Fail Fast? Not If You're an Energy Tech Entrepreneur
In energy, there is no failing fast. By the numbers, it takes a non-energy startup on average 7.5 years to liquidate from first funding (slide 18). In energy, I can assure you that most startups that have raised their first funding since 2010 have not even reached scale. The time to liquidation exceeds the standard 10-year fund life of most funds (ask the incumbent energy investors in our space to comment). I will be sharing my data as well in future rants.
Energy takes longer. Stay tuned for a future post whereby I will discuss if the venture capital model works in our industry.
Back to my point, you can’t afford to spend over 10 years being wrong. As an energy entrepreneur, you should not make failure an option for your business.
Don't Fall into the Trap of Celebrating Failure
In many industries, it seems as though failure is celebrated. People talk about their failures as though they bear just as much importance — and just as much impact — as their successes. I have fallen into the trap as well. So miserable. Move on! Consider, for example, these examples of public failures and reflect on how people responded to it. Kior is probably my favorite. And I knew quite a few amazing people there. Which one is yours? Look, many losers (not speaking of you as a person, but the business you started and/or was involved in) in cleantech are still industry icons and lauded as champions of the cause...unfortunately, this is because there are very few success stories. This is changing and once it does, we will forget the past and move on. Mark these words.
And to state an even more obvious point: we only listen to a story about a loss from someone that actually succeeded.
I asked a few energy private equity friends about their view of re-investing into an entrepreneur that lost them money...and I got laughter and a loud resounding H#LL NO.
Instead of celebrating failure, as an energy entrepreneur, you must create an atmosphere and a business plan in which failure simply is not accepted. You need to know what the industry demands and how to deliver on it. You must consider potential pitfalls or obstacles along the way and have strategies in place to leap over them. For most of us, the last 10+ years running and investing into energy technology has not been easy. Your place in the industry is not based on your failures, but rather on your successes. Instead of becoming trapped in that celebration of failure and allowing yourself to miss out on the opportunities set in front of you, choose instead to celebrate success — and to deny, in your business, that any failure is an option.
The Difference Between Energy and the Consumer Space
In the consumer space, failure is a daily occurrence. Not only that, it seems to cost little to nothing. Fail Fast, right? If this startup doesn't work out, chances are, the entrepreneur has another idea just waiting, or a new business hidden in their back pocket. The famous pivot. Energy, on the other hand, is filled with some of the largest companies in the world, many of which simply cannot afford to fail. This is one of the reasons why adoption of new methods, including clean energy sources and other technologies, is so slow across the energy industry.
Consider how the industry is currently handling its digital scaling. Players throughout the industry are already at varying maturity levels. At many of the larger energy companies, there are thousands of POCs going on annually. Many of the midsized oil and gas companies have hundreds. The good news is, most of us have adopted the cloud and enabled mobile platforms. This finally makes it possible for the entrepreneur to introduce scalable solutions. 2019 is becoming the year of digital energy: we're seeing digital platforms being adopted quickly, globally, and across the industry base, signaling a huge turning point for the industry. Investors and entrepreneurs take note.
Overall, the energy industry simply moves differently. It's very different from the consumer space, where new businesses open and close in the blink of an eye. Throughout the energy industry, you tend to see a handful of energy giants who hold most of the weight within the industry. When there is a crisis, the entire world takes notice and we are all impacted one way or another. The industry does not easily open the door to new innovations or entrepreneurs without a track record. When you move forward with your startup, if you want a solid place in the energy industry, you must display your commitment and solidity: the ability to stand alongside those giants in a way that will hold up for 10 years, 20 years, and more.
Don't Risk Your Reputation
Reputation risk is a serious issue in the energy industry — and I've written about this before. In energy as a whole — and throughout Houston, the energy capital of the world, specifically — you face a much stronger reputation risk. Failure in this industry lasts for a long time, and people do not forget. Most of us in Houston, for example, remember one of the greatest corporate failures in history — and many of us found that it attracted us to the industry, driving us to push for the energy transition and demand that things be done in a better way.
In the energy industry, you simply cannot afford to fail. People remember.
Once you have established a bad reputation within the energy industry, it can be incredibly difficult to salvage it. In order to maintain your reputation, when you launch an energy startup, you must pay careful attention to your reputation — and that means succeeding in your endeavor.
