Great Expectations: The Ten Most Common Mistakes of Solar Businesses and How to Avoid Them

This article is a guest post from Bill Rever, Owner and Principal at WB Rever Associates. Bill spent ten years in senior strategic roles at BP Solar where he helped launch new products and companies. He’s advised some of the biggest and most influential solar businesses to launch over the past decade, and has deep connections in the industry. He’s teaching our Solar Startup Accelerator this winter, a 7 week course that includes training, mentorship, networking support, templates and tools for launching a new division within an existing company or a solar startup.

WHO SHOULD READ THIS: 

• Installers wanting to start their own business in solar
• Installers looking to improve the performance of an existing solar business
• Leaders in corporations planning to create new solar divisions
• Entrepreneurs looking to start businesses to commercialize their innovations (products, services, or business models) in solar

This article is relevant for you if you have 0-5 years of experience with your solar business. It will be extremely helpful for you if you are reading before the official start of your business and if you have substantial experience in other areas (e.g. a master electrician).

WHAT YOU WILL LEARN: 

After reading this article, you will understand the 10 most common misperceptions that lead to solar business failure during the first 5 years of business. We want you to succeed. This article and the Solar Startup Accelerator are two resources for you.

THIS ARTICLE COVERS:

• Common misperceptions of solar businesses and the industry
• Industry examples and case studies
• The hard facts about starting and growing a solar business
• How to avoid common solar startup mistakes

OVERVIEW: THE 10 MOST COMMON MISPERCEPTIONS THAT LEAD TO A SOLAR BUSINESS’S FAILURE

1. We’re going to make a lot of money quickly
2. There’s little competition in the solar industry
3. Customers are going to come knocking on our door
4. Customers are going to buy because solar is “green”
5. The external solar environment is going to stay the same
6. We can work independently without anyone’s help
7. We know everything we need to know
8. No one else knows anything
9. We’re not going to make mistakes
10. Starting and growing our solar business is going to be easy

INTRODUCTION: 

The list of companies that have failed in solar includes many global multinationals:  Exxon, BP, Intel, GE, Siemens, etc. plus many (in)famous (e.g. Solyndra) and not so famous companies whose sole focus was in solar.  Each one of these failures has its own story – usually a complex mix of factors I liken to the “chain of error” used to describe the causes of aviation disasters.  As in aviation there are common themes to these crashes:  pilot error (bad decisions, often caused by lack of experience with the circumstances encountered, distracted attention, or other impaired judgment), mechanical failure (the critical components necessary for operation breakdown), and of course weather (unpredicted or ignored changes in the external environment).

In the 30+ years that I’ve been advising solar businesses, I’ve seen firsthand how misperceptions and expectations about the solar business or business in general can lead to huge mistakes and oftentimes failure. In this article, Ioutline  10 common misperceptions and how you can avoid them. avoid falling into their trap.

#1 SOLAR BUSINESS MISPERCEPTION: “WE’RE GOING TO MAKE A LOT OF MONEY QUICKLY”

This just isn’t true.

An old joke in our industry goes: “Want to know how to make a small fortune in the solar business?”

“Start out with a large fortune…”

Solar seems to be particularly susceptible to people entering with a “gold rush” mentality, especially in the last decade or so where the markets for solar have been created by favorable government policy which in many cases has created large markets overnight. While some very shrewd operators have made quick windfalls from these situations, they often lose these gains just as quickly and there are far more entities who have lost money or are struggling.  

THE HARD FACTS: Overall long term success in solar has generally been marked by perseverance and reasonable expectations for profit.

HOW TO AVOID THIS MISPERCEPTION:

Take the time to do a solid appraisal of the business prospects & risks and incorporate in conservative planning assumptions. Questions to ask:

• How big is the market you can realistically reach? For a software app business this might be the smartphone base in the U.S., but if you’re a small solar installer it probably means a metro area.  More importantly it means how many customers in the segment you’re targeting actually bought solar last year and are likely to buy this year.
• What fraction of the market can you realistically expect to capture and how long will it take?
• Is the economic environment expected to be stable or improve? In solar, a key factor is understanding whether the policies underpinning the market (tax credits, rebates, favorable electricity rates, etc.) are likely to continue or be reduced and, if they are, what that means for your business.
• Who are the competitors and how will you differentiate your business to attract customers?
• What is a realistic assessment of the cash needs of your business over the next 12 to 24 months and what unexpected expenses could occur?

#2 SOLAR BUSINESS MISPERCEPTION: THERE’S LITTLE COMPETITION IN THE SOLAR INDUSTRY

This is one of the most common problems I see both among small start-ups and large corporations – underestimating the competition – or thinking there isn’t any. Chances are if you’ve seen an opportunity someone else has, too, and if you think you’re protected by patents or other IP you may be blind-sided by competitors able to make small tweaks to get around them or simply willing to risk a potential legal fight – which may be very tough going especially across international borders. Solar is an inherently attractive field whose core proposition of essentially limitless energy delivered free is one of the great dreams of mankind.

