There’s an interesting split in the residential and light commercial clean energy space lately. As consumer demand is surging and some “old” solar pv players are moving to bigger projects (Nexamp no longer does residential and is installing 4.5 MW in Western, MA, Borrego sold their residential business, etc) there is room opening up for smaller, new companies.
I’ve personally noticed a major divide between the types of organizations expanding into the industry to meet the demand. There tends to be two major camps. First, the entrepreneur. The entrepreneur sees the huge industry growth and is starting a new company to take advantage the growth. The entrepreneur will tend to focus on a specific technology; solar pv, solar thermal, geothermal or energy efficiency. The second is the general contractor or construction professional who plans to expand his current business into a new technology. He does this for a few reasons. He has existing customers asking him about these new technology and he already knows 80% of what he needs to know to install these systems.
Each of these groups looks at the industry in a different way. Each has its pros and cons.
The Entrepreneur or “Pure Play”
I call it a pure play as the whole business is typically hinged solely on the sales of projects in a specific technology.
The pure play company tends to see “understanding business”. That is, the connection and optimization of marketing, sales, engineering, and installation activities as a skill in it’s own right, and they believe the reason they’ll success with the new company.
The General Contractor
The general contractor tends to already own an existing business focused on the building industry. This tends to be general contracting or a as a sub-contractor; roofer, plumber, electrician, etc. The general contractor tends to want to continue their existing business while taking their existing trade knowledge into a new field. The general contractor is already well versed in all of the aspects needed to complete a project; design, installation, project management and customer manager and this is why they feel they will be successful in a new industry.
What are the pros and cons of each?
I don’t personally feel either is better suited to take advantage of the opportunity in the huge growth of renewable energy, though I do think they will find themselves in different places in the market and supply chain, simply because of how each group values marketing, sales, and the installation side of the business.
General contractor pros
- Well suited to do many tasks at once due to how the construction industry works. Most project managers in good construction companies can sell a job, quote it, design it and manage the installation team because that is what they must do on any construction project.
- Already have the needed licenses or relationships with companies that do have the licenses needed to pull all permits.
- Have experience and are used to dealing with mounds of paperwork, code, and sometimes hard to deal with building departments. Often time relationships with inspectors and building departments is the difference between a project getting competed, and collecting cash, in 2 weeks or 6.
- All in all, most trades people already have 80% to 90% of the skills needed to complete the installation of a job, they just need to learn the technology and get some understanding of design with the new technology.
General contractor cons
- The major con of general contractor – and those from the construction industry in general – is that they tend to not see as much value in, the marketing, sales and finance aspects of the renewable energy business that really drive the sales. If you don’t believe me, just try and find a general contracting company that has ‘sales people’. You won’t be able to find them easily, because hardly any have them. Also, it’s a general rule of thumb in the residential construction industry that if you have to spend money on marketing, you’re doing something wrong. Most marketing is completely run through word of mouth and still is today.
- Here’s the major difference between someone who is building a house or getting solar. If you’re building a house, you’ve already decided to do it and don’t need to be convinced. You just need to find a contractor that you like and trust to complete the work. Most of the times when customers inquire about solar or geothermal, they need to be sold on purchasing solar AND ALSO on choosing the contractor who will do the work. This is a slight difference but has a huge impact because it means the customer is going to be doing much more research and needs to be sold.
General Contractor Takeaway
If you’re a general contractor or tradesperson that is serious about renewable energy and would like it to account for a large portion of your revenue, find and a sales and marketing person to work with.
The Pure Play
The pure plays tends to be an entrepreneur, executive from another industry, “investment guy” that has his MBA from Harvard that is interested in getting into the renewable energy industry as he feels his business skills will help him excel.
Pure Play Pros
- Better suited to get investment. They know how to structure a company so it looks attractive to outside investment. Look at Next Step Living, they’ve raised more then a million dollars from venture capitalists. A general contractor would never raise money from external sources, it’s just not how they think about business.
- They tend to have a better understand of finance, which makes it easier to sell larger jobs as you need to deal with PPAs and SRECs. Again, look at Nexamp. They’ve completed a $23 million dollar deal to finance, build and own a 4.5 MW solar array.
- Strong focus on design, marketing and sales can help them gain traction in the beginning
Pure Play Cons
- Tend to sub out most work, and can have issues with quality control.
- Business is more susceptible to policy and demand within a narrow industry. The pure play is not diversified and only has a very specific set of skills that are not easily applied to other industries. If demand for their singular service decreases the business will be in trouble.
The largest takeaway that I’ve noticed when comparing the two groups is the best team would be a combination of entrepreneur and general contractor. This combination would bring all the skills and experience to make an amazing company.