Podcast #92: Cleantech Meets Smart Spaces

Good day, this is Ken Forster, Executive Director of Momenta Partners and Moment Ventures, with another edition of our Digital Leadership podcast series.

Today I’m greatly pleased to have cleantech practitioner and entrepreneur Leif Elgethun, who is the CEO and Founder of Retrolux, a software platform built to scale smart lighting solutions in commercial and industrial buildings. Leif has successfully started five companies in the cleantech industry, including three lighting companies, with one exit. He’s active in both his professional and local community, sitting on numerous boards, and in his free time enjoys spending time with his family, and enjoying outdoor recreation like skiing and mountain biking.

Today I’ve asked Leif to focus on really kind of two themes, number one is cleantech meets smart spaces. As you know Momenta Partners & Ventures invest in specific companies in smart spaces, so think cities, buildings, firms as an example, and the other to pull a phrase that he had as part of winning the Schneider Electric 40 Challenge recently, to talk about Retrolux and the operating system to scale clean energy.

Leif, welcome to the Momenta Partners Digital Leadership podcast.

Pleasure to be here Ken, looking forward to sharing more on our overseeing in the market, and also learn a little bit from you on how Momenta is seeing the market adapt to a lot of really cool things happening.

Perfect, sounds like it should be a great conversation. Let’s start a little bit with your professional journey. Tell me a bit about that, and how it has informed your views of what I’ll call digital industry but think about specifically cleantech meets digital and smart spaces.

Yeah. I spent my career in the cleantech industry about 12 years ago, and my first company was a consulting company, and we helped commercial building owners, industrial building owners, agricultural entities, understand how they could reduce their energy consumption, either through energy efficiency technologies, or by putting renewable energy resources on site, to help them again reduce energy consumption and their energy cost. When we did that work it was all very hard to do, because we were using pencil and paper, we were using Excel spreadsheets to do calculations if they were not pencil and paper, and started running into a lot of challenges trying to understand how we could scale our business and meet the need in the market.

So, that caused me to start my second company, and instead of scaling through digital, we decided to scale our company by going more vertically integrated, and so we started to really be a turnkey energy services provider in my second company, helping our customers now not just understand how they can reduce their energy consumption, but would actually go ahead and do that for them, by implementing a project, and then as I tell people, dragging the customer all the way through from initial idea to a completed project, because there’s a lot of steps along the way.

As that business got more complicated I started looking for digital solutions to streamline our operations, streamline our sales process, and ultimately look for ways that we could be more effective in delivering that value to these customers, that were very hungry to do a better job of maintaining their energy consumption, and controlling it.

Along the way we continue to find more and more opportunities to leverage technology in our own business, and as I say, with Retrolux we kind of stumbled on an accidental business idea in that we needed a tool for our company that didn’t exist, and so we decided that we could build it, and we did. We went out to several of the folks in our supply chain and said, ‘Hey, look at this cool tool we built. You can go out with an iPhone, collect data in the field, and then sync that to the cloud and then do the rest of your job from the cloud in your office.

Back in 2012 we had this idea, we’ve had a lot of empty stares from people that we talked to, because they were still using flip-phones and the idea of doing their job digitally was just not something that people were I think even accustomed to believing could happen. So really we’ve been watching the market, where they’ve been paying attention to the market, and following the adoption of digital tools, and then looking for ways that we can drive a lot of the same value that other parts of maybe the industry, or maybe their economy have had, by doing it specifically for the built environment, the smart spaces industry as you say, and particularly for our company anyway, focusing in on what we call clean energy, or smart energy now.

Ultimately that I think is the best way to find where those gaps are in industry, is when you’re directly experiencing them. That’s exactly how we learned that there were digital tools that we could apply, and started applying them to our business, and then realized there was a whole lot of other businesses out there that have the same kind of challenges. That ultimately led us to Retrolux and standing up a company to deliver that digital journey for our customers, and for our industry.

Very good, I like your use of the term clean energy, or smart energy. We know cleantech has been quite a phenomenon I think even back in 2013, Gartner was already beginning to predict that cleantech as they were calling it was hitting that trough of disillusionment.

Let me ask, what does the term mean to you? Obviously, you’ve coined new terms so maybe that is in that direction too. Since hitting the ‘trough of disillusionment’, what have you seen the cleantech industry in terms of trends and performance?

