We saw it happen to 3D printing and many other industries, and are seeing it happen to cleantech now—the hype has passed, and the time has come to actually build solutions that will enable “smart energy” and “greenovation” to be something more than just marketing buzzwords.
As an experienced mentor, startup facilitator and member of the jury at the upcoming #NEWENERGY Global Startup Fest in Kazakhstan, I’ve screened dozens of early-stage energy-related startups from all over the world. I followed some of them to their end, and can now reflect on why not all of them have survived.
My conclusions are mostly general, but some of the points I’m going to make here are more relevant to smart energy than any other industry.
It’s amazing how many startups fall apart because of all sorts of team issues. Lack of trust and difference in views on the startup’s development lead otherwise promising projects to failure. That’s why I always teach founders to be smart and responsible when putting together a team.
Choosing a person, with whom you will build a startup, is like marriage; you have to choose the right partner, not the easy going one. The rule of thumb here is to choose a partner that brings value that you don’t have and core know-how in the specific field.
I’d say that good timing accounts for at least 40% of the startup’s success. Bad timing, on the other hand, decreases your chance to succeed by the same amount.
You can think of a product that can change the market, but if it doesn’t fit with today’s technology, it doesn’t have the ability to grow. By timing here I mean whether the product fits the reality, the customers’ needs and whether they can adopt it. Also, you could release an amazing product, but soon realise that you have huge competition that you weren’t aware of—that’s what I call bad timing as well.
Getting the timing of your product right is often a question of luck. We all believe in it. However, it still takes the ability to understand the competition around you, and figure out what to focus on. As an entrepreneur, you must be able to make right decisions and analyse your competition.
Living in illusion
Entrepreneurs—especially first-time founders—tend to fall in love with their idea and disregard any rational arguments against it.
Lots of time, money, and resources are wasted on bad ideas, but the most frustrating thing is that in most cases you can tell the idea isn’t worth pursuing from the very beginning. It’s not easy to look at what you’re doing with an unbiased eye—that’s why a startup needs mentors and advisors.
To avoid wasting your time, always think about the product-market fit and the business model of your startup, talk to your potential customers and don’t hesitate to ditch the idea if it proves to be a bad one.
Lack of scalability and long-lasting funding
A good startup idea is by default a scalable one, it’s got to be a big problem and a much better solution than what’s already out there. However, many founders forget about this requirement (see “Living in illusion”).
Even with a good idea, though, scalability depends heavily on long-lasting funding. There’s more to any business than just R&D expenses: in smart energy projects, hardware costs can be much higher. This is something entrepreneurs tend to forget.
Often founders face grave funding issues, mostly because they don’t want to give up equity (which is a legitimate concern), don’t plan budget properly, and/or have a burn rate that’s too high. In cleantech, there is always a need for a clear understanding of the underlying technology and costs related to it.
Failure to work with the government
For cleantech startups, success often depends on how well they can work with government institutions that are often responsible for the implementation of green economy practices. There’s a difference between working with the governments in the US, in China, or in Kazakhstan. The founder has to analyse the local authorities in terms of bureaucracy, possible funding, openness of the government, and any other possible issues.
It’s also important to find the right partner within the government, understand how the government works and be able to satisfy its needs. If we’re talking about China, you have to analyse its current 5-year plan, and find out whether it’s going to meet its goals. If we’re talking about the US, you need to figure out which states will focus on smart energy, and work with them.
The failure to take into account all this when trying to get in contact with local authorities usually prompts startups to either pivot or die, as it’s next to impossible to work in the cleantech industry without partnering with government organisations.
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The green energy market is growing constantly, and there will always be an economy centered around it. However, if five years ago cleantech was a magic word that opened all doors, today we need to actually implement it in order to take it to the next stage. The hype is over and now everyone wants to see the real action.
As any other industry, smart energy has its benefits and pitfalls. They can all be avoided, however, with an understanding of the market, the business, and the importance of the two main things in a startup—people and execution.
Oren Simanian is the founder of StarTau, Director at Indiegogo Israel and expert judge at #NEWENERGY Global Startup Fest (Astana, Kazakhstan).