01 Mar 2015
Case Study: The Speed of Light
Cleaning up the solar industryRe: Rindge Leaphart (MBA 1997); Jacob Navon (MBA 1984); Illysa Izenberg (MBA 1990); Dan Wallace (MBA 1986); Chris Johnson (MBA 1993)Topics:
(Photo courtesy of KDC Solar)
Launched in 2011, QE solar is an operations and maintenance company focused on servicing large-scale, commercial solar energy structures—the kind typically owned by large utility companies. The company is based in New Jersey, the third-largest solar market by capacity in the country. QE Solar totaled almost $1 million in revenue in 2014—double what it made the previous year—and projects $2 million in revenue in 2015. The company has taken no money from outside investors.
QE Solar has 20 clients, all of whom are within driving distance (no more than five hours) from the firm’s Cranford headquarters, allowing its eight-person team to provide fast, personal service. The company also takes an “engineering approach” to services, investing in skilled technicians rather than relying on less costly local electricians and day laborers. In an emerging field that requires some handholding and has historically been populated with would-be national players that lack both specialized knowledge and the ability to respond quickly, this hands-on, engineering-heavy style has been a key differentiator for QE Solar.
QE Solar’s founder, Ken Heissler (MBA 2008), offers this case study to HBS alumni: “There are many reasons for us to pursue diversification. Our client pool is made up of relatively small, local solar markets, and installations will eventually slow down; many customers (as well as target customers) are expanding their footprint to other states across the country and in some cases abroad (Canada, the Caribbean, Europe). Expansion to markets like California—which has five times the solar capacity of New Jersey—is potentially very lucrative. But we’ve been hesitant to take on opportunities outside our region because of how that might impact our service and quality. How do we grow without diluting our main value proposition?”
What do you want to be when you grow up? A successful regional player in the New Jersey marketplace or a successful nationwide player? There is clearly nothing wrong with being a successful (and, hopefully, profitable) local player. But if you want to grow the business, I would suggest you expand to California. The market is five times larger. Do you believe that translates to a $10M region? Your company clearly has great references from New Jersey that, hopefully, will serve you well in California. How is the California market being served today? Does your model (people) allow for significant differentiation? Does the California marketplace have an abundance (compared to other markets) of the skilled employees you will need? If so, expand and continue your policy of hiring skilled local technicians. It may require you or one of your top people to head up the expansion to set the tone/culture of what is expected.
In your business, it seems as if people and service are key. Don’t waver from what has made you successful—continue to recruit the right type of person. Go west, young man!
— Rindge Leaphart (MBA 1997)
I am a partner at a small but rapidly growing executive search firm. Back in the spring of 2010 we conducted a client survey that clearly pointed out a strategic imperative (and opportunity) for us to become a “global boutique.” To do that, we were told we needed a presence “somewhere” in Asia and “somewhere” in Europe in addition to our offices in New York. Facing the same concern as you—how do we make sure that our value proposition and brand remain constant across the regions—we took our time and concentrated on finding a local partner who exuded our culture and values. But when we found that person, we struck with lightning speed and pulled out all the stops to have him accept our offer.
The moral in my story: We knew we had to be willing to leave some revenues on the table by being deliberate and patient to find the right local leaders before we implemented. Service industries, by definition, are all about the people. Get that right and you will do well.
— Jacob Navon (MBA 1984)
If you’d said that your competitive advantage was something other than personal service/high quality, then perhaps going to California would be fine. But managing and leading the “high-touch” approach you’ve taken with your clients will be difficult from New Jersey.
I recommend expanding with your clients—get contracts with them to service their new locations out of state. Be a partner with them going forward, and you’ll have less risk, you’ll maintain your high-quality approach, and you’ll get a toe in some new markets before jumping in fully.
— Illysa Izenberg (MBA 1990)
You have three potential growth vectors: (1) sell the same stuff to new customers, (2) sell new stuff to the same customers, or (3) sell new stuff to new customers. Unless you have simple line extensions to make number 2 work, number 1 is almost certain to be the fastest and most profitable. And given your existing service model (proximity to clients seems to be important), you are most likely to do this by creating a multilocal company. It will look almost like a franchise.
To access that opportunity: (1) Develop a small set of critical core values that truly define your culture. (2) Hire and retain only people who clearly and strongly exemplify those values. That will make it much easier to maintain your culture of quality and service as you expand geographically. (3) Make sure everyone understands that the business exists to deliver solutions using this “hands-on, engineering-
heavy” approach. Repeat it over and over and over. (4) Get the model right in New Jersey—number of people, skill mix, client acquisition process, service delivery process. Make it a cookbook. (5) Define what constitutes an attractive market for you—number of customers, amount of solar, degree/amount of whatever drives the need for what you do, etc. Based on that, pick and prioritize the markets that make sense for you. (6) Once you have your market priorities, strike quickly. That means perfecting the process of entering a market. Take on only as many new markets as you can open while rigorously following your process to make sure you do it right.
— Dan Wallace (MBA 1986)
My recommended four steps are: (1) Ensure that your organization has a “repeatable” service/solution that can be deployed to a variety of clients and then rolled out to additional clients. (2) Work closely with your stakeholders when deciding about the future. Are your services and contracts appropriately priced and structured to keep growing, keep your employees, and keep existing clients? (3) Grow at a pace that maintains and expands your repeatable service/solution yet keeps your employees, managers, and leaders fully engaged. Keys to your future growth are servicing new contracts with your repeatable solution, and the skill set of your management team. (4) What governance system makes sense moving forward? You can likely grow without additional funding if you properly structure your service and future employment contracts.
— Christian Johnson (MBA 1993)
Got a case? To take part in a future "Case Study," send an outline of your company's challenge to email@example.com
Class of MBA 2008, Section I