Industry Trends — Fall 2021
The only constant is change is a common adage that seems even more relevant than ever these days. It seems like we earn a new set of challenges and opportunities as soon as we’ve figured the last ones out. For every pandemic related restriction lifted, a new supply chain issue arises; for every customer willing to move a project forwards, a new price increase requires a refreshed proposal. The good news is we’re seeing macro trends that largely show wind in our sails moving into 2022 for those brave enough to seek the open sea.
Economy Wide Trends
The largest economy wide trends that we see persisting into 2022 substantially are a) supply chain disruptions, b) labor shortages, c) remote/hybrid work, d) inflation, and e) climate change.
Supply Chain Disruptions
We’re all accustomed to supply chain disruptions and all signs point to challenges through 2022. Like many of these trends that are obvious, I’ll focus on strategies to manage this challenge. First and foremost is to ensure estimates and contracts are sent with language that outlines exactly what you’re able to commit to with clear remedies for missed timelines. Manufacturers and distributors alike are fudging their timelines to win orders knowing they can’t make their commitments. Plan for everything to be late until you have a tracking number. Expect pricing increases frequently. Communicate like crazy with your customer and your vendors. Stay flexible and get creative to meet your deadlines. Underpromise even more than normal. And most importantly remember everyone’s in the same situation so keep your cool when things inevitably get delayed.
Labor Shortages
We expect labor shortages to persist through 2022 for most roles with a dire outlook for many roles becoming the new normal due to lack of talent entering the workforce and large portions of the workforce retiring. First and foremost is to rethink your relationship with your team to ensure you’re the type of company and the type of boss you’d want to work for. Great companies with great compensation, upward mobility, and training will hoover up the talent. Remember you’re competing for the talent and if you’re not a boss, remember your role in creating a work environment that welcomes new team members. Next, get serious about your software and technology stack to automate and simplify every part of your business that you can so your workers are only doing the things humans have to do. Finally, get engaged in your trade, professional, and local/state communities to get more on the job training, post high school education recruitment, and policy incentives to help attract and educate/train the new workforce.
Remote/Hybrid Work
This is a trend that appears to be here to stay with the only unknown being what percentage of the workforce will end up remote or hybrid. Generally I think it will depend on the role and location to a large degree since it’s obviously easier to be a remote software developer moving out of San Francisco than a journeyman electrician in Wichita. First and foremost, consider how flexible you can be for every role/person in your organization/team. The more flexible you can be, the more productivity you will generally see and the higher your hiring rate and retention will be. If you aren’t ready to go fully remote or hybrid, think about the systems, processes, and tools you’re lacking that would help you make that transition.
Inflation
Inflation is both worse than expected and here to stay longer than hoped. With the Fed looking to increase rates and supply chain issues starting to temper in 2022, we can expect inflation to slow mid 2022 at the earliest. That means price increases, sometimes sharp, in all sorts of places. First and foremost, make sure you’re including significant increases in your expenses for 2022 budgeting. Next, look for replacements to larger expense lines to see if you can use this opportunity to find less expensive options or efficiencies.
Climate Change
Most large organizations, most small organizations, every nation, and most Americans now believe climate change is happening and we should do something about it. This is creating a huge demand for carbon reduction strategies with government mandates and organization goals getting set and updated at a breakneck pace. This means we’re going to see a massive expansion in capital deployed into every sector of the economy, including buildings which I’ll cover in the industry specific trends below. Larry Fink from Blackrock just announced he thinks the next 1,000 unicorns (private companies worth over $1B) will come from climate tech and the world’s first trillionaire will be in climate tech. This is the next internet, but bigger. I can’t emphasize enough how big of an opportunity this is for businesses to capitalize on and how the ship has already sailed on it being something that will happen.
