Products in search of a market

West Coast Green, in its fourth year at Fort Mason Center in San Francisco, is a trade event for the green building community -- well attended, with generally interesting speakers, and a lot of nice looking green products on display. True to its eco-friendly audience, the event tries to stay humble in its trappings, with none of the posh catering, marketing hype, and general air of self-importance of VC-oriented events (see my post on last week’s AlwaysOn Going Green).

The main focus here is the giant trade show floor spread over two warehouse buildings and featuring a bewildering array of products for the built environment, everything from hay bale insulation and reclaimed wood flooring to water saving high tech toilets and high efficiency solar water heater designs. Unfortunately, as a venture capital investor, what I see overall is a sector that is made up of a lot of niches and is not yet poised for massively scalable innovation.

When the channel is the customer

The problem in green building is the channel. As one green architect I know puts it, building construction is the last great medieval trade guild industry. It is the most fragmented, wasteful, and innovation-averse enterprise imaginable. There are different groups of skilled specialty contractors responsible for the individual subsystems on a building: foundations, dry wall, glazing, roofing, lighting, electrical, etc. Each “trade” shows up on a job site on its own schedule, interacting with the others only as minimally necessary, and under the supervision of a General Contractor (GC), who bears primary responsibility for delivering the project on time and on budget. Worse yet from a product vendor’s standpoint, each trade has its own entrenched distribution channel – existing networks of manufacturer’s reps, distributors, catalog supply houses, and discounters. And every layer in the channel has to get paid, meaning there are another 3 to 6 mouths to feed between the product OEM and the building owner.

One classic example of where the channel inhibits innovation -- while the client may want to go green and may even hire a LEED architect to inject green ideas into the building plan, it is ultimately the GC who will make the tough choices in the field about where to cut corners when work falls behind schedule or goes over budget. Not surprisingly, for all but the elite of LEED Silver/Gold/Platinum projects, it is normally the green design “bells and whistles” that get crossed off the blue prints as soon as the change orders start flowing.

Surely, though, with all the great products on display at West Coast Green and all the LEED construction going on these days in places like California, somebody must be buying all this stuff? Well… yes and no.

There aren’t a lot of building owners walking around a trade show floor. It is the channel itself – and really only the top level of green architects, designers, and high end contractors who are turning out for an event like West Coast Green. So, yes, many of them will get excited and walk away with new ideas and business cards. And, some new products may get specified into a few high visibility projects as a result. But at this point, the battle for mass adoption, market share, and margin is just beginning to be engaged – remember that whole complex channel of building trades and their networks of suppliers that still dominate the production side of the industry. In other words, we are still a long way from the economies of scale and mass adoption that venture capitalists look for – and frequently find in other, more technology-centric fields such as semiconductor, software, consumer internet, and mobile. It is the potential for rapid scalability that allows VCs to generate exorbitant investment returns from wildly successful innovations that disrupt and dominate high growth markets… in short, not a set of attributes we are likely to see in green building any time soon.

We cover it all, from septic as a service to solar in a box

I would be remiss if I did not highlight a couple of cool products I liked at the event:

- Urimat (www.urimat.com), a Swiss plumbing supply company has a line of water free, flushless toilets that use a microbial trap (instead of chemicals) to filter the waste stream. What’s interesting here is the business model innovation – apparently, there’s an art to how often you change the traps for a given location and user profile, so the company plans to give the toilet away cheap and charge for maintenance. The customer allegedly still saves on an operating cost basis versus conventional toilets, because there is zero water usage. It gets better: one design comes with a small LED TV screen built into the top of the urinal – talk about a captive audience! As the entrepreneur, Timo Spoerl explained to me, he may actually be able to give the toilets away for free if he can find the right media player to pay for advertising space.

- On the solar side, I like what the folks at Armaggedon Energy are doing (www.armaggedonenergy.com). They have a light weight, collapsible, framing structure for DIY rooftop PV installs. The basic building blocks are hexagonal modules of standard silicon PV, using a ruggedized clear plastic coating instead of glass, with an integrated micro-inverter and roof mounting structure built into the frame. The idea is that, since the modules pack flat and can be owner installed on almost any roof, Armageddon should be able to cut out the installer channel altogether and sell direct via a big box home improvement retailer, and even drop ship the system as a kit.

Matt Lecar is a veteran energy industry expert with 18 years in utilities, international business development, cleantech venture capital, and consulting. Most recently, he served as Fund Manager for the CalCEF Angel Fund, a first-in-kind seed stage fund focused exclusively on clean energy markets. This article is part of a series called “View from the Poletop” – broad perspectives on the current state of markets in renewable energy, energy efficiency, and smart grid markets.

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