These days many universities have programs to nurture entrepreneurship and offer outlets for students to try out their ideas. For the past three years I’ve been a judge in the Duke Start-Up Challenge where each year over 100 submissions from students compete for a $50,000 prize. But not enough of the Lean Startup culture has permeated these programs and they are unintentionally leading students down the traditional path of the 5-year business plan.
I, myself, competed in the first edition of the Duke contest in 1999, as a sophomore, with MyNetPhotos, a Flickr-like photo storage and sharing service. I made it in the final, but didn’t win because I couldn’t convince the judges that anyone would pay for online services (!). Since then, I founded two companies and learned a thing or two, including the fallibility of judging and that founders should trust more their website stats than the verdict of judges/investors. Back then I had to shut down MyNetPhotos not because it didn’t have users but because I couldn’t afford to buy enough storage space on my student funds. Today we know better: growing traffic can eventually be monetized.
I love the initiative, energy, and creativity that comes through in the business proposals submitted by students and I’d love to see these ideas move forward past the proposal stage. But most of them won’t because they are theoretical exercises and speculation rather than practical products and services for proven needs. Students, I hope this bit of advice can hone your thinking to increase the chance that your product idea is realizable and thus fundable.
1) As you expand an idea into a business proposal think first: does it provide value to you, your friends, your classmates, and your school ? The rest of the world will follow if you’re really onto something (think Facebook). If your pitch intro has phrases like “the industry is doing [blah]” or “the world/society is ripe for [blah]” please stop right now and throw it away. Why? Because there’s a high probability that you don’t understand the complexities of existing industries and so your idea is theoretical speculation. And not because you lack smarts, but because existing industries are full of many gory, arcane and sometimes completely senseless details behind the scenes and it simply takes some years to learn them.
For instance, you probably don’t know that the interest rate for mortgages is NOT the strict result of supply and demand like you learn in Econ 101 because it’s subsidized in the form of government guarantees by Fannie Mae. Or you probably don’t know that one of the most difficult parts of making an independent movie is licensing the music which, together with codec licensing, is also the biggest obstacles to making a digital music store and player. Heck, even many accomplished professionals don’t know what actually happens when you swipe a credit card and the intricate details of the electronic payment and settlement systems.
I don’t want to discourage you from thinking big. Please, think BIG but also root your thinking in tangible needs that you can confirm with your immediate social circle who can also validate your product/service prototype. The moment you say “industry” you’re talking about an abstract concept which is difficult to analyze or predict. School courses actually give you a false sense of understanding at the macro level because they only teach theoretical models. In school I learned that financial markets are founded in rational equity analysis. It turns out that’s only half the story. Many more decisions are emotional and speculative. And many markets are far from being transparent and with negligible transaction costs (try trading asset-backed securities).
2) The business plan comes LAST! It’s now over 5 years since Steve Blank wrote “The Four Steps to The Epiphany” (the first prescriptive guide to building a startup) and I’m still seeing the majority of funding proposals in the form of business plans. It’s an exercise in futility, there’s no excuse for it, and you’re doing yourself a disfavor. To be fair, entrepreneurship programs are partly to blame because they still ask you to submit something called “business plan”. Being diligent in your research, you search on the Internet and come up with those abominable templates that are taught to MBA students. Unfortunately, no one tells you that a business plan is meant for introducing products with incremental improvements in existing markets by existing companies. And you are none of those things!
Instead of a business plan, submit a prototype (aka Minimum Viable Product) and a 10-slide presentation in which you show that your idea is a problem experienced by some people today and that at least one is willing to give you money for your product based on your prototype. Follow this template and suggestions from How To Pitch a VC. In order to get to this point you have to reduce your idea to a solution that’s demonstrable without raising investor money. If you need investor money to demonstrate your idea prototype, it’s not reduced to its core enough and you need to keep chopping to get to the essence.
3) Use your business to save the world after you actually have a business. First, I’d like to say, bless your heart that you see the good in business and that you think industries are focused on making the world a better place! You have another decade to become cynical :). Meanwhile, don’t throw away the enthusiasm, just remember that whatever business you think is worth pursuing must be self-sustainable: you need to get paid at least as much as you spend.
So when you want to save the world by switching from fossil-burning fuels to renewable energy (submissions that come through every year) you can’t avoid the part that someone has to pay for the solar panels and that today’s PV cells (which is the time horizon for your business proposal) can’t output enough energy for the average household at 45 degree latitude.
As you dream of world peace ask yourself why your idea isn’t already implemented. Why doesn’t everyone already have solar panels? Many times as entrepreneurs we get excited about a new idea, think we found the gem that’s going to make us rich or famous, and forget to be humble. Newsflash: you are not the first to think of almost anything (shocking, I know!). Only when you settle in this humble reality you will allow yourself to truly start understanding the real world and research a viable business model. Go ahead, knock on someone’s door, try to sell them a solar panel installation, and see what you learn. You may get confirmation that you found a true arbitrage opportunity, but most likely you’ll learn the real world is different than your beautifully crafted assumptions.
Here’s the answer to the solar panel dilemma: we can certainly produce them in abundance but most of us don’t want to buy them because at the individual level they are too expensive of an investment for the short-term return. Personal solar energy is primarily a financing problem and secondarily a technology problem. Now, I’m not smart enough to have thought of this on my own. I know this because I looked at who is successful with solar energy (SolarCity) and read their business model. You should do the same. It’s public knowledge how public companies make money.
On a related note, don’t forget businesses serve people and people are well… human! So when you want help people live healthier lives don’t focus just on tools. Another iPhone app won’t make us healthier. The reason we don’t live healthy lives are mostly rooted into our hopes, fears, depressions, and (lack of) education. Seek out Jason Langheier who’s been working hard for over 10 years to create products that help people live healthier.
Please don’t misunderstand: I’m not encouraging you to be a profit monger or dissuading you from pursuing an enterprise with social benefits. If I’d believe money is all that matters I’d be working in investment banking rather than being a founder. But to have any kind of impact, social or otherwise, you have to build something sustainable. Just look at the Burning Man ticket pricing policy, which is just as refined and perfected as the Starbucks’ pricing strategy (usually taught in MBAs) despite their wildly different mission statements.
Good luck! Hope this helps.
This is an excerpt from the Business section of the SCTY 2013 10-K SEC filing available at http://investors.solarcity.com/sec.cfm
We have developed an integrated approach that allows our customers to lower their energy costs in a simple and efficient manner. We have disrupted the industry status quo by providing renewable energy directly to customers for less than they are currently paying for utility-generated energy. Unlike utilities, we sell energy with a predictable cost structure that does not rely on limited fossil fuels and is insulated from rising retail electricity prices. We also guarantee the electricity production of our solar energy systems to our customers. Our strategy is to focus on that portion of the solar energy value chain with the most potential: the energy consumer and the customer relationship. We believe we are the only distributed energy company that offers integrated sales, financing, engineering, installation, monitoring, maintenance and efficiency services without involving the services of multiple third-party participants.
