Raising Capital for Cleantech Means Proving Real-World Demand
Have you ever noticed that things â€ścome in clumps?â€ťÂ You go for months without a certain experience, and then you have several such experiences the same day. Yesterday, I had two meetings with some of the top minds in raising funding for cleantech projects that were essentially carbon copies of one another.
And what a hot topic this whole area is. I think everyone has the sense that investor appetite for renewable energy, electric transportation, and sustainable products and services generally is just about to blow right through the roof.
The main â€śtake-awayâ€ť from both these meetings was dealing with an age-old yet still troublesome dichotomy: Entrepreneurs are often self-delusional; investors are not. This is a fundamental gap that needs to be closed if meetings between the two are to be successful. The main issue at stake generally, of course, is market demand. Developers of ideas regard their concepts as fondly as they do their own children; they tend not to go looking for evidence that would disconfirm their beliefs that their idea will sell like hotcakes.
But what sort of procedures would, in fact, establish (or disestablish) market demand? Outside of our own intuition, are there any reliable processes to look at market acceptance, attractive product features, reaction to pricing models, merchandizing opportunities, and appropriate sales channels?
Well, of course thereâ€™s market research, but it seems that the subject has taken a considerable beating over the past decade or so — and itâ€™s easy to see why, as there are so many enormous holes in the research approach that many people take, which take three main forms:
1. Assuming what youâ€™re trying to prove
2. Asking people questions that are confusing or essentially meaningless
3. (Most common â€“ and egregious) Expecting that people who say they would do something in the context of a survey would actually do that in the real world
So, supposing you have some environmentally beneficial product or service. How do you determine if the â€śdogs will eat the dogfood?â€ť When we look at the burgeoning world of energy efficiency devices, electric vehicles, sustainable building designs, and the hundreds of emerging eco-friendly products and services, how do we, in fact, establish market need?
In a surprising large number of cases, the answer is simply this: Sell it.
If customers buy it, or if distributors sign up to carry it, you can safely infer they like it. You can always refine it later, improving it over time, bringing your â€śbabyâ€™ more in line with the feedback youâ€™re receiving from customers. Just remember this: the most sincere form of market research is not a nodding head; itâ€™s a purchase order from a corporation or a credit card receipt from a consumer.
So many of the cleantech business plans I review call upon would-be investors to kick in $X million. I often see this and ask, â€śWouldnâ€™t you be even happier with $X million in purchase orders, while retaining 100% equity in your company? Letâ€™s just work together to do exactly that. If we canâ€™t get people to buy it, we really have no reason to expect that investors are going to want a piece of the action â€“ as there will be no action to have a piece of. Right now, you donâ€™t need an HR department and a closet full of office supplies; you need a few anchor customers.â€ť
Another take-away from the meetings was the idea that entrepreneurs need coaching in actually making their presentations. I suppose thatâ€™s true; Iâ€™ve certainly seen some sorry performances in conference rooms all over the world. But trust me, where investors may like articulate, confident spokespeople, bombast and charisma pale in comparison to solid, irrefutable proof that your business fills an unmet need in an identifiable customer market.
Iâ€™m reminded of a discussion I was having recently with a friend of mine from Deloitte Consulting, who walked me through the three major areas of a business, and how the emphasis on them has changed over the last 30 years or so:
Thereâ€™s the BUY-side, the supply chain, which has been quite important through the last few decades. A change in tax law, for example, can mean huge savings by completely re-constructing this part of the business. However, itâ€™s not where the energy is today.
Thereâ€™s the IN-side, the core business. Here are all the changes youâ€™re making within the enterprise. Again, not where the worldâ€™s attention is aimed now.
And thereâ€™s the SELL-side. This, of course, was always important â€“ but now itâ€™s where the world is truly focused. Apple doesnâ€™t manufacture anything, but theyâ€™re the brand that owns the customer relationship. All the investment being made in smart-phone apps â€“ for example, all the concentration of Kleiner Perkins and other VCs in this area is based on the notion that the future of business is relevance to the customer, not so much difference from what competitors are offering.
Customers ask: â€śHow can this app give me good advice that is relevant to what I want? I donâ€™t want to see ads; I want real assistance.â€ť
Look at the concept of innovation. Obviously the â€śnovâ€ť in innovation means â€śnew,â€ť but the â€śinâ€ť really means â€śintroduction.â€ť Netflix introduces itself as a new TV channel. Thatâ€™s far more important than building new things; look at MGM that just went bankrupt, since it lacked a way to introduce its assets to its customers.
The bottom line is this: Sell what youâ€™re talking about to customers who find it relevant. If that doesnâ€™t work, refine it until it does. As they say, â€śIf itâ€™s not happening, make it happen.â€ť
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