If there is one thing I have learned in twenty one years of being in the solar business, it’s that nothing stays the same. Markets,
incentives, products and competition are all constantly changing and if
you are in the business of solar, that means constant re-invention if
you are going to survive and prosper.
One of the first things I
tell clients who are in the solar business is that this must be a core
component of their business strategy or they will soon find them self
battling for relevance. All you have to do is look around and you’ll see
the evidence – businesses are either struggling and closing up shop or
they are changing what they do and how they do it and our industry has
its fair share of innovators and risk takers.
Ten years ago, the
business was pretty straight forward. You sold predominantly to early
adopters, hippy’s or people in remote area’s. Most were driven by need
not want and a 3kW system was worth around $40,000. Systems were 99% Off
Grid and you had to spend a lot of time designing, specifying,
installing and servicing these customers. Someone who is 100% reliant on
solar for all their energy has pretty high expectations of service if
their toilet won’t flush because the solar powered pump has stopped
working, for example.
In this era, profit margins were high
because they had to be. The typical solar business would sell around
1/20th of the volume they do today and the investment in design and
support cost a lot. Much of what was done was done manually; there was
no iPhone app to conduct a shade analysis or integrated CRM programs to
allow you to process forms on line, back then. Perhaps counter
intuitively, I can’t think of one solar company who was making much
money, either.
Fast forward five or six years. PV costs had
started to plummet, foreign exchange rates were at an all high and
pretty much every Government around the country saw solar as a political
saviour. The triple bottom line was huge in business and climate change
was at the front of people’s minds and the rebates started to flow.
As
time passed, the rebate mechanisms changed but the money kept flowing,
almost, but not quite as fast the PV prices continued to reduce. The
industry started to look mighty attractive as a result and thousands of
companies jumped in, spurring further price reductions and competition.
This was an abundant but tumultuous time. I watched good businesses
struggle and collapse because the rate of change was simply to fast for
them to adapt to. I watched bad businesses scoop up the money and run.
Innovation, automation and operational efficiency started to become
affordable and the rules of economy of scale were changed for ever.
Profits grew.
The businesses in the middle of this melee who
survived developed well balanced operations which were not too heavy on
unwieldy investments and yet could transact smoothly and quickly.
Marketing became a science based on good data and targeted sales and if
you were in the right place at the right time it started to rain sales.
If you had a bucket, you could simply catch customers as they fell from
the sky.
And here we are today. The storm has passed and whilst
the industry has grown substantially, sales no longer fall from the sky.
You have to work damn hard for a solar sale today and perhaps rightly
so. If you over-invested or spent all your accumulated profits or ended
up in the wrong location then solar business was tough again. One false
move and you could end up in a world of pain.
Some businesses have
survived this solar coaster and even prospered and learned a thing or
two along the way. One business I was chatting with recently described
how it survived the ride despite the ups and downs and most importantly,
what it was doing to get ready for the next thrill packed installment.
They
entered the market while it was still pretty formative, so they learned
to be lean and nimble and to fight for sales. The owners came from a
sales and marketing background and leveraged their expertise as
competitive advantage, built a strong brand and were efficient.
In
the right place at the right time, they benefited from the downpour of
sales and got a great market share. They dabbled in the price war until
it became a source of diminishing returns and then re-focused on the
premium end of the market retaining profits through higher revenues and
diversified into niches enough to survive the inevitable market
contractions without becoming spread too thin. They made tough decisions
early, restructuring their business to match the market and regularly
got advice on where the market was heading so they were one step ahead.
If
someone from outside our industry looked at their books they would
probably have a heart attack and describe the business as unpredictable
and dangerously volatile and in many cases this is true; too many solar
businesses haven’t been able to maintain the momentum and crucially, to
keep innovating at the right time.
But these guys are a little different.
They
carefully picked some strategic partners a few years ago and together
developed a new way to go to market. They invested their profits in
this work and conducted pilot trials, testing their theories and tuning
the plan as they went. The model revolves around financing solar but not
in a way that traps customers because “its too good to be true”,
leaving them disappointed and bitter when big interest rates finally
become evident, the economics of the market changes or the need some
post sales support (heaven forbid!). It’s a more customer focused model
that won’t win every sale but does look genuine, reasonable and service
oriented.
Their existing business continues to tick along bringing
in cash flow while they start to roll out this “Plan B” and crucially,
right behind it is Plan C and Plan D. They are thinking about the future
but living in the present.
There are a handful of great business
like this out there right now and undoubtedly, the innovation will need
to continue to ensure competitive survival. Those who are well prepared
and have invested wisely should survive and prosper again. The barriers
to entry in our market are very low but when you really look at it,
entry is only part of the story. You can’t (easily or cheaply) buy
trusted supply relationships, a pipe line of sales leads, organic
rankings, an experienced team and a business model that is likely to
survive the test of time. That costs hundreds of thousands of dollars
and takes time.
This business is for sale, by the way. The owners have reluctantly decided to put it on the market for personal reasons.
If you aren’t in solar but would like to be or, you want to crank it up a notch then you can learn more about it here.
http://theenergycollective.com/solarbusiness/320001/evolution-australian-solar-businesses
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