Energy Efficiency Retrofit Industry Wide Trends
The largest industry wide trends include a) digital transformation, b) smart buildings and IoT, c) “as a service”, d) demand response/reduction, e) electrical vehicle charging stations, and f) carbon reduction
Digital Transformation
Digital transformation continues forward for the construction, property management, building management, and services industry. Digital transformation gets thrown around a lot but generally means moving offline business processes, tasks, and tools to a digital format, most commonly connected to our hosted in the cloud or internet. For our industry this means manufacturers, distributors, engineers, ESCOS, contractors, and everyone in between is adopting more software systems to improve business efficiencies. Common early systems adopted includes cloud accounting software (QBO), customer relationship management (CRM), marketing (website, social media, mailchimp), develop, design, sales, and installation management software (Retrolux, AGI32), and services software (service titan, servicemax). My biggest recommendation is to develop a long term plan to move your business online, considering the cash and human investment required. Next, think about your team’s bandwidth and start implementing one system at a time so you don’t overwhelm yourself or your team. Finally, find a trusted partner that can help you with each system and your overall plan if you need help.
Smart Buildings & IoT
There’s tons of buzz for smart buildings & IoT but we’re still in the very early innings for this trend. The good news is the combination of cheaper sensors and controls, easier to use software, easier commissioning, and tons of investment means we’re closer than ever to price points that will allow for a rapid increase in connected energy systems and eventually truly smart buildings.
“As a Service”
Shifting costs from large, one time, up front payments to long term service agreements is an economy wide trend and also one that’s building steam in our industry. We see lots of flavors including a) energy saving performance contracts, b) energy/lighting/infrastructure/lumens/etc as a service, c) lease + service agreement, d) on bill financing, e) concessionaire agreements, PACE financing, and many more. I moderated a panel at NALMCO recently that touched on this topic extensively to see how many projects were getting financed this way and it’s still very low (5–10%) but starting to grow, especially for certain customer types. We see a future where the majority of building energy systems are managed and upgraded with ‘someone else’s money’ which will result in a) lower overall cost of ownership, b) better systems and equipment, c) higher margins for the service providers, d) faster new technology rollouts, e) more stable revenue for manufacturers, and f) significantly increased benefits to the building owners/managers, and tenants through increased IoT deployments. Think of this as the enablement tool to drive the other big trends in our industry.
Demand Response/Reduction
Our industry is in the business of demand reduction or reducing the amount of load in a building through building retrofits like installing new LEDs or controls as well as changing operating schedules and set points. We see the trend to continue reducing building loads to continue with more efficient LEDs, lighting controls, smart and efficient motors, HVAC controls, variable frequency drives, smart windows, window film, insulation, and a ton of other solutions hitting the market, already in the market, or just hatched as an idea 5 minutes ago. Demand response just means having the ability to reduce demand or building load on request, usually from the utility serving that building. As utilities move to more variable generation like solar and wind and more expensive traditional power plants, being able to reduce demand in buildings will see major increases. This requires the loads to be smart and connected to the cloud and will have monetary benefits since the utilities will pay for each demand response event and just for being enrolled in the program. This will help smart building solutions pencil out and also works nicely with ‘as a service’ financing approaches. Super early trend, but one that you’re going to be hearing about this next decade.
Electric Vehicle Charging Stations
Anyone heard of Tesla yet or that Ford company investing billions in a new plant or VW going all electric by end of the decade? Yeah, EVs are officially here and they need juice. That means a huge emerging market for EV chargers and a huge opportunity to make, sell, and install them. This market is rapidly entering the ramp phase so time to get with the program or watch the wave wash on by.
Climate Change
Buildings energy usage accounts for a large portion of global and US carbon emissions. Most of our buildings are energy hogs. Governments are mandating energy efficiency. Organizations are increasingly setting ambitious overall and building level goals to eliminate building carbon emissions. Utilities are also setting carbon neutral goals. Massive amounts of investment capital is pouring in the space from venture to project. Tons of money is going to be deployed into the space. This is amazing news for our industry and is the single largest opportunity and tailwind we have to look forward to over the next 2–3 decades.
