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Drew Mcinnes - Using human centered design to bring something new into the world

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  • 1. Building Efficiency
    Using Human Centered Design to Bring Something New to the World
    Drew (Andrew) McInnes
  • 2. Outline of Discussion
    Innovation Challenge
    What Problem to Solve
    Getting to the Right Solution (Using Human Centered Design)
    Designing the Right Business Model
    End Result
  • 3. Innovation ChallengeIncrease the energy efficiency of existing US commercial buildings
    Challenge
    Break with convention and create solution that actually increases energy efficiency of existing commercial buildings in United states
    Conventional Approaches
    Force IT solutions upon users through “C-level”
    None of these solutions meet customer expectations however, leading to minimal impact on efficiency
    Facts
    5 million buildings (>1,000 ft2)
    Account for 15% of total US energy consumption
    Current approaches fall short and like humans, no two buildings are alike
  • 4. How We Got StartedFirst up was determining what problem we needed to solve
    Stock of Energy in Building Operations (Simplified Version of My Original Model)
    Energy
    Converted to Work
    (HVAC Operation)
    (35%)
    Energy Wasted
    Energy Supplied
    (80%)
    (100%)
    Balancing
    Feedback
    HVAC System
    Degradation
    and Failure
    Energy
    Actually Converted to Work
    (Discrepancy of -15%)
    Put my systems thinking “hat” on and saw we needed to solve a human problem more than a technical one to fulfill our intention
  • 5. Problem We Needed to SolveReframe how managers and contractors interact in “small buildings”
    My Rationale
    75% of building managers lack resources to keep their HVAC systems running properly themselves
    So these managers hire contractors to watch over their systems in order to achieve “peace of mind”
    “Peace of mind” that someone knowledgeable is always watching over the HVAC system “24/7”
    BUT, contractors can only meet this intangible need with an intangible solution
    One called “trust based” contracting where managers must trust contractors will perform to expectations
    Approach gives rise to communication gaps leading to poor HVAC performance in 75% of buildings
    In order to improve HVAC performance and in turn the overall energy efficiency of many commercial buildings in the United States
  • 6. Getting to the Right SolutionStarted by observing 45 managers and contractors
    Unmet Needs (ZMET Photos)
    Uncovered and Translated Unmet Needs
    Observation, interview, and prototypingled me to uncover and translate unmet needs
    Topping each side’s list was greater “transparency” and “accountability”
    Verified Findings
    Qualitative and quantitative methods subsequently helped me to verify these findings
    • e.g. surveys, regression, etc.
    Discovered that greater TRANSPARENCY and ACCOUNTABILITY iswhat they would most value in their HVAC interactions
  • 7. How Much They Would Value ThisWas what we sought to understand next through experiments
    Hidden Aspirations (ZMET Photos)
    Predictability
    Managers and contractors would like to be able to predict HVAC system problems ahead of time
    Scalability
    Contractors would like take back relationship with manager from contractor’s own technician
    This would allow contractors to scale and tangibly value their business for first time ever
    PREDICTABILITY and SCALABILITY led us to the answer
  • 8. Getting Us to the Right Idea …Like US Postal Service, bridge the last mile of communication
    HVAC System Operations
    Safety and Diagnostics
    Repair and Maintenance
    Equipment Tracking
    Comprehensively and Down to Device Level
    Unlocks highest levels of transparency and accountability in interactions and enables unprecedented scalability and predictability
  • 9. … and Our First Design ChoicesFraming our solution
    In order to give managers and contractorswhat they value the most
  • 10. Our Proposed SolutionBreakthrough HVAC monitoring system
    ActionableInformation
    Data Server
    Utility
    Internet
    • Monitoring and Management
    • 11. Performance Optimization
    • 12. Safety/Diagnostics
    • 13. Service / Maintenance Predictability
    • 14. ROI/Payback Analysis
    HVAC
    Monitor
    System
    Equipment
    Offers actionable information as powerful motivator towards implementation
  • 15. Brining Us to Ask How best to deliver this product and service solution
    Customer Segments
    Key Partners
    Key Activities
    Value Propositions
    Customer Relationships
    Channels
    Key Resources
    Cost Structure
    Revenue Streams
    We mapped different business models to achieve resonance between what is meaningful to people and what is profitable for business
  • 16. Leading Us to Business Model InnovationWe selected a subscription based revenue model to test with customers
    SaaS with hardware - standardize NewCo as the Premise Network
    Transactions - connect 3rd party ecosystem with qualified customers
    Informatics – aggregate/sell information to manufacturers, utilities and others
    INITIAL FOCUS
    Demand Response
    Commercial
    Utilities
    3rd Party Service
    Education:
    Labs/Dorms
    Manufacturers
    New Company(NewCo)
    Multi-unit
    Residential
    Wholesalers
    Energy Service Co.
