People Don’t Like Change

This article is the fourth chapter of The Entrepreneur's Journey, a collection of stories about startup companies and the entrepreneurs who built them. To continue reading about key startup themes and lessons learned, check out the entire series here in The Seraf Compass, or purchase the book on Amazon in paperback or Kindle format.


Startup challengesGeorge Baker was a mid-fifties, tenured economics professor at Harvard Business School when he spent a well deserved sabbatical at his home in Frenchboro Island, Maine. A beautiful place, with a ferry that only runs three days a week, it is infamous for the fog that gives living off coastal Maine numerous challenges. When the fog lifts, you can see Acadia National Park to the north, a smattering of additional rocky, green-fringed islands to the east, and the blue sparkling waters of the open Atlantic to the south. And to the southwest, George notes with pride, he can see the three blinking red lights atop a wind farm he helped develop on Vinalhaven Island, twenty miles away. 

Previous to the installation of Vinalhaven’s wind farm, it had always been a mystery to George as to why there was no wind generation on the Maine coast. This was despite an electricity cost about three times the national average, and near constant wind availability. George said, “I had this house out here on the island. I was on the board of the little cooperative electric company serving this island and several others. As time went by, I got interested in energy issues, and particularly renewables.” He decided he would devote his sabbatical time and business skills to solving the mystery. 

The answer, as George came to understand, was a clash between local culture and standard project financing practices. George said, “Lots of developers approached people on the islands of Maine and said, ‘Hey, let us build a wind farm here. We'll build it, and we'll own it, and we'll sell you the power.’ And these crusty Maine types said, ‘No, this is our island. We need to own the project.’ Project backers could not get past that. The islanders were unwilling to allow outsiders to come in and own these installations.” 

Understanding that reality, George set out on a journey that would become a career turning point. “I started working on this problem and figured out a way to do it with community ownership, and still be able to take advantage of all of the federal and state subsidies for renewables. It was tricky. It was novel.” Using George’s financing approach, the Vinalhaven Island wind farm project eventually got off the ground. 



With his sabbatical at an end, George found himself back in his office at Harvard Business School wondering what to do next. George said, “Into my office walks this bold, MIT-trained mathematician named Jessica Millar. She said, ‘I hear you have a wind project on an island. You must have a grid balancing problem. I have a technology that could help you.’” 

George started talking to Jessica about her idea, and became fascinated. Their conversation was a deep dive into how regional and national electric grids are managed. Orthodoxy at the time was to cycle on-and-off large electricity generating plants (coal, nuclear, natural gas) as needed to keep the grid supply in balance with fluctuating grid demand. Jessica explained as power needs changed with the growing adoption of solar and electric cars, this approach to managing the grid was not going to work for much longer. 

With Jessica’s help, George quickly grasped the looming problem. Due to the accelerating growth of many smaller and much less predictable sources of renewable power, such as solar and wind installations, energy grids were going to have big and unpredictable supply fluctuations. With an  increase in electric cars there were also going to be more demands on the grid. In theory, large batteries could be used to soak up extra power in times of surplus, and release power in times of high demand. But commercial scale grid storage batteries were still too expensive to deploy at scale. Jessica explained the modern electrical grid was certain to have major difficulty properly integrating renewables. 

Controlling and balancing renewable supply fluctuations from a small number of massive wind farms was challenging enough. It became overwhelming when combined with thousands of residential rooftop solar installations. More complicated yet were emerging ideas like distributed micro storage. This is a radical idea of using many small batteries, such as the batteries of electric cars in people’s garages, to help stabilize the grid. 

Electric grid operators are, as George puts it, “able to twiddle a few knobs” to ramp up and down a small number of large, traditional fossil fuel and nuclear power plants. Jessica got George wondering “Who's going to twiddle the knob on 50 million batteries in people’s garages? The control room is not going to have 50 million little individual knobs.” It was clear to George, as it had been to Jessica, that the world was going to need an entirely new decision architecture for the electric grid. 

Jessica explained to George that she had designed just such a new decision architecture. She built a sophisticated algorithm that could balance a grid by switching many individual devices on and off. She further explained that grid operators were in desperate need of this kind of service. Better yet, she enthused, her system could deliver cost savings to the electricity user. Her algorithm pulled in a variety of data, both historical and forecasted, to predict low-cost/low-demand periods and high-cost/high-demand periods. This could allow users of connected devices to access much lower time-of-use electricity pricing.  

George saw immense commercial value in her concept. However, as he recalls “Jessica needed help to start a business. She is completely brilliant. She is one of the most extraordinary minds I have ever known. But when she dove into the details of this topic, she was almost incomprehensible.” 

