Building Network Effects in Climate Tech 🕸️🌎
Hey 👋 - Yoann here.
Each Saturday, I send out 1 actionable tip to support the growth of your Climate Tech startup, your fund, or your career.
It can be read in less than 5 min.
Enjoy!
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Building Network Effects in Climate Tech
Our friends at NFX have put together an incredible Masterclass on Network Effects, and the great lessons from 20 years of tech success stories (from Facebook and Uber to Bitcoin).
They explain how network effects drive impactful businesses and how you can use them to win. I highly recommend watching their 11 episodes online, totally free.
To pique your interest, I’ll distill some key lessons directly applicable to Climate Tech below, to help grow massive and enduring companies.
The core idea of Network Effects is that every new user that joins increases the value of the other users of the network. Because of that value, they won't leave.
Realize that your startup itself is a network and your goal is to bond people to it. You should learn the tactical best practices for bonding nodes to your network.
Nodes are your employees, partners, investors, and customers.
You can build two types of networks:
A high-density homogeneous network (like Uber, with drivers and riders with very similar needs).
Or a low-density heterogeneous network with different needs (think Upwork, with companies hiring freelancers with totally different skillsets)
Homogeneity allows you to grow your network faster, but then often leaves you more vulnerable to attack by other competitors and other networks, simply because people are interchangeable (think about Uber and Lyft offering discounts to users to switch to their own network).
In Climate Tech 🌎, most networks will be heterogeneous. Once in place, they will have incredible retention and defensibility.
Single Player vs Multi Player
There's a mindset shift that you need to have in order to see the full potential of networks.
You've got to go from the idea of a single-player game to the idea of a multiplayer game. If you're building a game of solitaire, that's a single-player game. If you're selling a SaaS tool to an enterprise company, they buy your tool and use it for their data.
But if you think about how to turn everything you're doing into a multiplayer game or think of how what you're doing is a multiplayer game, it changes everything.
You have to ask yourself:
How do I add other people into this game with me?
What am I compensating them? What are they getting? What value are they providing?
What's the implicit arrangement we have with each of the nodes in the network we're bonding into this multiplayer game?
Your objective is to create incentive mechanisms to onboard as many nodes to the network as possible and increase the perceived value to retain them.
Make sure everyone on the network benefits from it. That is the ultimate defensibility.
In Climate Tech 🌎, every sub-sector should create a multiplayer game by sharing learnings & resources, monitoring and reporting on impact, lobbying for better policymaking, and establishing consortiums to drive large deals with corporates.
There are endless benefits to derive from more collaboration on your network.
The 4 types of defensibilities
Network effects
Find them early on in your industry and use them as defensibilities to build a category defining company
Brand
Brand arises when customers understand who you are and what you do. It drives the psychological switching cost
Brand is a proxy for TRUST. And consumers/customers are risk averse
How do you define your brand? How do you stand out?
Specific purpose --> Stand out with a controversial message. It will increase stickiness.
Specific mission
Message repetition
Clear visual identity
Amplification (through social media, podcasts, events, conferences)
Embedding / integration
Deeply integrating your product and service into the customer's operations, making it hard to remove and increasing the switching cost
Sending notifications for upselling, cross-selling, and facilitating new orders
Sharing the metrics to demonstrate your impact on their core business and bottom line
Removing the friction in the decision making process, especially for the key decision-makers within the organization
IP
Patenting the critical components of your innovation. It is particularly prevalent in Climate Tech 🌎 with a vast majority of advanced deeptech & hardware solutions.
Tips to develop network effect in your Climate Tech business
Let all your OEMs, partners, and customers onto YOUR network to capture more value on the network
Define your brand and generate high visibility. Make sure all your industry stakeholders are aware of your network.
Try to grow geometrically in every part of your business (faster sales, faster procurement, higher employee retention…) so you can engineer growth and increase the perceived value of your brand
Eventually, grow your network through Merger & Acquisition with other actors in the network to make your network unavoidable
CONCLUSION
Network effects are jet fuel for tech companies, but few founders truly understand them.
Hope I’ve triggered your curiosity.
To learn more, this free NFX masterclass will get you thinking about strategies for growing and scaling your startup. It’s a gem.
IN CASE YOU MISSED OUR LAST PODCAST EPISODE
Teampact Ventures - From Rugby career to Climate Action (feat. Benjamin Kayser)
After a successful Rugby career 🏉 - 47 games with the French National Team 🇫🇷, and hundreds in the French and English championships - he is now making waves in Venture Capital.
There’s no better person to explain the bridge between elite sport and elite tech and how world-class athletes can help the Climate fight.
This episode received overwhelmingly positive feedback.
That's all for this Saturday. Simple insights in 5 minutes.
If you are enjoying this newsletter, the best support would be to recommend it to a Climate friend or share it with others on LinkedIn or Twitter.
Cheers,
Yoann
Made with Climate 💚