In the last two posts (here and here), we wrote extensively about how the Old Economy way of doing things keeps power and wealth centralized, and how by contrast the cogs of the New Economy are creating the potential to make power and wealth more accessible to individuals and communities. The New Economy enables this phenomena because

(1) it has a tendency to distribute the means (to finance, create, and distribute products and services) to a wider swath of society;

(2) it removes, or diminishes, the role of the middleman,

(3) it empowers individuals to engage in peer-to-peer transactions that are often more favorable than typical client-provider transactions; and

(4) it allows the consumer of a product to collaborate with others in the production and distribution of that product.

In this final post in our three part series, we want to share with you how SolarDesignTool is trying to embrace the New Economy.

Empowering our Customer

Software development is expensive. Seriously, really expensive. If you’re a small company you are not going to develop your own enterprise level custom web application. But if you are a really large company, you will. And with that web application you’ll have an edge that will help you compete against all the small guys in town. With that magical web app, you’ll get more leads, provide quotes faster, and win more jobs. The software will also allow you to operate more efficiently, reducing the now notorious “soft costs” of solar, so you can offer better deals. Our goal is to empower the small and middle-sized contractor with the same kind of tools the big guys have, so they can instead compete on the basis of quality and craftsmanship, and keep more solar dollars in the local economy.

Making our Business Customer and Product Centric

We have adopted a customer-friendly, product-focused business model. What does this mean? Aren’t all business models customer friendly? No. In any company there are multiple stakeholders. You have customers, employees, founders, investors, suppliers, and so on. Each one of these stakeholders has their own set of interests. Customers want a good product at a reasonable price, employees want nice compensation and meaningful work, founders want to get through it without ending up in an insane asylum, investors want to make triple digit returns, suppliers want to get paid on time, and so on. In general the more stakeholders there are, the more compromises that need to be made.  In companies where some stakeholders have more power than others, the business model will often favor their interests over the interests of others. In other cases, where participants have equal amounts of power, or even better, there is an alliance of interests, the business model is a win for everyone involved.

So what happens when a business model is too profit-focused instead of customer-focused? You get conniving arrangements aimed at locking customers into products, companies that attempt to position themselves as a middleman in transactions, and businesses that take advantage of customers who are dependent on their products by forcing them to pay exorbitantly high prices. In such cases, the customer becomes resentful of the company they are doing business with.

By contrast, a customer-focused business model is simple. It’s doing business the old fashion way: creating a killer product that customers enjoy using, and offering that product at a fair price. This is the road we decided to take. While this is the path many entrepreneurs try to take, it can be hard to stay the course, especially when it becomes necessary to raise large amounts of capital. The more capital you need, the more leverage investors have, and the more your attention gets divided. If a company depends heavily on cash from investors, the company may find itself in a situation where it has to adopt a business model that does not give as much to customers as its founders had originally envisioned. This is not to say that taking on investors is necessarily bad. However, as a general rule, it is easier to focus entirely on your product and your customers when you do not have to put a lot of energy into attracting new investors and keeping current investors happy.

We’re very happy we decided to take this route. Our focus is squarely on the customer and our product. We are very careful about the investors we take money from and take only what we need. We are cash-flow positive, have a community of happy and supportive customers, and are able to focus our attention on our product and customers.

It’s been a fun ride so far, and we’re expecting it to only get better from here. In addition to plans to add several new features, we’re going to be doing what we can to empower our customers and give them a more active role and stake in our company.

In our last post, we described how the New Economy way of doing things is creating a new dynamic between the producers and consumers of energy and how this dynamic keeps wealth and power in communities instead of exporting it and centralizing it elsewhere.

The key features of the New Economy that we identified as being responsible for this trend are:

• distributing the “means” to finance, produce, and distribute goods and services over a wider base of people;
• removing, or diminishing, the role of the middleman. Middlemen serve as, or have control of, an exclusive conduit of information, goods, or services. But when the middleman loses control of that conduit, or if many other conduits come into existence, the middleman ceases to exist.

Our discussion centered on how individual or local ownership of a solar electric system has the potential to turn the industry on its head because it distributes the means to produce and deliver electricity to the masses, while reducing opportunities for middlemen. Distributing the means and cutting out the middleman means that more money (and power) remains in communities. This is far different than the fossil fuel industry, where the means to produce and distribute energy is so expensive, the ownership and control of the means must be centralized. This creates ample opportunities for middlemen and gives energy companies ridiculous amounts of power.

