Business Insights

July 20th, 2010

Book Report: ‘The Company We Keep’ by John Abrams

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South Mountain Company is a thirty-year-old, employee-owned design and building company on Martha’s Vineyard.  One of the company founders, John Abrams, published a book in 2005 that changed the way I define success  – and he represents an important demographic for GLD readers.

‘The Company We Keep’ is part business book, part manifesto, part love story.  John sent me the book a couple weeks before I was to drive out to Martha’s Vineyard for an interview with South Mountain Company.  I was graduating from the MBA program at Babson College, knew I wanted to be part of the sustainability movement, and sensed there was some magic in this small building company.  I didn’t put the book down for the next week.  John is a talented writer, and in the book he challenges the ‘gospel of growth’, outlines the benefits of employee ownership, celebrates craftsmanship, and articulates the importance of place.  He made me want to be a better person and a more thoughtful professional.

Ultimately I decided to start a business rather than take a job so I didn’t go to work for South Mountain Company, but that brief interaction with the company changed the course of my professional life.  Have you ever had a brief experience like that, or an influential teacher, or an internship during a formative time that you’ll never forget?  I’d love to hear comments with those stories.

I’m also writing this post because John is part of a group of established professionals that have 30 years of experience from which to teach the younger, Green Light Distrikt crowd.  These are active guys in the Northeast Sustainable Energy Association (NESEA) with an unbelievable wealth of knowledge and perspective that might be helpful to some of us starting out.  Here’s John’s blog, which might be another useful source of information as we all triangulate toward the truth.

April 19th, 2010

The Worst Metric in Renewables: ‘Payback Period’

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For as long as I can remember, since I was 16 and first stated going to NESEA, the renewable industry has talked about renewable investments in terms of this silly little term call ‘the payback period’. you might have heard this before, and from now, when you hear this term YOU HAVE the responsibility and obligation to correct the individual that uses this term.

At first, I went with it and used that term which we will no longer name. Then I went to school and learned something. I learned about finance, accounting and marketing and realized that ‘it’ is the least useful and most stupid metric to discuss investments, its paralyzing the renewable energy industry.

When you are thinking about investing you money, lets say in the stock market, a CD, or on a house, how often do people talk about ‘that’ term (the payback period that is)? They don’t! There’s a reason that Wall Street does not talk in terms of payback period.

Basic finance tell us that if free cash is available, if the discount rate (or internal rate of return, IRR) is greater than the weighted average cost of capital (WACC or just CC for short) the investment should be made. Thus, if an investment (in the worst case scenario) will have an IRR of 7% and the WACC is 4%, you just made 3% profit, or savings for the life of the investment.

The usefulness of speaking in terms of IRR really hit me when I was talking with my cousin, who is very interested in installing geothermal, solar thermal and solar PV on his house to reduce his substantial utility bills. The conversation went something like this:

Me: Bob, you could substantially reduce you utility bills by installing renewable energy systems on your house.

Bob: Really? Like what?

Me: Geothermal for your heating and cooling, solar thermal for hot water, and solar PV for your electricity

Bob: Hmmmm, what’s the payback on something like that?

Me: Actually, payback period is not really a useful way to compare this investment to another. For example, whats the payback of your IRA? What’s most useful is IRR and in Massachusetts most investments are usually at least 10% over the life of the system, so its a better investment then the stock market and has no risk, because you’re going to use energy even during a recession.

Bob: really?! Better than the stock market? That’s amazing! So, I might as well put my money into this.

Me: Yes, yes you should. blah blah blah

Lets be honest, most customers that can afford solar and geothermal can afford the large upfront payment and thus tend to have a lot of money. These type of customers also tend to have a lot of investments and understnad IRR much better then payback period.

Here’s my point. Stop saying/using/marketing payback periods, you’re shooting yourself in the foot! Start educating your customers about why the IRR is a much better metric and this will allow them to effectively compare this investment to other investments.

We need to remember that we’re the expert, and that we need to educate our customers about how to talk about these investments. To use a sale term, we need to frame the discussion so no objection can even be made and a renewable energy investment is the best choice.

Here’s the real pickle, why the heck was payback ever used in the first place?

February 24th, 2010

Demand-Response for the Average Joe

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I was at a training last week at the Connecticut Light & Power headquarters in Berlin, CT.  CL&P is a division of Northeast Utilities.  The most interesting thing I learned there is that CL&P is working on a residential demand response program.

