If there is one thing I have learned in 21 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.
Just 10 years ago, the business was pretty straightforward. You sold predominantly to early adopters, hippies or people in remote areas. Most were driven by need, not want ,and a 3kW system was worth around $40,000. Systems were 99 per cent off-grid and you had to spend a lot of time designing, specifying, installing and servicing these customers. Someone who is 100 per cent 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 online. Perhaps counterintuitively, 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-time 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 while 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 a 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 refocused 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 “it's 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 for 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 pipeline 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.
Nigel Morris is director of Solar Business Services.