Yes, so the trough of disillusionment that happened after cleantech v 1.0, and I lived it so I’m very familiar with it, really referred to a drop-off in investment in hard technologies, and so there was a lot of technology companies that came out of cleantech 1.0 that were different ways of producing a solar panel, or different technologies for producing wind. Focused on the hardware side of things, and as those industries matured, clear winners emerged, and all the other companies crashed. I think one of the challenges that we saw in the cleantech industry was a lot of money being spent on these hard science problems, and just by the nature of working on hardware and hard science problems, you’re going to have a lot of losers.

I think the second challenge that the industry faced was thinking of cleantech as being only about saving the environment, and so we got this, I think, perception in the industry that we should build cleantech that is just cleantech, and not thinking about the bigger broader value prop. So, one of the things I like to say is, that if we develop a design solutions that are smart energy, we focus on how do we manage energy more appropriately? How do we get more value out of that unit of energy? By definition we’re being smart about it, and a byproduct of that process of thinking is almost always that we’re going to use less energy or are going to use it more appropriately.

And so I like to say that cleantech is transitioning very quickly from cleantech 1.0 where we are focusing on developing technologies, just because of their environmental benefit, to cleantech 2.0 which is really more of a smart tech, or a smart energy play, and it’s more focused on how do we do more with less, how do we drive more value out of what we’re doing? And as I say, there’s a byproduct that happens to be we use less energy, or that we use renewable energy in the place of more traditional energy resources, but the value we’re getting out of it is so much more. And so, the people and the companies that are starting today are really focusing on a bigger value prop, a more important value prop, and along the way we’re going to end up in a lot cleaner energy system, a lot cleaner overall technology stack.

I like the way you describe the version 1 to v 2.0, and this idea of smart tech. We’ve seen cleantech kind of intersect IoT if you want to use that as a general industry term, especially from the investment side you see a lot of these crossing over, some on the generation side, some on the ‘distribution’, if there is any distribution, and a lot of it at the edge, both usage, storage optimization.

One of our investments is a company called Geli out of the San Francisco Bay area, and that’s one of the areas that they tend to look at relative to – I’ll call it ‘a router for jewels’, in some sense; do I store in my Tesla parked in the garage, a jewel if you will, do I sell it back to the grid, or do I use it for each and every jewel that’s coming through? So, it is very much about smart energy, and smart tech.

What inspired you to really focus on the smart buildings, or smart spaces area?

That’s an interesting question. To be honest I’m in this space because I think it’s a really interesting space to be in, I think it’s also one of the places that has the most opportunity for improvement and has the largest impact opportunity. So, most people don’t understand or don’t know that buildings account for approximately 40 percent of our overall carbon emissions, this is worldwide. And so, there’s a major opportunity to drive down our carbon emissions, and our overall impact on our earth by focusing on buildings. That to me is really important, there’s a big opportunity there.

Second, the way that we design and build buildings, and the way we operate them, hasn’t changed a lot in the last 100 years. If you get into a car today, or you try to communicate with another person, and you use an iPhone or a Tesla, your experience is so different than it was a decade ago, much less a century ago. But if you’re going to build a new building and operate and maintain it, it’s going to look almost exactly the same as it did a decade ago, and almost the same as 100 years ago. So, there’s just a lot of opportunity to do a better job in a built environment, which means there’s a lot of opportunity for companies like ours to be successful, and companies like Geli.

Then third, I just think it’s a really interesting place to be. I went to School for Chemical Engineering and honestly, I think buildings are just a little bit more fun than big old industrial processes and factories to work in. So, it’s my passion, and I think that’s also important when you’re looking at building a company.

Ultimately, I think we’re finding that this industry is just at the very beginning of coalescing around this transition from a building that is largely run off of operational systems. And so you’ve got machines that do work, and that’s all they do is one function, to a connected ecosystem of services that these machines are providing, and the value in connecting them all in a way that is holistic, well thought through, and dare I say smart, is the opportunity to drive a lot of advancements in not only our energy consumption, but more importantly the overall value that that building can provide to its tenants, to its occupants, and to its owners, and ultimately to society at large.

So, I’m really excited about it, the industry is just barely starting to take off, and see a technology boom, it’s been one of the slowest because the people in the industry are slow to move, they’re not the early adopters in the overall economy. I’m excited to ride the wave, and I think there’s a lot of other companies that are seeing it as a lot of opportunity here as well.

We’ve had a series we’ve done recently on the impact of COVID, and as we’re recording this we’re sitting for a lot of people at week 8. In fact, the US is just starting to open up a little bit, in terms of some of the cities and localities. The philosophy we’ve had is that COVID may be an accelerator of a lot of digital technologies, and thus where we make a lot of our investments, but obviously there will be some that are affected positively, and some negatively. What’s your predictions both for cleantech, but very specifically for this smart building space, what impact do you see the current pandemic having on the new normal?

