Four Ways to Create a Legendary Solar Company

Now that hard installation costs are dropping rapidly in the solar PV industry, everyone's looking at how to decrease soft costs as a means to increase profitability. 

Across the board support for decreasing solar soft costs is the result of how well organized the industry is becoming. State governments, the DOE, and private software companies are all working to help.

Cost reduction and the commoditization of project financing are two keys to building profitable companies and an industry. However, when costs fall, financial barriers are eliminated, and policy bottlenecks are lifted, the company that has the advantage will be the one that is uber-efficient on the operations side. Companies with marketing and sales engines will have the upper hand. We can already see the early adopters of this strategy in the growth of strongly branded residential and commercial companies: Sungenvity, SolarCity, and SunRun, just to name a few.

There is one lesson for small and medium-sized solar companies going head to head with these huge solar companies: To compete in the residential or commercial solar space, you need to become extremely efficient with your operations. Both with you marketing and sales and more specifically, your overlap with operations.

For this reason, I spoke with Keith Cronin from Sun Hedge. Keith is based in Hawaii and built and sold his solar integration company to SunEdison. Keith consults with solar integrators and works as a consultant to companies who are looking to develop large solar projects in Hawaii.

There are four pieces of advice that all solar companies can use to become better:

1. Know your numbers. What is your overhead? Are you pricing jobs correctly? Keith noted that the single most important thing any solar company can do to remain profitable is correctly price jobs. 
2. Pay sales people based on net profit not profit size. 
3. Share the benefits of job profitability with the operations team not just sales people. 
4. Make operations and sales people work closely together and shed management where you can. This will decrease overhead and increase profitability. 

We had a great discussion that lasted almost 45 minutes. The full video is at the bottom of the post. Here's what we talked about:

1:20 — You built and sold a solar company to SunEdison. How do you design a "sellable" solar company? If you want to build a solar company to tell it, how do you do it? Keith's short answer:

• Sales and operations need to be working closely together and should be accountable at the net profit margin, in areas where they can control.
• Create long term relationships with clients. Referrals will drive the business.
• Offer other services. (Editor's note: see the entrepreneur vs general contractor)

4:10 — Even if you're not looking to sell your solar company, is it useful to think of your company this way? What was SunEdison really focused on that made it valuable for them purchase your company?

7:30 — Can you discuss open book management and the overlap of sales and operations in a solar company? When you consult with solar companies what is the most common problem and what do you recommend to make the company more profitable?  Keith's short answer:

• The problem is that sales people are based on commission of revenue and not net profit.
• There tends to not be as much accountability on commissioning and operations efficiency as their their should be. The last thing a company needs is more sales if the systems they have are not working well.
• For a company to be legendary, there needs to be overlaps between sales and operations. They need to expect the other's needs. This will take the pressure off owners, and the operations manager can stop refereeing. Key lesson: focus on net profit and share a piece of the action.
• Focus on people who are doing well and reward them. Most companies ignore the performers and focus on figuring out how to increase the results of people who aren't doing well.
• The retail business is very technical. It needs good communications between departments.

11:20 — Have you consulted with companies that make this switch? Have you seen companies make the switch to focus on net profit versus revenue and increasing the overlaps between sales and operations, or is there a lot of resistance to change?

14:10 — Speaking about the education of people based on net profit, do you think there is a fear from small business owners on educating people about their specific numbers?

17:00 — Based on comments from trade and business people, and focusing on the numbers, do you think trade people or business people have an advantage in this space? How do you see the battle turning out? Where is the best place in the industry?

21:10 — One idea you touch upon is the idea of removing bottleneck in a business. Can you share some of the stories you've seen? Also, can you share where you must commonly find bottlenecks and how to solve them?

27:00 — What's the difference between solar business consulting and general business consulting?

29:20 — Are the blind leading the blind in the solar industry?

30:45 — Maybe we need to wake up companies by showing them how good the upside could be in terms of profit. Do you think it's possible for a small company to get to 20 percent net margin before tax?

30:30 — What do you think is a good benchmark for gross and net margins for solar EPC companies?

36:40 — What are the specific characteristics of a legendary solar company?

40:00 — Keith's contact information. For more information on Keith, you can find his information at SunHedge.