A Great Idea Still Needs a Lot of Luck
At Zirra we gather vast amounts of data on companies, gathering wisdom to provide insight on companies and their promise. The honest truth is that there are many companies that are obviously not the most unique conceptions, or have serious deficiencies that betray the painful fact that they are not on the road to success - something slightly heart-wrenching to witness. And then there are the companies that are truly exciting. They are on to something potentially huge and nailing it at every turn. However, no matter how on it they are, there are so many external factors (the economy, investors, timing, regulations, competition), that risk is always an inherent part of the game.
Thus, obligingly, as part of the job we note potential risks and success factors and between man and circumstances it will eventually tip in one direction or the other. And when there's that less than one in ten start-up success, it’s a thrill to be spot on about a company’s exit valuation. But to be right about these factors can be a bitter pill to swallow when it was the risks that overpowered the potential success points. And this time this pill must be swallowed with brackish water because global warming has sent the rising seas to shore and tainted the fresh water supply.
Okay, maybe I’m waxing dramatic (or am I?), but the issue we are discussing here is that most start-ups don’t make it, and sometimes this failure has nothing to do with how good the idea was. And it’s a little more bitter when the start-up was something with a lot of potential to transform the world for the better. When covering Yeloha, I was genuinely excited. The “Airbnb of solar energy” was busy building a network so that more people could tap into the resource, potentially even people with basement apartments in Seattle! Peer-to-peer solar could link people with prime roofs with the 79% of people who were interested in solar power but who may lack the roof, the upfront capital, or both to actually do it.
Success Factors Matter
Since their founding in 2012, it was clear that they had done their research and groundwork to evolve into a company launching in Vermont and New York. They partnered with Green Mountain Energy (a veritable Texas Tornado that brought wind power to mainstream USA) and had the public and the press interested. I, myself, couldn’t help but crow to my friends and family that there was something potentially huge they should look into. They were also recent recipients of a Webby Award for best green website, an award that, full disclosure, I subscribed (and then unsubscribed) to the Webby's website just so I could vote team Yeloha.
Be Wary of Potential Risks
However, as part of the due diligence, we had to also note the risk factors, which sadly turned out to override the massive potential due to a perfect storm of circumstances. The first had to do with the business model, which could have worked under the right conditions but was dicey. Yeloha was going to be the one to set up the panels for the willing sun hosts, of which there were plenty, allowing those without the upfront money to utilize their roof if it was ideal for harnessing solar power. It’s a great way to build a network of participants but also, in short, “Yeloha's business model requires them to assume a large portion of the financial risk involved in setup and distribution of product.” Running out of the capital required to build their network was simply the overarching factor in this case.
There is a relationship between the other two potential risks: “Yeloha will have to address the regulatory issues of each market it enters, slowing distribution in some regions” and “Yeloha is likely to face resistance from established competitors that may attempt to block innovation.” The fact of the matter is that much that has to do with utility regulations stems from the established competitors themselves. It’s a prevalent problem in almost any region as utility companies, with the entire population as their market, often wind up wielding enormous power and benefiting from government protectionism, shaping the law in their favour.
Looking to the Future
The instinct that making "doing the right thing" easy was certainly on target. Yeloha gathered buzz and people signed up in droves to be hosts and partners. However, regulatory instability, “innovating on constantly shifting sands”, is cited in their signing off epistle as one of the trials that colluded for the untimely sunset. Investors realized this too and as investments in general dipped at the end of 2015, getting extra capital when it was absolutely necessary proved too difficult.
In their announcement that they would be shuttering, Yeloha addressed the reasons in a straightforward and honest manner, making it a learning moment shared that many can take away from. Their story is being shared here not to benefit in any way from their difficulties, but to share the important lessons learned. Perhaps the most important takeaway here is that there is not and should not be regret for shaking up the industry and pursuing the good and the bold. A truly great idea that falls through can still be very disruptive and so this probably won’t be the last we hear of peer to peer solar networks. And it probably won’t be the last we hear of the Yeloha team either.