What is demand responseIn this case, CL&P will begin offering rebates for customers to install special meters and switches in their homes that allows the utility to shut off certain appliances when the grid is being pushed, by pushed I mean the demand for electricity is almost more than supply.  The obvious example of this is on a hot summer day when everyone is running their air conditioner.  In exchange for a lower electricity rate, customers that opt in will allow the utility to shut off their equipment during these peak times.  Companies like EnerNoc do this on a commercial and industrial scale.

How much of a discount will customers get?  How often will appliances be shut down?  When will the program roll out?  None of those answers were available to me, but I was encouraged to see this kind of program happening on a residential level.  It’s bound to open up new business opportunities and I’m happy to see some tangible evidence of the much-hyped smart grid.  Way to go Northeast Utilities!

November 16th, 2009

7 Things I Learned from Losing my Dream Job in Renewable Energy

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Three weeks ago, I was fired. Perhaps, it would be more accurate to say they ‘let me go’ because the decision was not due to my performance. The company was a small, cash strapped start up providing training to the renewable energy industry. The mission was sound and we were providing real value to the industry but we were hit by the recession later then others.

It was a perfect first job; I learned a ton about the renewable energy industry, the inner workings and culture of a start up, and I made a bunch of good friends. I’m really excited now, I have plenty of free time and there are tons of opportunities and things happening in the industry that I can’t wait to get involved in.

My excitement is real and I’m not faking it, I’m not the type of person that always tries to make everything seem great. I wear my emotions on my face and I don’t drink alone everyday wishing I had my job back. With that said, I don’t have a trust fund, or nest egg, I’m not personally wealthy nor is my family. I come from a poor, working class (not middle class) background in Maine so I’m just really good at controlling my expenses and could live off a salary from McDonalds.

Two days after I lost the job I wrote down what I learned and I want to share it with you. As my thesis adviser said ‘Chris, you’re the only person I know who is excited when they lose their job…let’s celebrate’. I thought it would be fun and useful to reflect on what I learned. I know that there are a lot of college students and career changers who are still looking for jobs and people who may have also been laid off that are back in the job market.

I enjoy reading storing about how people deal with tough times, recently the best post I’ve seen is called My Million Dollar Mistake, its a great piece about how Neil Patel has dealt with wrong turns in his life.

My hope is that the insights may be useful for someone else in a similar situation and that others will share their experiences as well because these conversations are useful to have.

Here is what I learned:

# 1 It’s not the end of the world

The first thing I learned quickly was that it’s not the end of the world, like when you failed your first exam or got a detention, or in Neil case lost a million dollars. I 20 years I’m not going to look book on this moment and think it ended my life. My identity and feeling of self worth is not determined by what I do to make a living, and no I’m not a communist. From the people I have talked with in similar situations there tends to be a couple major items that freak people out when they don’t have a job. I’m not belittling these issues, each is serious and can make it seem like its the end of the world. They all require a shift in mindset and maybe behavior to combat them. Here are the things I notice that freak people out and a couple ways I get around them.

  1. I have no income: Cut your expenses. Some will say easier said then done. Okay, I agree sometimes this is true. But, if you look at your budget (you do have a budget by the way?) I bet there is a ton that you can skim and still be alive.
  2. I’m useless: This can be tough. I realize that my work does not define me. Try to see where you can find meaning in other things
  3. There’s nothing I can do! Like my mom always said, only boring people are boring. Open your mind and explore your interests, something will come along.

#2 The qualities of a good leader

The second thing I learned is what good leadership is. During college there is a huge focus on leadership, but few real life examples where you can observe it. The central question is all leadership discussions is: would you follow this person and why? Since I began working this question was consistently in the back of my mind and I was always asking myself this question.

Here’s why I would follow my boss.

  1. He personally cared: When he asked what I did over the weekend and how I was feeling, I could tell it was genuine. This is key and its easy to spot people who ask but don’t really care.
  2. He did what he said he would: When he said he was going to do something he did, the small things count. This established reliability, trusts and respect, all elements critical to leaderships.
  3. He’s transparent: The companies books were open if I wanted to see. He told us when things were going good and bad as soon as he knew and he let everyone know how he was feeling.

The good part is that now I have a good example which will 1) help me to become a better leader and 2) give me the skills to notice good leaders more easily.

If you’re curious about research on the trait of good leaders I’ve found this discussion very useful and insightful

#3 Trial and error is the best decision making tool

The only sure way to know is to try it. Our whole business model was based off of having a clear vision and testing ideas with trail and error to see which ones would work and be profitable. It took me a while to learn this (2 months) because college is very linear and built around planning, planning, and more planning, not action. Building a company is all about  minimizing risk and action. You need to find decisions with the most upside but the least chance of losing any resources.