The key elements of our integrated approach are illustrated below:
Sales . We market and sell our products and services through a national sales organization that includes a direct outside sales force, a call center, a channel partner network and a robust customer referral program. We have structured our sales organization to efficiently engage prospective customers, from initial interest through customized proposals and, ultimately, signed contracts.
Financing . Financing makes it possible to install our solar energy systems for little or no upfront cost. Through a streamlined process, we provide multiple pricing options to our customers to help make renewable, distributed energy accessible and affordable, either on a fixed monthly fee basis or a fee based on the amount of energy produced.
Engineering . Our in-house engineering team custom designs a solar energy system for each of our customers. We have developed software that simplifies and expedites the design process and optimizes the design to maximize the energy production of each system. Our engineers complete a structural analysis of each building and produce a full set of structural design and electrical blueprints that contain the specifications for all system components.
Installation . Once we complete the design, we obtain all necessary building permits. Our customer care representatives coordinate the SolarCity team and keep our customers apprised of the project status every step of the way. We are a licensed contractor in every community we service, and we are responsible for every customer installation. For substantially all of our residential projects, we are the general contractor, construction manager and installer. For our commercial projects, we are the general contractor and construction manager. Once we complete installing the system, we schedule inspections with the local building department and arrange for interconnection to the power grid with the utility. By handling these logistics, we make the installation process simple for our customers.
Monitoring and Maintenance . Our proprietary monitoring software provides our customers with a real-time view of their energy generation and consumption. Through an easy-to-read graphical display available on smartphones and any device with a web browser, our monitoring systems collect, monitor and display critical performance data from our solar energy systems, including production levels, local weather, electricity usage and environmental impacts. These monitoring systems allow us to confirm the continuing proper operation of our solar energy systems, identify maintenance issues and provide our customers with a better understanding of their energy usage, allowing them the opportunity to modify their usage accordingly.
Complementary Products and Services . Through our comprehensive energy efficiency evaluations, we analyze our customers’ energy usage and identify opportunities for energy efficiency improvements. Using our proprietary software, our home energy evaluation consists of a detailed in-home diagnosis that identifies energy use and loss. After the evaluation is completed, we review the results with the customer and recommend current and future opportunities to improve energy efficiency and home comfort. We then offer to perform these upgrades.
Our Innovative Products, Services and Technology
We deliver Better Energy to our customers through a portfolio of complementary products and services that enable more cost effective generation and reduced energy consumption. We have developed enabling technologies that allow us to simplify our customers’ experience and enhance our ability to deliver our products and services.
Solar Energy Product
- Solar Energy Systems . The major components of our solar energy systems include solar panels that convert sunlight into electrical current, inverters that convert the electrical output from the panels to a usable current compatible with the electric grid, racking that attaches the solar panels to the roof or ground and electrical hardware that connects the solar energy system to the electric grid and our monitoring device. We purchase our components from vendors, maintaining multiple sources for each major component to ensure competitive pricing and an adequate supply of materials. Though we typically install poly-crystalline silicon panels and string inverters, we have installed a wide variety of other technologies, including thin film panels and panel-level power optimizers.
- SolarLease and Power Purchase Agreement Finance Products . Most of our solar energy customers choose to purchase energy from us pursuant to one of two payment structures: a SolarLease or a power purchase agreement. In both structures, we charge customers a monthly fee for the power produced by our solar energy systems. In the lease structure, this monthly payment is pre-determined and includes a production guarantee. In the power purchase agreement structure, we charge customers a fee per kilowatt hour, or kWh, based on the amount of electricity actually produced by the solar energy system. Under both the SolarLease and power purchase agreement, our customers also have the option to pay little or no upfront costs or to reduce the aggregate amount of their future payments by pre-paying a portion of their future payments. Over the term of the agreement, we own and operate the system and guarantee its performance. Our current standard SolarLeases and power purchase agreements have 20-year terms. Prior to 2010, our standard lease term was 15 years. In a limited number of utility districts, we continue to offer lease terms of less than 20 years to comply with applicable incentive programs. In addition, a limited number of our commercial customers have entered into power purchase agreements with terms of between 10 and 20 years.
Energy Efficiency Products and Services
Our energy efficiency products and services enable our customers to save money on their energy bills by reducing their energy consumption. To date, we have completed over 16,000 home energy evaluations and performed more than 2,500 energy efficiency upgrades.
- Home Energy Evaluation . Our home energy evaluation is the threshold to the broad set of energy efficiency products and services we offer. We sell home energy efficiency evaluations to new solar energy system customers, existing customers, prospective solar energy system customers who are unable to adopt solar energy because of site conditions or credit, and to customers who want to start with energy efficiency improvements. Using our proprietary software, our home energy evaluation consists of a detailed in-home diagnosis that identifies energy use and loss. During the evaluation, we record details of the home’s construction and energy use, measurements of every major building surface, model numbers of appliances and other energy consuming equipment, and measure combustion efficiency and air leakage in the ducts and building envelope. We create a database of this information and review a report of the results with the customer outlining current and future opportunities to improve energy efficiency and home comfort. We then offer to perform these upgrades.
- Energy Efficiency Upgrades . Based on the detailed analysis from the home energy evaluation, we work with customers to identify their priorities to improve the cost effectiveness, efficiency, health and comfort of their home by implementing appropriate upgrades. We generally handle every aspect of an energy efficiency improvement project for our customers including sales, engineering, permitting, procurement, installation, inspections and any supporting rebate or utility documentation. Our core energy efficiency upgrade products and services address heating and cooling, air sealing, duct sealing, water heating, insulation, high efficiency furnaces, weatherization, pool pumps and lighting.
Other Energy Products and Services
- Electric Vehicle Charging . We believe there is a strong overlap between customer demand for electric vehicles, or EVs, and solar energy. As consumers switch to EVs, their electricity bills increase substantially, driving demand for lower cost electricity. We install EV charging equipment that we source from third parties. We market EV equipment to residential and commercial customers through retail partnerships with companies such as The Home Depot, and through EV manufacturers and dealerships, such as our preferred partnership with Tesla Motors, Inc. To date, we have sold over 1,950 charging stations.
- Energy Storage . We are developing a proprietary battery management system built on our solar energy monitoring communications backbone. The battery management system is designed to enable remote, fully bidirectional control of distributed energy storage that can potentially provide significant benefits to our customers, utilities and grid operators. The benefits of energy storage coupled with a solar energy system to our customers may include back-up power, time-of-use energy arbitrage, rate arbitrage, peak demand shaving and demand response. We believe that advances in battery storage technology, steep reductions in pricing and burgeoning policy changes that support energy storage hold significant promise for enabling deployments of grid-connected energy storage systems. We currently have over 395 energy storage pilot projects under contract.
