New Entrepreneurs, Old Industries

Energy entrepreneurs, especially those in energy production, don’t enjoy the luxury of having numerous possible routes to market—because it is almost always the case (even though they try to avoid it if they can and a few succeed) that they must deal with the existing hierarchy, which controls the infrastructure.

The paragraph comes from a 2007 blog post by Bill Aulet, titled “What’s wrong with energy investing?”  The last three lines tell you the whole story of why it is so difficult to be an entrepreneur in mature industries.  Energy–where your technology almost always has to integrate with the grid–may be the clearest example but the same can be said for education (must get school districts to pay … ), or healthcare (insurance companies must play ball…), or a dozen other industries where old companies enjoy the power of size and the legal framework that often protects them from new entrants.

Put differently, an entrepreneur that wants to enter an old industry often has no choice but to placate large institutional interests–government, or otherwise–that tend to be wary of change.  If you’re building an energy storage company, you’ll have to convince a state and/or federal regulator to allow you to participate in the energy markets.   Even when the entrepreneur can get the blessings, he or she may also have to deal with the third-party payer problem, where convincing the end-user is not enough.

Over the past three years, I’ve seen at least two 3DS companies attempt to disrupt industries with incredibly strong hierarchies.  Tamyca, one of our companies from 3DS Aachen, has built a car-sharing service for the German market.  Hoot.me, a company from 3DS Austin, is building tutoring and educational collaboration tools on Facebook.  In both cases, the companies faced a problem that seemed intractable.

For our car-sharing company, it was a big question of how to convince an insurance company to provide the legally required insurance for the person driving a borrowed car. This perceived difficulty of jumping the regulatory barrier was raised often by mentors and other participants.  (As an attorney, I’ve been guilty of telling students to shy away from innovation in areas that have substantial legal barriers … )  Some even suggested that they try something more pedestrian (pun intended!).  After all, photo-sharing apps don’t face such regulatory hurdles or the need to convince insurance companies.  But often, to build a product that disrupts an industry you have to temporarily ignore the elephant in the room.

For our education company, they’ve built a product that was immediately embraced by students because it offered a superior way to collaborate and study.  But convincing the students isn’t enough because the gatekeepers–department heads, and university administrators–are ultimately the ones that are most likely to pay for the product.

In sum, the new entrepreneur faces two immense challenges: (1) payment, and (2) blessings. But for the entrepreneur that dares to take these on, the opportunities are great, and the rewards even greater.