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Green energy, or actually any new energy, organizations face barriers to entry not faced by start-ups in high technology, including:
• Long time frame for development and implementation by start-up
• Venture capital funds available for R&D, but not for build-out
• High initial cost for purchasers
• Selling savings more difficult than selling revenue generation
Dr. Eric Guyer, principal at Freewatt, a company offering long term savings in energy, and Sandy Creighton, a Freewatt user, discussed the difficulty of innovation in the energy field at a Harvard Business School Association of Boston March 2, 2010 meeting, “Run Your Electric Meter in Reverse.”
Freewatt manufactures micro-CHP (combined heat & power) systems suitable for small commercial buildings or homes. The system uses natural gas to generate electricity. This intrinsically in-efficient process produces heat as a by-product which is used to heat the building during the winter months. During the summer, the waste heat is exhausted into the atmosphere or the building buys electricity from the grid.
This process is called cogeneration and has been used for years in densely populated areas, but this applies the principle to single buildings. Traditional electricity plants are only 35% efficient so the majority of the energy becomes wasted heat. Plus additional losses occur in transmission over the grid to the users.
But Freewatt has faced the serious start-up issues typical of the energy field.
Freewatt needed a small, quiet, highly reliable engine for its system. The company found that Honda had been developing one for almost 20 years which was now ready for this type of application.
Freewatt systems can not be used with existing heating systems so installing one makes sense only in new construction and when a replacement is needed.
Even with tax credits, the Freewatt system requires substantial upfront outlay of cash which requires long term planning and perspective on the part of buyers.
Freewatt user Sandy Creighton is very happy with his system and is proud to have reduced his carbon footprint by 67%. ECR International, Inc. is now distributing the Freewatt systems nationally. In contrast to the 20+ years taken by Honda to develop this motor, a software start-up can write and launch an energy application in three to four years.
We are going to be dependent on fossil fuels for a long time unless the funding issue of energy start-ups can be addressed.
HBS Professor Ranjay Gulati spoke on "Out of the perfect storm -- Growth in Turbulent times"
At a Harvard Business School Club of Boston event Dec 2, 2010, Professor Gulati talked about how he became curious about the way companies began speaking about their renewed focus on customers during down economies. He began research in last recession, 99-00. However, he did not necessarily believe the PR created by the companies.
Although Jack Welch denied making this statement, it is widely attributed to him: “I inherited a company with its head inward and its ass to the customer.”
Professor Gulati found about 12 companies that seemed to be really customer-oriented. These companies grew 253% over 10 years vs. the S&P’s 10%. S&P’s shareholder’s return on equity equaled -.6% while his companies returned 134%. Eleven of twelve companies outperformed their peers.
Professor Gulati described several firms that did create a real customer focus.
Best Buy is organized by product category because that is the way men buy. Men walk in a store and go directly to the X section, buy X, and leave. But Best Buy found that 55% of their customers were female. These women would ask the salesmen if they could come over and help with the installation. Many salesmen mis-understood the question….
So Best Buy bought Geek Squad to address the installation requests. In addition, women would enter the store seeking a total system, not just product X, and be confused. So Best Buy started stationing PSA (Personal Shopping Assistants) at the door to ask women (or men with confused looks on their faces) what they wanted and to escort them around the store. The PSA badges were small so they were not obvious, but the system works well for Best Buy.
Do you know what the fastest growing category in grocery stores is? Bagged salad, but the product was not developed by a lettuce company. The lettuce companies did market research through the lens of their products. They asked customers; “Do you like my lettuce?” or “What would change about my lettuce?” They did not ask, “What problems do you have preparing food for your family?” If they had asked questions about customers’ problems, they would have realized that parents get home with hungry kids who want to eat now and need prepared and healthy food.
The professor visited Harley-Davidson and referred to the company as a motorcycle firm. He was constantly, but politely corrected by employees, “No we are a lifestyle firm.” An executive finally explained, “If you want a performance bike, you go to Europe. If you want price/performance, you go to Japan. We cannot compete in either category. We encouraged our dealers to create groups that would ride together and talk about their bikes.” Harley-Davidson realized that its customers needed more to talk about so they created a line of accessories so now 80% of its bikes are customized at an average of $4k per bike.
Competitors seek to introduce products that improve on rivals’ current products. But what happens when the products become mature? The products are improved (and priced) beyond the needs of the average buyer. Customers do not switch to the new improved products and the producer wonders what happened. And a new competitor steals market share with a less expensive product with fewer features which is “good enough” for many buyers.
A firm that manufactured lubricants for industrial machinery followed this pattern until its new products quit selling. Its executives went to the customers and asked “What do you want in a better lubricant?” The customers replied that lubes were such a small cost that they didn’t care about a better lube. They cared about machine downtime and the life of their equipment. The lube executives went back to their offices and told R&D to develop a lube that would address these problems. The new product reduced machine downtime by 15% and extended equipment life by 8%. The lube company is happily selling a lot of the new lube.
There can be only one lowest cost producer in a market. Wal-Mart occupies this position in retail by addressing customer needs. How can Target compete? By addressing customer wants.
