annual water blog.  Last year, I wrote about the impact that drought was having on hydro-electricity production in Brazil and agriculture in California, and how increasing droughts could lead to a greater focus on wind, solar and waste to energy technologies, particularly if they could reduce water usage, or, in an example of the latter, extract water from waste.

Unfortunately, although I started the blog, I didn’t get to finish it for various reasons but a realisation in early December motivated me to dust it off (and I promise it had nothing to do with a pressing blog deadline!).  Back then, before the January rains came, it seemed to me that we were having quite a dry winter up to that point, and not that I love the rain, but I didn’t feel this was something to celebrate.  I wasn’t sure at this stage whether this was just distorted perception or if we really were experiencing an unseasonably dry period.

Then I read that 2016 was the hottest year ever recorded, which further motivated me to conclude this blog, especially when Met Office data for December confirmed that rainfall was below normal almost everywhere in England with only 42% of average rainfall overall.

The severity of the crisis

660 million people do not have access to improved drinking water, and while this number is an improvement on previous estimates, it is still a huge number1.  Another 1.2 billion people were estimated to live in areas of physical water scarcity2.  The World Economic Forum ranked the water crisis as the risk likely to have the greatest impact on society3,4.

It’s everyone’s challenge

This year I want to challenge readers (no matter how few you are) to consider how you too can address this great water challenge that we face. And it is a great challenge, even if it’s severity and importance appears to be lost amongst the news of melting glaciers, rising seas, floods and storms associated with climate change.  Equally, when you live in the UK or Ireland, it’s hard to digest the message that there is a water crisis when it appears to rain so much. But, as the Met Office data for December suggests we are not immune to suffering a shortage.

So, whether it’s recycling water, being more efficient with the water you use, capturing rainwater for domestic/commercial use or using cleaner processes that reduce the treatment required for waste water, make a contribution to the challenge.

Addressing the water challenge

Thankfully, there is a host of technologists and companies seeking to tackle the water challenge and I wanted to share a few of those that have recently caught my eye:

  • NVP Energy have solved the challenge of sustainably treating low strength wastewater including at low temperatures using anaerobic bacteria. It reduces CODs by 80%+ and TSS by up to 50%. It generates high quality biogas as a by-product which can be used as an onsite energy source and produces 90% less sludge than alternative treatments.
  • CustoMem is addressing the contamination of water supplies by industrial contaminants. It seeks to treat the 0.04% of micropollutants that are difficult to capture and are also highly toxic such as heavy metals. Furthermore, the solution not only captures the pollutants but enables them to be recycled.
  • MIT researchers have developed the solar vapor generator which uses inexpensive materials to clean and desalinate water. The generator consists of a metallic film, a bespoke sponge and bubble wrap as its skin. It heats, boils and evaporates the water, leaving behind unwanted products.
  • Sundrop farms have sought to address not only the water shortage but also the food and energy shortages in the design of their solar powered sea water desalination plant to irrigate their tomato crops.

Facing into 2017, this has all re-affirmed to me how critical the climate change and water scarcity challenges are for humanity. It has motivated me further to contribute to the solution by supporting the technologists seeking to commercialise solutions and has reinforced how these are everyone’s battles.

 

1: http://www.who.int/water_sanitation_health/monitoring/jmp-2015-key-facts/en/

2: http://www.un.org/waterforlifedecade/scarcity.shtml

3: http://water.org/water-crisis/water-sanitation-facts/

4: http://reports.weforum.org/global-risks-2015/#frame/20ad6

 

Emotional benefits, customer insight, and the uniqueness of customer types: the forgotten elements of value proposition development

In this blog I want to share some insights from a recent meeting with a key specifier at one of the UK’s leading Facility Management firms. His comments emphasised the greater attention which companies need to pay to the benefits that they communicate in their value propositions.

Most people are very familiar with the concept of the value proposition. That short summary that describes the benefits of using your product, solution or service. The natural instinct when creating this is to focus on economic rather than emotional benefits as they are easier to express and defend. The other tendency when crafting it is to focus on a single benefit, particularly if this is the only one that can be supported by hard data.

