Energy as a Service, or how to rethink value creation
Interview with Ruth Mourik and Renske Bouwknegt about what it takes to create viable service-based business models for good
Alright folks, moving on with our series on how to do business for good with sustainable energy. Call it ethical or social entrepreneurship. For tor today's edition, though, I talked to two action researchers who propose this term: transition-oriented entrepreneurs. They define it as follows:
Entrepreneurs who want to create multiple values, not just financial, and not just for themselves and their companies, but for their customers, communities, and even future generations.
The two action researchers in question: Ruth Mourik, founder of DuneWorks, a research-by-doing firm that identifies and addresses pain points in sustainability transitions (and where I earn my daily bread!), and Renske Bouwknegt, partner in Ideate, a service design company aimed at tackling complex social challenges by trying to do things a little differently. In a 5 year long, collaborative project for the IEA, they identified the practices that make transition-oriented entrepreneurs successful and what governments can do in turn to help them thrive.
I turned my conversation with them into an SLE podcast episode, which you can listen to here - if you speak Netherlandish 📙, that is 👀.
If you don't, or if you just want to take home the highlights, keep reading!
Relational and institutional entrepreneurs
They explain that transition-oriented entrepreneurs distinguish themselves in two ways:
By the relation they build with their clients and customers to be able to create value for them.
By the willingness to engage a wide range of stakeholders across the public and private sectors to reform the institutions that stand in the way of business models that create multiple values.
Let's dig in a little deeper.
A very illuminating company
Once upon a time in Ireland...
...there was a company that started out with basically just smart power sockets for office buildings that also offered other kinds of connectivity. The company was reasonably successful at it, but what makes them special is that they actually kept talking to their customers, even after purchase. They asked, "Well, how is it working out? Can we drop by sometime?' And so they saw what was happening on the shop floor, and they realized that light, and proper lighting for all kinds of work and activities, was very important. Replacing light fittings was not actually the client's main concern. They wanted light.
Sot they started thinking about how they could offer light as a service. Of course, others have done similar things, but it didn't stop there. Because the moment that customers started thinking about light, they also started thinking about where the energy comes from and maybe they wanted to generate that energy themselves, right? And so the company got into PV panels too. (Ruth)
The moral of the story: in order to create value for your clients, you need to know them, and increase your insights into their (evolving!) needs, challenges and interests. In other words, you need a relationship that goes beyond the transaction phase.
Relational entrepreneurs offer solutions that grow out of an ever deeper understanding of their customers.
Going behind bureaucratic lines
We found an entrepreneur from Eindhoven who pitched to hospitals, schools, that type of organisation: 'I can make sure that you meet the mandatory sustainability requirements by replacing your installation with a sustainable one, I will then place that installation on my balance sheet, and I will make sure that the costs for it are lower than your current energy bill'. You would think that would be a no-brainer, wouldn't you? Yet he ran into all sorts of obstacles.
So, if he worked it out with the director of an organisation, then the accountant would say: 'Sounds nice, but if you put that installation on your balance sheet, I can't include it in my books, so no!' Or the bank would say: 'That's all very well, but I can't finance this'. But then he was able to switch gears with all those different parties, to speak their language. He would sit down with the accountant and go, 'OK, let's see how it could make this work', or train the people at the bank about what the installation entailed exactly, and thus also getting the bank on his side and willing to finance it. (Renske)
Last week, I noted that established markets don't accommodate for new ways of 'doing energy'. This case study shows that it’s not just innovative technologies that don’t ‘fit’, but, also and perhaps even more so, new business models. The energy and heat devices the Dutch company installed were still fairly new, yes, but at this point, basically off-the-shelf from suppliers – the company’s real innovation was in its financing strategies.
Institutional entrepreneurs cooperate with regulators to find ways to change markets unfavourable to sustainable energy solutions.
Energy as a service
In other words, the Dutch entrepreneur ran into difficulties because he was proposing a service solution. He wasn't in the business of selling heat pumps, nor even in the business of installing them. With his novel financing construction (and the maintenance that came with it), he was selling a service. And he found out that markets and their terms of engagement are often geared towards making and selling products.
Despite the headwinds such business models might face (for now), services are a good way of maintaining a relationship with your customer. It's built in, so to say. Or, perhaps better put: it's easy to build it in. There are plenty examples of "software as a service" companies that are still just peddling products (the infamous - but very lucrative - "recurring revenue bundle" or "rundle", as coined by Scott Galloway). It's not difficult to imagine certain utilities or, well, “Energy Services Companies” going down that path.
But for an energy company seeking to do good, services makes sense too: they are a way to build a relationship to a customer for whom that you want to create value, and with whom, in fact, you co-create multiple values. This should be the true meaning of a service-based business model: developing a mutually beneficial relationship with your client.
Fit to Serve
For entrepreneurs seeking to grow with their clients, Renske and Ruth had a website put together that condenses their research into various tools: there's questionnaire to assess how service-oriented you are, an overview of the 4 key skills you need in service, templates for service-oriented business models, as well as a database of the businesses that Ruth and Renske talked to (including the ones discussed here).
Government at your service?
But it's not just about entrepreneurs - let's not fall into that (neoliberal) trap. Some of the institutional work that these transition-oriented entrepreneurs are doing is born out of pure necessity. In fact, Ruth stresses, they shouldn't have to do this at all. Institutional entrepreneurs are good at signalling the problems, formulating the story about why there is a problem and what future we could move to instead. But then public bodies need to step up.
While some action that government can take is pretty run-of-the-mill (facilitating capacity training in the 4 key skills for example), a transition-minded entrepreneurial state can reduce the uncertainty of trying out things the world currently isn't built for:
Create environments in which companies can learn, also by failing. This could mean reforming most project-based funding that is all about reaching those precious KPIs. As long as organizations can learn from their mistakes and share their lessons, not reaching their KPIs is just as valuable.
Create financing instruments for services: “You’re lucky if you can get subsidies for two independent home improvements, like PV or a heat pump. Meanwhile, you can’t get a subsidy to make your home more sustainable. That actually doesn’t make any sense!” (Ruth)
Lead the way: while we can't know the end point of a transition, we can define our values. Governments can have these values guide our path by orchestrating collaborations through which stakeholders figure out what we mean, in theory and in practice by sustainable energy.
There’s much more to learn, so if you’re curious, check out the website Fit to Serve. The podcast is also transcribed, so if you run that through a translator you can still enjoy the interview somewhat. Otherwise, don’t hesitate to get into contact with Ruth (contact info, LinkedIn) or Renske (contact info, LinkedIn).
Hope you enjoyed this and till next time,
Marten