THE HARD FACTS: At the end of the day, solar PV is simply a way to produce energy – a fundamental commodity with intense competition globally. If you’re entering the field, congratulations on taking up this quest – but don’t expect to be alone doing it. The 2013 Solar Jobs Census reported that there were 10,392 companies involved in the installation sector of the solar industry of the U.S. as of November of 2013.

HOW TO AVOID THIS MISPERCEPTION: Before you embark on your business journey in solar, it pays to understand who your competitors are, who their customers are, what they are offering and how you will be different. This is a key part of the business plan you’ll be developing in my course. For installation businesses, looking in local Yellow Pages or Googling “solar installers” will usually tell you who the main competitors will be. Using a little stealth as a potential solar buyer (easy on the Internet) will often provide a lot of information on what competitors are offering and who they are selling to.

#3. SOLAR BUSINESS MISPERCEPTION: CUSTOMERS ARE GOING TO COME KNOCKING ON OUR DOOR

This is a common assumption by entrepreneurs who believe they have invented “a better mousetrap” whether it is a thing of some kind, a service, or a business model.  A shocking number of these inventors have never spoken to a potential customer but since they themselves believe their idea is great they think real customers will, too.

THE HARD FACTS: Customers will not come knocking at your door unless they know what you’re offering and that it solves a real problem for them

WHAT TO DO TO AVOID THIS MISPERCEPTION:
The remedy for this is simple: talk to potential customers before launching your business. Make sure what you’re offering solves a real problem for them. Chances are you’ll get valuable feedback, and if you listen to what they have to say you’ll avoid having to make costly changes later. It’s also important to know what sources of information they rely on so you know how to reach them with your advertising.

#4. SOLAR BUSINESS MISPERCEPTION: CUSTOMERS ARE GOING TO BUY BECAUSE SOLAR IS GREEN  

Yes – solar is a “green” product.  If we didn’t care about the sustainability of our energy sources or their impacts on the environment solar PV would possibly still be a laboratory curiosity or limited to space applications. The policies that support PV globally exist because people as citizens through their governments have decided they want more clean renewable energy and the supporting renewable energy industry that follows.

THE HARD FACTS: As individuals or businesses, most customers for solar are motivated first by the prospect of a solid investment likely to yield economic returns for decades. The motivation to do something for the environment is there but it is usually down the list, and many of the people for whom this is a prime motivation have already bought systems and are no longer potential customers.

HOW TO AVOID THIS MISPERCEPTION:

Recognize that different motivations for buying solar energy exist for different customers and that most customers primarily buy based on economic criteria. Marketing materials and selling efforts generally need to focus on the financial benefits of using solar with the “green” benefits secondary.

#5: SOLAR BUSINESS MISPERCEPTION: THE EXTERNAL SOLAR ENVIRONMENT IS GOING TO STAY THE SAME 

Some of the biggest mistakes in solar have been in expecting the external environment for the business to stay the same and/or ignoring the forces driving change.

EXAMPLE: Those who thought refined silicon used in most PV was going to be forever short and priced at $400/kg and didn’t understand the more fundamental drivers have been shocked to see prices fall to levels around $20/kg.  Those who made business decisions based on those assumptions (like many thin-film PV companies and their investors) are likely out of business. One name comes to mind: Solyndra.

THE HARD FACTS:
At the top level, energy is one of the world’s most regulated industries and most solar markets require favorable policy to operate. These forces have blown hot and cold with a vengeance in solar as those in markets such as Spain and the Czech Republic (among many others) can attest. Not only have incentives been reduced in those markets, they have been retroactively taken away. Companies ignoring these and similar policy changes quickly disappeared. Forces within the industry can be just as powerful.

HOW TO AVOID THIS MISPERCEPTION:
Evaluating the external environment and understanding the forces driving an industry is a key part of a solid strategy and business plan. Key questions to ask:

• How are competing energy prices likely to change over time? For distributed PV that competes with retail electricity, this can be tricky as rates may change in ways that make solar less attractive (e.g. more fixed and less variable charges) even if the outlook is for rising rates.
• What are the economic incentives for solar presently in place and how are they likely to change?
• Are there other factors which could impede the growth of the market you are targeting? For example, some places like Hawaii have so much distributed solar the utilities have put a moratorium on further connections to the grid. In other areas there may be resistance to increased land use by ground mounted PV systems.
• Is the general economy of the area where you plan to operate expected to remain stable or grow?

