How Startups Can Compete In The New Energy Markets

The global energy markets are transforming themselves right before our eyes. Very little fundamental change has occurred over the past 70 years, but 10 years from today the Japanese and global markets are going to look completely different.

Today we sit down with Yohei Kiguchi CEO in Enechange, Japan’s largest retail energy switching platforms, and we dive into detail about how these markets are changing.

We talk about Enechange’s business model, of course, but we also discuss the most effective strategies for startups who need to compete against large incumbents, and that advice holds true for startups in Japan or anywhere else in the world.

Yohei also has some interesting observations on why Japan is a better place to start a company than the UK or Europe.

It’s a fascinating discussion, and I think you’ll enjoy it.

Show Notes

How to identify a promising startup opportunity in Japan What’s driving change in Japan’s energy markets How to appeal to Japanese investors from overseas The importance of TV advertising in Japan How to make money in a slow-growth industry When Japan's nuclear plants will be turned back on How Japan's IPO markets gibe Japan a strategic advantage Why enterprise upper management is leaving to join startups in Japan

Links from the Founder

Check out Enechange SMAP Energy's website

[shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me.

I surprised a lot of my friends and fans last year when I joined TEPCO, Japan's largest electric utility. I admit, at first glance, it seems a pretty radical departure from my history in startups and in most ways, it is. However, there's a transformation going on right now in energy all over the world, and while there's been very little disruption in the energy markets over the past 70 years, 10 years from now, the markets will look nothing like they do today.

Well, today, we sit down with Yohei Kiguchi, CEO of Enechange, one of the more innovative startups building a business in the new energy markets. Now, before you understand what Enechange does, I need to give you a little bit of background on how energy deregulation is working around the world and the story of the coming disruption is quite similar in all developed nations.

Since the days of, well, Thomas Edison, really, the power company was responsible for creating the electricity, building and maintaining the power grids to transmit that electricity across the country, and then billing the customers for the electricity they used. Because of the cost involved and the importance of universal and reliable electricity, it made sense for this to be done by a single, tightly-regulated monopoly and that's how things stayed for about 100 years, but over the past decade, around the world, the cost of generating electricity have dropped and we've seen smaller, more affordable plants, and a proliferation of sore.

On the retail side, smart meters and the internet has made it easier to collect data and to be bill customers, and so markets around the world are being deregulated with power generation, power transmission, and retail billing all being handled by separate companies. While power regulation gets most of the press, most of the market disruption has focused on the retail side with hundreds of companies entering the market and many offering steep discounts. Around the world, electricity consumers have never had this much choice, and that's where Enechange comes in.

Enechange is by far Japan's largest energy-switching website. It provides tools that allow consumers and businesses to shop for the best or the cheapest energy supplier, but as Yohei explains, the cheapest is not usually the best and Yohei also has some interesting observations on why Japan is a better place to start a startup than Europe, but you know, Yohei tells that story much better than I can. So let's get right to the interview.

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[Interview]

Tim: So I'm sitting here with Yohei Kiguchi of Enechange, an energy price comparison site, so thanks for sitting down with me.

Yohei: Yeah, thanks for having the time with me, Tim.

Tim: What I find really interesting about Enechange is you started this business in 2015 and that was even before the retail markets were deregulated which happened in April 2016. What attracted you to the business?

Yohei: We set the company exactly one year before the market deregulation, just one year to prepare for the market deregulation, so that's why we just intentionally set up the company in April '15.

Tim: That makes sense but investors typically don't like to make big bets on unknown companies and unknown founders, and markets that don't exist yet, so what attracted you to the whole idea and how did you get the investors on board with this?

Yohei: Basically, two points, so one is, the energy deregulation is happening all over the world. The UK is doing it when I was living there. All the European countries, signed the EU treaty in 2008 or 2009, like all the EU nations need a deregulation in the market. Every country, when the market was deregulated, like similar company, like similar energy-switching company kind of imagine, this business model which was not happening in Japan yet, but it was basically set to happen anyway.

Tim: Yes, so you could point to the success in foreign markets and say, "This is how it happened overseas, so of course, it's going to work the same way in Japan"?

Yohei: Yes.

Tim: Excellent. Tell me about your customers. So how many people visit your site every month? How many people are really interested in changing energy retailers?

Yohei: So let me give you the big picture first. So basically, like 70 million customers in Japan, which is basically the half of the total energy consumption in Japan. The other half is commercial customers.

Tim: So half residential, half commercial?

Yohei: Yes, the half residential, half commercial, yes. For the latest sale sectors, like 70 million, and then the industrial sector is roughly one million customers.

Tim: And of those 70 million, how many are coming to your website every month?

Yohei: Our site average monthly visitors is like, two million.

Tim: That's really high. For a potential market of 70 million, if you have two million users visiting your site every month, that's fantastic penetration.

Yohei: Yes, then like other country, like there's over 10 million energy-switching has already happened since the market deregulation. We are the number one company in the switching market - the number makes sense.

Tim: What is your business model, exactly? Do you sell leads to companies? Do you get a commission when customers switch? How do you guys make money?

Yohei: Pretty much like in everything like in energy comparison website in the world is having like same business model, basically like, free for the customer, and then you get commissions from the new suppliers. If you acquired a customer.

Tim: Okay. So if 10 million people out of a potential market of 70 million have already switched in the last year and a half, that's a pretty active market. Are people mostly switching based on price?

Yohei: Yes, like we were dreaming like people want to use a greener company or cleaner company, or like local regional company, but actually, at the end of the day, like 95% of customers say like, just cheaper.

Tim: Just price?

Yohei: Yes, and then another thing, like on the UK, like UK got the same starting sect, 90%, like just cheaper.

Tim: I think it's an interesting market right now in that energy is a commodity and it's been interesting watching how people have tried to differentiate, and so you see a lot of advertising that's focused on, like you mentioned, green and community supply, but looking at how people switch, that's not important to them?

Yohei: But actually, not that true. I'm saying like, the cheaper, but I'm not saying cheapest.

Tim: Oh, okay. So consumers need a lower price to switch but they're not looking for the absolute lowest?

Yohei: Yes, true, yes.

Tim: Huh.

Yohei: So when the market became open like one and a half years ago, it is the 10 company who's supplying electricity in Japan, but it's not like 400 companies. They just started themselves to be energy retailers. So all of a sudden, it gets really crowded, but now, it's kind of shrinking down as well, mergers and acquisitions is happening right now, so now, only 30 to 50, probably a maximum of 100 active players right now.

Tim: How many companies are listed on your site?

Yohei: 70.

Tim: And how do you choose which 70? Because on paper, there's 400-ish companies in Japan in this market.

Yohei: So one is, need to agree with our commission model, and second, we also interview the companies to see the quality of the company. If the company doesn't have any kind of experience or got a good criteria to be an energy supplier, we actually don't put them on.

Tim: You know, I want to get back and dive deeper into the market a little later on, but right now, I want to talk a little bit about you, because you're running - you're involved in a number of different companies, so you also run SMAP (Smart Meter Analytics Platform) and both companies were spun out of an organization called the Cambridge Energy Data Lab. Can you tell us a bit about those two organizations?

Yohei: I actually still live in the UK. My main home is actually in London and being taxed for the UK, pretty much. I went to UK back in 2012 as a Cambridge student and I started Masters Degree and carry on to the phD in the energy technologies in Cambridge University. I was examining smart meter data analytics, so I'm like,