According to the research by Planet A, Norrsken, and Speedinvest, investors agonize that founders do not think deeply about their business model when scaling up. Now that you have a bird-eye view of different possible business models for your scale-up, how do you choose the right one? The Zen-master style answer is to follow the money. But as you are reading this book, not to gain enlightenment but to learn concrete steps to scale your startup, there are four steps you need to take to figure out which one fits your company most. We’ll get there, don’t worry. But first things first.
Following the money should be your guiding principle in selecting your business model. Even though your startup is a cleantech startup, and you work to make the world livable for this generation and those that will come after, you won’t succeed in this goal if your business doesn’t make as much money as possible. How do you make that? You try to build a monopoly.
Pieter Thiel, in his famous book “Zero to One,” writes that successful startups do not enter a competition with others - they build monopolies. Only a monopoly position will allow you to build a lasting company, impact the world, and get those 10x or 100x returns your investors crave. Two things can get you there – your technology and your business model. While you are thinking about your business model and working through the steps of the framework, keep this guiding principle in mind – follow the money and try to secure a monopoly position.
The following 4-step framework for choosing climate tech scale-up business model sets out to break down the logic of finding the right business model:
1. Start with determining the value a customer will get from your product/service
2. Work back upstream, determining many suppliers, including your startup, will be involved along the value chain
3. Identify which part of the value chain will have the biggest pricing power, being able to dictate prices to the rest of the value chain, and why
4. Check where and how your startup can take place in the value chain.
Let’s dive into more detail for each of these steps.
The 4-step Framework for Choosing Climate Tech Scale-Up Business Model
Step 1. Determine the value to the customer
If you get to the scale-up stage, you should have a pretty good idea of what value your customer will get when your product or service is massively deployed. After all, until this point, almost every meeting those pesky investors started with them grilling you exactly about your value proposition. For this step, you’ll need to get quite specific.
Look beyond your next step and model a situation of NOAK – Nth-of-a-kind. Model what the price would be for a customer and why he would pay it. Find and pinpoint customers’ 10x gain over substitutes or whatever the customer is using now. As we know, this doesn’t have to be literally a 10x price difference. It can be a similar status difference or safety improvement.
For example, LuxWall has innovated in the building materials sector by creating highly insulating, transparent vacuum-insulated glass. Their product dramatically reduces energy loss in buildings, leading to significant savings in heating and cooling costs. This efficiency offers a compelling advantage over standard double-pane windows, providing both economic and environmental benefits.
Step 2. Map the value chain
Starting from your customer, work back upstream, and write out all major material components and services you will need to pull together to provide the final product/service to the customer. Startups that make everything in-house are unheard of, so you will need to rely on one or another sort of supply chain. The key here is to name particular suppliers and note their market condition.
Work through the following questions, when analyzing each supplier. Are they enjoying a monopoly position? Do they face pressures from competitors? Are they obliged or will they soon be obliged by regulators or their other customers to reduce their carbon footprint? How big is the demand from other customers? What kind of market power do those customers have?
How deep and detailed you’ll have to be will depend on the maturity of the market you will operate in. In established markets, like renewable energy or manufacturing of electric vehicles, the supply chains will be fully developed, and you will have to do quite a bit of analyzing each layer of the value chain. In others, like synthetic fuels or small modular nuclear reactors, the supply chain will be much sparse, with some components not produced at all or produced for different industries with slightly different characteristics.
Here is an example of a new market. Our team at Red Wind was thinking about which components of a wind turbine to make at our factory near Volgograd, Russia, and which to outsource. There was no wind turbine supply chain in Russia at that time, so we were free to pick and choose which parts to make ourselves. We took our bill of materials (BOM) and went through all potential suppliers in the Russian market. We called or met them at their factories to assess whether they could deliver what we wanted.
Step 3. Identify choke points
Now that you have mapped your value chain, study it closely and try to find monopolies and supply bottlenecks. Some vendors or service providers may be the only ones who can sell you the stuff your startup desperately needs. This doesn’t have to be existing monopolies, like a sole supplier of a particular piece of equipment. It can be a potential monopoly situation if the market is not there yet. Find the gatekeepers.
Look also on the other side – who are the buyers of your suppliers and can influence them? Some might have big and powerful customers from other industries who can overwhelm your supplier with orders, leaving your startup out of the picture. |
Now, determine what part of the total value your product or service will generate that you’ve established in Step 1 will be eaten up by all the choke points in your value chain. Your goal here is to find the part of the value chain that, due to a combination of factors like location, technology, know-how, regulations, or another type of a “moat” will be able to collect most of the value.
Coming back to the Russian wind turbine example, we decided that we would own the manufacturing of the generator and assembly of the nacelle. The generator was the heart of the turbine and its quality and reliability mattered critically for the operation of the turbine. For the rest of about 6000 parts of the bill of materials (BOM), we decided to source externally.
Step 4. Fit in your startup
It is time now to take a step back from the analysis of the value chain and look instead at your startup. How instrumental is your startup in the generation of value? Which parts of the chain can you occupy and won’t be dethroned in a short while? Where will your market position be the strongest? What will be your leverage over suppliers, customers, and competition?
Blue Ocean Markets
Novel products that require whole new supply chain setups will give you the most flexibility. Think from two perspectives. First, choose the parts that will generate the most value. This can be the manufacturing of a critical component, mining of key material, or distribution. Second, find the parts that while not generating much value, may seriously hamper your product roll-out. After identifying those, mark them as the ones that you should do in-house.
For example, Tesla ensured the success of its EVs by rolling out the Supercharger network and making it free for Tesla owners. Tesla went downstream to charging to create a monopoly-like advantage for itself in a market that is potentially competitive. In the same logic, Telsa eschewed car dealerships and sold cars directly to its customers. In this way, Tesla eliminated a bottleneck in the value chain and was able to control costs.
Red Ocean Markets
When deploying your product in established markets, your analysis will be the same, but your options will be more limited. Existing suppliers would be well-established and possess enough staying power to outlast your attempt to dislodge them. You will need to think harder about the leverage that you can employ that will carve out a monopoly position for you.
Conclusion
Choosing the right business model for your climate tech scale-up requires a deep understanding of your value chain, market maturity, and potential choke points. In emerging markets, an OEM or usage-based model might work best, whereas established markets may favor licensing or subscription approaches. However, remember that every startup’s path is unique—this framework helps you validate your hypotheses and build a resilient business model. How well it fares in the real world will depend on how well you execute your FOAK (First-of-a-Kind) deployments to demonstrate value and scalability. Now it's time to put this framework into action and start shaping your scale-up strategy.