- SolarBid Sales Management Platform . SolarBid is our proprietary sales management platform that incorporates a database of rate information by utility, sun exposure, roof orientation and a variety of other factors to enable a detailed analysis and customized graphical presentation of each customer’s savings. SolarBid simplifies the sales process and automates pricing, system configuration and proposal generation. It also automatically prepares the customer agreements, incentive forms and utility paperwork required to complete a project. SolarBid is designed for maximum flexibility, allowing us to quickly add new products, services and geographies.
- SolarWorks Customer Management Software . SolarWorks is the proprietary software platform we use to track and manage every project. SolarWorks’ embedded database and custom architecture enables reduced costs, improved quality and improved customer experience by supporting scheduling, budgeting and other project management functions as well as customer communications, inventory management and detailed project data.
- Energy Designer . Energy Designer is a proprietary software application our field engineering auditors use to rapidly collect all pertinent site-specific design details on a tablet computer. This information then syncs with our design automation software, reducing design time and accelerating the permitting process.
- Home Performance Pro . Home Performance Pro is our proprietary energy efficiency evaluation platform that incorporates the U.S. Department of Energy’s Energy Plus simulation engine. Home Performance Pro collects and stores details of a building’s construction and energy use and accurately simulates the reduction in energy use from energy efficiency upgrades. We use Home Performance Pro to identify opportunities to improve our customers’ energy efficiency.
- SolarGuard and PowerGuide Proactive Monitoring Solutions . SolarGuard and PowerGuide provide our customers a real-time view of their home’s or business’s energy generation and consumption. Through easy-to-read graphical displays available on smartphones and any device with a web browser, our monitoring systems collect, monitor and display critical performance data from our solar energy systems, including production levels, local weather, electricity usage and environmental impacts such as carbon offset and pollution reduction. Our customer service team reviews system performance data using this proprietary monitoring software to confirm continuing efficient operation.
Why Customers Choose SolarCity
The following examples illustrate the experiences of residential, commercial and government customers and the reasons they select us to provide solar energy systems and related energy products and services.
- California Family . A California family contacted us to perform an evaluation of their home’s energy usage and costs. We recommended a combination of a solar energy system and energy efficiency products and services to reduce energy costs and consumption and to create a more comfortable home. The family decided to sign a 20-year lease with us for a solar energy system that saves them an average of more than $50 each month. Our energy efficiency evaluators also assessed that the home was losing 60% of its heating through leaks in ductwork and was using an inefficient air cooling system. We replaced the ductwork to reduce leakage and heating costs in the winter and installed a more efficient cooling system to reduce energy costs and increase comfort in the summer. The family now enjoys a more comfortable home and can expect to save thousands of dollars in future energy costs.
- Maryland Homeowner . A Maryland homeowner sought a solar energy solution to reduce high summertime electricity bills and ultimately decided to lease a solar energy system from us. Over the 20-year term of the contract, he will pay us $29,746 and is projected to create a net savings of $8,305 compared to his projected utility bills. The solar energy system is expected to offset 240,024 pounds of greenhouse gas emissions over the contract term, the equivalent of planting approximately 130 trees. The solar energy system components, including panels, inverters and labor, cost approximately $18,276.
- Walmart Stores, Inc . Walmart, the world’s largest retail business, is pursuing an array of sustainability goals, including a long-term goal to be supplied by 100% renewable energy. Walmart’s goal is to purchase renewable solar energy at prices equal to or less than utility energy rates while also providing price certainty for a percentage of these stores’ electricity requirements against the volatility of fossil-based energy prices. Walmart has contracted with us to purchase solar-generated electricity from 180 systems throughout Arizona, California, Colorado, Maryland, New York, Ohio and Oregon, and thus far 147 systems have been installed and interconnected at 141 sites across these seven states. We started our first Walmart project in July 2010, and completed 57 projects by the end of 2011. Our solar energy systems typically offset between 10% and 30% of each Walmart location’s total electricity usage.
- Granite Regional Park . Granite Regional Park is a private-public partnership between Regional Park Limited Partnership and the City of Sacramento. Regional Park developed the Granite Regional Park with the goal of advancing the City of Sacramento’s sustainability goals and providing additional public greenspace. The park is located on an old mining site and includes office buildings and recreation area. Regional Park will pay $2.6 million over 20 years for the solar electricity generated by the 901 kilowatt, or kW, solar energy system and is projected to create a net savings of $0.4 million compared to the park’s projected utility bills over this period. The installation is expected to offset more than 27 million pounds of greenhouse gas emissions over the contract period, the equivalent of taking approximately 2,500 cars off the road for a year, or planting approximately 15,000 trees.
- Soaring Heights Communities, Davis-Monthan Air Force Base . In mid-2009, we entered into a transaction with Soaring Heights Communities LLC, an affiliate of Lend Lease (US) Public Partnerships LLC, a leading developer of privatized military housing, to build what we believe to be the largest solar-powered community in the United States: Soaring Heights Communities at Davis-Monthan Air Force Base in Tucson, Arizona. The project includes approximately 6 MW of generation capacity, including approximately 3.28 MW of ground-mounted solar panel arrays and an additional 2.76 MW of roof-mounted systems, spread among 400 residential buildings. When construction began, the project was estimated to represent an increase of more than 15% over the state of Arizona’s grid-tied solar capacity. The solar electricity generated by the systems offsets the majority of the electricity used by the housing community’s over 900 single and multi-family residences.
- Chico Unified School District . Chico Unified School District decided to explore solar power as a way to help meet the school district’s electricity needs, reduce its dependency on polluting power sources and reduce energy expenses. After a careful selection process, we were awarded the contract to build 1.6 MW of solar energy systems across five district sites. As a power purchase agreement customer, the school district avoided the upfront cost of installing solar and simply buys the power produced from our systems at a set rate. The school district’s solar electricity production is expected to offset 85% of the five sites’ collective, total electricity needs. The school district will pay $10.9 million for the solar electricity over a 20-year period, and the solar power is projected to create a net savings of $2.4 million compared to the school district’s projected utility bills over this period. The school district’s solar installations are expected to offset more than 57 million pounds of greenhouse gas emissions over the contract term, the equivalent of taking approximately 5,000 cars off the road for a year, or planting approximately 30,000 trees.
Sales and Marketing
We market and sell our products and services through a national sales organization that includes a direct outside sales force, a call center, a channel partner network and a robust customer referral program.
Direct outside sales force . Our outside sales force typically resides and works within a market we serve. Our outside sales force allows us to sell to those customers who prefer a face-to-face interaction.
