Breaking With Convention, Creating New Ideas

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Breaking With Convention, Creating New Ideas

  1. 1. Building Efficiency Breaking With Convention, Creating New Ideas Andrew (Drew) McInnes 9/24/2010 Confidential outsmartinc.com 1
  2. 2. My Timeless Intention Help people overcome challenges together Nothing excites me more than helping people to overcome challenges together by breaking with convention and creating new ideas that people cannot think of today, but are obvious tomorrow. This is where I see exciting possibilities, and is what my journey is all about. By the way of this slide deck, I share with you a recent example of my passion for helping people to overcome challenges together by marrying design thinking and business strategy. One in which my strong enthusiasm for systems thinking, human understanding, and business planning helped me to help others to create a new approach for increasing the energy efficiency of commercial buildings. The slides are intended to go by quickly, while also communicating my belief that successful design depends more on our ability to solve the human problem than the technical one. My experiences in moving new technology out of the lab into the world have certainly showed me this to be true, and is why I now want to feed into larger-innovation efforts leveraging human-centered design. I would be very appreciative of any thoughts or comments you may have, and always enjoy talking to new people. So please feel free to drop me a line anytime at andrew.mcinnes@alum.mit.edu. 9/24/2010 Confidential outsmartinc.com 2
  3. 3. Outline of Discussion The Innovation Challenge What Problem to Solve Getting to the Right Solution Designing the Right Business 9/24/2010 Confidential outsmartinc.com 3
  4. 4. The Innovation Challenge 9/24/2010 Confidential outsmartinc.com 4
  5. 5. Teaming Up In 2005, I teamed up with another MIT graduate student Him the Engineer Stephen Samouhos. Stephen spent eight years as a thermal-fluids engineer leading successful research projects that range from manufacturing of human organ regeneration scaffolds to micro scale power plants and nano fluids for enhanced mass transfer and intelligent infrastructure for building efficiency. He holds an MS and BS from MIT, and recently completed his PhD (2010) focused on developing energy solutions for the built environment. Me the Business Designer Drew McInnes. Drew teams with technologists, investors, and entrepreneurs to commercialize new technologies. His understanding of the challenges startups face in moving new technology out of the lab into the world stems from his firsthand experiences at Athari Advisors, Wilson TurboPower, MIT, and Los Alamos National Lab. Previously, he co-led the launch of two successful businesses at UBS Investment Bank and holds a MBA (MIT Sloan), MGA (University of Pennsylvania), and BS (LaSalle University). We spent next 3 years developing technical solutions to real-world problems by marrying business, design, and engineering thinking 9/24/2010 Confidential outsmartinc.com 5
  6. 6. Our Greatest Challenge Before taking on our greatest design and innovation challenge in 2008 … 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 … increase the energy efficiency of existing commercial buildings in the United States 9/24/2010 Confidential outsmartinc.com 6
  7. 7. Over Next Two Years We teamed with 12 people in industry to fulfill our intention Determining what problem we needed to solve Getting us to the right idea and right solution Designing a business for going to market I then raised $500,000 from investors to take our solution to market 9/24/2010 Confidential outsmartinc.com 7
  8. 8. What Problem to Solve 9/24/2010 Confidential outsmartinc.com 8
  9. 9. How We Got Started First up was determining what problem we needed to solve I put my “systems cap” on and saw we needed to solve a human problem more than a technical one to fulfill our intention 9/24/2010 Confidential outsmartinc.com 9
  10. 10. Let Me Explain After modeling the flow of energy through a commercial building Stock of Energy in Building Operations (Simplified Version of My Original Model) Energy Supplied Energy Energy Wasted Converted to Work (100%) (Building Operations) (65%) (35%) Balancing Feedback Energy Actually Converted to Work (Discrepancy of 0%) I discovered most energy intensive component in commercial buildings is HVAC system … 9/24/2010 Confidential outsmartinc.com 10
  11. 11. Digging Deeper … and HVAC systems degrade over time and often fail to work properly Stock of Energy in Building Operations (Simplified Version of My Original Model) Energy Supplied Energy Energy Wasted Converted to Work (100%) (HVAC Operation) (80%) (35%) Balancing Feedback Energy HVAC System Actually Converted to Work Degradation (Discrepancy of -15%) and Failure Wreaking havoc on overall energy efficiency of commercial buildings across the United States 9/24/2010 Confidential outsmartinc.com 11
  12. 12. Leading Me to Ask Who are the players in the HVAC service and maintenance game Two Sets of Players, Two Versions of the Game Small Buildings Big Buildings 2 2 2 (1,000 ft - 200,000 ft ) (> 200,000 ft ) % of Market 90% 10% Building 1 Yes Yes Manager Mechanical Yes Yes Contractor 2 Building Controls --- Yes 3 Manufacturer NOTES: 1. Manages the overall operation of a building and is usually employed by the building's owners 2. Specializes in working on HVAC systems and is hired by building manager to perform HVAC service and maintenance 3. Manufactures building-control systems to govern the performance of HVAC systems (e.g. Siemens, Johnson Contrls, Honeywell) My thinking was that improving HVAC performance was the most actionable way to increase energy efficiency in commercial buildings 9/24/2010 Confidential outsmartinc.com 12