#6: SOLAR BUSINESS MISPERCPTION: WE CAN WORK INDEPENDENTLY WITHOUT ANYONE’S HELP

Many entrepreneurs are in fact good at many things, but few are good at everything.  The same holds true for solar businesses.

Success story:  SunEdison is well known as one of the largest companies in the solar industry, and today it has a vertically integrated business model operating across most of the solar value chain. It began as a handful of people working strictly on the development of financed projects for commercial customers in the U.S. As a start-up, it recognized that it didn’t have the resources to be an effective competitor in areas outside its core business and developed important partner and supplier relationships to support its business model.

THE HARD FACTS: You will not be able to succeed without help.  Few people are good at every aspect of business and even those who are need to focus on where they can add the greatest value to have the most impact.

HOW TO AVOID THIS MISPERCEPTION: One of the hardest but most important tasks in developing your strategy and plan is self-evaluation – understanding your strengths and weaknesses in the context of your business and then determining how to maximize the value of your strengths and minimize the impact of your weaknesses. While some weaknesses can simply be dodged, if the tasks required are important, avoiding doing those things you’re not good at means you’ll need to pay for someone else to do them. That is typically money well spent, and you’ll earn a much better return on your time doing what you’re good at.

#7: SOLAR BUSINESS MISPERCEPTION: WE KNOW EVERYTHING WE NEED TO KNOW

This is closely related to both #6 and #8 but is a common flaw of headstrong entrepreneurs. Few are so arrogant as to believe they know everything, but it’s common for entrepreneurs and other business leaders to believe they know everything that matters to their business – an equally dangerous attitude. Why dangerous? Because it means critical information on changing business conditions or ideas for better ways to run the business may be ignored allowing competitors to get ahead or to dodge potential icebergs in the water that may sink businesses not paying attention.

THE HARD FACTS: You don’t know everything. PV is a $100 billion business globally with tens of thousands of companies involved. There are thousands of distinct markets defined by varying regulations and incentives across the globe. In the U.S. most aspects of the electricity business are regulated at the state level – creating 50 different major markets and thousands of relevant jurisdictions (cities and counties) governing how systems can be installed.

HOW TO AVOID THIS MISPERCEPTION: 

If you suffer from this, it requires an attitude adjustment, which probably won’t be easy. Practical steps include interacting regularly with others in the solar industry and taking time to listen to customers, employees, suppliers, and competitors as well as keeping up with areas where your business is affected.

#8: SOLAR BUSINESS MISPERCEPTION: NO ONE ELSE KNOWS ANYTHING ABOUT SOLAR 

Again, this is closely related to #6 and #7 as well as #2 but it is broader as it extends beyond competitors.  Many entrepreneurs believe so strongly in their ideas that they dismiss any contradictory information.  While being an entrepreneur requires a healthy level of confidence in one’s ideas it needs to be stopped short of cutting off all outside advice and criticism.

Success story:  A few years ago a large well-established PV company came to me for a complete review of the space. They had a number of people with similar levels of experience on staff but wanted an outside view. The outcome of that process was a restructuring and spin-off that has multiplied the value of their business.

THE HARD FACTS: The solar industry is populated with smart solar entrepreneurs just like you. Being open to learning from customers, competitors, suppliers, employees, and others means you’ll miss fewer opportunities.

HOW TO AVOID THIS MISPERCEPTION: The best entrepreneurs and leaders surround themselves with people whose skills are strong and complementary to their own and who aren’t afraid to bring up opposing views – and then listen to them openly before making critical decisions.

#9: SOLAR BUSINESS MISPERCEPTION: WE’RE NOT GOING TO MAKE ANY MISTAKES 

Much of the same ego that feeds #2, #6, #7, and #8 can lead to an expectation of perfection. A healthy ego is a critical asset for an entrepreneur in overcoming the many obstacles along the way to success but an expectation of perfection is very unrealistic.

EXAMPLE: Solar being a technical field leads to many engineers becoming entrepreneurs and the attention to detail and expectation of predictable results that many engineers bring to solar can lead to frustration and disappointment if overdone.

THE HARD FACTS: Most successful entrepreneurs have made major mistakes or failed in previous businesses but they have learned from those mistakes and bring that knowledge with them into their current businesses.

HOW TO AVOID THIS WAY OF THINKING: Understand that you are going to make mistakes and that failure can lead to success, but to be recoverable the failure needs to happen  at an early stage where corrections can be made before the organization’s resources are exhausted.  Doing trials or getting customer feedback on prototypes are examples of how different types of businesses can minimize the cost of mistakes by finding out about them earlier and at lower costs than if they occur later during the full scale introduction of a product or service.