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George agreed to help write a business plan for Jessica’s startup, which she called VCharge, so it could raise some initial money to test out the idea. Because George earned much goodwill and many connections from the wind farm, the seed financing came quickly. Maybe too quickly, considering the dangers that can come with overconfidence. 

The business plan was not simple. Under the plan, the company would be paid to provide grid balancing services to regional electric grid operators. Demand management was an essential part of grid balancing that kept the demand for electricity on the grid in balance with the available supply. In order to provide that demand management, George and Jessica knew they had to adjust load on the grid by remotely switching devices on and off. To achieve meaningful impact on something as large as a regional grid would require a huge number of devices they could turn on and off. Scale was the key to making their new grid decision architecture valuable. To provide valuable grid services, they needed control over enough electricity demand to have an impact. 

How would this generate revenue for their company? Regional grid operators would pay for this service because it generated significant operating cost savings. Without balancing services, whenever demand spiked, the grid operator would pay power plants to ramp up and down. If VCharge could help by temporarily reducing demand until the spike passed, the grid operator could avoid paying generators for these grid regulation services. They would share the savings with VCharge. 

George and Jessica’s business plan had a second potential revenue stream. At times of high demand, electricity is most expensive. Their ability to control the timing of demand would allow them to supply electricity for their customers at times when electricity was particularly cheap. 

There was one major wrinkle. Electricity demand is directly correlated with productive work. People use electricity for a reason. Factories cannot be turned on and off at will. For their plan to work, George and Jessica knew they were going to have to find a large amount of electrical devices they could turn on and off at will. The challenge was finding devices that could be switched off without affecting the user of the device. For that to work, the device needed to be associated with some kind of on-for-a-while, off-for-a-while duty cycle. That meant some kind of storage or temporary buffer allowing it to cycle off without impacting the user. 

They looked at all sorts of electricity uses, from industrial air compression (you run the compressor until the air tank is full of pressure, and then you use the air until the pressure drops and you need to run the compressor again) to ice rink refrigeration (you chill the rink down and then shut off the system until it warms back up to a critical point). But every category of use they considered was either too small or too difficult to wire for remote control. Or it came with demanding commercial users who would be very unlikely to cede control of their vital electricity supply to a  startup. 

Their eureka moment came with the discovery of residential electric thermal storage heaters. These simple devices are essentially a large box of bricks with heating elements woven in amongst the bricks. The devices run heating elements until the bricks get hot. The tremendous thermal mass of the bricks allows them to slowly give off steady heat to warm the home for several hours. Not only did these heaters represent the perfect buffered, intermittent energy demand, they were residential, rather than industrial users. There were a fair number of them, and George and Jessica assumed the supply of these storage heaters could be increased at any time through increased deployment.  

George and Jessica got to work. They found an engineer who could design a prototype heater control unit. They made an informal deal with Concord Municipal Light Plant in Concord, Massachusetts to test their grid services solution on some local thermal storage units. No sooner had they started than they realized a few hundred thousand dollars in seed money was not going to allow them to deploy a meaningful amount of heater control units. It was clear they were going to have to raise additional money from investors. That would require finding more potential load than one small town in New England could provide.



Jessica’s research led her to a large collection of electric thermal storage heaters in northeast Pennsylvania. The heaters had originally been pushed by the local utility as an experimental means for increasing electric load to soak up some of the huge capacity of the local Three Mile Island nuclear power facility. Now, decades later, that same utility was hitting their customers with large rate increases. Most were angry and looking for a less expensive heating solution. Jessica and George felt they found their perfect test bed. So they were optimistic as they set out to raise $1.5 million to build the control units and get them installed onto the Pennsylvania heaters. Unbeknownst to them, it was going to prove nearly impossible to coordinate and combine meaningful load in Pennsylvania.

The investor funds came in, but two problems combined to make the rollout very difficult. The first problem was the engineering contractor who offered to build the control hardware for them. His time estimates were overly optimistic by a factor of four. He needed almost two years to complete the project instead of the six months he promised. The second problem, as George recounts, “By the time the hardware was ready, almost all of the customers with any kind of get up and go had already replaced their electric thermal storage units. There were a lot of units left, but all the people who might be early adopters for us already changed their heaters out. I can't tell you how many people we talked to who said ‘I changed out my heater last year.’ All said and done, we were never able to convert more than about twenty percent.”

When reflecting on this challenge, George remains mystified why it was so hard to get people to adopt the technology. George said, “All we needed to do was go to people and say ‘let us come in and do a modification to your heating system. We guarantee your heating system will work better than it did before, and you will get twenty five percent back on your electricity bill.’ Electric heat in Pennsylvania at that time was at least a thousand bucks a year. So this is two hundred and fifty bucks a year that people are saving. And, because of our algorithm taking cold weather forecasts into consideration, your heating system will work better than it did before. We had testimonials from people who were wildly enthusiastic. Still, we had an extremely hard time getting people to adopt.”