    Government
  • 17. Question Then BecameWhat is best way to execute on model to achieve profitability in business
    Answer depended upon outcomes of this trade-off analysis
  • 18. Super Small
    Small to Medium
    Small
    Results of Trade Off AnalysisMedium-size buildings is where to first strike resonance in the business
    Charge For
    Medium
    Data Collection Equipment
    Give Away
    Charge %Upfront Payment
    Bill as We Go
    Actionable Information Services
    Meeting criteria for business profitability(LTV > 3x CAC and months to recover CAC < 12 Months)
  • 19. Resulting Business Developing prototype and signing up beta users
    Focused on Retrofit Market (Medium-Size Buildings)
    • Fewer decision makers (VP Ops, COO, facilities manager)
    • 20. Existing pain (managers writing checks with no ability to manage costs)
    • 21. Leverage existing electrical channels for installation
    Targeting Indirect Sales Model Initially (Vertically Integrated)
    • Target contractors/ESCOs with multiple buildings
    • 22. Coordinate all electrical installation work
    • 23. Supply and charge for hardware directly (bypass distribution)
    Seeking to Build Revenue and Transition to Distribution Model
    • Leverage hardware partners (device, building automation, panel)
    • 24. Begin adding new construction (market to engineers, architects, builders)
  • End ResultDisruptive solution and model focused on always controlling data
    Reduce Hardware Cost to Enter Small Buildings
    • Get down manufacturing cost curve
    • 25. Graduated pricing based on customer needs (complete coverage vs. critical loads)
    • 26. Sell hardware at low markup (60% Hardware, 30% Labor)
    Focus on Subscription Services
    • Create ongoing revenue stream associated with software and services
    • 27. Packaged pricing based on customer needs and value
    • 28. Up-sell into higher value/margin contracts/services
    Always Control Data
    • Leverage opportunities for monetizing data with building owners, utilities, and manufacturers
    • 29. Share partial data with building automation systems
    • 30. Sell aggregated data to 3rd party ecosystem
    Essential to reframing other high-value relationshipsthat resonate with managers, contractors, and profitability alike
  • 31. Contact
    Drew (Andrew) McInnes
    andrew.mcinnes@sloan.mit.edu
    (408) 455 1090 (mobile)
  • 32. Subscription Based Revenue ModelOffered shortest time to revenue, and more importantly …
    What is always important to me in designing new businesses is applying systems thinking
    Applying systems thinking allows me to map out several alternative business models
    Each model gives me ideas about how a business could behave over time and in different scenarios
    Plotting this behavior enables me to map path to higher levels of customer and business resonance
    Defining and prioritize relevant criteria about which model to test first through customer contact
    How I Organized My Thinking
    Why I Selected this Model
    • Excellent first stepping stone towards achieving higher levels of customer and business resonance
    • 33. By first delivering proprietary access to high value data that cannot be collected effectively today
    • 34. Subsequently enabling higher-margin businesses (transactions and informatics)
    • 35. That provide managers and contractors with more actionable information beyond HVAC system
    • 36. Bridging communication gaps in other human interactions within the built environment
    … pathway to achieving high levels of resonance betweenwhat is meaningful for customers and what is profitable for business
  • 37. How We Tested My AssumptionsCreated customer advisory board to test and refine these assumptions
    Initiated, structured, and performed financial analysis to create value based pricing model
    Achieving buy in for my modeling from potential customers at each and every step along the way
    Shrewdness of contractors as business people will make value based pricing terms a difficult sell
    Only few are willing to consider pricing structures based on value solution delivers
    Leading me to tweak strategy for getting us to transactions/informatics business sooner
    NOT SO MUCH SO
    Value Based Pricing
    VALID ASSUMPTION
    < 6 Month Sales Cycle
    • Learned mechanical contractors are gatekeepers to managers even in medium-size buildings
    • 38. Meaning contractors are our customers, and partners in selling to building managers
    • 39. Contractors typically take 2-4 months to gain comfort with new solutions like ours’
    • 40. Before buying from people like us and turning around and helping us to also sell to manager
    • 41. 25+ interviews validated this advisory board thinking and a 3-5 month sales cycle
    Giving us free access to leading thought leaders in building-management and mechanical-contracting worlds
  • 42. Assuming We Were Right AboutSales cycle of 6 months or less
    < 6 Month Sales Cycle
    Underpinning all of my financial analysis of the business was how fast we could acquire customers
    Customers that took more than 6 months to acquire would become financial drags on the business
    In that it would be difficult to recover customer acquisition costs (CAC) in 12 months or less
    No matter how I “sliced and diced” the numbers, I could not get around this 12 month constraint
    Value Based Pricing, Not Cost Plus Margin
    Bookending this challenge in my design was another one called long term customer value (LTV)
    We would need to achieve a multiple of LTV in excess of 3x CAC to achieve acceptable margins
    Value based pricing would allow us to do so, but cost plus margin pricing not so much so
    Cost plus margin is what managers and contractors know – so would they accept value pricing
    Customers accept value based pricing terms

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