Creative destruction - the value of information

Smaller companies find getting information difficult. Many small firms exist in "survival mode". They have enough income to survive and stay what they are doing, but with little room for error or any spare cash for expansion.


The approach to break out of this "survival mode" takes confidence that you can reach a market that long term will enable growth and profit. This confidence can be gained in a number of different ways:

• Fate or good luck giving you a good customer - this helps you identify other "good customers".
• You do some research - but make sure that you match the results (potential opportunities) to your capabilities
• Trial and error, taking little steps at first and testing your way before developing a formulae for dealing with your market. This will probably involve a number of parameters around your marketing, not just your promotions.

Often it is a mix of all 3.

Research is often thought of as "Lies, damned lies, and statistics". Implying that research bolsters weak arguments artificially. I would agree - you can find as many facts as you like to support an argument. In this situation the person has been subjective, the statistics are subjective and the result is still opinion.

Owning a small business is a highly personal experience. Whilst you are expected to be objective in your decision making, you are effected emotionally as your business is your lively-hood. If you have selective information then you have an emotional person making decisions based on insufficient information.

The majority of businesses do not take positive action for their businesses with respect to marketing systems as they do not have enough information to know that it will work. In the short term they have not got enough cash to risk. The result is stalemate - and a business may stay here for years.

Research studies do say that stable and growing companies have both the ability to form complex marketing systems (ie more than just advertising) to grow and make a decent profit.

One of the key "entrepreneur" abilities is finding dealing with hard to find or ambiguous  information (and taking action).

Clearly both these factors are linked and the mixture of collecting, analysing and making decisions is important for any company to make a better than average start.

http://plugintoyourmarket.blogspot.com/ deals with these issues and http://prdpartnership.com/plugged.htm gives details of a service that supports small businesses to make those key decisions.

Creative destruction - Micro Renewables 2010

The latest consultation from DECC on the Renewable Heat incentive suggests that there will be subsidies for Micro Renewables based on the deemed heat need (surveyed) and the lifetime of the equipment.

The table below shows the proposed subsidy per kWH

Is 2010 the year that Micro renewables finally takes off in a big way? So that it is "common" in the UK to have a Micro renewable source of fuel. Creative Destruction implies that an industry changes completely and has a significant impact on our lives. How might the energy market change?

Micro renewable is a term that implies use at the household level and technically an output of 45 kWH or less. This could be a biomass boiler or a ground source heat pump.

The government survey on gas and electricity use in 2006/7 shows gas use at between 16000 kWH for smaller houses and 24,000 kwh for larger houses. This does vary by geographic area and by type of house.

An "average" gas bill for a year is said to be about £800. Oil may be higher than this, as will LPG, and again will vary on the sort of house and location. Purchase, Installation and maintenance may increase the cost to £17000 over a 15 year period assuming prices stay the same.

The majority of people have ignored the Micro Renewable market as the capital cost of installation is simply too high. If, for instance the cost of installation and equipment were £5000 higher than Gas or Oil, the payback period, even if the fuel was "free" would be over 6 years.

There are a number of factors that are causing this market to show signs of shifting:

Gas and oil prices are going up significantly and are perceived as coming from politically unstable places.

The public are starting to believe carbon neutral is a good thing

The government in the UK have signed up to reducing CO2 and home heating is a big area

The number of businesses offering a Micro Renewable solution has increased and households are becoming more familiar with what each solution can do.

Planning regulations will come into force in the future that new homes should be carbon neutral

Renewable Heat incentive will be introduced in April 2011 for all "approved" new installations post July 2009 to harmonise the market.

There are therefore 2 key factors:

We want to feel "greener"

We want a good deal

How might this work?

For biomass the subsidy is 9p per Kwh for 15 years. Using the average house consumption of 20500 kWH this equates to about £27,000.

If you paid:

£5000 for your boiler

£2000 for installation

£200 per year for maintenance (£3000)

Between £9000-£14000 for fuel over the lifetime of the boiler (depending on how and where you buy your fuel from and accepting that prices of fuel may rise)

This gives a total of about £20,000 for the average house over 15 years or £1300 a year

It is clearly more expensive than gas. However if the 9p is accepted you will get back £27,000 - and you will gain £7000 over 15 years for having biomass heating rather than gas. This is therefore an investment opportunity.

This scheme is to be introduced by April 2011 and administered by Ofgem. It wont get ratified in parliament before the next election - and it is clear that this 9p rate may change. What is encouraging however is that there is cross party agreement on the approach and the need to do this. Even if the rate were 3p it would mean a £9000 subsidy over the life time of the equipment and would make biomass (wood pellets) cheaper than gas.