We can share a little bit of data driven response to this, because we have customers every day that are designing, estimating, and building out projects on Retrolux, and we can tell you that the industry is already starting to bounce back. We had our lowest usage three weeks ago on the software, and it’s been going up fairly consistently every week since. So, I think that’s good news that people are getting back out and working in buildings and working on buildings again.

If we look more long-term at trends, things that are going to happen for sure is that more buildings are going to start to use digital solutions to manage their tenants, to manage their buildings, to manage their occupancy. There are all sorts of innovations that I’m sure we haven’t even thought of yet that are going to come out of COVID. We’ve been tracking a lot of them at Retrolux, in particular some of the ones we’re seeing emerge are things like spatialization tracking. So imagine an app that can help you manage your shifts of your employees, to try to keep people from all being at work at the same time, or tell people when it’s their turn to use the elevator, so we don’t have too many people on the elevators. Or, do heat maps that show that too many people have been congregating in certain areas, you can put signs up telling them they need not be so close. All the way down to using location services, and indoor positioning to specifically ping someone’s phone when they’re getting too close to somebody else.

So, there’s a lot of innovations happening, and I think people are seeing a lot of these technologies that had dare I say, light value props when there wasn’t a problem, start to have very crystalized value props, now that we’ve had a challenge in our ecosystem.

I see a very real trend towards the digitization of the building operation systems, the building usage systems, the tenant experience systems, but I think it’s unclear at this point as whether or not we’re going to see an increase in things like co-working spaces, versus long-term lease for office space, whether we’re going to see just an overall drop in the amount of people who go into the office, because they can now work from home. I think it’s too early to tell whether those big trends will happen, but the digitization of the building is absolutely getting an accelerant right now, and we can see that already, both in innovation as well as adoption.

Excellent. I appreciate your quantitative answer on that as well. We are a HubSpot user, HubSpot for those of you that don’t know, is CRM a marketing automation, a lot of small to medium companies utilize it. But what’s interesting is, recently they sent out an aggregate view of deals created on their platform across all the companies that use it, anonymized of course, and showed just to your point that the low point was roughly three weeks ago. Ultimately, they’ve shown a steady rise, which is what we’re seeing in our business, and what we’re hearing across all of our portfolio of companies as well. So, the V recovery as we like to call it.

We’ve mentioned a lot about Retrolux, and I didn’t really give you a chance to introduce and pitch it, so what problem were you trying to solve, and really, why with Retrolux?

The problem we’re trying to solve with Retrolux really again stems from my experience in the cleantech industry, and it all comes down to the fact that it takes way too long, and it costs way too much money, to transition existing buildings to new technologies. So, I’ll give you an example.

LED lighting, I think everybody now knows what that is, I was selling it before the cool kids were, back in the 2000s. The first LED lighting technology sold in buildings was early 2000s, most people don’t know this, they practically think it’s a relatively recent thing. By the time we get to 90 percent penetration of LEDs in commercial buildings, it’s going to be 2030, and so we’re talking a 30-year transition cycle.

In that same period of time the iPhone was released and we’re on version 12, something like 95 percent of people have a smartphone now in developed countries, and I think that just shows how slow buildings are to adopt new technology. The reality is it’s a combination of a lot of things, it’s a combination of technology commercialization speeds, but more importantly the companies and the entities that are out there selling, designing and installing these systems are just really slow to adapt, and a big part of that is they use pencil and paper and Excel spreadsheets. A big part of it is they don’t have the access to metrics on how well these systems perform, it’s a very fragmented industry, the supply chain is very fragmented, so there’s a lot of these challenges that ultimately result in something that’s a no-brainer like an LED lighting install, which has a zero to three year payback period, for building owners taking 30 years to reach full adoption.

I think that’s unacceptable; I think we can use a digital transformation of the supply chain to make these workers more productive, give them the tools to design, sell and install faster. Do that in a way that reduces their costs so that more projects get approved because the paybacks are better. Ultimately, crystallize that value prop of that new technology, reduce the risk of it so building owners can say yes more often. We think if we do those things and we use the tools of marketing, and productivity, and AI machine learning, and these other technology tools that have already been commercialized, we can build a system that mimics how fast we scale other technologies out into the hands of consumers in businesses.

Ultimately that’s what we’re working on at Retrolux, coming down into the day to day work, we build, sales, design, cost estimating, installation management software for contractors, distributors and manufacturers in the smart energy space, specifically lighting today. But that’s the big problem we’re solving, that’s why it is a problem.