When providing feedback on a client’s product he commented: “The issue that I have with the proposition at the moment is that it only expresses one benefit. I prefer those that express multiple benefits as I don’t always know when I pitch an idea to a client what is going to resonate with them. If an offering only has one benefit and the client is not motivated by this then the opportunity falls over. This is even more so if that one benefit is a cost based one, as cost is not always the great motivator that people assume. It would be much better if, your client’s product also expressed the impact that it can have on the workplace environment and the degree to which the associated improvement in air quality that it brings reduces employee sickness. Having this in my back pocket could be the difference between keeping an opportunity alive or it falling away if cost is not something that my client is being measured by.”

The first insight provided here, by one of the leading engineers in FM in the UK, highlights the need to not only express emotional benefits but to also capture the data which will allow you to substantiate such claims, as these will rightly be challenged by the knowledgeable client motivated by such benefits.  Many companies will see this data collection as an unnecessary chore, however, our experience at RIG in bringing new technologies to market is that unbiased data, verified by independent third parties, is critical in having your technology adopted.

The second learning is never to assume that you know what will motivate the customer to become interested in your product without engaging them first. In general, to understand the emotional benefits that will resonate with potential end-buyers, you need to engage with the market and give them the opportunity to educate you.

The third takeaway that is implicit in the point he makes is don’t rely on a single generic value proposition to be attractive to all customer types and market segments. Develop distinct propositions for each customer type and market segment so that they have maximum impact when you target potential customers.

The importance of the above was reinforced to me when working with a new client recently. They had already developed their initial value proposition for a new technology when we began working with them and the focus of this was on how their offering had a lower total cost of ownership than competitors. When they conducted some external research with companies who had previously adopted similar solutions, however, they discovered that reputational risk and assurance of delivery were the key purchasing drivers.

So when creating or refining your value proposition: don’t over-emphasise cost in your value proposition; don’t exclude emotional benefits; don’t forget to verify the assumptions underpinning your value proposition with potential buyers; and don’t assume that one size fits all.

Garbage in, garbage out! It’s all about the process.

Have you ever been asked (or been the one asking): Why are our conversion rates so poor? If so you have probably also been asked (or asked): What can we do to improve them?

How many times has the answer been a mixture of confusion, self-defence and exasperation as to what else can be done? The team’s activity levels are high but the outcomes are poor and no one can understand why sales are not forthcoming.   Frequently this is what occurs in many start-up firms  and it is often due to the lack of a clearly defined process with distinct steps and actions that can be measured and which individually and collectively work in tandem to deliver high probability attractive leads?

Client acquisition is one of the key activities that any company regardless of size will undertake (it’s not an understatement to say that for start-ups it is the lifeblood of the firm) yet many fail to implement an efficient process for this activity and consequently end up with weak sales pipelines resulting in disappointing outcomes.  Equally important, the associated inefficient and ineffective allocation of limited resources on activities or presumed leads that result from having no process or a poor process can also lead to frustration and disillusionment amongst team members.

We recently ran a client acquisition programme in a geographic market that had previously been serviced opportunistically but which was now been given greater attention.  We employed a systematic approach to this activity and had

 

Set an objective

This may be a number of new recruits. Or it may be a new revenue amount.  Either way our experience is that without an end objective you have nothing to measure your process against and consequently will not be able to assess your performance at each stage or activity in the process vis-à-vis achieving your goal.

 

Define your Ideal Customer Profile

How can you find what you don’t know you are looking for?

The first step in developing your process is to define the characteristics and attributes of your ideal customer.  These may be both quantitative and qualitative in nature.  They may describe the size of the organisation, its structure, its culture, its buying processes and/or the markets it serves.  It should also include evidence that identifies its potential need for your products or services.  There is clearly a balance in developing this profile as you do not want the data requirements to be so burdensome that you spend excessive time researching very difficult to find information on each and every potential lead.  But it should be sufficient to allow you to discriminate between various would be targets in your universe.

 

Build your target list

Now that you know who you are looking for, how do you find them?

