An entrepreneur who has successfully completed techno-commercial validation believes that they are ready to conquer the Market. Unfortunately, they are only halfway there.
As we discussed in our previous post, Demonstration goes significantly deeper than Piloting; its inputs inform an innovator's product roadmap, manufacturing-at-scale plans, maintenance infrastructure, and customer training processes. By completing Demonstration, an innovator has developed a technology, designed and tested a prototype, piloted to assess customer acceptance, and demonstrated the technical performance of the product to increase potential customer confidence. This often leads to a strong prospects list and a robust customer pipeline.
This is necessary, but not sufficient to capture the Market.
What comes next is crucial to truly unlocking the Market and accelerating growth.
Market adoption requires more than having the best product. In fact, there are many reasons why the “best product” may not ever see commercial scale.
Climate technologies will impact every facet of the Market over time, and as such, operate across a broader spectrum of circumstances than many other innovations. The choice of business model can mean the difference between success and failure.
The business model is both how a company will make money and how it delivers value. It includes a number of factors that are often overlooked by innovators selling new technologies, but not by customers when buying.
When it comes to developing a business model for scale, many climate and environment innovators approach the Market with business models that are common to other fields but not ideal for their product or customer. In some cases, this is done because it is easy or the entrepreneur doesn't understand the decision-making levers of a customer; in other cases, it is done because financing capital is not available; or the product and customer require a new business model that has not yet been adopted in India.
While Demonstration validates if and how innovation will function in long-term, real-world conditions, Commercialisation ensures that the innovation delivers a value proposition that is viable for both the customer and the business.
At its core, Commercialisation encompasses:
In many cases, an entrepreneur will have to prioritize certain customer segments to match pricing requirements, ability to pay, and scale of demand. Sometimes the best beachhead customer may not be the ideal long-term customer, and sometimes the ideal customer for a fully commercialised product may require minimal order sizes that are too large or pricing that is too low for an early-stage enterprise.
Another important aspect to factor in is market/ customer integration timelines. In some cases (particularly those products that can have a direct impact on health and human safety), the ideal long-term customer may have a 4-5 year testing and integration timeline, vs a less ideal customer whose timeline to adoption is under a year. Customer segmentation will require a careful matching of production capabilities with market demand/ adoption and price elasticity.
Pricing can be a real balancing act in the early days when a startup doesn’t have economies of scale. The best early customer may be one with lower demand and a higher ability to pay, as opposed to the most recognized brands. Conversely, there are occasions when large brands will have both the willingness and ability to pay, as well as higher motivation due to market reporting. In other instances, the product will compete with commodities, so the challenge for the entrepreneur will be to determine how to compete without economies of scale or established distribution networks. For physical products where market adoption is limited by the ability of the firm to produce goods, it is essential that unit economics be maintained.
Multiple strategies exist to monetise innovation and the right strategy is governed by customer needs as much as by team capabilities. Often the simplest model -- just selling the product -- may not be viable for products that would constitute a capex expenditure for customers. Opex models (including ESCO, “X” as a service, and “Pay-as” models), customer financing, and technology licensing are great for customer adoption, but add layers of complexity for entrepreneurs who now bear additional risk and need to secure capital to support the model.
For some businesses, potential revenue from credits (carbon, plastics, etc.) could play a meaningful role in monetisation and offer the ability to compete with incumbents who have lower production costs and established distribution networks; other businesses may be excluded from credit markets due to size, ownership of benefit or not meeting the standards of additionality.
An entrepreneur will have to choose the best way to monetise and build infrastructure appropriately – including but not limited to IP protection, distribution, and financing.
Distribution & Sales Strategy:
The choice of distribution strategy – whether it is direct sales through partners, distributors, or franchisees – will depend on customer purchasing processes, the nature of the product (eg. commodity vs concept sale) as well as team capabilities. This strategy will have important implications on team development, business margins, IP protection, and branding.
An additional area that often gets overlooked is the mechanism through which a business scales. First, the business must align its sales contracting with its ability to add capacity. In addition, stress-testing the scalability of the supply chain for key input materials, locking in quantum and pricing, and building sufficient risk mitigation against volatility are necessary to ensure long-term viability.
Customer Knowledge and Access to Financing:
This includes understanding customer financing and cash flows (their ability to pay, raise and absorb debt) to develop payment mechanisms that integrate with these customer purchasing powers, and onboarding all of the relevant financing and insurance partners to accelerate customer adoption.
Commercialisation is the part of the journey that often comes least instinctively to climate innovators and IP-led teams. It requires a very different set of skills from designing, developing, prototyping and even manufacturing a green technology product.
Despite its criticality to unlock Markets, very little structured commercialisation support exists. It is either subsumed under standard business advisory/ mentoring or assumed to develop automatically as technology goes to Market.
At Green Artha, our contention is clear: it is the complementary combination of Demonstration and Commercialisation that will get climate innovations to Market at speed and scale.