  13. 13. Next Asking What are the “rules of the game” Small Buildings Big Buildings (1,000 ft2 - 200,000 ft2) (> 200,000 ft2) 1. Building manager purchases a service 1. Building manager invests in a building agreement from the mechanical contractor controls system to monitor and optimize the performance of the HVAC system 2. Mechanical contractor then inspects HVAC system 1x / month to try to identify 2. Building manager then purchases service and prevent potential system failures agreement from the building controls manufacturer because only the 3. When a HVAC system failure occurs manufacturer can reprogram the controls (e.g. boiler bursts and floods a room), the mechanical contractor must respond to the 3. Building controls manufacture must failure within 4 hours of the occurrence reprogram controls 4 x / year to optimize against degradation of HVAC system 4. After the 5th HVAC system failure that the mechanical contractor fails to respond 4. Mechanical contractors perform repairs to within 4 hours of occurrence, the on the HVAC system that the building mechanical contractor becomes liable for all manager's site facility team cannot perform, damages brought about by the failure and install the building controls system By looking beyond the players to the rules, I thought I would understand how this subsystem behaves, and I did 9/24/2010 Confidential outsmartinc.com 13
  14. 14. Before Finally Asking What are each player’s objectives in this game Small Buildings Big Buildings (1,000 ft2 - 200,000 ft2) (> 200,000 ft2) Building Have the mechanical contractor sit in the Protect the significant investment made in Manager building "24/7" to make sure nothing ever HVAC systems for buildings of this size by goes wrong with the HVAC system making sure there are "eyes and ears" on the system at all times Because this is not physically possible for the mechanical contractor to do, make sure Maximize the ROI realized on this the service agreement with the mechanical investment by also having the "eyes and contractor favors the building manager ears" continually optimizing the HVAC's performance given real-time conditions Mechanical Build a relationship with the building manager in order to become the "first call" a Contractor building manager makes whenever he or she needs something done to HVAC system Profit from the relationship down the line when the building manager needs a new HVAC system installed or one refurbished Building Capture a larger share of the "economics" in Controls --- commercial buildings beyond those Manufacturer available from only selling control boxes This was most critical part of my thinking that revealed how the system behaves over time, leading me to see what problem to solve 9/24/2010 Confidential outsmartinc.com 14
  15. 15. Problem We Needed to Solve Reframe 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 9/24/2010 Confidential outsmartinc.com 15
  16. 16. What I Did Next Organized us a team to test my thinking with managers and contractors • I am of the mindset that we are not in the business of telling people what they need • Instead we help people to figure out what they need and find a way to meet that need • This led me to organize us as a team to interview 15 different managers and contractors • We simply asked people to tell us about the greatest stresses in their professional and personal lives • Poor interactions around HVAC service and maintenance interactions ranked in “top 3” • They were tired of the disgust and discontent that comes with “trust based” HVAC contracting • This validated my thinking about what problem we needed to solve What we learned along the way moved us to serve these people well 9/24/2010 Confidential outsmartinc.com 16
  17. 17. Getting to the Right Solution 9/24/2010 Confidential outsmartinc.com 17
  18. 18. Charted Our Course, Getting Us Underway Helping 45 managers and contractors discover that … Unmet Needs (ZMET Photos) Uncovered and Translated Unmet Needs • Observation and interview led me to uncover and translate the unmet needs of both sides • 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. … greater TRANSPARENCY and ACCOUNTABILITY is what they would most value in their HVAC interactions 9/24/2010 Confidential outsmartinc.com 18
  19. 19. How Much They Would Value This Was what I sought to understand next 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 When I probed for hidden aspirations that greater transparency and accountability could subsequently enable 9/24/2010 Confidential outsmartinc.com 19
  20. 20. Bringing Me to My First Trade-Off Decisions For framing the experience we would need to deliver upon Data OR Cat5 Cable Recommendations OR Power Line Monitoring OR Controls In order for our solution to give managers and contractors what they most valued 9/24/2010 Confidential outsmartinc.com 20