There are a multitude of channels and sources that you can use to source your initial targets.  Depending on your sector the volume of potential targets may be in the tens, hundreds, thousands or millions.  So what is more important that the channel that you use is the rigorous application of our ICP in determining whether a given company qualifies to enter your database of targets or not.  We are looking for quality here above quantity as any dilution of the quality factor here will mean that we waste time later on activities targeting unattractive prospects.  This is probably the most important step in the process as if it is not done well you will end up with irrelevant leads (i.e. those not conforming to the ICP) and this will result in wasted energy and reduced conversions and poorer outcomes.

In our case we used very traditional sources such as trade media, trade associations, trade shows and channel partners to build our initial list.

 

Prioritise amongst your initial list

Once you have built this initial list you will need to prioritise the various leads as it is unlikely that you will have the resources to target each and every one of them or to service all of them if you were to win business across a significant number of them.  We also want to learn from each wave of activity that we undertake and working in batches allows this.  In doing so we can see how one message works over another or how receptive one group of targets in a given segment are over those in another.  We also want to drive each batch to a conclusion before commencing with a subsequent batch as that ensures that we put emphasis on driving our activities to a conclusion rather than starting many activities and bringing none to an end.

We used our ICP to prioritise amongst all of the initial firms that we had identified as being of potential interest and decided to initially target the top 15%.   Once we had targeted these we then went back and targeted an additional 15% of our original list in a second wave based on our learnings and outcomes of our first wave at which stage we had met our objectives.

 

Send your initial email 

Without repeating the multitude of commentary that already exists regarding emailing, it still remains a very important introductory tool in our opinion, as even if it is not responded to directly itself it gives you permission to follow-up via telephone soon afterwards.  In our experience, if an email follows the following rules and is targeting appropriate people then it will have success

  • Have a very compelling title which encourages the reader to open the mail. The importance of this is often overlooked by many writers and yet it is the first thing that the recipient will read along with your name and is the primary factor which they will use to determine whether to read further or not
  • Have a strong opening sentence which introduces who you are, where you sourced their details from and why you feel you are of relevance to the recipient. This will determine if they read any further having opened your mail.
  • Use headers in the body of your email. Your recipient is being inundated with emails, is probably reading your mail on the go or during a meeting and is more than likely using a mobile device, so make it easy for them to speed read and navigate through your email.  This will help them digest your message and make a decision as to whether they are interested in meeting you or not.
  • Finish strongly with a request to meet. Ideally, suggest some specific times or dates rather than making an open ended request to meet as the former will encourage them to accept if they are interested or to suggest alternative dates if those suggested do not work.
  • Also make a note that you will be following up in the next few days if you do not hear back. This will encourage recipients to reply yay or nay quickly and part of our objective is to drive out the uninterested targets early so that we do not waste time chasing them.
  • A final important factor is when to send your emails. We have found that sending emails on a Tuesday or Wednesday morning or Thursday afternoon works better than sending on a Monday morning or on a Friday.  This makes sense when you think about it.  How many of us look forward to reading through a bunch of emails on a Monday morning while on a Friday we are looking to wrap-up any outstanding tasks before the week’s end as opposed to initiating new dialogues.

 

Conducting a quick follow-up

After 3-4 days follow-up with those non respondents with a short but polite follow-up email.  Request that if they are not interested that you would be very grateful if they could indicate so.  This is a great way to avoid wasted energy chasing hard to reach contacts who will ultimately prove to be uninterested in our offering.

We have found that it is this second email that resulted in many of our most interesting meetings as those who replied positively to this email were usually in need of support and had been delayed in initially replying because of their workload but once they were re-prompted we moved up in priority in their to-do list.

In our example this approach resulted in securing a first meeting with 65% of those companies that we targeted in our two waves.

 

 Securing the first meeting is only the beginning

Once you have secured that first meeting there are two things that you want to understand so that you can progress the lead to the next stage in the sales process.  The first is to identify their needs prior to the first meeting or to have them laid out by the target during that first meeting so that you can demonstrate how you can meet them.  The second is to understand their buying process and to see how that aligns with your sales process.  This will allow you to prioritise amongst live opportunities and to progress those that align best with your process and offer the quickest route to achieving your stated objective(s).

Now it’s time to demonstrate the substance behind your communications.

 

Has water become priceless?