Call center . Our call center allows us to sell our energy products and services to customers without visiting their homes or businesses. Because every home or site is unique, we begin by talking with each prospective customer about their energy needs and savings goals. Then, using online satellite technology, our salesperson evaluates the suitability of the site for our products and services. If either a solar energy system or an energy efficiency evaluation is an appropriate solution, our salesperson briefs the customer on our full scope of products and services, collects preliminary utility usage data and site information, and ultimately, provides a preliminary estimate of costs, including rebate applicability. If the customer desires to work with us, contracts can then be executed with e-signatures.
Channel Partner Network
- SolarCity Network . The SolarCity Network is a by-invitation business development program that pays referral fees to local professionals and businesses that refer customers to us. Typical network members include realtors, architects, contractors and insurance/financial services providers.
- The Home Depot . Our products and services are available through The Home Depot stores located in Arizona, California, Colorado, Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Oregon and the District of Columbia. We are the exclusive solar provider in the stores we serve. We sell through point-of-purchase displays in the stores, through a team of field energy advisors that canvass the stores and speak to prospective customers, and through other direct marketing strategies including in-store flyers, seminars, promotions, search engine marketing campaigns, email campaigns, retail signage and displays, and a co-branded website.
- Homebuilder partners . Our products and services are available through several new home builders, including Shea Homes. These partners market solar energy systems through a variety of strategies, including advertising within their model homes, signage within their communities, realtor emails, newspaper inserts, online banners and co-branded flyers. Certain of these partners pre-pay for the electricity that will be produced by the solar energy system installed on the new home they sell, using the benefit of free solar energy as a selling point.
- Other channel partners . Our products and services also are available through Paramount Energy Solutions, LLC, dba Paramount Solar. Paramount Solar engages residential photovoltaic solar system customers through its own sales and marketing strategies.
Customer Referral Program . We believe that customer referrals are the most effective way to market our products and services. Approximately 23% of our new residential projects in 2012 originated from existing customer referrals. We offer cash awards to incentivize our current customers to refer their friends, family and colleagues to install solar energy systems or enroll in an energy efficiency evaluation performed. We also encourage our customers to host solar energy parties with their friends, family and colleagues, where one of our in-house solar consultants make an informal presentation.
We also market our products and services through a variety of direct marketing strategies designed to reach qualified homeowners and businesses, including radio ads and public radio sponsorships, newspaper and magazine ads, online banner ads, search engine marketing, direct mail, participation in trade shows, events and home shows, email marketing, public relations, social media, sweepstakes and promotions, newsletters, community programs and field marketing techniques such as door-to-door canvassing. Our in-house marketing team manages and coordinates our media buying and customizes our content for each region.
Operations and Suppliers
We purchase major components such as solar panels and inverters directly from multiple manufacturers. We screen these suppliers and components based on expected cost, reliability, warranty coverage, ease of installation and other ancillary costs. As of December 31, 2012, our primary solar panel suppliers were BenQ Corporation, Suniva Inc., Trina Solar Limited and Yingli Green Energy Holding Company Limited, among others, and our primary inverter suppliers were Power-One, Inc., SMA Solar Technology, AG, Schneider Electric SA, Fronius International GmbH and SolarEdge Technologies, among others. We typically enter into master contractual arrangements with our major suppliers that define the general terms and conditions of our purchases, including warranties, product specifications, indemnities, delivery and other customary terms. We typically purchase solar panels and inverters on an as-needed basis from our suppliers at then-prevailing prices pursuant to purchase orders issued under our master contractual arrangements. We generally do not have any supplier arrangements that contain long-term pricing or volume commitments, although at times in the past we have made limited purchase commitments to ensure sufficient supply of components.
The U.S. government has imposed tariffs on solar cells manufactured in China. Based on determinations by the U.S. government, the applicable anti-dumping tariff rates range from approximately 8%-239%. To the extent that U.S. market participants experience harm from Chinese pricing practices, an additional tariff of approximately 15%-16% will be applied. Because we currently purchase solar panels containing cells manufactured outside of China, we currently are not adversely impacted by the tariffs.
Our racking systems are manufactured by contract manufacturers in the United States using our design.
We generally source the hundreds of other products related to our solar energy systems and energy efficiency upgrades services, such as HVAC and water heating equipment, fasteners and electrical fittings, through a variety of distributors. In addition, we source our EV charging stations from Tesla Motors and others.
We currently operate in 14 states. We manage inventory through one of our six centralized storage and distribution facilities, and we distribute inventory to local warehouses weekly as needed. We maintain a fleet of over 700 trucks and other vehicles to support our installers and operations. This operational scale is fundamental to our business, as our field teams currently complete more than 1,000 residential installations solar energy system each month, while our project management teams simultaneously manage thousands of projects as they move through the stages of engineering, permitting, installation and monitoring.
We offer a range of warranties and performance guarantees for our solar energy systems. We generally provide warranties of between 10 to 20 years on the generating and nongenerating parts of the solar energy systems we sell, together with a pass-through of the inverter and module manufacturers’ warranties that generally range from 5 to 25 years. Where we sell the electricity generated by a solar energy system, we compensate customers if their system produces less energy than our guarantee in any given year by refunding overpayments. We also provide ongoing service and repair during the entire term of the customer relationship. Costs associated with such ongoing service and repair have not been material.
Securing Our Solar Energy Systems
Unless a customer fully prepays for its solar energy system, we file a uniform commercial code financing statement, or UCC-1, on the systems in the real property records where each system is located prior to or when the system is installed. We file the UCC-1 to put on notice anyone who might perform a title search on the address where the system is located that our property, the solar energy system, is installed on the building. This filing protects our rights as the system’s owner against any mortgage on the real property. If the lender that holds the mortgage on the real property forecloses on our customer’s home, the UCC-1 filing protects our interest in the solar energy system and prohibits the lender from taking ownership of our solar energy system. A UCC-1 fixture filing is not a lien against a customer’s home and does not entitle us to the proceeds of the sale of a home in foreclosure. Typically, when a foreclosed home is sold by the lender, we negotiate with the prospective buyer to assume the existing lease or power purchase agreement. We believe the prospective buyer is motivated to assume the existing agreement by the opportunity to purchase energy from us at a lower price than that available from the electric utility. To date, we have only had to repossess five systems. In every other case, we have successfully negotiated with the new buyer to assume the existing lease or power purchase agreement.
We believe that our primary competitors are the traditional utilities that supply energy to our potential customers. We compete with these traditional utilities primarily based on price, predictability of price, and the ease by which customers can switch to electricity generated by our solar energy systems. We believe that we compete favorably with traditional utilities based on these factors in the regions we service.