I noticed there are two things small companies lack to make decisions:

  1. Data (market data, customer data, industry data)
  2. Resources (cash, time, connections)

A focus on action and testing through trail and error resolves both, providing data and determining profitable places to assign resources with the least risk in losing those resources.

Don’t spend too much time planning. Try it once and use that experience to improve. After working for a couple months I noticed I was always answering very basic questions from potential customers about the geothermal and solar PV industries. In order to stream line the sales process, I had an idea to create a short webinar to answer all these questions in a batch, it would take less time on my part and also provide nice sales metrics to track its effectiveness. After a couple weeks of talking my boss just told me to set a date and do it. It wasn’t perfect, we made a couple sales, but it provided data and an example on how we could improve it.

However, if you try something you must also be persistent which is difficult in a small company that has limited resources. This is because 1 trial is a very small sample size and you must have a large enough sample size to have a good estimate of effectiveness.

# 4 You’re not in control

This is hard for most people in the United States to deal with because it’s central to the American Dream, a myth that is centered around individualism and being in control of your destiny, and something we have been taught from a very young age. The problem is that these myths are typically supported with anecdotes and no data. I learned that this myth is very dangerous for a small business. During good times, companies attribute the success to their own actions. However, when things go badly it often confuses companies because their actions have not changed so they wonder how the result has. The reason for this is that their actions had little to do with either their successes or their failures.

I admit that it’s useful for people and companies to feel in control. Many experiments have suggested that people who feel they have control of their environment are more productive and happier. However, our economy and society is largely influenced by randomness and believing that you are in control can blind you to what’s happening.

I would argue you have the power to react to situations but rarely to create them.

#5 The power of eduction

At HeatSpring,  I learned the power of education. Our whole business model was based on education and training because in a new, rapidly growing industry the information gap is so large the prospect of a large payoff is so likely people are willing to pay hefty amounts for training.

However, I have realized that this approach can be used in all industries. The reason is that in most, if not all industries, and both B2B and B2C business models, the consumer or purchasers of a product or service are not an expert about that particular product or service. Take yourself for example, you probably have a car, television, and house, but I can almost garantee that you are not an expert in any of these

This is a great opportunity for all organizations to increase their sales and impact by educating consumers and setting the buying criteria. Through education you provide useful information and establish respect and trust and customers will ask you for your opinions.

Here is the best article I have found on ‘educated based marketing’ that describes the difference between classic selling and educational based marketing. Education- Based Selling

# 6 Ask for help

I try to only trash on countries cultures when necessary. American culture has a huge problem with individualism. Hyper-individualism in the U.S.A forces most people to think they must do everything. This is the WORST attitude to have in a small company for two reasons. 1) You can’t 2) Group cohesion is the key to reducing stress and increasing productivity for everyone.

I would argue that no one has ever really done anything by themselves, there is always a supporting staff and people to help them along the way. Small companies are no different.

# 7 Friend are more important then money

I’ll be honest, I’d still like to have a job, but its also fun not having one and having time to explore my next steps. Either way, I’m glad that I’ve made from good friends.

Many people say that a network is all an entrepreneur has. I agree with this statement but dislike it in the sense that it focuses on the utilitarian value of friendships and doesn’t seem to recorngize that good friendships in themselves are valuable.

My Conclusion

Whenever I make a transition in my life I find it useful to reflect on what I’ve learned. It helps build upon my experiences and realize the benefits.

Clean technology will be no different from the oil, high tech, or internet boom. Most will fail but the industry will grow.

I always measure success by if I learn something or not.

So what? How does this help you?

My advice is to take what you have learned and move on, always building upon past successes and mistakes.

Think of everyone situation as a win-win. If you’re always judging the success of a situation by if you learn something or not you will always succeed. From my experience, this is where you DO have control.

November 9th, 2009

Motivation – 1 way that Conventional Business Wisdom is Wrong

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Businesses do not correctly motivate their employees. Let me put some constraints on that statement; businesses in the U.S.A whose employees need to use creativity to do their jobs well (i.e. in the majority of them) do not motivate their employees correctly.

This conclusion hit my smack in my face 4 days ago. Here’s the story.

Every week Net Impact holds a conference titled ‘Issues in Depth’ for its members to enjoy. If you’ve never heard of Net Impact, you should check them out.

The ‘Issues in Depth’ call consists of a prominent business person presenting information on a certain topic that speaks to how businesses are addressing the many social and environmental issues we face.

Last month was my first call. The presenter was a man named Chip Conley, I’ll admit it, I’d never heard of him before the call.