I think if a really cool technology comes out of a national lab, or university, or an entrepreneur, that it should have a way of reaching market adoption and market saturation in 10 years, not 30, not 50 years like you see with chemical systems, HVAC systems in particular. So, we’re building that operating system, putting it in the hands of the practitioners, super-charging their productivity, dropping their cost so that they can be more effective in their own businesses, which ultimately means we can get these technologies into markets, and saturate it at a much faster scale than it currently works in the industry.

That’s a unique value proposition, and I can understand how you won hands-down in the Schneider Electrics 40 Challenge last year. I like the fact now I understand better the operating system to scale clean energy, and you’re hitting a relatively underserved segment when you’re talking about the contractors and that full supply chain, that helps to bring together these cleantech installations to smart buildings. What has been your biggest challenge in setting up and scaling the company itself?

You know, I think there’s always lots of challenges in a business, especially when you’re trying to get the company up and running. I think one of the bigger challenges we faced was the market readiness for technology. I thought I was late to the game when I started Retrolux in 2016, and I think in fact we were still a year or two early. 2016, and this is a stat that blew my mind when I found it out, 2016 was the first year that over 50 percent of blue-collar workers had a smartphone. So, our value prop is you can do your jobs in the palm of your hand, and I still remember going out to early customers in 2016 and 2017, and telling them what we were going to do, and having pulled out a flip-phone, opened it, it looked like it had fallen off a ladder 20 million times, and having somebody tell me they don’t know how to text their wife. I’m like, ‘Hm, maybe we’re a little early for this industry’, whist this is happening, and the fax machine is whizzing in the background, and this is only four years ago. And so that was one challenge that we underestimated, was just how fast the industry would be ready for this digital transformation. The good news is, we’re in the sweet spot now, people are definitely realizing this is something they have to do.

The second is related to this, and it’s one that we have now taken on as a challenge, as a company we want to solve, and that is the standard practitioners in the building space. They are people that are used to working on buildings from the perspective of it being what’s called an operational technology. So, it’s something that you plug in, you get power to it, it does work, it does something, and when it breaks you replace it. That type of thinking doesn’t align well with a digital transformation, where that piece of equipment now is also an IT piece of equipment; its connected to the internet, it has an IP address, and the industry that we’re in knows nothing about that. So, there’s a big technology gap that we have to cross with the equipment, solutions and systems that are being installed, and put into buildings to support the smart spaces that everybody is really excited about.

So, that’s the next technology gap that we have to help our customers get over, and here at Retrolux we’re hitting that challenge head-on. As I like to tell people, our industry has a bunch of people that are the same as the guy down the street in your neighborhood, that works on 1957 Chevy’s. He can work on a 1957 Chevy, he can also fix a weed eater, anything that has an engine in it, he’s good to go. But you walk and drive a Tesla into his shop, and he has no ability to work on it, none.

And so Tesla has to build tools, and do training for the new mechanic, and here at Retrolux we’re building those same tools, and we’re helping the guy who knows the work on a 1957 Chevy, we’re giving him the tools and the training they need, the knowhow to service and sell a Tesla. That is something that I think is really critical that a lot of smart spaces companies don’t realize, and it’s causing I think a little bit of a stunt in the overall adoption curve for these technologies.

Digitally augmented service professionals, that’s an interesting space. And actually, we see a lot of interesting software focused on helping service professionals, whether they’re maintenance, or operations personnel, and especially because at least in a lot of larger industries you have a net outflow of talent and knowledge, institutional knowledge going out with them. So, the more you can capture in a platform per se, and assist the next generation coming in, the stronger your service capabilities will be. So, it makes a lot of sense in terms of where you guys are focused, and I think that makes you relatively unique from what we’ve seen as well.

I guess generally what advice would you offer to aspiring entrepreneurs, given your own experience?

I always recommend the same thing to entrepreneurs, and it’s really simple. You need to be crazy to start, and you need to be too stupid to quit. What that really means in the long form is that every big idea, every entrepreneurial endeavor is going to be riskier than something else you could be doing. And so for most people you have to get comfortable that you’re making a somewhat irrational choice, which means you’re a little crazy to start, and you’ve got to go forward and just do that, you have to pull the trigger, believe in yourself, and take that crazy step to get going because it’s scary, it’s been scary every time I’ve done it! It doesn’t get any less scary, because you’re going into an abyss that you don’t know what the final outcome will be.