We also compete with companies that provide products and services in distinct segments of the downstream solar energy and energy efficiency value chain. For example, many solar companies only install solar energy systems, while others only provide financing for these installations. These distributed energy competitors typically work in contractual arrangements with third parties, leaving the customer in the position of having to deal with different companies for different aspects of their solar energy project. In the residential solar energy system installation market, our competitors include American Solar Electric, Inc., Astrum Solar, Inc., Petersen Dean, Inc., Real Goods Solar, Inc., REC Solar, Inc., Sungevity, Inc., Trinity Solar, Inc., Verengo, Inc. and many smaller local solar companies. In the commercial solar energy system installation market, our competitors include Chevron Corporation, SunPower Corporation and Team Solar, Inc. In the solar project financing market, our competitors include SunRun Inc. In the energy efficiency products and services market, our competitors include Ameresco, Inc.
We believe that we compete favorably with these companies because we take an integrated approach to Better Energy, including offering solar energy systems, energy efficiency offerings, electric vehicle charging stations and additional energy-related products and services, as well as in-house sales, financing, engineering, installation, monitoring, and operations and maintenance. Our competitors offer only a subset of the products and services we provide. Aside from simple cost efficiency, we offer distinct practical benefits as an all-in-one provider. We provide a single point of contact and accountability for our products and services during the relationship with our customers.
We are not a “regulated utility” in the United States under applicable national, state or other local regulatory regimes where we conduct business. For our limited operations in Ontario, Canada, our subsidiary is subject to the regulations of the relevant energy regulatory agencies applicable to all producers of electricity under the relevant feed-in tariff, or FIT, regulations, including the FIT rates.
To operate our systems we obtain interconnection agreements from the applicable local primary electricity utility. Depending on the size of the solar energy system and local law requirements, interconnection agreements are between the local utility and either us or our customer. In almost all cases, interconnection agreements are standard form agreements that have been pre-approved by the local public utility commission or other regulatory body with jurisdiction over interconnection agreements. As such, no additional regulatory approvals are required once interconnection agreements are signed. We maintain a utility administration function, with primary responsibility for engaging with utilities and ensuring our compliance with interconnection rules.
U.S. federal, state and local governments have established various incentives and financial mechanisms to reduce the cost of solar energy and to accelerate the adoption of solar energy. These incentives include tax credits, cash grants, tax abatements, rebates, and net energy metering, or net metering, programs. These incentives help catalyze private sector investments in solar energy and efficiency measures, including the installation and operation of residential and commercial solar energy systems.
The federal government provides an uncapped investment tax credit, or Federal ITC, that allows a taxpayer to claim a credit of 30% of qualified expenditures for a residential or commercial solar energy system that is placed in service on or before December 31, 2016. This credit is scheduled to reduce to 10% effective January 1, 2017. Solar energy systems that began construction prior to the end of 2011 are eligible to receive a 30% federal cash grant paid by the U.S. Treasury Department under section 1603 of the American Recovery and Reinvestment Act of 2009, or the U.S. Treasury grant, in lieu of the Federal ITC. The federal government also provides accelerated depreciation for eligible solar energy systems.
We have received U.S. Treasury grants with respect to the vast majority of the solar energy systems that we have installed, and we expect to receive U.S. Treasury grants with respect to many more solar energy systems that we will install in the near future. We have relied on, and will continue to rely in the near future on, U.S. Treasury grants to lower our cost of capital and to incent fund investors to invest in our funds. Also, the U.S. Treasury grants have enabled us to lower the price we charge customers for our solar energy systems.
Approximately half of the states offer a personal and/or corporate investment or production tax credit for solar, that is additive to the Federal ITC. Further, more than half of the states, and many local jurisdictions, have established property tax incentives for renewable energy systems, that include exemptions, exclusions, abatements and credits.
Many state governments, utilities, municipal utilities and co-operative utilities offer a rebate or other cash incentive for the installation and operation of a solar energy system or energy efficiency measures. Capital costs or “up-front” rebates provide funds to solar customers based on the cost, size or expected production of a customer’s solar energy system. Performance-based incentives provide cash payments to a system owner based on the energy generated by their solar energy system during a pre-determined period, and they are paid over that time period. Some states also have established FIT programs that are a type of performance-based incentive where the system owner-producer is paid a set rate for the electricity their system generates over a set period of time.
Forty-three states and Washington, D.C. have a regulatory policy known as net metering. Each of the states where we currently serve customers has adopted a net metering policy except for Texas, where certain individual utilities have adopted net metering or a policy similar to net metering. Net metering typically allows our customers to interconnect their on-site solar energy systems to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utility’s retail rate for energy generated by their solar energy system that is exported to the grid and not consumed on-site. At the end of the billing period, the customer simply pays for the net energy used or receives a credit at the retail rate if more energy is produced than consumed. Some states require utilities to provide net metering to their customers until the total generating capacity of net metered systems exceeds a set percentage of the utilities’ aggregate customer peak demand.
Many states also have adopted procurement requirements for renewable energy production. Twenty-nine states and Washington, D.C. have adopted a renewable portfolio standard policy that requires regulated utilities to procure a specified percentage of total electricity delivered to customers in the state from eligible renewable energy sources, such as solar energy systems, by a specified date. To prove compliance with such mandates, utilities typically must surrender renewable energy certificates, or RECs. System owners often are able to sell RECs to utilities directly or in REC markets.
TL;DR Where I first show that consumers, freelancers, and small-business owners who use digital calendars in the cloud overwhelmingly use Google Calendar rather than a Microsoft-based solution (who used to dominate the segment) and then show why.
It’s been an intense six months for the MileLogr.com team. Our product is tied to the U.S. tax season (the three months ending in April 15) when 140 million taxpayers settle accounts with the tax man (aka IRS). This was our first season in the market after a three-month Beta period. We help taxpayers who are self-employed or own small businesses prepare mileage logs to show how much they used their personal vehicles for business so they can take the appropriate tax deduction (on avg. $0.55/mile).
So what do mileage logs have to do with calendaring? Rather than fiddling around with odometer readings or GPS we offer users a novel, much easier approach to building a mileage log. If you use a digital calendar to record business meetings and errands (even occasionally) MileLogr will read your calendar for the entire past year and reconstruct a daily route of where you traveled. Of course there are lots of route variations and we have options to account for that. The best thing is that you don’t have to remember to turn on a GPS or record the fact that we just took a trip in a log or on your smartphone(most people simply forget or find the overhead overwhelming). The route is there for you to review without having done anything explicit to make that happen.
A consequence of our approach is that we have a unique perspective into what calendaring apps our customers use in aggregate. Our product now supports all major online/server-based calendars: Google Calendar, Microsoft Exchange, Hotmail, Outlook.com, Yahoo! Calendar, iCloud Calendar, or any other CalDAV service. To survive up to the point where we could build all these integrations over the last 18 months we were forced to do some heavy prioritization and since we are a Lean Startup, we started with several hypotheses. It wasn’t just about which calendar providers we should support but also how deep should we integrate with each feature set (recurring appointments? multiple calendars per account? appointments categories?).