Chip is founder of Joie de Vivre Hospitality, which is California’s largest boutique hotel group and is the recent author of ‘PEAK: How Great Companies Get Their Mofo from Maslow’.

Let me make it clear, this post is not a book review. Honestly, at first Chip’s discussion was not really impressive to me, in the sense that he didn’t seem to speak to anything I hadn’t heard before from school, case studies, magazines, you name it.

‘Fulfilled’ Organizations

Chip made a series of points that argued that companies as well as individuals can be ‘fulfilled’ as Maslow called it, and that more ‘fulfilled’ companies are more productive. Duh! He demonstrated how ‘fulfilled’ companies are comprised of ‘fulfilled’ stakeholders; employees, customers, and investors, and gave examples of how each of these stakeholders acts at each step toward fulfillment. Below is a sample Maslow hierarchy, and then an example of a customer hierarchy.

Picture 1

Picture 2

Again, nothing new, this is why I wasn’t impressed.

However, after a simple reflection on the discussion I realized that it was NOT the logic of his statement, that fulfilled groups will be more productive, but the discussion of HOW to get each group to the top that was important.

How Organizations Reach Their PEAK

His last point in particular really stuck with me. It goes something like this ‘conventional business wisdom is wrong’. What about conventional business you might ask. Chip focused on how businesses motivate their stakeholders to move them up Maslow’s pyramid. Chip concludes that in order to bring an organization to ‘PEAK’ performance,  money is not the most important item and other motivators must be used.  He gave three examples:

  1. Money isn’t the primary motivator for employees
  2. Customers don’t stay loyal when purely “satisfied”
  3. Many investors have needs beyond ROI.

From an employee perspective, I couldn’t agree with him more. I have never hated my job because I wasn’t being paid, it was due to other things like my boss was a jerk.

For the past couple of weeks I’ve been searching for information other then my own personal experiences to validate or refute his point.

Last week I stumbled on a TED video that hit the nail on the head.

If you have 18 minutes, watch the whole thing, its a great discussion and he explains very eloquently the disconect between what social science knows about motivation and how businesses try to motivate.

Why Conventional Business is Wrong

Conventional business wisdom would use money to increase production in order bring organizations to PEAK performance. However, Daniel Pink finds something completely different. In a nutshell, extrinsic motivators that incentivize based on performance only function well for right brain tasks, tasks that are linear and the inputs, outputs and goals are known, such as basic accounting, factory line workers, and basic computer programming jobs. However, extrinsic motivation actually decreases output in more left brain tasks, tasks that require any sort of creativity.

The central problem is that most white collar workers in Asia, Europe, and the US primarily have left brain tasks but are rewarded with a left brain structure, the result is WORSE production.

With these incentives it is no wonder that most organizations are not ‘fulfilled’ and functioning at their PEAK as Chip Conley puts it.

I’d have one piece of advice for you, be careful about the business techniques you learn if you’re going to business college to be a manger, getting your MBA, and most importantly attending an online MBA program.

So what?

The main benefit to working in clean technology is the intrinsic motivation is clearly available, we’re saving the world after all. This is a very powerful tool for motivating employees, investors, and customers and I’ve noticed that some organizations focus on this point more then others. More organizations need to use this to engage their customers, employees and investors.

Also, the conclusion has many implications for entrepreneurs looking to create a culture, and people looking for jobs.

From a company perspective, it’s important to get an understanding of what peoples’ intrinsic motivators are, because they will always be different.

If you looking for a job this should be very important for you and you should think about it a lot. What sort of culture do you want? Remember there is a huge difference between the stated culture and the informal culture of an organization. Most importantly, how will you screen companies to find a culture that fits or not. What sort of questions and cues do you look for?

This is one of the most important things that I focus on when I’m doing research and interviewing looking to work with a company. I relied that I will be more happy and productive in environments that have intrinsic motivators that match what I’m looking for. Some of the typical questions I ask are:

  • What is the culture around the work life balance?
  • Do you work to live or live to work?
  • Is your job fun?

I have found these questions are especially important for recent college graduates as lot of pressure is put on them to get a high paying  job, when they may not be the best decision. Most of my friends who took this route now hate their jobs and their lives.

Do you agree?

Have you ever had a job  you hated? Was it because you were not being paid enough or another reason?

I’m curious to learn about people who have experiences with companies that only use extrinsic motivators or companies that have developed more intrinsic motivators.

When you are looking to work for a company how important is the work environment and culture?

If you are or have been in a management position, do you agree with Daniel Pink and Chip Conley’s statements? How do you utilize extrinsic vs. intrinsic motivators?