2011-12-14

Co.Exist

The Perils Of Creating Companies That Matter

People with ideas for technologies that could help save the planet often think the importance of their idea trumps the need for business acumen. They couldn’t be more wrong. Even a rocket scientist found it challenging to turn his brilliant idea into a successful business.

Having a killer app or a genius business idea sometimes seems like a foolproof path to business success. If that business has the added benefit of saving people money while also reducing energy use, what could go wrong? It turns out that just doing the right thing isn’t enough. Having a good idea and developing a good product is a start, but it’s no guarantee of business success.

It’s not about being smart. Even a rocket scientist with over 15 years at NASA can get stuck on the wrong entrepreneurial path. That’s Peter Sharer’s story. Peter and his partner, David Brock, met in 2002 at NASA in Mountain View, California, where they worked together on Doppler weather radar systems, doing atmospheric scientific research and creating software instrumentation. They moved on to work on SOFIA, an airborne telescope project. Together, they created and refined data systems and integrated flight control tools. They enjoyed all kinds of complex, creative scientific work even later assisting researchers at Stanford tracking marine mammals and gathering scientific data.

Sharer and Brock shared a passion for designing systems for data collection and solutions. They envisioned software and hardware that could save end users--usually homeowners or office park landlords--thousands of dollars by calculating and adjusting their energy use. They knew they were on to something when they ran across a primitive version of the software they had in mind already in place at Adobe headquarters and immediately thought of ways of improving it significantly. But, it turns out, it’s not about having the most sustainable product, either.

The pair wrote up their idea for a Clean Tech Open competition in 2006, but didn’t get selected. Undeterred, they both quit their day jobs at a boutique IT consulting firm to found Agilewaves and concentrated on creating a prototype. The first break came the next summer when an architect friend invited them to install the system in his office and in a spec home he was rebuilding in Palo Alto. That was followed by an even luckier break: the updated Craftsman-style home was purchased by one of the first 50 Google employees. The Googler loved their system, and after several months of living in the home, he approached Sharer and Brock about making a personal investment in their company. It was good timing. At that point, Sharer and Brock hadn’t paid themselves in over a year and the resources to grow Agilewaves were scarce.

Finding sufficient financial resources is a common problem for all kinds of startup businesses. Of course, founders want money, so they are free to devote themselves to the new business. But there can be more critical needs. Do you have the resources to market your business, to continue with product development, and to bring in the staff needed to grow quickly and start bringing in revenue? Finding investors isn’t simple, and it has not been an easy task for Sharer and Brock. In fact, that Googler is still their largest investor to date. Luckily, another modest investment came through from an angel, giving them a bit of capital to carry on.

But when money comes in, the next challenge is to decide how to spend it wisely. Sharer and Brock used most of the angel investment on consultants in an unfruitful attempt to find more money from VCs. Their timing was poor. This was in 2009, in the middle of the recession. Looking back, Sharer feels that it was not necessarily time well spent and that the consultants they retained were not so useful. “I went to tons of VC meetings and we were never successful,” says Sharer. “Looking back, I would not have gone down that path.” He says that factors outside his control--an especially tough investment climate and an immature market for energy efficiency technologies--were to blame. But he also regrets that neither he nor the consultants could properly assess the market conditions.

They made a common mistake for green business entrepreneurs: thinking they were something they were not. His consultants had him run the high-tech playbook and focus on raising VC money. It seems reasonable but it’s not always the best way to go, especially if you can’t promise huge returns with your business plan. Moreover, with limited resources of time and money, pitching VCs can be major distraction from the hard work of finding a market and refining your product to sell in that market. VCs are interested in exponential growth, the kind possible with new software or with radically game-changing technology. Slow, steady growth is not as attractive to them as the potential for the quick home run. But steady growth actually makes more sense in business models where the goal is generating income and refining your product to compete in a defined segment of the consumer marketplace with other products, green and un-green.

By 2008, Agilewaves had created the second generation of the software, and the monitoring unit had shrunk from taking up a whole wall, to fitting into a small box, 12 by 18 inches. Perhaps more importantly, they also were lucky enough to stumble into selling their first commercial unit that year, installing the sleeker unit and upgraded software into their first non-residential building, a local independent school to which a friend sent their kid. They had found their true target market--commercial buildings--but had no idea.

The software and hardware were in their fourth iterations in 2010 when Cooper Lighting, an industry leader that mostly illuminates office parks and manufactures systems that control lighting by zones, approached Agilewaves. “Again, this is luck,” Sharer says of the biggest break to come their way. Cooper saw the Agilewaves model as a logical means to diversify into energy management solutions, and asked Sharer and Brock to develop a system that would show their clients precisely how they were using energy. Cooper liked the model, and a deal was made. Cooper will rebrand and market the Agilewaves technology to customers.

“I hate to say this,” Sharer says, “but it really does boil down to relationships.” He concedes that having the smarts of a rocket scientist didn’t matter all that much when it came to bringing his invention to market. “It took us five years to find the right vertical,” he says. The Agilewaves innovators were focused on developing their brilliant idea. Their success in the form of this first strategic partnership came late, and is perhaps considerably less lucrative than it might have been, had Sharer and Brock proactively explored partnerships and concentrated more of their limited resources from the start on developing the right product and finding a channel partner such as Cooper Lighting, rather than on seeking VC investment. Agilewaves didn’t go where they were actually needed. “They [Cooper Lighting] approached us, when I now understand we should have approached them," Sharer says.

In the end, Sharer and Brock may get their payday, but their outcome is not what it could have been. Despite offering an innovative product, resource limitations and an anemic market held the inventors back while they tried desperately to find a way to capitalize and productize their idea. Looking back, Sharer says their road to success was rocky from the start, and has never gotten easier. The partners began undercapitalized, with just their own $20,000. They made some bad hires, paid for a lot of advice that didn’t work out, and didn’t focus on the commercial market until later on. Like so many green entrepreneurs, Sharer was also disappointed by how slow federal policy has moved on energy efficiency, since he mistakenly assumed that it would have provided a major boost. He remains hopeful that California’s recently signed renewable energy standard will buoy their business prospects, but this time he’s not banking on it.

Today Sharer is happy that his business is alive and thriving, having survived the worst economy in decades. Perhaps more importantly, Agilewaves has now found a market and a strategy that seems to work: focusing on offering turnkey energy efficiency solutions (software, integration components, and hardware) to the 70% of small and medium commercial building owners that have no existing instrumentation or building automation.

The hard truth is that having a good idea or even a good product doesn’t necessarily equate with being a great businessperson or a successful entrepreneur. But it doesn’t have to be that way. All first time entrepreneurs would benefit enormously from a crash course in the basics of entrepreneurship, one that would help them forge a strong business plan and avoid the costly mistakes that come from flying blind. Green entrepreneurs, especially, need to learn that the market doesn’t care how good for the world their product is, and that it’s their business skills that will make or break their company.

Instead of facing the challenge of growing a business on their own, educated entrepreneurs would possess a roadmap, a set of valuable tools and have encouragement from and access to a peer network of other entrepreneurs who have faced similar challenges. Armed with these advantages and focused on growing the business, the green entrepreneur is far more likely to see their idea blossom into a sustainable business with a significant positive impact on the world.

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1 Comments

  • Billy Strachan

    The most crucial aspect of this article was not expanded upon:

    "All first time entrepreneurs would benefit enormously from a crash course in the basics of entrepreneurship, one that would help them forge a strong business plan and avoid the costly mistakes that come from flying blind."

    What are those "basics of entrepreneurship" that help "forge a strong business plan and avoid the costly mistakes that come from flying blind"?