Drought to undermine hydro power in favour of wind and solar and also lead to a revolution in organic waste treatment.

Rain, rain, go away and come again on Mammy’s washing… A favourite childhood rhyme of mine that I hummed on many a teeming wet day in Dublin. Little did I know back then just how precious a resource that rainwater was nor how in many places it was not as abundant as in soaking Ireland.

A number of recent events and meetings have focused my thinking as to how our planet’s changing climate will impact existing business models within the economy (both green and brown) if our need for fresh water and the use of fresh water become unsustainable in relation to fresh water availability. This scenario is not as far away as you may think according to a recent UN report “By 2030, the world is projected to face a 40% global water deficit under the business-as usual (BAU) scenario (2030 WRG, 2009)”

 

Drought drives energy generation rethink

I recently met with an energy expert from Brazil who shared with me the impact that two years of drought have had on the country’s hydro power resources resulting in power cuts and a return to natural gas generated energy resulting in energy price increases of 30%1. As a result, many in Brazil are now questioning whether the country can continue to rely on Hydro power which currently accounts for ~70%1 of the country’s energy production. According to the expert, there has subsequently been an increased search for and focus on alternative green energies that can reduce the dependence on Hydro power.

But thinking about this more broadly, will other countries such as China and the USA who have invested heavily in hydro power (or those who generate a large percentage of their energy needs from hydro) and have experienced drought, need to completely overhaul their energy strategies?  What will this mean for solar and wind – will this open up new opportunities to replace hydro? Will those considering investing in hydro power in the future need to reconsider, or at the very least re-evaluate the assumptions underpinning their investment models?

 

California drought leads to irrigation reduction

I then read this article in the Guardian covering the voluntary decision by farmers in California to voluntarily cut their water usage by up to 25% to avoid mandatory restrictions following 4 years of drought.  With agriculture consuming ~80% of the state’s water the deal was considered historic.  But who would have thought (clearly many scientist and environmentalists may have) 20 years ago that climate change would lead to such drastic measures in the largest state in the supposed home of the free world?

With this article reinforcing how scarce water is in regions such as California, it reinforced the potential for the technology of a company that I recently met which turns organic waste into energy and grey water which can be used for fertilizer.

The question I now have is, will it actually be the need for water that will be the tipping point for such technologies, as opposed to the need for either clean energy or an economic waste treatment solution. Has water now become priceless?

1: http://oilprice.com/Energy/Natural-Gas/Drought-Forcing-Brazil-To-Turn-To-Gas.html

 

First impressions

So after many hints, nudges and threats from our editor-in-chief, I am excited to put the proverbial pen-to-paper for my inaugural blog here at RIG.

They say that first impressions are important and, for me, it was that first impression that RIG made on me that set me on the path to joining the firm.  Having come across the firm at an event on strategy for start-ups (one which I was ultimately unable to attend), I was greatly impressed by their value proposition; shared risk model (a rarity among advisory firms) and their track record of positively impacting their clients’ businesses. Furthermore, with a focus on strategy and execution, an approach to managing risk, and a hands-on approach to working with their clients, they addressed some of the flaws that I had experienced advising major corporates.

In my experience, corporate clients are inherently risk averse when it comes to implementing new strategies, adopting new business models, or commercialising new technologies. Big companies are rarely built with the ability to innovate and to address evolving macro needs as it implies sacrificing today’s revenue/profit – with management measured and rewarded on the past, not the future, there is no motivation to be bold and daring. But here was a firm working to enable those entrepreneurs who were striving to address major global needs, who had high growth potential, to do so in a de-risked manner all the while linking its success to that of its clients. I wanted to be a part of this.

The client that I am currently supporting is a perfect example of how RIG delivers value and helps its clients to have a positive impact on the world. Our client has developed a world’s best disruptive technology in the wind turbine market that works where competitors cannot, and which enlarges the addressable market by many multiples. The key for this client is to develop distribution and revenue models that enhance their competitive positioning and makes it even more difficult for prospective competitors to enter their space. Working hand-in-hand with our client’s management team, we are helping to devise and implement these final two elements of their business model. A very exciting challenge with immense responsibility.