8 Lessons for Aspiring Entrepreneurs in the Energy Sector
Leading investors, entrepreneurs and sector experts share their insights on building successful business models that provide electricity to the poor
Nearly 1 billion people lack access to electricity. 2 billion people have unreliable electricity access. 3 billion people lack access to clean, safe cooking solutions. While grid-electricity serves nearly 140 million more households today than it did in 2010, outages are common and lengthy, and expansion of these services has been uneven. It is invariably the poor who remain underserved.
Yes, these numbers are big, and represent a lot of lives. But you know what that means? The potential for impact is big, as well.
Over the past decade, 45% of people who gained access to energy for the first time did so because of new social enterprises. More than 86 off-grid startups incorporated in the past 3 years, and for the first time, the number of unelectrified people fell under 1 billion.
Interested in contributing to this catalytic community, bringing new ideas and solutions to the challenges of energy access? Check out this advice from 7 leading experts in the sector. We talked to Amar Inamdar, Managing Director at KawiSafi Ventures, Christine Eibs Singer, Co-Founder at E+Co and Senior Advisor to SEforALL, Alejandro Estrada, Co-Founder and Fund Manager of E 10 Energy Services, Leslie Labruto, Global Energy Lead at Acumen, Ling Koopthavonrerk, Associate at The Rockefeller Foundation’s Power initiative, Nthabi Mosia, Co-Founder & CMO at Easy Solar, and Russell Sturm, Head of Energy Access/Advisory Services, International Finance Corporation.
1. Start with the problem, not the solution.
It’s easy to assume that a great idea will be enough to make your business successful, but experts say this is the most common mistake new entrepreneurs make. It’s important that you build a business around the problem you’re solving, not the solution you’re offering. Alejandro Estrada, a fund manager at an energy investment firm, E 10 Energy Services, offers this advice, “You have to understand your customer. I have seen companies fail and go bankrupt because they believe they know better than the customer. They define their solutions sitting from an office space, not from getting perspective from the field. Meaningful change is possible when you have a customer-centric approach. Partner with your customers, listen to your customers, and have a strong relationships with your customers.” For example, if you’re developing clean cooking technology but you don’t consider how that technology will alter the taste of food, you’ll fail to achieve long-lasting adoption rates of your cook stove, even if it significantly reduces toxic emissions. Christine Eibs Singer, who has invested in and coached hundreds of energy entrepreneurs, advises, “Don’t pretend that you have all of the answers. Acknowledge what you know and don’t know, and be a really good listener.”
2. Push yourself to bring energy to harder markets.
The challenge of energy access is deeply connected to geography. 95% of the off-grid population lives in Sub-Saharan Africa, South Asia, and East Asia, and 87% of the world’s unelectrified population lives in rural areas. That’s why Leslie Labruto, Global Head of Energy at Acumen, says that we need entrepreneurs to push themselves to go to harder markets. These may be countries like Chad, Malawi, and Niger, where respectively 91%, 89%, and 84% of the population is without access to electricity. Or it might mean developing innovative distribution channels, payment models, and customer service mechanisms to reach people in remote villages with limited infrastructure. Evaluating and entering new markets can be challenging, so Leslie suggests using these five “conditions for success” created by McKinsey to determine if markets are ready for new energy entrants. These involve examining off grid regulations in the country you which to serve, the overall business environment, and the ease of logistics and channels, among other factors.
3. Plan for more cash than you think you need.
Companies that provide energy access can be capital intensive, especially for companies offering things like solar home systems or mini grids. It’s important for any business to manage its costs and revenues, but it’s especially critical for capital-intensive business models. Amar Inamdar, Managing Director at KawiSafi Ventures, offers this advice, “Cash flow is what drives business success and business failure. The business that don’t work out may have had a fantastic product and brought it to market for a few years, but they ultimately ran out of money. The inability to convert sales into cash and get that cash back into the company is what ultimately undoes a business.” Managing cash flow might sound easy in theory, but it’s challenging in practice. Amar recommends stripping the business model down to its simplest form: how is money made and where is it spent?. Then, ask yourself, will your business become cash flow positive based on the size of the market you can reach? How quickly? You can work with the government or other donors to receive grants and subsidies, but eventually, you need to prove that your business can be self-sustaining.