#10: SOLAR BUSINESS MISPERCEPTION: STARTING AND GROWING OUR SOLAR BUSINESS IS GOING TO BE EASY 

Yes, the solar PV market is booming in many parts of the U.S. and around the world, but there’s a lot of competition. A common mistake of many entrepreneurs entering the downstream part of the solar business is thinking that because there is a good market in a given place, success is going to come easily.  For technical entrepreneurs and innovators this mistake could be rephrased as “Expecting a good idea to be enough.”

Success Story: First Solar is one of today’s most successful solar companies and seems to have had a near overnight success in the mid-2000s. In fact, its predecessor company began in 1984 and experienced considerable struggles before shifting its technology focus from amorphous silicon to the CdTe technology used today in 1990. That company spent another decade in development before it was recapitalized and renamed First Solar and has enjoyed commercial success in the last ten years.

THE HARD FACTS: I’m fond of the adage from Thomas Edison: “Genius is one percent inspiration and 99% perspiration.” Most of making an innovation successful comes not from the idea itself – most good ideas have been thought of before – it is figuring out how to make them into successful products or businesses that is hard.

HOW TO AVOID THIS MISPERCEPTION: You need to create a business plan which we’ll go through in detail in the course. Key things to think about:

• Who will I sell to & why will they buy from my company?
• Who are my competitors and how can I beat them or avoid competing with them?
• What people, financial, and other resources do I need?
• How will I organize the business?
• What are the main risks to the plan – what could go wrong, how can those risks be minimized and their impact mitigated if they occur?

CONCLUSION
If you’re entering the solar industry or have been developing and growing your solar business, congratulations on taking up this quest!

Here’s an overview of the hard facts and what you need to do to succeed in the solar industry.

1. Overall long-term success in solar has generally been marked by perseverance and reasonable expectations for profit.
2. At the end of the day, solar PV is a fundamental commodity with intense competition globally – it is simply a way to produce energy.
3. Customers will not come knocking to your door.
4. Most customers for solar are motivated first by the prospect of a solid investment likely to yield economic returns for decades, second to do something for the environment. Many of the people for whom sustainability is a prime motivation have already bought systems and are no longer potential customers.
5. At the top level, energy is one of the world’s most regulated industries and most solar markets require favorable policy to operate. Companies ignoring policy changes will fail.
6. Solar entrepreneurs cannot do everything alone.
7. You do not know everything, even if you think that you do.
8. The solar industry is populated with smart solar entrepreneurs just like you.
9. Most successful entrepreneurs have made major mistakes or failed in previous businesses but they have learned from those mistakes and bring that knowledge with them into their current businesses.
10. Most of making an innovation successful comes not from the idea itself – most good ideas have been thought of before – it is figuring out how to make them into successful products or businesses that is hard.

To succeed in solar you need to:

1. Understand the market – this means knowing who is buying, what they’re buying , and why they are buying – in the area where you’re going to compete
2. Understand the competition – this means knowing who you’re competing against, what they are offering and why customers will choose your company over your competitors.
3. Know what you need for your business – people, equipment, facilities, & most important funding to deliver what you’re offering – and how you’re going to get them
4. Know how you plan to organize and operate your business
5. Have thought about and identified the main risks and thought through what you’ll do if they happen.
6. Be ready to adjust to changing market conditions, competition, and customer preferences
7. Be ready to work hard and persevere in the face of setbacks and adversity
8. Accept that you may not make as much money as quickly as you had originally planned

If you’re thinking about starting a new solar business or expanding an existing business into solar, I’m launching the first online solar startup accelerator this Winter 2015. It will provide you with all of the tools, lessons and feedback you need to significantly decrease the risk of starting a new solar business.

In the six weeks of the Winter 2015 Solar Startup Accelerator, culminating in a capstone project (writing a 10-page business plan) you’ll learn about your solar business what would normally take you 6+ months of time to figure out.

I hope you’re ready to join me in my course in March in rolling up your sleeves to develop a plan for your business that avoids these mistakes and makes your solar business a success.

ABOUT BILL REVER, Owner – Principal, WB Rever Associates
A PV industry expert with over 30 years experience, Bill Rever provides unique depth and insight in understanding technology, policy, and markets as well as access to his network of seasoned professionals. Bill spent ten years in senior strategic roles at BP Solar where he helped launch new products and companies. Bill has a BA in Physics from Johns Hopkins University, an MSE from the University of Pennsylvania and an MBA from U. Penn’s Wharton School of Business. Bill is a member of the Solar Energy Industry Association (SEIA), MDV-SEIA, the independent local chapter of SEIA (where he was a board member for 20 years and President for ten years), and a member of the American Solar Energy Society (ASES). He was also co-chair of the PV advisory group of the Semiconductor Industry Association of North America and was active as a representative of BP Solar in both SEPA (the Solar Electric Power Association) and ACORE (American Council on Renewable Energy).