While solar energy is an excellent example of this phenomena, the largest New Economy waves are being generated by advances in information technology. Low cost software makes it possible for individuals to do what only large enterprises could do in the past, and the Internet makes it possible for people to distribute their ideas, services, and products quickly to a very large audience at little or no cost.

Again, let’s look at this using the key concepts of the means and the middleman. As more and more functionality is packed into low-cost software, individuals and small businesses have greater access to the means to create things such as music, videos, high-quality graphics, and technical designs. Armed with software, an individual now has the same productivity that a team of perhaps a dozen people had just 20 years ago. Each one of us can have access to our own printing press, music studio, video production studio, and design studio. Moreover, it’s becoming easier and easier for people to create their own software–so not only are people acquiring the means, they are producing it.

While easy access to powerful software has had an enormous impact on our economy, it was the introduction of the Internet that really took things to a new level. It impacted all aspects of economic activity: finance, production, and distribution. In each one of these areas, the combination of software and networks is distributing the means far and wide, while leaving middlemen with fewer and fewer opportunities to profit from other people’s material contributions. The effects are far reaching and is turning what used to be an economy that looked like a highway with endless toll booths manned by middlemen, to a do-it-yourself economy where individuals and communities are king.

So let’s look at some examples of how the confluence of networks (the Internet) and software is changing the way we do things.

The Internet has created direct channels between buyers and sellers, and producers and consumers, enabling transactions to take place without the burden of multiple middlemen. Transactions that take place directly between the buyer and seller are called peer-to-peer transactions. Peer-to-peer solutions are enabling people to do things like accept credit cards from other individuals at minimal cost (Square), borrow money from a pool of other individuals (Prosper); rent rooms (AirBnB), equipment, cars (RelayRides), or parking spaces (ParkCirca) from other individuals; and share things like couches (CouchSurfing) and car rides with other people.

Peer-to-peer economic activity is blowing up. The model is so attractive, in part, because the role of consumer and producer is interchangeable. One day you are on one side of the transaction, and the next day you might be on the other side. Today you are the buyer, and tomorrow you are the seller. Each individual relates to the business as both the buyer and seller, as both the producer and consumer. In order for this to work, the business model has to be equally attractive to both roles, thus there is a balance of power between these two parties, and the inevitable result of this arrangement is a win-win transaction.

Mixed in with the growing peer-to-peer movement is crowdsourcing. The Internet’s ability to create direct lines of communications between people who would otherwise never have an opportunity to know each other has made collaboration possible on a grand scale. Wikipedia is the most obvious example, where thousands of people each day collaborate on the creation and maintenance of what has become the world’s largest and most up-to-date encyclopedia. But then there’s Kickstarter that makes it possible for individuals to pool their money together to finance projects, or CarrotMob that allows people to “vote with their money” to advance their values and improve the world, and the HistoryCommons which makes it possible for people to collaborate on the documenting of history and the creation of investigations into centers of power.

Peer-to-peer transactions and networked collaborative production is really shaking things up. Many powerful interests that accumulated their power in the Old Economy are becoming more irrelevant with each passing day in the New Economy.

So how is all this relevant to SolarDesignTool you ask?

That is the topic of Part III.

I’m sure you’ve noticed already, but something is happening to the economy. I’m not talking about the recession, I’m talking about how peer-to-peer commerce and distributive and decentralizing technologies, such as PV and the Internet, are challenging the political economy’s Old Order and creating what is now being called the New Economy. It’s an important trend to keep on your radar screen because there is little doubt that decades from now, historians will be writing about how it had a significance of seismic proportions. In the next few blog posts, we’ll be discussing why these technologies are different, how they are strengthening communities and local economies, and why this is important for the solar professionals that use SolarDesignTool.

Before we delve into the specifics, bare with me as I lay out some key concepts.

Means.

This can be the means to finance something, the means to create something, or the means to distribute something. If you don’t have the means to do these things, you have to pay someone else who does. If you do have the means, you can do it yourself, and sometimes doing it yourself means doing it better, and for cheaper.

Middleman.

The middleman, or intermediary, is someone who connects a buyer and a seller. Middlemen are enablers–they enable transactions that otherwise would not be possible, or facilitate transactions that would otherwise be cumbersome. In order for someone to be a middleman, the person needs to serve as, or have control of, an exclusive conduit of information, goods, or services. If the middleman loses control of the conduit, or if many other conduits come into existence, the middleman ceases to exist. This is called disintermediation, or “cutting out the middleman”. Because of the strategic position middlemen occupy, they are often able to charge a fee that exceeds the value of their material contribution to the product or service. As a result, the buyer, seller, or both makes less on the transaction. For this reason, middlemen are sometimes viewed upon as parasites or leeches.