It Won't Be Easy, So Start Planning
All too often, society sets forth the view that entrepreneurship is easy. You have a great idea or a fantastic platform, and all you have to do is take advantage of it. Renewable energy, for example, is in higher demand than ever before. People want green energy sources. Many consumers are even willing to pay a little more for green energy options, both to protect the environment and to feel good about themselves and their efforts.
Unfortunately, that doesn't mean that starting your business is as simple as having an idea and launching it.
1. You need a plan.
In order to make the most of your energy startup, you need a solid plan that not only helps you launch your business, but that will help you navigate the first several years. Do you understand your 5 C's of marketing strategy: (Company, Customer, Competitors, Collaborators, and Context). I have shared my plans on previous businesses before and many continue to download my fund strategy. While the lean startup methodology is helpful (and loves to chant Fail Fast!), writing a business plan helps YOU.
2. Develop a strategy to overcome obstacles.
I do not want to see or hear about one more startup wasting their freshly raised cash on "hiring" a salesperson with a Rolodex. This is not a strategy and does not work. In many cases, despite revenue traction, many startups in energy lack a product/market fit. This cannot be measured by revenue but rather having predictability in the sales funnel: how many prospects to get a lead, how many leads to get a meeting/pitch, how many meetings to get a proposal, how many proposals to get a sale? Until the founder can develop this playbook above with predictability, hiring a salesperson is a mistake. This is just one of many metrics that you need to understand NOW. The same applies to filling your sales funnel. Do you or someone on your team understand inbound marketing and how to drive prospects into your funnel, predictably and at a cost that can scale? And do those leads convert eventually to a profitable lifetime value? And you also need to understand how your metrics benchmark against others. And if you are calling me as a SAAS company, I am going to ask you about AARRR, that's right, the Pirate metrics and whether you understand them well despite being unique in our industry due to the business to enterprise timeline and expectations. By creating a plan ahead of time, you can often transform the way you handle those obstacles as they arise — and make it easier for your business to move forward.
3. Learn from the past.
As an entrepreneur, you need to learn from the successes and failures of others. Take a look at what others have done in the past. Get an idea of why they have failed, then clearly establish what your clean energy business is going to do differently. Do not ignore past successes, either: it takes an evaluation of both successes and failures to move forward effectively with your own business. Hint, I am going to ask you about these examples the next time we meet. (Self Reflection: I raised money for a TV pilot that we ended up selling to a major network. During the early days of our pitch to investors, we compared the financial success of our TV show to other home-runs. It is similar to how entrepreneurs pitch me on how their energy technology company is going to scale just like Airbnb...it forced me to go back to find the examples that made sense and were relevant..).
The Value of Success
There's more than one reason why failure is not an option for energy entrepreneurs. When you succeed, you don't just boost your personal business success — though that is certainly of immense value. Consider these other benefits of success.
1. Society reaps the economic benefit of successful startups.
When you're able to successfully establish yourself as a successful energy startup, you're able to offer jobs that help give your employees purpose (one of the greatest charities in my opinion). You also help boost the economy. The income that you are paying your employees flows into supporting their families and our ecosystem. Bravo!
2. When you succeed, you open the door for future green initiatives.
As an energy startup, you aren't just establishing success or failure for yourself. When you succeed, you help open the door for others and accelerate the energy transition. You will inspire other entrepreneurs to get started. And hopefully, you will turn around and do it again. The second-order effect is missing in energy. Cleantech 1.0 "cleaned" out many of the investors due to the massive losses (being early is equivalent to being wrong!). And we know that entrepreneurs get better over time (I hope this applies to me). We need you! On the other hand, if your initiative fails, you may close those doors or delay progression for not only yourself but others as well.
3. You establish your reputation.
Just as society remembers failures, particularly when it comes to the energy industry, it also remembers successes. When, as an energy entrepreneur, you establish yourself as a success, you can open future doors to other endeavors of your own, whether you want to start another business or open doors in another arena.
As an energy technology entrepreneur, you must start with the mindset that failure is not an option. When you fail, you bear the brunt of it, both in terms of your reputation and your finances. When you succeed, on the other hand, you may be able to open more doors than you previously thought possible, effectively establishing yourself and giving green energy a foothold in your community.
Make sure you check back on my homepage and sign up to get automatic updates!