Our MVP was the first stake in the ground. The hypothesis was that Outlook/Exchange was used by Gen X folks who mean “business” and Gmail was popular with Gen Y. So we released the MVP, just in time for 2012 tax season, with basic support for calendars on Microsoft Exchange (self-hosted and Office 365) and Google Calendar, in this order. Boy, were we wrong! Here’s what our stats show, a year later, during the 2013 tax season quarter:
Exchange slice includes self-hosted and Office 365. Live slice represents Outlook.com and Hotmail. Even when you combine the two categories, Google Calendar usage surpasses calendar usage based on Microsoft products 3:1.
Fun fact: the little sliver of iCloud users are actually our best paying customers! Percentage-wise, the highest percentage of users who buy the buy the product after trying it out are iCloud Calendar users followed by Google Calendar users. I speculate that users of iCloud are folks who are fully bought into the Apple mobile ecosystem and the products integrate so well that the resulting data that’s generated is more suitable to the scenario we’re optimized to solve.
So, how did Microsoft lose consumer calendaring to Google? Two reasons: (1) difficult to use cloud collaboration features in Office apps and (2) missing out on increased cloud calendar usage in late 2000s, driven by a good attach rate to webmail. Allow me to expand.
(1) Up until a few years ago I’d say, desktop Outlook was THE sh*t when it came to the home office organization, having won the PIM war of the 90s. As we moved to cloud services the Microsoft Office division made the mistake (or rather was blinded by the Innovator’s Dilemma, Netdocs RIP!) of thinking Web apps are about moving the app from the desktop to the browser. They made fun of Google Docs for not being able to do copy and paste right (perhaps still proud of the OLE technology in in Windows 3.1 that enables inter-app copy & paste), they resisted as much as they could, and eventually gave in and begrudgingly built the Office Web Apps. Except in 2013 those web apps still miss the point of a cloud-based Office suite which is amazing, easy-to-use collaboration features given that the data is in the cloud and hence available in real time to all who want to work together.
But wait! you say, “improved collaboration” has been a key selling point of Office 2007, 2010 and 2013. To which I say, yes, but that refers to improved collaboration for enterprises that use SharePoint on the backend not for consumers. For consumers collaborative features are overlaid on SkyDrive and that only happened in 2012, long after Google Apps won the heart and minds of how collaborative document editing is done in the cloud. And it’s not exactly a slam dunk. Not having learned from the failed docs.com + Facebook attempt Word Web App is still missing one of the most basic collaborative features: Insert Comment. I don’t know if this is an oversight or intentionally kept for the premium experience (when you own desktop Word) but if you think commenting is a premium feature you don’t get cloud collaboration. Here is it, front and center in Google Docs:
As for collaborative calendaring (think spouses, family, PTA, clubs, business partner scenarios) desktop Outlook has a Publish/Subscribe calendar feature which would work well if you can get past the high friction requirement that you need a Windows Live ID (now Microsoft Account) for both publisher and subscriber. Why high friction? Because if you had a Microsoft Account you wouldn’t need the feature in the first place since most likely you’re already using Hotmail/Outlook.com and you can share much easier from with the webmail app.
(2) Which brings me to the second factor that led to Microsoft losing consumer calendaring: webmail attach rate. Calendaring at its core can be split into two main scenarios: managing your own time and coordinating time with others. Desktop Outlook has been dominating the former scenario. The latter however requires a way for you to send someone an invite when you want to schedule a meeting.
A calendar by itself doesn’t know how to communicate with others. It turns out that the simplest solution is to pair the calendar with email so that meeting invites can be auto-magically delivered over email. That however requires that your email and calendar are integrated which is has not been the case for consumers traditionally due to the large variety of email and PIM apps. Enterprises however can standardize leading to a fantastically easy and productive solution (a 90s category called groupware) and a fantastically great business for Microsoft (Outlook+Exchange) and IBM (Lotus Notes, while it lasted).
Enter the consumer love affair with webmail in the 2000s. Before webmail, consumer email was an affair between your desktop email client and an ISP’s server. It used POP3 or IMAP protocols which, for most intents and purposes, have no integration with calendaring. With webmail however, providers have the freedom to add new services integrated with Email because they are in complete control of the front end of the user experience not just the backend server. Calendar and Contacts are two fantastic candidates for such integration. And when Microsoft acquired Hotmail and made it part of MSN it did exactly that. Beautiful!
Except in the mid-2000s Hotmail went through a decline in popularity first due to spam and then due to Gmail. So as consumers were learning to use their calendar to coordinate time with others they were doing so on Gmail not on Hotmail. And that is why at MileLogr we should have prioritized integration with Google Calendar not Exchange/Office 365. The things that you learn as you get older…
“Sure, I’ll build your product idea! But then what!?”
For the past two years I’ve been attending a variety of networking events that bring together those with an entrepreneurial mindset in technology and design. Whether it was Ignite NYC, DukeGEN at Dogpatch Labs, Lean Startup Seattle, or Founder Dating events have a networking component during which people either naturally or explicitly label themselves as business types or technology types.
Of course, that’s a gross generalization and there are many variations in between. FWIW, I believe there should also be a designer label and I don’t mean visual or interactive design, rather overall design as in “Steve Jobs the designer”. I, myself, am the tech type (aka hacker, per the original meaning) having spent just over 20 years of my life, since I was 11, in front of a computer for an average of six hours a day, learning and building things.
In preparation for my second startup (I failed for multitude of reasons in my first one) my top priority is to assemble a good team of founders. After all, if I’m gonna suffer, I might as well commiserate with worthwhile individuals that I respect and have fun working with :-). So when I attend networking events I have an open mind and an open heart and I really do wish to make connections with cool peeps.
The general consensus is that there’s a shortage of dev talent who could fill the role of a technical cofounder. But the way I see it there’s just as much of a shortage of business talent. Everyone is so mesmerized about building a product they forget about any kind of business planning all-together. It’s true, traditional business plans are worthless, but that doesn’t mean you don’t need any business strategy at all.
In a typical interaction, I get talking with someone who wears a business label and we exchange ideas and interests. When I probe further on their idea and ask what the next step is and where they need help, invariably the answer is “I need a good dev to build this thing”. Which leads me to believe their mental model of a business is
Good business = idea + dev
- or a slightly better version -
Good business = idea + dev + visual/interaction designer
- both of which are wrong -
If you haven’t heard it from Yoda, let me recount it for you:
“Ideas make not a good business person! Ideas make an idea person (whatever that is).”