4. Identify partnerships to help simplify your business model.
Some energy businesses are completely vertically integrated, meaning they own every part of their operations from manufacturing to sales and distribution to customer service. Owning every part of your supply chain has benefits. You have control over every activity needed to deliver value to customers, and you hear feedback directly from customers on what is working and what is not. However, owning the entire value chain can become incredibly complex and costly. You have to develop an expertise in each stage of the supply chain that you own. That’s why Russell Sturm, Head of Energy Access and Advisory Services at the IFC, says you need to be smart about where you partner. “You need to decide what you develop an expertise in versus what others can do for you,” he says, “Being a manufacturer, a retailer, a distributor, and a financer is hard to do. If you’re the first company in the market, sometimes you have to run every part of your supply chain. But if you’re coming into a market with some traction, think twice about where your comparative advantage is along the supply chain. Partner with companies that already have expertise, rather than trying to spread your company out over eight different business activities.”
5. Focus on providing top-notch customer service.
Acumen has conducted countless Lean Data studies to understand the pain points of energy access customers, and one thing is clear: customer service is the number one pain point for mini-grid companies. Ling Koopthavonrerk, an Associate at The Rockefeller Foundation’s Power initiative, encourages entrepreneurs to think about customer service this way, “In a rural context, energy operates differently than your traditional utility. There’s more than one choice for how you get energy. That means the nature of the energy market is a retail market. Retail is detail. You need have have excellent customer support and service.” You may provide customer service directly or you may partner with a company to deliver customer service. Regardless of who is delivering the customer service, you should have clear customer satisfaction metrics and survey customers frequently to see how well your company is serving customers needs.
6. Connect energy access to broader issues of development
“You can’t really talk about wide scale development unless we fix the power issue,” says Nthabi Mosia, co-founder and CMO of Easy Solar. That’s because energy is foundational to progress in sectors like agriculture, education, and healthcare. Energy-efficient refrigerators would extend the life of vaccines, and electricity in health clinics would mean that no mother has to give birth in the dark. In the education sector, students rate limited lighting as the number one challenge to learning and doing homework. In India, it’s estimated that $13 billion of post-harvest losses happen every year due to lack of refrigeration solutions. Christine Eibs Singer sees this as an opportunity for entrepreneurs to develop cross-sector innovations. She says, “The role of energy can enable better health services and education services. Right now, it’s an afterthought, but I think there’s an opportunity for businesses to better connect these sectors. In some countries, as little as 9% of healthcare facilities have access to electricity. We need to inform and influence decision makers on the role of energy in enabling better health and education services, and businesses can help move forward these opportunities.”
7. Contribute to the development of energy efficient technology.
While the energy efficiency of off-grid products has improved significantly over the past few years, there is still need for technological innovation, especially for cross-sector solutions. Amar Inamdar describes the need and opportunity this way: “The consumptive use space — TVs, lights, radios — are seeing phenomenal increases in efficiency. But I think we’ve got so much further to go in the energy efficiency journey. I’m really excited when entrepreneurs start to work on the energy efficiency of productive use technologies, like irrigation, refrigeration, and agriculture milling. These are the spaces where efficiency will transform the ability of a family to make income and improve livelihoods. These are the innovations that will fundamentally transform the way business is done and the way people get access to incomes, independence, and livelihoods.” If your company is selling products in the productive use space, how are you pushing the conversation about energy efficiency forward?
8. Pilot and pivot.
Truly understanding the needs of your customers takes time, and customer needs evolve. That means that identifying a customer problem is not a 30 minute exercise. It’s an iterative process that requires piloting and pivoting solutions to see if they truly address your customers’ needs. Here’s how Nthabi Mosia thinks about it, “You need to be willing, at every stage, to accept that you might be wrong about what you’re doing. There’s a balance between having confidence in the fact that you’ve got a good idea, and being willing to adjust or amend it. The customer, at the end of the day, is the one who knows what they need.”
