In 2013, Martin Trust Center for MIT Entrepreneurship Managing Director Bill Aulet published “Disciplined Entrepreneurship: 24 Steps to a Successful Startup,” which has since sold hundreds of thousands of copies and been used to teach entrepreneurship at universities around the world. One MIT course where it’s used is 15.366 (Climate and Energy Ventures), where instructors have tweaked the framework over the years. In a new book, “Disciplined Entrepreneurship for Climate and Energy Ventures,” they codify those changes and provide a new blueprint for entrepreneurs working in the climate and energy spaces.
MIT News spoke with lead author and Trust Center Entrepreneur-in-Residence Ben Soltoff, who wrote the book with Aulet, Senior Lecturer Tod Hynes, Senior Lecturer Francis O’Sullivan, and Lecturer Libby Wayman. Soltoff explains why climate and energy entrepreneurship is so challenging and talks about some of the new steps in the book.
Q: What are climate and energy ventures?
A: It’s a broad umbrella. These ventures aren’t all in a specific industry or structured in the same way. They could be software, they could be hardware, or they could be deep tech coming out of labs. This book is also written for people working in government, large corporations, or nonprofits. Each of those folks can benefit from the entrepreneurial framework in this book. We very intentionally refer to them as climate and energy ventures in the book, not just climate and energy startups.
One common theme is meeting the challenge of providing enough energy for current and future needs without exacerbating, or even while reducing, the impact we have on our planet. Generally, climate and energy ventures are less likely to be only software. Many of the solutions we need are around molecules, not bits. A lot of it is breakthrough technology and science from research labs. You could be making a useful fuel, removing CO2 from the atmosphere, or delivering something in a novel way. Your venture might produce a chemical or molecule that’s already being provided and is a commodity. It needs to be not only more sustainable, but better for your customers — either cheaper, more reliable, or more securely delivered. Ultimately, all of these ventures have to provide value. They also often involve physical infrastructure that you have to scale up — not just 10 times or 100 times, but 1,000 times or more — from original lab demonstrations.
Q: How should climate and energy entrepreneurs be thinking about navigating financing and working with the government?
A: One of the major themes of the book is the importance of figuring out if policy is in your favor and constantly applying a policy lens to what you’re building. Finance is another major theme. In climate and energy, these things are fundamental, and we need to consider them from the beginning. We talk about different “valleys of death” — the idea that going from one stage to the next stage requires this jump in time and resources that presents a big challenge. That also relates to the jump in scale of the technology, from a lab scale to something you can produce and sell in a quantity and at a cost the market is interested in. All of that requires financing.
At an early stage, a lot of these ventures are funded through grants and research funding. Later, they start getting early-stage capital — often venture capital. Eventually, as folks are scaling, they move to debt and project financing. Companies need to be very intentional about the type of financing they’re going to pursue and at what stage. We have an entire step on creating a long-term capital plan. Entrepreneurs need to be very clear about the story they’re going to tell investors at different stages. Otherwise, they can paint themselves into a corner and fail to build a company for the next stage of capital they need.
In terms of policy, entrepreneurs should use the policy environment as a filter for selecting a market. We have a story in the book about a startup that switched from working in sub-Saharan Africa to the U.S. after the Inflation Reduction Act passed. As those incentives began disappearing, they still had the option to return to their original market. It’s not ideal for them, but they are still able to build profitable projects. You shouldn’t build a company based on the incentives alone, but you should understand which way the wind is blowing and take advantage of policy when it’s in your favor. That said, policy can always change.
Q: How should climate and energy entrepreneurs select the right market “stepping stones”?
A: Each of the “Disciplined Entrepreneurship” books talks about the importance of selecting customers and listening to your customers. When thinking about their beachhead market, or where to initially focus, climate and energy entrepreneurs need to look for the easiest near-term opportunity to plug in their technology. Subsequent market selection is also driven by technology. Instead of just picking a beachhead market and figuring everything else out later, there often needs to be an intentional choice of what we call market stepping stones. You start by focusing on an initial market in the early days — land and expand — but there needs to be a long-term strategy, so you don’t go down a dead end. These ventures don’t have a lot of flexibility as they build out potentially expensive technologies. Being intentional means having a pathway planned from the beachhead market up to the big prize that makes the entire enterprise worthwhile. The prize means having a big impact but also targeting a big market opportunity.
We have an example in the book of a company that can turn CO2 into useful products. They knew the big prize was turning it into fuel, most likely aviation fuel, but they couldn’t produce at the right volume or cost early on, so they looked at other applications. They started with making vodka from CO2 because it was low-volume and high-margin. Then the pandemic happened, so they made hand sanitizer. Then they made perfume, which had the highest margins of all. By that point, they were ready to start moving into the fuel market. The stepping stones are about figuring out who is willing to buy the simple version of your technology or product and pay a premium. Initially, looking at that company, you might say, “They’re not going to save the planet by selling vodka.” But it was a critical stepping stone to get to the big prize. Long-term thinking is essential for ventures in this space.
