Why new business models are rarely successful in the energy sector

Companies need to be innovative if they are to play a part in finding the new solutions needed for a successful transition to greener energy. The German government’s climate goals for the percentage of overall power generation to be met by renewable energies (65 percent by 2030) and their goals for reducing greenhouse gas emissions (55 percent reduction on the figures for 1990 by 2030) mean that the German energy sector – as the sector with the highest emissions – must make a significant contribution. Both the regulatory and the economic situation would seem to be ideal: various different energy-related incubation and accelerator programmes are being set up, and finance for both research and risk capital are available. Yet despite this clear mission to achieve innovation, only 2.5 percent of newly-founded companies come from the energy and power sector (source: German Start-up Monitor 2020). So why is it that new business models in the German energy sector are rarely successful?

Developing business models represents a fundamental challenge for growing companies in the scaling-up phase, in particular when the market requirements or the regulatory framework conditions change. One way of responding flexibly to evolving user requirements is through the agile development of products and services. For this reason, the study focuses on various aspects of the agile development of products and services, from the point when a minimum viable product has been created through to successful market penetration. The agile generation of business ideas or new products and services in the sense of an ideation phase, and other ideas-focused approaches such as Design Thinking, are not included in the study.

Agile product development and entrepreneurial spirit increase success rates

A team of experts from umlaut carried out an evaluation to establish the extent to which competencies in the area of agile development contribute towards success in the scaling up of new ventures in the energy sector. They found that all the companies interviewed as part of the study have the potential to make improvements.

According to the umlaut experts, the following findings represent the main obstacles to scaling new business models:

1. Goals and their continuous and flexible adjustment, as well as the use of agile development, i.e. sprint decision-making at team level, are only partially being correctly implemented. Fast implementation is often seen as the goal of agility, rather than understanding that the focus is in fact on customer-centricity and flexibility.
2. The mechanisms for growth are only partially understood and are reduced to financial measurement parameters, meaning that scaling up can only be catalysed to a limited degree. Non-financial performance indicators, particularly user behaviour, are hardly used and are not given sufficient weight for the underlying effects to be understood.
3. Entrepreneurial spirit is the most important quality for a successful venture team – and yet it is still the case that too little of both internal and external resources is being invested in this area.

In this context, it is the last of these findings that has the biggest impact, as a stronger entrepreneurial mindset is often accompanied by the appropriate education and training, which would then ensure that the first two challenges are met. However, the increasing openness towards external impulses of the companies interviewed, as well as the increase in dialogue with various other sectors, e.g. the mobility sector, allows us to conclude that energy companies’ capacity for innovation will increase in the long-term, and Germany will successfully manage the transformation of its energy system in economic terms as well.