Entrepreneurs are self-selected to be steadfastly optimistic organisms. They need to be; startups have the odds stacked up high against them, and the height of the stack is proportional to the size of the problem they’re solving.
When you’re solving a massive problem like inefficient home energy consumption, however, it’s easy to get a bit frustrated. Why? Because, despite the $200B+ spent annually in residences on electricity and natural gas, most homeowners don’t seem to care that a good portion of it is wasted.
Here are a few reasons why:
- Small share of wallet. The cost to power a home is relatively small for the average homeowner. As of Q2-2010, the Bureau of Economic Analysis counted $33,170 of annualized personal consumption expenditures (PCE) per capita. Of this, 5.3% was energy-related, split about 60:40 between motor fluids and electricity/natural gas. At 2.2% of PCE, home energy spend is about 200% of gambling, but 33% of food/non-alcoholic beverages. Energy isn’t your last priority, but it’s nowhere near your first.
- Not top of mind. Greg Guthridge of Accenture (who does studies on these topics) is often quoted claiming “the average customer thinks about their [sic] utility bill 6 minutes per year.” That seems about right. The only time I think about my energy consumption is when I pay my bill, and that takes about 30 seconds each month. Before utilities struggle to reduce customers’ energy consumption, they must first bring their customers’ distracted minds to the topic. That requires marketing — something utilities have never before needed and, consequently, aren’t good at.
- Importance of comfort and control. You don’t run your home like a business. You run it like a home. While one major job of a facilities manager at a steel mill is to monitor energy consumption, the point of having a home is to enjoy living there. Control over that home is also important; but, for the right compensation, homeowners will consider making lucrative tradeoffs, as shown by Accenture here. Specifically, when customers retain the ability to opt-out of a particular energy efficiency measure, an incremental 1% increase in promised energy savings convinces an additional ~1.8% of customers to sign up. Without the ability to opt-out, that impact is only ~0.8% of customers. Thus, customers are more than twice as likely to engage energy efficiency if they remain in control. I’ve extracted the relevant graph and put it here:
- So, that’s the bad news.
- The good news is that startups like
- are working on solutions to these problems. Each is targeting an innocuous entry point to the home: for OPOWER, it’s the utility bill; for Recurve, it’s the energy audit. Each will use an activity homeowners are used to in order to establish a foothold, from which they will sell additional products and services around home energy efficiency. This “Trojan Horse” strategy is one of my favorite cleantech business models and will be the subject of a future
Now for the interactive part. What do you think is the best way to engage homeowners on energy spend? And, who’s doing it best today? With $200B+ of home energy spend to play with, you’ll get paid well if you figure it out! Feel free to comment below.