Remember how your Little League jersey sported the name of a local business? Well, the Framingham Jr. Flyers football team has an unconventional sponsor: energy efficiency.
Through a partnership with Boston-based Next Step Living, for every energy assessment completed using the Flyers’ referral link, the team earns $10. The alliance may seem unorthodox – and it is – but it’s consistent with Next Step’s unique vision for spreading the energy revolution. The key to selling energy efficiency in the residential market, according to Next Step CEO Geoff Chapin, isn’t fancy technology, sleek web apps, or colorful fliers. It’s building trust within the community.
While high profile cleantech startups continue to go bankrupt, Next Step has done work in 20,000 homes and grown to over 400 employees, hiring for a wide range of skill and education levels. Though the luster of green jobs may have vanished at the national level, it’s alive and well at Next Step. It’s a success story built around strong execution rather than exclusive IP, and potentially a model for venture capitalists looking to reset their approach in the energy space.
HOW TO PICK UP ONE DOLLAR BILLS
There’s a famous joke, if you could call it that, among economists that goes like this: two economists are walking down the street, and one of them spots a dollar bill on the street. “Look, a dollar bill!” one says. “Impossible,” replies the other. “If that were true, someone would have picked it up by now.”
Energy efficiency is sort of like the dollar bill. Free market types are puzzled as to why homeowners haven’t already invested in improvements, if doing so would save them money, as is often the case (especially once state incentives are taken into account).
But anyone in business knows it doesn’t work that simply. You might have a great idea for a product or service, but getting people to take time out of their busy days to even learn about it, much less buy it, can be a daunting task. It’s hard enough to get users to download a free mobile app; imagine convincing them to replace all their windows.
That’s where community groups and local sports teams come in. Back when Next Step was founded four years ago, it was selling energy audits and efficiency improvements to environmental types, the true believers who wanted to do the right thing. But that only gets you so far. And a lot of potential customers motivated purely by ROI frankly won’t believe you if you just show up and promise them huge savings, Chapin told me. They’ll only listen “if they’re approached by groups they trust,” he said.
And so Next Step builds its business through partnerships, slowly overcoming the frictions in the market to deliver energy efficiency improvements to homeowners. It’s become something of an industry cliche to point out that energy efficiency is important but not sexy, and indeed, though there’s nothing sexy about info sessions with church groups, it works.
A MODEL FOR VENTURE CAPITAL?
There’s no bigger champion for Next Step than Rob Day, a partner at the family fund Black Coral Capital who regularly blogs at Greentech Media about cleantech VC. To Day, Next Step is an example of reinventing channels in the energy business. A new super efficient light bulb does no good if it never reaches the consumer. And so Day has advocated the value of companies that are rethinking distribution channels in cleantech.
Day invested early in Next Step, and recently described its success on his blog:
One of the reasons our portfolio company Next Step Living has been growing so quickly recently is that the firm went through this exercise but started with a physical touchpoint with customers. The firm partnered with towns and utilities to be able to visit thousands of homes per year as a trusted energy advisor.
While the absence of cutting edge proprietary technology might once have been seen by investors as a drawback, today it looks more like a feature. Next Step has set itself up as the one-stop shop for residential efficiency, picking the best available technologies to implement improvements.
“We can pick the winners across each segment,” Chapin told me, noting that tech plays present the risk of being leapfrogged by competitors. And sure enough, Next Step is currently entertaining more interest from VC’s, having built up some proof around its model.
NEXT STEP: DATA
If there’s a problem with what I’ve described so far, it’s getting to scale. Audubon Society meetings and tee ball leagues are great, but that kind of community partnership is labor intensive. But as Next Step grows, it gets smarter. With every house it assesses, the company gleans new data that helps it paint a better picture of where to go next.
“We’ve created whole maps of towns,” Chapin told me, like the one pictured above. Between publicly available data and what it has generated internally, Next Step can reasonably guess which homes present the best opportunity for energy savings. As Day put it on his blog:
Now that Next Step Living has that customer network in hand, the data-driven side of its business is yielding exciting results, but it didn’t start with an internet-based business plan.
The old Field of Dreams quote “If you build it, he will come,” could be used in any sector as an example of how not to create a successful business. But by now it’s apparent that it applies double to energy. As far as cleantech has come from a purely technological perspective, the various markets for those products remain immature. Next Step may ultimately not work out. Having gained some traction, someone else might come along and out-execute it, or some of the value created by its efforts to raise community awareness around energy efficiency may get captured by leaner newcomers. But there’s no sign of that to date. And, more importantly, the basic insight – that there’s value in serving as a conduit between the producers of cleantech products and their eventual customers – is here to stay.