(Don’t) Follow the Yellow Brick Road
Companies that survive and make impact for sustainable future
We live in an interesting time for our planet. A little over 10 years ago energy was one of the least innovative industries and was perceived by the general public as a base commodity. Today, alongside environmental concerns, it is a high visibility topic.
And, if you are one of the people working in this field, a good day may be frustrating and a bad one is frankly depressing. In spite of the media campaigns, government initiatives and zealous venture funds, the progress with “green&clean” is slow and sometimes feels like a mosquito trying to pull a tanker off shore.
So, if you are considering setting up an environmental or clean energy startup, or already work in one, questions that keep you awake at night may include:
How do you survive while creating innovation in sustainable world?
What responsibility do you have to your customers?
How do you measure your impact as a company over an adequately long period?
In the article “Survivorship bias” published on the aptly named blog “You Are Not so Smart — A Celebration of Self-Delusion”, David McRaney explains that it is our tendency to focus on survivors instead of “non-survivors” or whatever title they are assigned depending on the situation. That means we tend to focus on the living instead of the dead, or on winners instead of losers, or on successes instead of failures. In his article, McRaney describes how mathematician Abraham Wald, a Hungarian born refugee and father of sequential analysis, solved a problem the entire US military ignored, thus saving thousands of lives. During World War II the US military analysts were obsessively analyzing the damage suffered by planes that made it back. Their goal was noble — protect pilots’ lives by improving the armor-plating of the planes in key areas, while still allowing for maneuverability and range. The flaw in their reasoning was, they were only looking at the planes that made it back, neglecting the ones that did not. Wald’s insight was to focus on the areas that were not damaged, ignoring the orange focal points. He reasoned that these planes made it back, despite suffering damage, so the ones that did not, must have been hit in other areas.
If you’re thinking of starting a new business, you might do well to keep Wald’s approach in mind. The cemetery of green&clean tech startups is a quiet place. Of course the few that survived and were acquired are wildly successful because they are the very best and they are very lucky. You only see the super successes so you might think it’s a great business to get into. This could lead you to risk not doing your homework or ignoring other circumstances.
To survive today, it’s not enough to just look at the innovative technology. We need to understand the consequences of our solutions . We need to look at the wider picture and ensure that our products and services are supporting genuinely positive behaviors that give us a more sustainable future.
One common idea killed most of the large-scale energy efficiency initiatives over the past decade — that the primary driver for people to change their energy consumption behavior was saving money. People are not rational beings, as much as we like to think we are so savings don’t primarily impact our choice. One of the very few startups that actually made it worldwide, Opower, framed this issue from another angle and told potential customers to “look how much better your neighbor did in savings this month”. In many countries it is pride that drives acquisition of solar panels and e-vehicles. This, in turn, led many powerful decision makers to assume that energy consumers must be manipulated to finally reach environmental targets. But do we need to build against or with consumers? How much ethical responsibility do companies have when they design products that can manipulate behavior on a massive scale? The companies serving as role models have been shown to build products that change user’s behaviors in a way that encourages positive habits that improve quality of life.
Nir Eyal, author of “Hooked — How to Build Habit-Forming Products” and a prolific blogger on this topic, shared in his book the difference between hooking people and addicting them, and why addiction is not the goal of product design. It’s in a company’s long-term interest to create products that improve the quality of life of their users. There are precise steps businesses can use to understand the needs and pain points of their users, thus generating massive engagement in a responsible way. Making money and helping people are not mutually exclusive.
Eyal developed the so-called “Manipulation Matrix,” a simple tool for entrepreneurs, employees, and investors to assess the value of their product to the consumer. Overall it helps organizations determine the best and most honest way to position their product to their buyers. It also helps them analyze product/market fit, and what the implications of bringing it to market might be. To use it, they simply ask two simple questions: “Would I use this product/service myself?” and “Will it help users materially improve their lives?” Depending on your answers, you will fall into one of the following four categories: Facilitator, Peddler, Entertainer, or Dealer.
In a perfect world, all startups would fall into the Facilitator field and many green&clean ones aspire to do so. However, the ones celebrated by media and which tech investors are alarmingly more focused on, are in the Entertainer segment. Examples include Snapchat, Instagram and Candy Crush. They exist purely for fun and psychological satisfaction. There’s nothing wrong with that, but the question is how long can they last considering their lack of a lasting impact.
Every now and then I find myself in the position of a fortune teller when I am asked “Who is the most promising startup in the energy business right now?” My immediate response is similar to when my kid asks me “Mom, who is the most dangerous animal in the ocean?” My brain tends to frantically start processing criteria in order to respond: “What do you mean? Dangerous how? By how they kill? Who they attack? Just kill or poison? By the number of kills in a timeframe? Now or that ever lived?”
Hint: Google is not your friend here.
And, ultimately, kids only ask this question because they seek validation. It’s the shark. Just say “the shark”. Similarly, adults working in the tech field ask the startup question awaiting the answer “blockchain” these days.
Entrepreneurship can drive change for good. Sometimes this happens accidentally. Once you have found a way to change the world for the better then focus your entire organization on being as impactful as possible and actually measure your effect. Introduce Impact KPIs with target values you want to achieve and become accountable for them so that your employees, partners and investors see you “walk the talk.” This way your company will create a “pull” for other companies to move in this direction as they would feel pressure to follow your actions.
What are the benefits of measuring impact?
First, to paraphrase the extensively quoted Cheshire cat “If you don’t know where you’re going, any road (or plan) will get you there”. Being clear and measurable will help you avoid negative externalities, one thing that can particularly affect companies whose biggest value comes from noble environmental goals (eg. early riots by bird associations against large wind farms). This will also help company goals be measurable for its stakeholders. Investors need to be able to compare the impact of their investments across companies, industries and geographies. However, investors, funds and social impact companies are pursuing a wide array of outcome goals so a one-size-fits-all approach won’t work. Finally, demonstrating measurable targets will differentiate you from the competition that will be expected to show if they are able to do the same thing.
Future green&clean entrepreneurs will learn from the histories of the survivors. But it is just as important to actively seek out and learn from the stories of those that did not make it. If there’s anything I’ve learned in this industry, it is that impact takes time. In order to have impact, the great startup ideas need to be successful as businesses. Many early stage startups pivot their product or business model based on what they learn from their initial customers, partners and markets, and if they cover the basics, with effort and necessarily some luck, their impact may evolve as well.