Cleantech marketing isn’t IT marketing.
There isn’t much of an evangelical early adopter market, there may be few network effects -- but the market size is still phenomenal. The sooner entrepreneurs and investors get this, the better.
At this year’s AlwaysOn Going Green event, both investors and entrepreneurs were tripping over themselves in a rush to declare that they were actually “cleantech IT." This rebranding was due to the challenges that have been experienced when trying to bring cleantech products to market using traditional technology marketing strategies. The hope is that a repositioning to IT-type markets will make customer adoption easier.
However, the biggest problem of some cleantech businesses -- particularly large, utility-scale businesses like power generation -- is that they don’t follow the traditional “early adopters/early majority/late majority” model made famous by Geoffrey Moore, and before that, by Everett Rogers. Instead, with the siren song of the cleantech market being the sheer size of the potential market, most firms position themselves to enter the market by skipping the early-adopters phase, because there is no early-adopters phase.
What happens instead is that a company will build a reasonably sized demonstration -- say, a 5-megawatt solar plant -- and the next attempted step is a utility-scale 200-megawatt plant, with no reasonable path in between. The problem with that step function is that it is nearly impossible to deliver on. A 200-megawatt solar facility requires hundreds of millions of dollars in debt and equity -- financing which won’t come without a well-proven track record of performance (particularly debt financing). As was stated many times at the conference, customers and financiers all want to be first in line to back the third major installation. Ira Ehrenpreis of Technology Partners remarked today that there is still a persistent valley of death between venture capital dollars and project finance dollars, and bridging that gap is essential. The vicious catch-22 of “You can’t get funding until it is proven; you can prove it without funding” is incredibly strong.
Nobody wants to be first.
How can a company address this? Here at Energy Cache, we’ve taken some good-natured ribbing at being that wacky company that lifts gravel on ski-lifts. But in truth, that approach was very calculated -- for two reasons. When I founded the company, I felt that the biggest problem facing clean technology companies was the marketing and financing problem discussed above, not the technology problem. I set out to come up with a solution which used components from proven industries that we could point to, reducing uncertainty about lifetime, performance, and cost. These industries include mining, ski-lifts, cranes, etc. There is an abundance of suppliers and expertise that already exists to reduce development cost and risk. Secondly, I set out to build a modular solution that had a feasible market at the 1-megawatt, 10-megawatt and then 100-megawatt scale, without requiring a huge step function in construction.
Many companies are well adopting the second strategy, by building modular units which can be deployed at variable scales. However, few companies are adopting the first -- which makes sense, given the incentives. While the demands of the market are for proven technology, the implicit demands of the investment community and the government finance community are for cool, breakthrough, technology-focused solutions. And this creates a problem.
So, what’s the solution? First off, businesses that don’t have an early-adopter possibility -- businesses that only work at large scale before they make economic sense? Those are going away.
I spent several years working on fuel-cell development, but one of the reasons I eventually felt that electric vehicles would penetrate the market first is that all of the work on batteries for the parallel industry of laptops and cell phones would benefit the EV industry. There wasn’t an equivalent market driving cost and risk out of the automotive fuel-cell industry.
Secondly, it is important to draw a thick red line around what is the technology risk, and what isn't, for the business. All other risks need to be identified and driven as close to zero as possible. For example, some solar companies are trying to address this problem by reducing their debt financing needs from twenty years to seven years.
Technology and IT market innovators and early adopters love new technology and are willing to take technology risk to adopt new products. Regulated energy and utility markets do not like, and in some cases are forbidden from, taking technology risk.
To grow a cleantech company without recognizing these facts will result in a very painful impact with a very high brick wall.
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Aaron Fyke, PE, is founder and CEO of Energy Cache, an energy storage company in Pasadena, Calif. Here's video of a 50-kilowatt demonstration system from Energy Cache: