The document discusses using human-centered design to develop an energy efficiency solution for existing commercial buildings. It describes conducting interviews and observations to identify key problems around lack of transparency and accountability in HVAC management. This led to designing a monitoring system that provides actionable data. A subscription-based business model was selected and tested with potential customers to focus initially on medium-sized buildings and target contractors. The goal is to disrupt the industry by controlling data and developing new revenue streams around transactions and data analytics.

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

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

11. Performance Optimization

12. Safety/Diagnostics

13. Service / Maintenance Predictability

14. ROI/Payback AnalysisHVAC 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)

20. Existing pain (managers writing checks with no ability to manage costs)

22. Coordinate all electrical installation work

25. Graduated pricing based on customer needs (complete coverage vs. critical loads)

27. Packaged pricing based on customer needs and value

29. Share partial data with building automation systems

30. Sell aggregated data to 3rd party ecosystemEssential 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)

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

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 cycleGiving 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