  21. 21. Why Team Accepted My Trade-Offs Recommendations Not-so-obvious conclusions I reached Monitoring Only • Both sides only needed HVAC monitoring solution to reframe their interactions in most positive light • Monitoring is all managers needed as “checks and balances” on system / contractor performance • Contractors said controls solution would be unwanted 3rd party in customer relationship Power Line Communications, Not Cat5 • Monitoring HVAC system would require pushing and pulling IP packets down to HVAC device level • Laying wire in buildings to do so costs $500/hour, making laying Cat5 cable an unattractive solution • When compared to one that communicates with devices over existing electrical wires in building • Achieving this design outcome, however, requires overcoming a not so trivial engineering challenge Data and Alerts, Not Recommendations Too • Real time HVAC data fed on continuous basis is what contractors said they need to “do a better job” • Many managers on the other hand said it would be nice to also have recommendations too • Recommendations about what needs to be fixed to verify contractor is “telling them the truth” • Both sides agreed simple alerts about what needs to be fixed would be excellent middle ground Using experimental protocols and conjoint analysis 9/24/2010 Confidential outsmartinc.com 21
  22. 22. Getting Us to the Right Idea … Unlock highest levels of transparency and accountability in interactions Monitoring HVAC System Performance Repair and Maintenance Safety and Equipment Monitoring & Management Diagnostics Tracking Comprehensively and Down to Device Level By bridging last mile of communication between managers and contractors through breakthrough HVAC monitoring system 9/24/2010 Confidential outsmartinc.com 22
  23. 23. … and Right Solution Breakthrough HVAC monitoring system Actionable Utility Data Server Information Internet Monitoring and Management Performance Optimization HVAC Monitor Safety/Diagnostics Service / Maintenance Predictability ROI/Payback Analysis System Equipment Offering actionable information as powerful motivator towards implementation 9/24/2010 Confidential outsmartinc.com 23
  24. 24. Simultaneously Enabling Human aspirations of predictable performance and business scalability Reframing Interactions in Small Buildings Current Alternatives (Conceptual Roadmap) • Cannot transmit data to network • Too expensive and complicated to install and use • Introduce unwanted 3rd party into relationship New Company • “Lock in” buildings to system Our Proposed Solution Manufacturing Customer Customer • Bridges communication gap by virtually placing Mechanical Building Manager and contractor in building 24/7 (simply and cheaply) Contractor Distribution • Returns control of customer relationship to contractor to enable business scaling & valuation • Delivers superior user experience by providing ease of use and ease of installation • Provides operators with avenue to get away from “locked-in” attributes of alternatives • Allows operators to predict when repairs need to Hardware Data be made as well as the ROI of those repairs 9/24/2010 Confidential outsmartinc.com 24
  25. 25. Brining Me to This Stage In my thinking • It was one thing to design and develop a solution that would be meaningful to people • But another thing entirely if we could not deliver the solution in a profitable way • This was why I focused first on helping managers and contractors uncover “what they would value” • From these values, I could surface “how much they would value this” through rapid prototyping • Getting people to make visual connections between their values and aspirations is how I think through “how much they would value this,” and my approach in this project was no different • Contractors especially could not help themselves, but to quantify “how much they would value” our monitoring solution’s ability to scale and tangibly value their businesses for the first time ever • I now had evidence that there was a business opportunity to lay claim to, but at what cost What should the business look like for taking our solution to market 9/24/2010 Confidential outsmartinc.com 25
  26. 26. Designing the Right Business 9/24/2010 Confidential outsmartinc.com 26
  27. 27. Developing Our Go To Market Strategy Using our idea and context as my starting point … Power Network for Comprehensive Monitoring of HVAC System • Transforms commercial building’s existing electrical wires into new intelligent network • Tracks and reports HVAC performance and impact of all human actions on this performance Delivering Actionable Information in Real Time and on Continuous Basis • Automatically creates and updates service and maintenance logs quickly and accurately • Sends alerts about system problems as well as data for predicting future problems • Documents date and time when system problems occur and contractors respond to problems Leading to More Certain Outcomes and More Scalable Businesses • Facilitates greater resource-planning efficiencies through more certain outcomes • Allows contractors to take back customer relationship from their service technicians • Resulting in more scalable businesses and ability to tangibly value customer lists for first time ever Easy to Install, Safe to Use • Requires minimal time and effort to install by leveraging existing power lines in building • Will not disrupt power distribution in building if monitoring system fails 9/24/2010 Confidential outsmartinc.com 27
  28. 28. First Designed a Starting Business Model … I threw up a business canvas on my wall like this one Key Partners Key Activities Value Customer Customer Propositions Relationships Segments Key Channels Resources Cost Structure Revenue Streams Adding pictures too it for quickly developing conceptual prototypes 9/24/2010 Confidential outsmartinc.com 28
  29. 29. Mapping Out Different Business Models Before selecting a subscription based revenue model for customer testing 1. SaaS with hardware - standardize NewCo as the Premise Network INITIAL FOCUS 2. Transactions - connect 3rd party ecosystem with qualified customers 3. Informatics – aggregate/sell information to manufacturers, utilities and others Demand Response Commercial Utilities Education: 3rd Party Service Labs/Dorms Manufacturers Multi-unit New Company Wholesalers Residential (NewCo) Energy Service Co. Government 9/24/2010 Confidential outsmartinc.com 29