Power And Interests.

In most transactions, there is a conflict of interests. For example the buyer wants a lower price, and the seller wants a higher price. The actual price ends up being a compromise. When there are more participants involved, each with their own interests, more compromises must be made. Each participant will use whatever power and leverage they have to advance their interests vis-a-vis the interests of other participants. In situations where some participants have more power than others, the transaction will create winners and losers. In other cases, where participants have equal amounts of power, or even better, there is an alliance of interests, the transaction can result in a win-win situation. An alliance of interests can happen many ways, but perhaps the most powerful alliance of interest occurs when the consumer of an item is also involved in the item’s production, distribution, or financing.

Movement of Wealth

In some transactions there is no movement of wealth, such as when one person purchases an asset of another person. One person exchanges $1000 in goods for a $1000 in cash. In other transactions, where a person is purchasing something that will be used up, or is purchasing something that is worth less than the price they are paying, wealth moves from the buyer to the seller. For example, a person pays a mechanic $500 to perform maintenance on his car. The car is not worth any more after the transaction than before, but the owner of the car is now out of $500, while the mechanic and his suppliers have increased their wealth by some fraction of that $500.

As we explore the topic of the New Economy, keep these key concepts–Means, Middleman, Power and Interests, and Movement of Wealth–in mind. The recurring theme in the New Economy, is that the new way of doing things distributes the means over a wider base of people and removes, or diminishes, the role of the middleman. In doing so, the New Economy is having a profound impact on the distribution of power and wealth.

Let’s look at the solar industry since this is what we are the most familiar with. Solar technology is most widely known for being a cleaner alternative than its fossilized predecessor. Less spoken of is its potential to turn the energy industry on its head.

Converting coal, gas, or oil into energy and distributing this energy to billions of people requires huge sums of capital. Someone needs to pay for all the refineries, pipelines, tankers, mines, oil drills, and bulldozers to extract these fuels from beneath the earth’s surface and deliver its trapped energy hundreds, if not, thousands of miles away. Acquiring the means to do this requires enormous capital outlays and is thus not something an individual, or even a small community working together can do. Uncle Joe is not going to embark on a DIY scheme to drill, fract, refine, and transport natural gas to his home. The capital intensive technology needed in the fossil fuel industry naturally results in centralized ownership and control of the means, which of course results in centralized wealth and power, and more oil industry lobbyists on Capitol Hill than you can shake a stick at. This power allows the centralized fossil fuel industry to easily advance its interests, often running roughshod over those of everyone else, resulting in oil spills, global warming, poisoned aquifers, and on and on.

Another notorious feature of this energy system is that middlemen–positioned conveniently between freezing grandparents in New England and oil and gas fields all over the world–are often able to exploit or manipulate market conditions to their advantage. Remember Enron?

Since consumers are so geographically distant from the producers and distributors of this energy, the money needs to move long distances, across state and national borders. In cases where the consumer is using the energy for non-commercial uses, this movement of money is also a movement of wealth, draining the coffers of households, communities, and even entire nations.

Compare this to a PV system that is owned outright. Once a building owner has purchased and installed a solar electric system on his rooftop, the individual owns the means to produce energy that he or she will use and/or sell to the grid.  There is no middleman, because the consumer is simultaneously the producer and distributor. Consequently, there is no parasitic loss of wealth. Moreover, the interplay of power and interests between the participants is a win-win situation for all, because again, the buyer and seller are the same person. The person is in control of their own energy production, will spend far less over a period of 25-30 years than if they were paying the fossil fuel energy companies, and is not contributing to the paychecks of Washington lobbyists. Wealth and power remain with the individual and within the community.

Let’s go through this again, as it is worth repeating. Instead of the means being concentrated in the hands of a few, it is distributed to many. Instead of middlemen making billions on the buying and selling of energy derivatives, the owner of a PV system sells the energy to himself or to a community grid directly. Instead of power going to the oil companies, the power goes to the people and their communities, and finally, instead of money being transferred from homeowners and residents to energy company shareholders and oil sheikhs, wealth remains with the individual and in the community.

As solar professionals, I’m sure you are already aware of these dynamics and I’m probably writing for the choir here. But it’s important because the current trends of the New Economy are also helping to redefine the relationships between software providers and their users. We want to be at the forefront of that, and we’ll be asking for your input in the near future.

Stayed tuned for Part II “The New Economy is You.”

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