Category Archives: Startup general interest

Electricity storage costs on the cusp of a precipitous fall

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Elon Musk’s announcement of Tesla Energy and the Tesla Powercell (combined solar cell and battery) is the big news today, but it’s best understood in the context of longer term changes in the electricity industry. Two days ago I wrote about exponential increases in the use of solar energy, but solar energy only gets you so far without efficient storage to keep the lights on when the sun isn’t shining.

This ‘storage problem’ has long looked like the thing that would hold solar energy back. The cost of solar cells has been falling exponentially for some time and that has driven increased production, but if solar is ever to be more than a small percentage of the grid then storage needs to be solved, and battery technology has been advancing more slowly than solar cells (improvements have been linear rather than exponential).

The Tesla Powercell is a big step in the right direction. Ramez Naam compared the cost of electricity from the Powercell with the grid and found it to be roughly twice the price. Given that battery costs are halving every 2-3 years it won’t be long before it reaches grid parity. Meanwhile, early adopters, customers who suffer badly with outages, and countries where there’s a lot of sunshine and electricity costs are high will drive demand in the short term.

Exciting stuff. We could be on the cusp of a virtuous cycle that heralds a new era of cheap energy. This is from another Ramez Naam post from last month:

Energy storage is hitting an inflection point sooner than I expected, going from being a novelty, to being suddenly economically extremely sensible. That, in turn, is kicking off a virtuous cycle of new markets opening, new scale, further declining costs, and additional markets opening.

To elaborate: Three things are happening which feed off of each other.

  1. The Price of Energy Storage Technology is Plummeting. Indeed, while high compared to grid electricity, the price of energy storage has been plummeting for twenty years. And it looks likely to continue.

  2. Cheaper Storage is on the Verge of Massively Expanding the Market.  Battery storage and next-generation compressed air are right on the edge of the prices where it becomes profitable to arbitrage shifting electricity prices – filling up batteries with cheap power (from night time sources, abundant wind or solar, or other), and using that stored energy rather than peak priced electricity from natural gas peakers.This arbitrage can happen at either the grid edge (the home or business) or as part of the grid itself. Either way, it taps into a market of potentially 100s of thousands of MWh in the US alone.

  3. A Larger Market Drives Down the Cost of Energy Storage. Batteries and other storage technologies have learning curves. Increased production leads to lower prices. Expanding the scale of the storage industry pushes forward on these curves, dropping the price. Which in turn taps into yet larger markets.

 

 

 

Don’t be in denial

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I’ve just read YC Partner Jessica Livingston’s Subtle Mid-Stage Startup Pitfalls. The whole post is a great cautionary read, but I want to elaborate on one of her pieces of advice:

Don’t for a second be in denial if things are going badly or growth is flat. If you’re vigilant about diagnosing problems like these, you’ll be more likely to nip them in the bud. The sooner you acknowledge that growth is flat, for example, the more time you’ll have left to fix it.

This advice is easy to give in the abstract general case, but harder when you see it happening in practice – nobody likes to be told they’re in denial. Much better to catch yourself first then, because it happens to all of us from time to time.

The key is to be paranoid. Look for signs that things might not be working and acknowledge them. That doesn’t necessarily mean react to them or change anything. It means think about them and have an explanation and a plan. Often that explanation will be short term volatility driven by something out of your control and the plan will be to wait, but look at it, acknowledge that it’s a concern, and then keep an eye on it. Have a position on when it will bounce back and be wary of giving yourself more time if the bounce back doesn’t come as expected. Have this discipline for everything from metrics (revenues, engagement, etc.) to progress in deal and partnership discussions to hiring and employee issues.

As an investor I love it when entrepreneurs have great data and a great feel for their business and they point out the issues to me, including little ones, with an explanation of whether they have taken action or are waiting to see if a trend develops. Then we can have a discussion. If I have to point out the little slips and downturns then it niggles at the relationship and I wonder why the entrepreneur isn’t bringing it up – have they noticed? or, are they in denial? Neither of these are good.

 

Solar might save the world – encouraging data

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Top_5_Solar_StatesLook at that rapid increase in solar power capacity in five US states!

These increases are great news for two reasons Firstly, as we all know, solar is much better for the environment. Secondly as capacity rises, production rises, and with production increases come R&D increases which will continue to drive down the cost of solar energy. The cost of producing a gigawatt hour using solar has been declining exponentially for 20 years now, and with this sort of growth in production and R&D spend that trend is sure to continue or even accelerate (as a point of comparison, increased investment caused the cost of sequencing the human genome from an exponential decline to a faster than exponential decline).