- maybe that was Fake Grimlock, not Yoda
So allow me to dispense this plea/advice: if you solicit (unpaid) help from a technical person to build your idea please please recite some sort of business strategy along with it. Otherwise, you don’t come across as an equal contributor. You might be willing to give away 25% or even 50% of your company, but there’s not much value to a business without go-to-market strategy so it’s effectively worthless. I’m not referring just to the strict marketing definition of the term, but to how you acquire customers for less that their lifetime value addressing the peculiar early adopter stage of the startup during which customers have zero lifetime value because you’re effectively running a giant experiment. You have to bring to the table either the go-to-market insight or the design insight. If the tech cofounder is providing those insights they can just raise the money and hire you as the bizdev manager.
Of course, I don’t expect the business person to have a perfectly laid out multi-year strategy and that would probably be the wrong approach anyway. As Mr. PG says:
[...] the way to use these big ideas is not to try to identify a precise point in the future and then ask yourself how to get from here to there, like the popular image of a visionary. You’ll be better off if you operate like Columbus and just head in a general westerly direction.
- Paul Graham, Ambitious Startup Ideas
I also don’t expect the proposer to disclose all details of their strategy to the dot. It very well may involve aspects they consider confidential. All that can come later, but please, offer something!
If your idea is for a consumer product tell me about your contacts with influential connectors and how a writer with a newspaper or a blog owes you a favor. Or how you host the equivalent of today’s Tupperware Parties and you can use that to seed early adopters until we have a marketing budget. If your idea is in healthcare tell me about the administrative costs of a small medical practice or a hospital and how pitching the product as a cost saving will open those doors.
If you want to build something with music, talk to me about licensing challenges and how your connections with indie band managers will allow you to feature good music before you get licensed by the big labels. If you want to build something with fashion or retailing talk to me about how you know how to pitch to a department store buyer. Those skills and that knowledge is what makes you a good business partner, not the product idea by itself. The fact that you lack coding skills does not make you a business person and neither does having a product idea.
I’ll be honest: I don’t know off the top of my head how to build a database that scales at the size of today’s Facebook nor a video distribution service at the scale of today’s YouTube. But I can show you and talk to how I’ve been able to incrementally improve products I built over time to match business needs and how not only I can build your product idea, but I can scale it as we grow.
Similarly, I’m not expecting you to be a rainmaker and close enterprise accounts in a week or be invited on Oprah, but at least tell me a nice story that shows me you have some thoughts on what to do with my work after I’ve put so much blood, sweat, and tears into building it, so we can make money!
P.S. It goes without saying that I’ve also met some kick ass folks who just dominate when it comes to understanding their industry. Kudos to you ladies and gents!
– on how game theory radically beat the Burning Man Board who apparently hasn’t read Freakonomics and what’s a better solution –
If you’re even remotely connected to Burning Man or remotely interested in finally going, you probably know about the “tragedy” the ensued recently with regards to ticket distribution and sales. For the rest of you, the succinct story is that in 2011, for the first time in the event’s 25+ year history, ticket sales hit the 55,000 max capacity in month 6 of the 7 month period prior to the event, when the box office is open.
Because it was clear that from 2012 onwards demand will exceed supply, the organizers thought it was a good idea to somehow level the playing field by holding a lottery for the bulk of the tickets in month 1 of the 7 month sales period for 2012. Baaad idea! The growing global popularity plus the growing interest for scalping from speculators over-subscribed the available ticket pool by 3:1.
The result is that over half of the people who attend the event regularly and contribute to building the large scale art installations and famous art cars that make up the core attraction of the event (aka theme camps), of which I am one, have not secured tickets. This threatens the feasibility of many large projects without which Burning Man has no service to provide so-to-speak.
For the gory details you can read the communique from the BM Community Manager, but I want to focus on why the Board should have known better and what is a better alternative.
Wrong assumption #1:
A first-come first-served system would not meet the demand either. We’d have to use the same type of “queuing system” that meant hours waiting in line at your computer screen – a luxury perhaps not available to many perfectly deserving Burners. — [emphasis mine]
For context, one should know that in past years tickets were sold through a website that put buyers in a queue as it processed transactions, which would take on the order of a few seconds/buyer. If you have 10,000 buyers in one day however, there will be a average wait of several hours till the transaction would get processed during which an active browser session had to be kept. Certainly an inconvenience compared to not having to wait at all, but not at all an inconvenience compared to not being able to buy a ticket at all!
I appreciate the well-intended thought of caring about people’s time. But this is a matter of not knowing your audience. “Deserving” Burners (i.e. those to put in the time and effort to contribute art) become “deserving” by putting up with all the difficulties of getting to BM. These are folks who dedicate months of each year and years of each life, spending hard earned paychecks, to endure harsh weather to build something most people find insane (like Tour de France insane).
If 8 hours in front of a computer is what it takes to get a ticket then it shall be so. In fact, the effort required to participate is what makes Burning Man, Burning Man. The logistics, preparation, and Leave No Trace requirement filter out many participants who are just looking to crash a good party.
Wrong assumption #2:
thinking we wanted to ensure a fair shake at the new system for Burners, we decided to leave registration open for two full weeks, just to be sure that any who were out on vacation or away from your computers for the announcement had plenty of time to get a fair shot.
Ahem! So let me see… These folks who plan their whole life around going to Burning Man, many of which don’t even take any other vacation, you thought they might have just hopped on a flight to the Bahamas to relax after closing an intense M&A deal and maybe, just maybe, they might have missed your email telling them when the box office would open ?!? Anybody who’s part of a core theme camp is very much watching all announcements and making sure to be on top of the ticket procurement process, camp registration submissions, etc.
The more you leave the window open the more you equalize the chances between regular and casual attendees. Yes, of course, some people would miss the announcement or first day of sales, but you have to compare that inconvenience not with the perfect world but with the reality of decreasing the chances across all regular Burners not just those very few who don’t read email on “vacations”. Seriously, even my friends who live in a hippie commune “off-the-grid” have 3G Internet access at the edge of their property for once-in-a-while email checking.
Wrong assumption #3:
We can now see that some of that happened simply because the perception of scarcity drove fear and action for all of us. We were quite naïve to think we had much control over a basic emotional response to scarcity. Game theory won out over good wishes.
This is a simple matter of ignoring science which we’re taught because it works (at least until proven otherwise). To think that you could be written up in Huff Post, have viral videos on You Tube with >1 mil views, and a pre-sale survey that shows 40% of potential attendees self-report as not having participated before, and still think you’re not susceptible to crowd dynamics that govern the “real world” is well, you said it… naive…
What’s a better solution?
The Burning Man Board should have kept the queue system rather that switch to lottery and should have increased the effort and wait time to procure a ticket. Yes, you read correctly, increase not decrease the effort and the wait time.
