Drew Mcinnes - Using human centered design to bring something new into the world

04/18/2023 Confidential outsmartinc.com

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Using Human Centered Design to Bring Something New to the World

Building Efficiency

Drew (Andrew) McInnes


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Outline of Discussion

Innovation Challenge

What Problem to Solve

Getting to the Right Solution (Using Human Centered

Design)

Designing the Right Business Model

End Result


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Innovation Challenge

Increase the energy efficiency of existing US commercial buildings

Challenge

• Break with convention and create solution that

actually increases energy efficiency of existing

commercial buildings in United states

Conventional Approaches

• Force IT solutions upon users through “C-level”

• None of these solutions meet customer

expectations however, leading to minimal

impact on efficiency

Facts

• 5 million buildings (>1,000 ft2)

• Account for 15% of total US energy

consumption

Current approaches fall short and like humans, no two buildings

are alike


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How We Got Started

First up was determining what problem we needed to solve

HVAC System

Degradation

and Failure

Energy

Converted to Work

(HVAC Operation)

(35%)

Energy WastedEnergy Supplied

(80%)(100%)

Energy

Actually Converted to Work

(Discrepancy of -15%)

Put my systems thinking “hat” on and saw we needed to solve

a human problem more than a technical one to fulfill our

intention

Balancing

Feedback

Stock of Energy in Building Operations (Simplified Version of My Original Model)


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Problem We Needed to Solve

Reframe how managers and contractors interact in “small buildings”

My Rationale

• 75% of building managers lack resources to keep their HVAC systems running properly

themselves

• So these managers hire contractors to watch over their systems in order to achieve

“peace of mind”

• “Peace of mind” that someone knowledgeable is always watching over the HVAC system

“24/7”

• BUT, contractors can only meet this intangible need with an intangible solution

• One called “trust based” contracting where managers must trust contractors will

perform to expectations

• Approach gives rise to communication gaps leading to poor HVAC performance in 75%

of buildings

In order to improve HVAC performance and in turn the overall

energy efficiency of many commercial buildings in the United

States


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Getting to the Right Solution

Started by observing 45 managers and contractors

Discovered that greater TRANSPARENCY and ACCOUNTABILITY

is

what they would most value in their HVAC interactions

Unmet Needs (ZMET Photos) Uncovered and Translated Unmet Needs

• Observation, interview, and prototyping

led me to uncover and translate unmet

needs

• Topping each side’s list was greater

“transparency” and “accountability”

Verified Findings

• Qualitative and quantitative methods

subsequently helped me to verify these

findings

‒ e.g. surveys, regression, etc.


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How Much They Would Value This

Was what we sought to understand next through experiments

PREDICTABILITY and SCALABILITY led us to the answer

Predictability

• Managers and contractors would like to

be able to predict HVAC system problems

ahead of time

Scalability

• Contractors would like take back

relationship with manager from

contractor’s own technician

• This would allow contractors to scale and

tangibly value their business for first time

ever

Hidden Aspirations (ZMET Photos)


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Getting Us to the Right Idea …

Like US Postal Service, bridge the last mile of communication

Comprehensively and Down to Device Level

Safety and Diagnostics

Repair and Maintenance

HVAC System Operations

Equipment Tracking

Unlocks highest levels of transparency and accountability in

interactions and enables unprecedented scalability and

predictability


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… and Our First Design Choices

Framing our solution

In order to give managers and contractors

what they value the most

Monitoring

OR

Controls

Cat5 Cable

OR

Power Line

Data

OR

Recommendations


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Our Proposed Solution

Breakthrough HVAC monitoring system

System Equipment

Internet

UtilityActionableInformationData Server

HVACMonitor

Monitoring and Management

Performance Optimization

Safety/Diagnostics

Service / Maintenance

Predictability

ROI/Payback Analysis

Offers actionable information

as powerful motivator towards implementation


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Brining Us to Ask

How best to deliver this product and service solution

We mapped different business models to achieve resonance

between what is meaningful to people and what is profitable

for business

Cost Structure Revenue Streams

Key Partners

Key Resources

Customer Segments

Channels

Customer Relationships

Key Activities

Value Propositions


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Leading Us to Business Model Innovation

We selected a subscription based revenue model to test with customers

Education: Labs/Dorms

Government

Multi-unit Residential

Commercial

3rd Party Service

Demand Response

Utilities

Wholesalers

Energy Service Co.

Manufacturers

1. SaaS with hardware - standardize NewCo as the Premise Network

2. Transactions - connect 3rd party ecosystem with qualified customers

3. Informatics – aggregate/sell information to manufacturers, utilities and others

INITIAL FOCUS

New Company(NewCo)


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Question Then Became

What is best way to execute on model to achieve profitability in business

Answer depended upon outcomes of this trade-off analysis

EQUIPMENT

Give It AwayOR

Charge For It

SERVICES

Require Advance Payment

ORBill as We Go


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Results of Trade Off Analysis

Medium-size buildings is where to first strike resonance in the business

Meeting criteria for business profitability

(LTV > 3x CAC and months to recover CAC < 12 Months)