George takes pains to point out the technology was not the problem. “Our technology was really quite extraordinary. Every time we would go to see PJM (the regional power transmission organization) they would say ‘We can't believe what you do. No one is doing this.’ But we did not have scale. We never got above two megawatts. We figured in order to break even financially from our  PJM contract, we were going to need at least ten megawatts.” 

The customer adoption friction with residential customers in Pennsylvania had beaten George and Jessica. It didn't look like there was any way they were going to reach the kind of scale they needed to break even with PJM. After striking out in Pennsylvania, they tried a similar program in Maine. They faced the same result, despite riding the coattails of a utility-sponsored subsidy for electric storage heaters. Just as with Pennsylvania, it was clear that no amount of effort could get people to switch Maine customers away from trusted oil heat.



This was a challenging time for the company and its founders. Money was running very low. They could not seem to overcome customer resistance, build load, and break even on a project. George and Jessica knew they had to find a better way. “So we started looking elsewhere. We needed a place where they didn't have cheap natural gas and where they had a lot of electric thermal storage heat. The place we found was England,” said George. The company got an introduction to UK grid operator, National Grid. They were delighted when National Grid expressed keen interest in what VCharge was offering. 

The market looked very promising to George and Jessica. George said, “There were five million homes in the UK with storage heat. Better yet, many of them were in what's called social housing or public housing. And we thought this is great. We don't have to convince individual homeowners. We can go in and retrofit their homes because the boss of their housing association wants to do it. And better still, in some fraction of these housing associations, heat was included in the rent. So the landlord has a bigger financial incentive.” 

George and Jessica felt sure they finally had a low friction market. “Excitement built.” George said, “We negotiated a lucrative and innovative contract with National Grid to deliver a new type of grid service. We were using our advanced technology to lower bills and provide very advanced grid control. We developed a product that only we were going to be able to deliver. No one else could move fast enough and have enough control over their electric load. A standard generator couldn't possibly deliver that kind of control. We called it ‘fast dynamic response.’ And they agreed to pay us a lot of money for this control.” 

All VCharge had to do was walk right in and wire up the controls on all that storage capacity waiting to be aggregated. George said, “Our job was to combine and bundle up this load and get it up to 100 megawatts. We thought we could get up towards 500-1000 megawatts in the UK, and then we would have been wildly profitable.” 



Alas, George laments, “Once again, we thought we had the perfect place to roll out our service. In the UK, social housing was full of these old storage heaters that didn't work very well. But once again, adoption was astoundingly difficult.” It turns out getting the bureaucratic people at the social housing authorities to agree to anything was almost impossible. They were essentially employees of the local boroughs. They had no incentive to do anything risky and rock the boat. It was outside of their job description.

George and Jessica hired an experienced sales person with a deep commitment to the mission. They tried as hard as they could to break through. But George said, “We never got there. In two years in the UK, we got just one full tower block installed. It was so slow. We didn't understand the difficulty of the process we were up against. We thought this was going to be a slam dunk. It seemed so clear it was the right strategy.”

Before long, they were completely out of money. Rather than shut the company down, the VCharge board authorized one final bridge round of financing to fund the search for a buyer for the company. Ultimately, progressive energy provider OVO, the second largest independent energy provider in the UK, acquired the VCharge assets. There was enough to pay the company’s creditors, but nothing left for the investors and other shareholders.

Asked to reflect on the product-market fit lessons gleaned from the VCharge experience, the business school professor in George Baker comes out. “Whatever you do, don't underestimate the friction in adoption.” To grow quickly, a solution needs to be easily adopted and integrated by a customer. A business looking to introduce a new concept cannot assume massive behavior changes on the part of the customer. It is not consistent with human nature. Customers are generally afraid of disruption. George learned trying to convince consumers to change a perfectly good heating system, let alone to cede control of that vital utility to a small startup, was just asking too much. George sums it up well, “People don't want to worry about stuff. They don't want to change things. It's easier to keep it the same.”

For VCharge and its supporters, underestimating that friction, and failing to come up with a way around it, meant the company could never build control over enough electrical load to allow its brilliant technology and complex business model to shine. Today the VCharge brand and concept live on as a small part of OVO. VCharge was once a high-flier, intent on solving the global renewables integration problem. Its ambitious vision was to provide an entirely new decision architecture for the electric grid. It is now a greatly diminished shadow of itself, humbled by the immense forces of customer inertia.


Interested in reading more stories about key startup themes and lessons learned? View the entire collection here in The Seraf Compass or purchase the book on Amazon in paperback or Kindle format.