No. 18: Necessary, but not Sufficient

Fighting climate changes means decarbonizing our planet. And decarbonization means inventing and deploying the technologies that are going to fuel our economy to run and grow in a low carbon or no carbon way. This, we all know.

But, it is critically important for founders to understand that they cannot get caught in the trap of relying solely on the decarbonizing attributes of their technology as the basis for their business. Certainly, a decarbonizing technology is necessary for a climate tech business, but we can’t let that necessity cloud a simple fact:

Decarbonization alone is not sufficient to building an enduring business.

Why? Greenhouse gases are an externality that is not priced, which means you have to find a way, independent of your technology’s decarbonization prowess, to find and incorporate the most valuable attribute of any business: revenue. Honestly derived, consistently recurring, and meaningfully growing revenue.

Now, this may seem a bit silly. Of course you need revenue. But many climate tech founders assume that decarbonization will automatically lead to revenue, and that assumption is rarely true (with carbon removal being the exception, if there is a well-functioning market for carbon credits). For those founders leading with such an assumption, they often end up building a technology that performs a discrete operation but lacks a clear home in the market because no one wants to buy it. A classic solution in search of a problem.

I’ll say it again: decarbonization is necessary for a climate tech company, but it is not sufficient.

For a climate tech startup to become an enduring business–dare I say a “necessary and sufficient” one, founders need a compelling decarbonization technology–or a technology that supports or enables decarbonization–and, and, and has a demonstrable pathway to a large market.

What does this mean in practice? Well, there are thousands of actions founders must complete in their march to build an enduring business. But there’s two tactics worth mentioning here.

First, you need to build a techno-economic analysis – a method for evaluating the economic performance of a technology (weighing benefits against costs)–that meticulously connects your potential of your product to the operations of the likely market into which the product will be sold. The specificity and technical nature of this endeavor should not and cannot be understated. In fact, this endeavor is so important that it will get the stand-alone blog post treatment. Two critical items to preview in advance of that post:

1. Cost benchmarking–when the cost of a new technology is compared head-to-head with existing commercial technology that it would complete with in the marketplace–is common and accepted practice in techno-economic analysis.
2. Your assumptions are everything. And I mean everything. When you’re using the cost benchmarking approach, the assumptions you make about your technologies’ inputs will absolutely drive the analysis, and often determine whether the technology is investable

Techno-economic analysis must be carefully built and thoughtfully explained by the founding team in a way that gives industry experts confidence to invest in your company. And to be clear, the “explain” portion of the techno-economic analysis should not be overlooked, which leads to the second critical tactic that gets overlooked when building a “necessary and sufficient” climate tech company.

You need to sell. To everyone. All the time.

Don’t let pre-revenue, technology-based milestones fool you. You need to be selling all the time to so many different constituents as you convince them to join you on this journey:

1. Co-founders:
   ‍A serious sacrifice, especially if the co-founder is leaving a comfortable role to join you. Highest risk, lowest pay. You’ll definitely need to sell a co-founder on joining you, especially if you’re doing so before raising any capital.
2. Employees:
   ‍You’re unlikely to win them over with your generous benefits package and corporate discount program.
3. Investors:
   Of course. Just don’t discount how many investors you’ll need to pitch to close your round.
4. Vendors and service providers:
   ‍Yes, you may even need to sell some of them to convince them to work with you on flexible terms.
5. Pilot partners:
   ‍Convincing those folks to let you use their land, equipment, and facilities to test out your technology is not an easy thing.
6. Customers:
   The ultimate sales job. And the hardest thing in the world to do, more so than securing investors.

Selling is fundamentally underrated as a founder trait and a necessary tactic in order to build a climate tech company (and any startup, for that matter). The desire to sell and the focus to build a sales process are critical components to building an enduring business and the key way to demonstrate to the market that your climate tech company is about more than just decarbonization.

Put a compelling decarbonizing breakthrough in the hands of a sales-focused climate tech founder with a strong techno-economic analysis serving as the connective tissue between technology and market, and you just may have the makings of a necessary and sufficient business.

Don’t worry, there’s a still a thousand things that can go wrong. That’s what makes building a climate tech company so hard and so much fun!