Small Business

Green Tech Startups: Too Small to Innovate?

By Lindsay Blakely

Updated on: July 12, 2011 / 3:11 PM EDT / MoneyWatch

By Joseph Conway
When it comes to big ideas and breakthroughs in the computer and software industries, Silicon Valley startups have reinforced the notion that the real innovation comes from a brilliant few entrepreneurs toiling away in ad hoc labs and grungy garages. But things might be different in the green tech industry. According to new research from the Pew Center on Global Climate Change, at least in the low-carbon sector, being small and scrappy doesn't do you many favors.

Professor Andrew Hargadon, director of the UC Davis Center for Entrepreneurship and leader of the research project, says innovations in green energy and clean tech are a different animal all together -- and they are more likely to come from big business in the future. "In the energy sector, which is so diffuse, we end up needing the resources of large companies," he explains. "They simply are the only ones that have the manufacturing, distribution, sales, and support team -- not to mention the money -- to bring a new technology to scale."

In order to develop a plan to accelerate innovation, Hargadon set out to identify best practices among companies that have successfully introduced new low-carbon technologies to the market. He held two workshops to discuss the particular challenges faced in the electric power, transportation, defense and financial sectors. Panelists included industry experts, policy makers, financiers and senior executives from IBM, General Motors, GE, Dow Chemical, Citigroup, Duke Energy and PG&E Corp.

The Pew Center will release his complete report October 28. In the meantime, Hargadon has this advice for small companies looking to capitalize on the greener future to come:

Accept the realities of the market. Borrowing a term from his mechanical engineering background, Hargadon identifies low-carbon energy as a "brown field" market. As opposed to introducing a new product and building a market around it, clean tech innovation hinges on changing existing markets. "You've got to change not only the old technology," says Hargadon, "but also the user behavior and the regulatory environment that has grown up around it."
Ideas aren't enough. Big breakthroughs may still happen in garages, but it's crucial for entrepreneurs to pursue partnerships with established companies. Low-carbon energy solutions typically involve massive, systemic changes: switching a city's streetlights over to LED bulbs or adopting a solar energy infrastructure. Scaling ideas into solutions requires resources, recognition, and staying power.
Adopt a policy perspective. Any business large or small looking to get in the game needs to shift its policy focus from public relations and legal to research and development. "Technology revolutions don't just happen in brown fields," says Hargadon. "They need to be supported in fundamentally different ways." Without legislative help, innovation gets pushed out of the mainstream and into the margins.

Overall, the key to a greener, more sustainable economy may lie in reframing our notion of innovation itself. "Innovation often involves much more hard work, much more regulation policy, and a lot more collaboration than we like to think it does," says Hargadon. For a real ideological shift to happen, companies of all sizes will have to collaborate.

And don't expect any Mark Zuckerbergs or Reid Hoffmans to emerge; the cult of the individual entrepreneur likely won't apply to this industry.