All of this is super important because cheap solar energy is one of the best shots we have of surviving on this planet with increasing population and declining food and water stocks. Cheap enough energy unlocks large scale water desalination and hydroponic farming techniques.

Now I’m wishing even more that the UK had better weather…

 

Eleven truths about facts and hypotheses

By | Startup general interest | 4 Comments

From Brainpickings. So good I’m going to reproduce them in full. They were written by philosophers and scientists but apply to startups.

  1. All beliefs in whatever realm are theories at some level. (Stephen Schneider)
  2. Do not condemn the judgment of another because it differs from your own. You may both be wrong. (Dandemis)
  3. Read not to contradict and confute; nor to believe and take for granted; nor to find talk and discourse; but to weigh and consider. (Francis Bacon)
  4. Never fall in love with your hypothesis. (Peter Medawar)
  5. It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories instead of theories to suit facts. (Arthur Conan Doyle)
  6. A theory should not attempt to explain all the facts, because some of the facts are wrong. (Francis Crick)
  7. The thing that doesn’t fit is the thing that is most interesting. (Richard Feynman)
  8. To kill an error is as good a service as, and sometimes even better than, the establishing of a new truth or fact. (Charles Darwin)
  9. It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. (Mark Twain)
  10. Ignorance is preferable to error; and he is less remote from the truth who believes nothing, than he who believes what is wrong. (Thomas Jefferson)
  11. All truth passes through three stages. First, it is ridiculed, second, it is violently opposed, and third, it is accepted as self-evident. (Arthur Schopenhauer)

Trust moving from individuals to systems

By | Startup general interest, Uncategorized | 7 Comments

Trust decline Screen Shot 2015-04-21 at 14.50.11

I just saw this rather depressing chart in the Washington Post. I guess there are a bunch of things that used to be commonplace that we don’t do anymore because we are worried about bad people – hitchhiking and letting our kids play on the street are two examples that spring to mind – so maybe it isn’t a big surprise. Not good though.

What’s curious, though, is that the sharing economy has exploded whilst trust has been declining. How can it be that we are more afraid to hitch-hike, but more willing to stay in a stranger’s spare room? As the Washington Post points out the explanation is that we are moving our trust from individuals to systems.

In other words we might no longer be willing to trust a random hitchhiker, but we have learned to trust a rider’s average 4.9 star review on BlaBlaCar.

“Reputation is everything” is an old cliche, but maybe it will be increasingly true. As more and more people find employment and suppliers through marketplaces from ebay to Uber maybe it will become true that those of us without a good rating will start to find life more difficult.

Perhaps more interesting is what new companies can do to leverage these trust systems. Free delivery or maybe point of sale credit to customers who have good ebay buyer ratings is one such idea, on the basis that these customers will have higher life time value and/or will be less likely to make returns. Generalising, we get to the question of what a good rating on service X implies about how a customer will use service Y.

Considerations for would-be founders

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One of the biggest reasons startups fail is that the founders give up. Sometimes that happens because the idea didn’t turn out to be strong enough, in which case “c’est la vie”, but sometimes it happens because the entrepreneur wasn’t sufficiently prepared for the journey, and in that case it’s a crying shame.

The following quotes are from an answer I just read on a Quora answer from Justine Musk which sets out what it takes to be extremely successful (which is the goal for VC backed startups).

First the warning:

Extreme success results from an extreme personality and comes at the cost of many other things. Extreme success is different from what I suppose you could just consider ‘success’, so know that you don’t have to be Richard [Branson] or Elon [Musk, no relation] to be affluent and accomplished and maintain a great lifestyle. Your odds of happiness are better that way. But if you’re extreme, you must be what you are

Then the need for a mission or cause to sustain both you and the company:

It helps to have an ego, but you must be in service to something bigger if you are to inspire the people you need to help you  (and make no mistake, you will need them). That ‘something bigger’ prevents you from going off into the ether when people flock round you and tell you how fabulous you are when you aren’t and how great your stuff is when it isn’t. Don’t pursue something because you “want to be great”. Pursue something because it fascinates you, because the pursuit itself engages and compels you. Extreme people combine brilliance and talent with an *insane* work ethic, so if the work itself doesn’t drive you, you will burn out or fall by the wayside or your extreme competitors will crush you and make you cry.