As both organizers and regular participants were aware, the event already reached a tipping point beyond which demand will outpace supply for the foreseeable future. So being “fair” and accommodating everyone who would ever want to go to Burning Man already became impossible. The goal should be to make sure you have continuous participation from core folks who volunteer to build art and who carry on the values and to make it harder for scalpers to get their hands on a ticket.
Discouraging scalpers (or people who abuse resources) is something the tech industry had to deal with as it moved to online services which are very easily accessible. How do you stop someone from spamming with email esp. if you can’t tell how a spam email is different from a regular email? Introduce effort! If you make sending an email take 5 seconds instead of 0.1 seconds the average user isn’t inconvenienced much, but you ruin the business plan of a spammer who must send out millions of messages in a day to get to the 0.1% who actually purchase from spam email.
When the BM Board switched from a queue system to a lottery system that was open for two weeks it made it extremely easy for scalpers and non-regulars to try their chances. They reduced the effort from 6 hours to 30 seconds! Yes, it introduced an element of chance, but by the very nature of probabilities more scalpers will get tickets this way. They also allowed the “friends and family” phenomena to spawn (where one asks friends and family to enter the lottery). Which friend would stand in line for 8 hours to get you a ticket?
So what better method of self-selection between those truly dedicated to the event, to the values, and to the community than to throw some Self Reliance into the ticket purchase process? Think scalpers would rebuild and clean their tent multiple times after going through a sand-storm? Make the experience of buying a ticket more like the experience of attending Burning Man itself ! Make it harder not easier biatches and maybe we’ll get it right for 2013 !
(and I mean that with good-hearted humor in a respectful way: I truly do appreciate all the hard work every volunteer is putting in to make BM happen!).
The point about reading Freakonomics is that it explains in very plain language phenomena that is at play here: incentives, crowd behavior, anonymous participation.
Here’s a great quote from the Plancast postmortem
Returning to the topic of sharing plans, it’s not only a matter of having interesting plans to share but being compelled to actually share them. And unfortunately, people don’t submit information to social networks because they love data set integrity or altruistically believe in giving as much as possible. They do it because the act of contribution selfishly results in something for them in return.
Most social networks feed primarily on vanity, in that they allow people to share and tailor online content that makes them look good. They can help people communicate to others that they’ve attended impressive schools, built amazing careers, attended cool parties, dated attractive people, thought deep thoughts, or reared cute kids. The top-level goal for most people is to convince others they are the individuals they want to be, whether that includes being happy, attractive, smart, fun or anything else.
Best way to meet new people ;). There hasn’t been one day since I got it that someone didn’t stop to ask me about it.
I used the opportunity of LinkedIn’s IPO to read through the company’s SEC Form S-1 Registration Statement.
LinkedIn makes money by combining 3 business models:
- Hiring / job placement services
- SaaS (freemium style)
Here are some rough metrics deduced from SEC filing and published prices:
- Avg. hiring services rev. / customer = $87MM (est. 2010 rev) / 3,900 customers (declared) ~= $22,500
- Advertising rev. / user = $70MM (est. 2010 rev. from “marketing services”) / 90 mil users ~= $0.77 / user [there were 33,000 advertising customers (declared in filing)]
- % users subscribers to premium services = $60MM (est. 2010 rev. from “premium”) / $45 (est. avg. monthly subscription revenue / 90 mil user * 100 ~= 1.5%
To learn more details about LinkedIn’s product portfolio, revenue, and cost structure I extracted 14 pages of content from the 140 page SEC filing which are more relevant to understanding the business model.
Here’s also a good infographic originally published here.
Just before the Holidays Google closed on a $1.8 billion purchase of a 3 million sqft office building in Manhattan; the same location where they were leasing 0.5 million sqft for their NYC office with about 2,000 employees.
Aside from the fame factor (the most expensive building in the US) I believe this is a strategic move for Google to capture the emerging New York tech innovation and to dominate relationships with the ad, book, and fashion industries (all of which operate largely out of NYC and are subject to disruptions by tech).
1) Better talent retention. Silicon Valley is a fickle talent market: there’s a slow, but constant defection/poaching trend from Google to Facebook in the last year with folks like Lars Rasmussen (who started Maps and Wave and “coincidentally” moved to Facebook as they announced their new email service) and others. This talent transfer is facilitated by the physical proximity of all innovation foci in the Bay Area which seems a blessing in the nascent phase and a curse in the maturing phase of company. It makes it hard if not impossible to hold on to talent over decades (which you need if you are to build a “[Good To] Great” company).
Microsoft on the other hand has enjoyed three undisturbed decades of talent retention due in part to Seattle’s physical separation from other innovation foci (opinion expressed in more detail in this debate Why has Microsoft seemingly stopped innovating with which I largely agree). As proof, the Google office in Kirkland, WA is having some pull effect on Microsoft talent, and while the scale is insignificant you can see the principle at work.
Of course Mountain View will always be the HQ, but NYC is now perfectly positioned to become a major contributor to their future leadership. I believe NYC will be Google’s “Seattle” (i.e. “isolated” innovation center) and it’s a deliberate plan.
2) Capture fruits of innovation democratization. NYC isn’t known traditionally as a tech innovation hub but that’s changing as tech innovation now includes business model innovation not just engineering in a strict sense. To be fair, the tech entrepreneurial culture will never the size of the Bay Area, maybe not even Seattle or Boston, but that doesn’t mean it should be ignored.
The talents of folks who naturally cluster in the North East are becoming relevant for tech innovation. Notable recent NYC start-ups: Etsy, Gawker, Foursquare (more here). NY is among the top 5 entrepreneurial states (after CA, MA, WA, CO). Google will be the natural next step for this talent as the start-ups mature. If you establish a life in New York it’s unlikely you’ll want to move, much like if you establish a life in Seattle with Microsoft it’s unlikely you’ll want to move.
3) Physical real estate constraints. Due to the unique nature of real estate in Manhattan, it is physically impossible to replicate the “cool” West Coast style tech campus with large play/open spaces, higher number of sqft/employee, etc. For instance, offices of financial institutions in NYC are fragmented across many buildings and supporting staff (corp operations) work mostly out of NJ rather than Manhattan (being a cost center, IT dept offices are anything but cool, mostly depressing).
The sole exception is this particular building which is located in Meatpacking District (home of former warehouses, etc) and it’s unusually massive. It allows Google to build a West coast style campus for 10,000 employees within Manhattan, further adding to the appeal of the location.
That won’t happen overnight since the building currently houses mostly data center and telecom switching equipment (most of Manhattan’s communications go through that node), but I expect that over the next 10 years those facilities will move out to NJ and Google will slowly build the coolest workplace in Manhattan.
The recent tragedy in the Cambodia stampede is terrible either way you look at it, but what’s up with the terrible reporting? According to these news reports (see screenshot below) the fatality count is 25, or maybe 180, or maybe 300, or maybe 349 (I like the precision on this one!).