And then the second part of that I think is actually more critical. Lots of people can start a business, start working on an idea, but they quit before they get through the trough of disillusionment as you mentioned earlier. So, not quitting, having the grit to keep moving, and do so when all signs are telling you, you probably should stop, requires you to have a certain element in your psyche that just says, ‘I will not fail, and I don’t care if the odds are against me, I don’t care if the current situation feels like it’s impossible, I’m not going to quit’. I think that requires you to be kind of stupid to some degree, because you’re making irrational decisions again, because the rational decision in many cases in my businesses would be to stop and wrap it up, call it a day, go back to getting a real coding job.

So, I think that’s really important for entrepreneurs to wrap their head around, is that you have to make irrational decisions to be successful, and that’s okay, it’s actually part of the job. After a while you get comfortable living in a world of incredibly high risk, and you do it because you’re passionate about something. So, this is the final thing I’ll mention, you have to be willing to accept that that’s the world you’re going to go into, and the only way I think that you can make those irrational decisions is because you have so much passion about the problem you’re trying to solve. So, if you don’t have just unrelenting passion around the problem you’re trying to solve, then you will never make those irrational decisions along the way, they are ultimately required for the company to succeed.

So, that’s my broad advice for entrepreneurs. I can go into more operational blocking advice, but if you can’t get through that part then all the blocking and tackling will be for not.

Yes, I think your last point is very well taken, in the sense that you have to be held or mark yourself to a higher ideal. If you don’t have that it’s really difficult, just to simply make a buck at a startup is difficult in and of itself, given the chances of being successful in all of that. But being held that higher ideal really helps get you through some of those low patches. And it’s clear you’re held at the higher ideal of cleaner, smart energy, and you’ve been there – done that, that’s why I would refer to a practitioner versus someone who’s just creating a company who doesn’t have the deep knowledge of the industry. That’s why it’s always important for us practitioner plus entrepreneur.

As you look around at other companies, obviously we’re investors so we’re always liking, what startups are the ones that you would say are the ones to watch, beyond of course Retrolux?

Yeah, and I appreciate that question, it’s a tough one, so I’m going to kind of limit it first to, I’ll call it the energy space generally, or the smart spaces. The first company I recommend taking a look at is actually a hardware company, they do have a software play and they’re called Jewel Case, they are an expandable modular battery company, they can build batteries from something that you could take with you on a camping trip, all the way up to the size of a trailer that you could use to power a music festival. So, they’re really solving this power replace generators problem that’s been really challenging. I think that one is really interesting.

On the software side, I’m going to give a shout-out to my friends at IncentiFind, they’re building a database of all of the incentives for buildings and project development, all across the country. So, if you want to know where you can get a federal tax break for doing a brownfield development, you can find that if you want to find a utility rebate in Wichita, Kansas, they’ve got that data at hand. It’s just super-critical for helping these projects accelerate, because you can look that information up by calling the local jurisdiction and trying to find information. So, super-super-critical.

The final company I’ll mention is a company call Catalyze, they’re building a software system into really more I guess a technology integrator that uses big data to identify locations to put in microgrids, and then they work with the local utility to optimize that microgrid based on the location being say at the end of a powerline, or you need a little bit more juice, so when they need to condition the powerlines. Big data play all the way down to putting the systems in and operating them. So, a really interesting company as well. Lots of them out there, ranging all the way from hardware to really what I would consider pure play digital solutions.

Well three great recommendations, Jewel Case, IncentiFind, and Catalyze. So, final question we always like to ask, are there books and/or resources that inspire you, that you’d like to share with our listening audience?

Yes sure. These days as an entrepreneur I find that I read a lot more bite-sized resources, and I also have a lot of time where I can listen to podcasts. So, in the interview space there’s two podcasts in particular that I recommend, one is called The Interchange, it’s a very I would say more wonky podcast, you probably want to be a bit deeper into the smart energy revolution. Then the second is called The Energy Gang, and this is more of a news and commentary on what’s going on in the smart energy world. Both of those can be found on all your common podcast platforms. But definitely recommend those for podcasts, and I think are the two best resources I see coming out right now for people really paying attention in the energy space.

Another new one that just came out is a blog called Nexus, that you can find on LinkedIn, the blog author is James Dice, he’s from the National Renewable Energy Lab, and he’s really diving in on this digitization of the building control systems, managing control and maintaining our buildings, he’s super-deep into that world. So, another resource with a lot of commentary with people that are needing it included.

Excellent. Well, Leif thank you so much for taking the time to share your insights with the listening audience. This has been Leif Elgethun, who is CEO of Retrolux, and a cleantech entrepreneur and practitioner.

Leif, thank you so much.

No problem Ken, happy to be on the call today.

Alright, take care.

[End]