  30. 30. Subscription Based Revenue Model Offered shortest time to revenue, and more importantly … Why I Selected this Model How I Organized My Thinking • Excellent first stepping stone towards achieving • What is always important to me in designing new higher levels of customer and business resonance businesses is applying systems thinking • By first delivering proprietary access to high value • Applying systems thinking allows me to map out data that cannot be collected effectively today several alternative business models • Subsequently enabling higher-margin businesses • Each model gives me ideas about how a business (transactions and informatics) could behave over time and in different scenarios • That provide managers and contractors with more • Plotting this behavior enables me to map path to actionable information beyond HVAC system higher levels of customer and business resonance • Bridging communication gaps in other human • Defining and prioritize relevant criteria about interactions within the built environment which model to test first through customer contact … pathway to achieving high levels of resonance between what is meaningful for customers and what is profitable for business 9/24/2010 Confidential outsmartinc.com 30
  31. 31. Question Then Became What is best way to execute on model to achieve profitability in business ACTIONABLE INFORMATION SERVICES DATA COLLECTION Require Advance Payment EQUIPMENT OR Bill as We Go Give It Away OR Charge For It Answer depended upon outcomes of my next trade-off analysis and testing of my two most critical assumptions about the business 9/24/2010 Confidential outsmartinc.com 31
  32. 32. Results of My Trade Off Analysis Medium-size buildings is where to first strike resonance in the business Data Collection Equipment Charge For Medium Small Small to Medium Give Away Super Small Bill as We Go Charge %Upfront Payment Actionable Information Services Meeting my criteria for business profitability (LTV > 3x CAC and months to recover CAC < 12 Months) 9/24/2010 Confidential outsmartinc.com 32
  33. 33. Assuming I Was Right We could acquire customers in 6 months or less and … < 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 would accept value based pricing terms 9/24/2010 Confidential outsmartinc.com 33
  34. 34. How I Tested My Assumptions Created customer advisory board to test and refine these assumptions VALID ASSUMPTION NOT SO MUCH SO < 6 Month Sales Cycle Value Based Pricing • Learned mechanical contractors are gatekeepers • Initiated, structured, and performed financial to managers even in medium-size buildings analysis to create value based pricing model • Meaning contractors are our customers, and • Achieving buy in for my modeling from potential partners in selling to building managers customers at each and every step along the way • Contractors typically take 2-4 months to gain • Shrewdness of contractors as business people will comfort with new solutions like ours’ make value based pricing terms a difficult sell • Before buying from people like us and turning • Only few are willing to consider pricing around and helping us to also sell to manager structures based on value solution delivers • 25+ interviews validated this advisory board • Leading me to tweak strategy for getting us thinking and a 3-5 month sales cycle 3- to transactions/informatics business sooner Giving me free access to leading thought leaders in building-management and mechanical-contracting worlds 9/24/2010 Confidential outsmartinc.com 34
  35. 35. Resulting Business Now building product and signing up beta users 1. Focused on Retrofit Market (Medium-Size Buildings) • Fewer decision makers (VP Ops, COO, facilities manager) • Existing pain (managers writing checks with no ability to manage costs) • Leverage existing electrical channels for installation 2. Targeting Indirect Sales Model Initially (Vertically Integrated) • Target contractors/ESCOs with multiple buildings • Coordinate all electrical installation work • Supply and charge for hardware directly (bypass distribution) 3. Seeking to Build Revenue and Transition to Distribution Model • Leverage hardware partners (device, building automation, panel) • Begin adding new construction (market to engineers, architects, builders) 9/24/2010 Confidential outsmartinc.com 35
  36. 36. Focus for Future Always control the data 1. Reduce Hardware Cost to Enter Small Buildings • Get down manufacturing cost curve • Graduated pricing based on customer needs (complete coverage vs. critical loads) • Sell hardware at low markup (60% Hardware, 30% Labor) 2. Focus on Subscription Services • Create ongoing revenue stream associated with software and services • Packaged pricing based on customer needs and value • Up-sell into higher value/margin contracts/services 3. Always Control Data • Leverage opportunities for monetizing data with building owners, utilities, and manufacturers • Share partial data with building automation systems • Sell aggregated data to 3rd party ecosystem Essential to reframing other high-value relationships that resonate with managers, contractors, and profitability alike 9/24/2010 Confidential outsmartinc.com 36
  37. 37. Contact Andrew (Drew) McInnes andrew.mcinnes@alum.mit.edu 1 (857) 288 8760 (Google Voice) 9/24/2010 Confidential outsmartinc.com 37

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