In the last few years a small number of big companies have gotten heavily focused on the residential solar market. SunRun, SolarCity, Sungevity, and Real Goods Inc, have raised a ton of money from both private and public investors to grow in the residential market. SolarCity has $1 billion dollars to fund solar projects and Real Goods is a public company.
This begs the question, if one of these solar behemoth enters the market that you, a small solar company, are operating in, will you be able to compete? If so, how? It’s the classic David vs. Goliath, solar style!
Before we begin to address this question, let’s back up for second. While I do believe it’s extremely important for small businesses to be able to compete with the large companies, I am not saying that large companies are bad.
Like everything in the solar industry, this is a complex issue with at least two sides.
Q: Are residential solar companies who have raised millions of dollars good for the industry?
- First and foremost the scale they are bringing to the industry is substantially driving down the installed cost for residential customers.
- Second, they are increasing the awareness of solar. The more roofs with solar on them the more people are aware it exists and the likelihood of them wanting to invest in solar increases.
- Third, large firms are training the industry up quickly. A few years ago the industry had a shortage in trained personnel. To be efficient, large firms are creating technical and sales training programs but guess what? People switch firms all the time and they take the knowledge they learned from firm to firm.
Q: Are huge solar conglomerates bad?
It’s not bad that large residential solar firms are growing extremely rapidly. However, I don’t want a world in which there are only a few residential installers in a region or the whole country. I believe it’s critical for for the industry that small businesses find success in the solar industry. This begs the question, how can a small family electrical business that is getting into solar, compete with a solar behemoth that has $1 billion dollar in cash in the bank?
First, let’s understand what gives these large firms an advantage.
- The first two are cost and financing. If the firm is organized well, it will offer solar as cheaply as possible and offer financing as well, so non-cash customers can get solar for no money down. Financing is the new standard in the solar industry, you must have it. If you look at data from California, the majority of residential solar installations are financed. Financed systems are the new norm.
- The third variable is name recognition. Selling to mass market clients is very much about credibility and trust. Firms that have a brand that people trust will tend to have an advantage over a firm that no one has heard of. These large companies have brand recognition.
Q: What type of small businesses can compete and how can they do it?
There are many ways to answer this question, but I’ll focus on three elements.
- Existing businesses. We come into contact with many family businesses that are getting into renewable energy. These companies have a huge advantage over large companies because of the advantage they have with acquiring customers. The cost of cross- selling a project, whether geothermal, solar thermal, or solar pv, to a past customer that you already have a relationship is much cheaper then completely acquiring a new customer. If you have any existing business and are looking to cross-sell renewable energy projects, you’re in a good place.
- Partner with a third party financier. If you’re losing sales to companies that can offer financing to customers without cash reserves, consider partnering with a financing company. SunRun, BrightGrid, and Sungevity are all good examples of these. Offering financing will allow you to compete with the big guys. Sometimes the challenge with financing companies is they want to work with companies that have an established track record. If you don’t a have track record it may be issue. However, do not take my word for it. Ask the financing company.
- Own local market. Solar pv, solar thermal, and geothermal is still fundamentally a contracting business with some extra sales and financing. This means that a client decision is still mainly based on if they trust you or not. Again, this gives local businesses advantage in the communities where they’re active and known to their neighbors.
Q: Do you actually need to be worried about larger companies increasing their share of the market?
The answer to this question hinges on how fast “large” companies grow. If the industry as a whole grows faster than large companies, there will be plenty of room for small companies. If the larger companies begin to grow faster than the industry as a whole, small businesses should watch out. This David v. Goliath matchup will play out region by region in the year ahead. Good luck winning the battle.