Lessons for Home Energy Professionals from SolarCity's IPO.

In case you haven’t noticed, SolarCity is killing it.  Since opening in 2006, it has quickly grown into the highest volume residential solar installer in America.  Now the company is going public, which should give it the necessary capital to expand into foreign markets and be even more aggressive with its sales and marketing.

As part of the IPO process, though, SolarCity had to file an S-1 statement with the Securities and Exchange Commission (SEC), which is a document that clearly explains its business model and strategy along with perceived market risks.  Good news for you, it’s a public document, and I spent several hours, and multiple cups of coffee, reading over this dense text yesterday.  In the following sections, I’ve summarized SolarCity’s business model and some important lessons gleaned from the S-1.

Although SolarCity is a large company, they’ve become successful by diligently executing fundamental business concepts that can also help take your independent home energy business to the next level.

What is SolarCity’s Business Model?

Short answer:

Integration of complementary services aimed at developing long-term customer relationships.  

Long answer:

SolarCity sells, installs and maintains residential and commercial solar equipment.  In addition to outright ownership, SolarCity offers financing in the form of power purchase agreements (PPA) and solar leases.  These agreements typically run for a period of 20 years.  Only offering PPA’s and solar leases to financially-secure individuals, SolarCity creates a relatively safe stream of recurring revenues resulting from homeowners making their monthly payments.  

SolarCity also has homeowners assign over to them all of the tax credits, state rebates, and other incentives linked to the solar project.  Bundling these incentives with monthly revenues, SolarCity grants the assets to an investment fund it created.  Large institutional investors, like Credit Suisse, then invest in the SolarCity fund.  In exchange for the granted assets, SolarCity gets to withdraw money from the investment fund to cover its fixed costs and finance future solar installations, while also retaining an ownership interest in the fund.

When SolarCity transfers the rights to revenue and incentives into the investment fund, it also receives a maintenance contract for ongoing upkeep for all the solar equipment it installed.  Not only does the maintenance contract represent yet another source of revenue, it gives SolarCity an excuse to visit the homeowners a few times per year for the next 20 years.  With a guaranteed date at the kitchen table, SolarCity pitches energy audits and home energy upgrades, which, if I’m counting right, is a third revenue stream.

After the photovoltaic system is in place on a home, the energy audit performed and retrofit completed, SolarCity then swings by again to sell accessories like energy storage systems or electric car charging ports.  At this point, SolarCity might as well be invited over for the Holidays because they’re part of the family.

What can we learn from SolarCity’s success?

Even though you may be an independent home performance pro or solar installer with no intention of intergalactic domination, there are some solid lessons that come out of SolarCity’s S-1 filing.  

Clearly define your message, drive it home.

SolarCity has done an excellent job crafting its message: You can buy cleaner, cheaper energy from SolarCity than you can from your local electricity utility--all without paying an upfront fee.  Who wouldn’t want something better for less?  Consistent in its messaging, SolarCity always leads with this powerful proposition.  

Whether you’re working with EEMs or just selling energy retrofits, you need to artfully tie together benefits like savings, comfort, health, resalability of your home. Like SolarCity, you too have a great message: you can give your customers better homes for less money per month than they’re currently paying.

Make life easy for your customers.

In addition to no upfront fees, SolarCity doesn’t really require its customers to do anything difficult.  As a one-stop-shop, SolarCity handles all aspects of the home solar project that could give someone a headache:

• Purchasing Equipment
• Obtaining Necessary Permits
• Applying for Rebates and Incentives
• Siting and Sizing the Panels
• Installing the Equipment
• Performing Ongoing Maintenance and Repair
• Monitoring Energy Consumption and Generation
• Monthly Billing and Customer Service

This integrated business model gives the homeowner all the benefits of ownership (being able to brag at cocktail parties about being green) without any of the burdens.  The homeowner only deals with one company, so there’s no coordinating contractors, haggling with state programs, fixing equipment when it breaks or sorting through warranties.  

Invest in customer relationships.

SolarCity’s whole business model hinges on having its customer’s attention for at least 20 years.  As the trusted home energy advisor, it has the opportunity to sell a full suite of services without incurring additional marketing expense and hassle--all while earning a maintenance service fee.

Sure, as an independent contractor or small company, it’s going to be difficult for you to sell many 20 year contracts.  Customers simply aren’t confident you’ll still be in business in 20 years.  But, there are other ways you can get in front of your customers a couple times a year and slip into that cozy role as a home energy advisor: HVAC tune-ups, annual air quality check-ups, seasonal thermal imaging updates, etc.

Leverage complimentary services.

Once you have your customer at the kitchen table and have earned their trust, it’s time for you to sell, sell, sell!  Think about what other services you can provide efficiently without having to get additional training or expensive equipment. Have you thought about offering an electrical audit using an energy monitoring device?  Consulting services on how to reduce plug load expenses?  Periodic reviews of utility bills?

Don’t be afraid of software.

Software has been instrumental to SolarCity’s growth in two primary ways.  First, software has allowed efficient communication between the company’s various divisions working on the same project.  Given its commitment to ensuring a positive customer experience, SolarCity places a premium on project management and producing a quality product.  So, if you’re having trouble keeping big projects running smoothly, think about project management software to keep everyone organized.  There are lots of options out there, but the Energy Circle team has found Podio to be pretty helpful.

The second way software has promoted SolarCity’s rapid growth is by increasing customer engagement.  For example, the company has created an online energy monitoring program that allows homeowners to see what amount of energy their home is producing and consuming at any given time.  Data is key to getting homeowners to care about energy usage, and when the do, you’re more likely to sell additional upgrade services. For more ideas on how to use software to increase customer engagement, check out Energy Circle PRO's Customer Pages tool.

Own the customer experience.

Much like Apple, SolarCity has been able to control all aspects of the customer experience by offering fully integrated services.  Why is this so important? All aspects of the project will be imputed to your brand--good and bad.  The home energy upgrade process is ripe for up-selling, so you need to ensure top-notch customer service.  By having to rely on subs, you relinquish control of the experience and run the risk of alienation.

So, if you’re in a position to expand, you might consider adding additional services to become a full-service firm.  But, if not, this example impresses upon us the importance of managing your sub-contractors.  It’s bad enough to lose a customer for something one of your subs did during a solar install, but it becomes especially painful if you were in a position to perform the audit and retrofit as well.

Thoughts? Feel free to chime in in the comments; we'd be happy to keep this conversation going.