Target was facing revenue and profit drops during the last recession so it looked at Wal-Mart. Fifty percent of Wal-Mart’s business is food so Target entered the food business with two house brands. The premium one competes against national brands and the value one competes against house brands. It introduced food products with improvements. What happens to the potato chips remaining the bag if you do not finish them? They get stale, but not Target’s chips. Its bag has a zip lock so it is re-sealable.
The two characteristics of these organizations were curiosity and humility. They became customer centric by harmonizing the relationship, product, and value.
The biggest impediment to customer focus is silos. Many companies are really organized by silos and must break them down to become customer focused. The biggest gap is execution.
Is your organization really customer focused? Are your competitors? While the economy is improving, the lesson is that smart competitors listen to their customers from the customers' perspective, not from their own.
Many organizations are preparing contingency plans for different economic scenarios in 2011. You should prepare potential competitor responses for your company’s scenarios as you will be able to react faster to competitor moves.
The servers at SCIP are down right now so meeting notices and registration are also down. But mark your calendars for this event and check the SCIP site soon to register.
Bernie Madoff was the mastermind behind what is widely described as the largest Ponzi scheme in history. How was he uncovered? Did you know that CI techniques played a role? Join us over an Italian holiday feast and networking social, as Harry Markopolos, “the Madoff Whistleblower,” describes how he uncovered Madoff’s scheme and how CI techniques continue to help him in his current cases.
SCIP Massachusetts/Boston Chapter
The Annual Holiday Networking Party,
featuring special guest Harry Markopolis, “The Madoff Whistleblower”
Buca di Beppo restaurant (formerly Vinny T’s),
Thursday, December 16, 2010
5:30PM – 8:00PM
Harry Markopolis, CFA, CFE, is an independent financial fraud investigator who brings fraud cases to the US Department of Justice, Internal Revenue Service and various State Attorney Generals under existing whistleblower programs. He has been featured in the leading business media, including Wall Street Journal, CNBC, and Bloomberg, and he has provided testimony before the United States Congress.
The Madoff investigation was his first financial fraud case, which he started in early 2000. He’s been hooked ever since. Mr. Markopolos is co-author of the best selling book “No One Would Listen: A True Financial Thriller” published by Wiley & Sons, Inc.; March 2010. The film documentary about his Madoff investigative team, “The Foxhounds: The Pursuit of Bernie Madoff” premiered in November 2010 at the International Documentary Film Festival in Amsterdam.
In 2000, Harry Markopolos recruited and led a four-man team of industry experts to track Bernie Madoff's $65 billion feeder fund network across two continents. This team's eight-and-one-half year long investigation identified dozens of Madoff feeder funds which were delivering a steady stream of new victims to Madoff's doorstep on a daily basis. Most of their intelligence was gathered in person at industry events, conferences, and during meetings. (In fact, very little of their investigation took place on the internet and there was a reason for that – Madoff was so secretive that he made sure that none of these feeder funds was mentioning him by name in their marketing efforts.) Mr. Markopolos will speak about the case from an intelligence gathering standpoint and take questions before the networking/holiday party begins.
Mr. Markopolos will also sign your copy of his book, No One Would Listen: A True Financial Thriller, detailing his investigation.
Buca di Beppo restaurant (formerly Vinny T’s)
20 Waltham Street
(See directions, below)
Includes dinner and soft drinks. Cash bar available.
SCIP Member $35.00
SLA members may email Cynthia Cheng Correia (firstname.lastname@example.org) for a registration form to fax to SCIP (703.739.2524). Please note: This will be a popular event – register early!
5:30 to 6:00 Networking
6:00 to 6:45 Presentation and Q&A
6:45 to 8:00 Networking party
Are you on the SCIP MA/Boston Chapter LinkedIn Group? Stay in the loop! http://www.linkedin.com/groups?about=&gid=2200786&trk=anet_ug_grppro
Directions & Parking
Directions for Buca di Beppo, Lexington
From The North, South, And West:
Route 128 south to exit 31A. Routes 4 and 225 towards Lexington (You must bear right off the exit - It is one way.) Follow approximately 2 miles until you pass the Lexington Battle Green and the Minuteman statue. Take a right at the next traffic light onto Waltham Street. Buca is on the left.
From Boston Or Route 2 West:
Route 2 west to exit 54B, Waltham Street, Lexington. Turn right at exit and follow approximately 2 miles. Buca is on the right just before the intersection of Waltham Street and Massachusetts Ave.
From Route 2 West:
Route 2 to exit 53, Spring Street and Waltham Street. Bear right off the exit, take the next right and follow back over Route 2. Turn right immediately after going over the highway and follow approximately 1 mile to Waltham Street. Turn left and proceed approximately 2 miles. Buca is on the right just before the intersection of Waltham St. and Mass. Ave.
From Cambridge / Arlington:
Follow Mass. Ave. into Lexington Center. After post office and police station, the next light is Waltham St. Turn left and Buca is on the right.
From Woburn / Burlington:
At four corners, follow Lexington Street into Lexington until it ends at Mass. Ave. Turn right and then left at the next light - Waltham St. Buca is on the left.
Street parking is available and a large lot is behind the buildings on the other side of Waltham St.