Actionable Information Services

Super Small

Small

Data

Collecti

on

Eq

uip

men

tC

harg

e F

or

Giv

e

Aw

ay

Small to Medium

Medium

Charge %Upfront Payment

Bill as We Go


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Resulting Business

Developing prototype and signing up beta users

1. Focused on Retrofit Market (Medium-Size Buildings)

• Fewer decision makers (VP Ops, COO, facilities manager)

• Existing pain (managers writing checks with no ability to manage costs)

• Leverage existing electrical channels for installation

2. Targeting Indirect Sales Model Initially (Vertically Integrated)

• Target contractors/ESCOs with multiple buildings

• Coordinate all electrical installation work

• Supply and charge for hardware directly (bypass distribution)

3. Seeking to Build Revenue and Transition to Distribution Model

• Leverage hardware partners (device, building automation, panel)

• Begin adding new construction (market to engineers, architects, builders)

http://www.csgrp.com/index.html

http://images.google.com/imgres?imgurl=http://www.itcaevents.org/images/CBRE.jpg&imgrefurl=http://www.itcaevents.org/&usg=__nhI1K7PczOfL3RaAgzxthuHKNDE=&h=283&w=439&sz=58&hl=en&start=22&sig2=UWk3dnPe0e4Nk1jINidh0Q&tbnid=jcbaBF3r9_T83M:&tbnh=82&tbnw=127&prev=/images?q=cbre&ndsp=20&hl=en&rlz=1T4DKUS_enUS277US282&sa=N&start=20&ei=Ulx8SvjgH43hlAeGuOH1AQ


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End Result

Disruptive solution and model focused on always controlling data

1. Reduce Hardware Cost to Enter Small Buildings• Get down manufacturing cost curve• Graduated pricing based on customer needs

(complete coverage vs. critical loads)• Sell hardware at low markup (60% Hardware, 30%

Labor)

2. Focus on Subscription Services • Create ongoing revenue stream associated with

software and services• Packaged pricing based on customer needs and

value• Up-sell into higher value/margin contracts/services

3. Always Control Data• Leverage opportunities for monetizing data with

building owners, utilities, and manufacturers• Share partial data with building automation systems• Sell aggregated data to 3rd party ecosystem

Essential to reframing other high-value relationships

that resonate with managers, contractors, and profitability

alike


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Contact

Drew (Andrew) [email protected]

(408) 455 1090 (mobile)

mailto:[email protected]


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Subscription Based Revenue Model

Offered shortest time to revenue, and more importantly …

• What is always important to me in designing

new businesses is applying systems thinking

• Applying systems thinking allows me to map

out several alternative business models

• Each model gives me ideas about how a

business could behave over time and in

different scenarios

• Plotting this behavior enables me to map

path to higher levels of customer and

business resonance

• Defining and prioritize relevant criteria

about which model to test first through

customer contact… pathway to achieving high levels of resonance between

what is meaningful for customers and what is profitable for

business

How I Organized My Thinking

• Excellent first stepping stone towards

achieving higher levels of customer and

business resonance

• By first delivering proprietary access to high

value data that cannot be collected

effectively today

• Subsequently enabling higher-margin

businesses (transactions and informatics)

• That provide managers and contractors with

more actionable information beyond HVAC

system

• Bridging communication gaps in other

human interactions within the built

environment

Why I Selected this Model


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How We Tested My Assumptions

Created customer advisory board to test and refine these assumptions

Giving us free access to leading thought leaders in

building-management and mechanical-contracting worlds

• Initiated, structured, and performed financial

analysis to create value based pricing model

• Achieving buy in for my modeling from

potential customers at each and every step

along the way

• Shrewdness of contractors as business

people will make value based pricing terms

a difficult sell

• Only few are willing to consider pricing

structures based on value solution

delivers

• Leading me to tweak strategy for

getting us to transactions/informatics

business sooner

NOT SO MUCH SO

Value Based Pricing

• Learned mechanical contractors are

gatekeepers to managers even in medium-

size buildings

• Meaning contractors are our customers, and

partners in selling to building managers

• Contractors typically take 2-4 months to

gain comfort with new solutions like ours’

• Before buying from people like us and

turning around and helping us to also sell to

manager

• 25+ interviews validated this advisory

board thinking and a 3-5 month sales

cycle

VALID ASSUMPTION

< 6 Month Sales Cycle


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Assuming We Were Right About

Sales cycle of 6 months or less

Customers accept value based pricing terms

< 6 Month Sales Cycle

• Underpinning all of my financial analysis of the business was how fast we could

acquire customers

• Customers that took more than 6 months to acquire would become financial drags on

the business

• In that it would be difficult to recover customer acquisition costs (CAC) in 12 months or

less

• No matter how I “sliced and diced” the numbers, I could not get around this 12 month

constraint

Value Based Pricing, Not Cost Plus Margin

• Bookending this challenge in my design was another one called long term customer

value (LTV)

• We would need to achieve a multiple of LTV in excess of 3x CAC to achieve acceptable

margins

• Value based pricing would allow us to do so, but cost plus margin pricing not so much

so

• Cost plus margin is what managers and contractors know – so would they accept value

pricing

Drew Mcinnes - Using human centered design to bring something new into the world

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Transcript of Drew Mcinnes - Using human centered design to bring something new into the world