7 Questions to Consider Before Starting A CleanTech Company

As a result of climate activism and the need for sustainable energy, there is massive support for clean technology startups globally. In 2019 alone, the total new investments in renewable energy amounted to about $302 billion US dollars worldwide with $145 million directed at African cleantech startups. Thus, it is very tempting to rush into this bubble thinking that merely participating in the green revolution will be enough to build a successful company. However, in reality your idea might be great at solving environmental issues but unable to withstand economical and political uncertainties.

Many cleantech businesses have run into bankruptcy. A prominent example being Solyndra, a manufacturer of the innovative cylindrical solar panels. The startup looked so promising and was even backed up by the US government. Yet, plummeting silicon prices meant that the company couldn't compete with conventional solar panels and it filed for bankruptcy in September 2011 losing millions of dollars in investment.

I have just read chapter 13 of the book - Zero to One by Peter Thiel, where he discussed the probable reasons for the failure of clean tech startups and thought to share his ideas because I believe these are important points to consider before starting out a cleantech company. Here are the questions he believes every cleantech visionary should consider:

The Engineering Question

Can you create breakthrough technology instead of incremental improvements?

The idea is for your startup to own a technology that is 10x better than what your product aims to replace or the closest substitute. According to Thiel, this makes your product difficult to replicate and gives you a monopolistic advantage, minimising competition.

Tesla Inc. is a world leader in the electric vehicle market. Its vehicular technology is so good that other companies like Mercedes - Benz and Toyota buy its powertrain components and battery products. On the other hand, Solyndra, developed cylindrical solar cells that were only about 30% as efficient as the conventional solar cells. Although they tried to correct the deficiency using mirrors to reflect light to the bottom of the cells , it was hard to recover and they struggled to face competition especially by China's solar companies.

The Timing Question

Is it the right time to start your particular business?

Unless you have a definite and realistic plan, it is important to consider current engineering developments and if they can support the growth and success of your particular business.

Computing advanced rapidly in the 1970s largely due to the exponential development of microprocessors (from the 1st generation 4-bit microprocessors in 1971 to 32 bit within a decade). In contrast, the first solar cell developed by the Bell Labs in 1954 had an efficiency of about 6% and today, 67 years later, we have barely reached 50% efficiency. Hence, trying to create an "innovative" solar cell technology that hasn't matured in research might not have been the best option for Solyndra.

The Monopoly Question

Are you starting with a big share of a small market?

Every startup should start with a very small market which is easier to dominate compared to a larger one. Target a small group of particular people served by few competitors then scale up gradually.

Tesla's initial product was a luxury high performance electric sports car called the Roadster. It was designed for rich sports car lovers seeking something new and looking to be a part of the green change (a specific market). Revenues from the Roadster was then used to fund development of cheaper mainstream vehicles for a wider range of consumers.

The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model - Elon Musk

The People Question

Do you have the right team?

Energy problems are engineering problems; hence, cleantech companies should be run by technical teams who are very knowledgeable about the company's product or service. Salesmen are good at raising capital but less good at building the products that the customers want to buy.

Tesla's CEO is a seasoned engineer and salesman; need I say more...

The Distribution Question

Do you have a way to not just create but deliver your product?

Marketing a product or service to your consumers is as important as the product itself.

An Israeli cleantech startup, Better Place, developed battery switching services for electric cars. It was a good idea except that it did not appeal to the Israeli drivers who were most concerned with getting to their destination faster and displayed an indifference to emissions and pollutions. Shai Agassi, the founder of the company made a mistake of expecting Israelis to flock to a cleaner future as he himself had without strategic marketing. His cleantech company ended up losing more than $800 million in investments.

On the other hand, unlike many traditional car companies that rely on third party dealers to sell their cars, Tesla decided to own its distribution chain and set up its stores in order to control customer experience, and strengthen its brand.

Marketing a product or service to your consumers is as important as the product itself.

The Durability Question

Will your market position be defensible 10 and 20 years into the future?

To build a durable company, you need to ask certain questions: what would the world look like 10 and 20 years from now and how would my business fit in? If you cannot picture your company lasting that long, it probably wouldn't.

Since buying a car is one of the biggest purchasing decisions people make, a cleantech automobile company making head start like Tesla Inc., is set to remain for years.

The Secret Question

Have you identified a unique opportunity that others don't see?

There is a conventional truth about the need for a cleaner world so what exactly makes your company different? What valuable cleantech company is no one building?

For Tesla, the answers to these questions came from discovering the secret no one was willing to admit at first that people wanted to appear green but they also wanted luxury. So the car company sold its brand as a social phenomenon as well as an environmental imperative.

No sector will ever be so important that merely participating in it will be enough to build a great company - Peter Thiel.

Extra tip Study successful businesses, study failed businesses and ask questions