Then the advice to take care of yourself mentally and physically (this is an area of huge importance where investors could do much more than they are today – something we are thinking hard about):

It helps to have superhuman energy and stamina. If you are not blessed with godlike genetics, then make it a point to get into the best shape possible. There will be jet lag, mental fatigue, bouts of hard partying, loneliness, pointless meetings, major setbacks, family drama, issues with the Significant Other you rarely see, dark nights of the soul, people who bore and annoy you, little sleep, less sleep than that. Keep your body sharp to keep your mind sharp. It pays off.

Learn to handle a level of stress that would break most people.

I’m posting all this mostly because it brings out how tough it is to be an entrepreneur. The support ecosystems are improving, in part due to firms like us focusing squarely on how best to support success as well as pick winners, but the journey remains difficult and it’s much better to go into that eyes open than to start and then discover you have embarked on a challenge you wouldn’t have begun if you knew more at the outset.

Three useful questions for assessing business ideas

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One of the unusual things about Forward Partners is that we invest in business at the idea stage. Often that means we are backing a single entrepreneur with nothing more than a slide presentation. One of our slogans is “No product, no traction, no team. No problem.”

Consequently we often get asked “How do you assess ideas?”

These three questions which came from the Y C application form and were on Founders Notebook this morning are a great guide:

1. What’s new about what you’re making?
2. How do you know people need what you’re making?
3. What substitutes do people resort to because it doesn’t exist yet (or they don’t know about it)?

The other major thing we look at is the market – is the opportunity large enough to build a business worth £100m+ (taking into account market size and margin).

If the answers to these four points are strong, we feel the entrepreneur has the right stuff, and it’s’ a UK based ecommerce company then we are going to be very interested.

Picasso on the power of just starting

By | Startup general interest | 5 Comments

To know what you’re going to draw, you have to begin drawing.
–  Pablo Picasso

Picasso was a prolific genius and one of his tricks was to remember that the act of starting to draw got him started on the path of building the vision for his creation.

This trick stands for most any task. The act of getting started is very powerful in beating procrastination and getting things done.

A simple message to take into the weekend.

Customer (product) value trumps brand value – M&A data

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W150409_HANSSENS_DECLININGVALUE-1

This chart (which I saw on Broadstuff and was originally published in the Harvard Business Review) is from audited company accounts following mergers and acquisitions:

…we looked at the value of brands and customer relationships as revealed by M&A data covering over 6,000 mergers and acquisitions worldwide between 2003 and 2013. The beauty of M&A for examining valuation trends is that M&As reveal the dollar valuations of all assets at the time of the acquisition. Upon acquiring a business, companies have to value the different assets they acquired for their accounts and balance sheet in accordance with accounting and reporting standards. These valuations include – among other assets – brands (trademarks) and customer relationships.

I read this as affirmation of a trend that we’ve talked about a lot here on The Equity Kicker – the rising importance of product quality (defined to include all customer touchpoints, including customer service) and the corresponding decline in the importance of brand. It’s pretty stark – brand value as a percentage of enterprise value fell by nearly half in the ten years from 2003 to 2013. This chart shows the beneficiary as customer value rather than product value, but product quality drives customer value in two ways:

  • lower customer acquisition costs – great product drives word of mouth marketing (which is why companies now obsess over NPS)
  • higher repeat purchase rates – customers remember great product experiences and want to repeat them

Social media has been the big driver of word of mouth marketing and it’s no coincidence that this chart starts around the time Facebook was founded in 2004.

Jeff Dachis made a similar point on Techcrunch today in a post about the problems with traditional marketing software when he says we are now:

in a world where pre-purchase consideration is no longer driven by reach and frequency, but by excellent consumer experiences, advocacy and amplification across every touchpoint seamlessly

 

Big companies pull back on investment – great news for startups

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US groups rein in capex

Reading this front page of the Financial Times this morning made me feel great about the future for startups. Innovation is happening faster and faster yet big groups are reining in capex and distributing $1tn to shareholders in the US alone. The only way to read this is as a tacit admission that they can no longer live with the pace of change. Moreover, even when the management of these companies get it they are often hamstrung by shareholders who are overly focused on the short term.

Startups will benefit in two ways:

  • More opportunities to disrupt big groups and build massive new businesses
  • More M&A as companies replace internal innovation with acquisitions – this will run from acqui-hires up to multi-billion dollar deals

Exciting times!

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