New Strategies Can Help Green Startups in Chemistry Reach the Market Faster

This is evidenced by a study conducted by Gijs van de Molengraft (Gritd) and Anieke Wierenga (ScaleUp Practitioners) on behalf of the platform Green Chemistry New Economy.  Alternative Go-To-Market Strategies for Green Chemistry Ventures

In this study, they propose four alternative strategies for startups in green chemistry, enabling them to enter the market faster and with less capital. As experts in guiding and scaling such young companies, they have assisted 35 startups in the chemical sector over the past three years. For their research, they examined how these companies plan to conquer the market. Their conclusion: new strategies are needed for these startups to compete with the established order. Furthermore, startups employing these alternative strategies come to market faster and require less capital.

Startups in Trouble

If green startups in chemistry play by the rules set by large existing chemical corporations, it becomes very challenging to build demo plants, attract capital or enter the market. Using the traditional approach, various startups have recently encountered difficulties or even went bankrupt. ‘It has been a battlefield in recent years,’ state Van de Molengraft and Wierenga.

They therefore want to assist startups with new ideas for strategies based on the success stories of their peers. ‘We are dealing with a persistent, widely held belief that the standard scaling strategy is the only way. Many entrepreneurs and financiers think this is the way it should be and copy it. However, we want to challenge them to adopt an alternative strategy to progress further and learn from it,’ says Van de Molengraft. ‘Our dataset is small, so we are cautious with our assertions. But this is certainly a discussion worth having.’

Why Does the Existing Strategy Not Work for Green Startups?

Traditional chemistry requires substantial capital for large, expensive installations. Companies produce large volumes at the lowest possible costs and sell them with low margins. It often takes decades to bring a new product to market, followed by long-term contracts with customers, making them vulnerable to rising energy prices or changing government policies. The competition in the market is fierce.

Many green startups currently follow the same standard route. According to the two, this is not always the best strategy as it requires a lot of capital and the lead time from invention to market is too long. ‘When we look at how many companies have succeeded with that capital-intensive strategy, we cannot name any that have successfully executed this strategy to scale and are now financially healthy,’ says Van de Molengraft. ‘Not even globally,’ Wierenga adds. ‘Chemistry does not move that quickly. You don’t just simultaneously develop the technology and the market within ten to twenty years. Look at PVC. From the development of PVC, it took fifty years before it was adopted by the market.’

Plenty of Ways to Make Money

Green startups often cannot generate commercial revenue in their first decades. They cannot yet compete on scale and price. Therefore, they depend on external investors, financiers, and government subsidies. According to both, this is not a problem at all. The focus remains primarily on their unique technology or innovation. Although they examined only 35 of these young companies for their research, they believe that alternative strategies are necessary for scaling up, especially in a time of political headwinds and a new market that still needs to develop. ‘We want to challenge them to consider other strategies,' says Angelique Erkenbosch, program leader for financing and venture development at the Green Chemistry New Economy platform.

The research provides various tools for taking a different approach. First tip: do not think too big immediately. Wierenga: ‘There are numerous ways for startups to make money, but that may not be through a large bulk plant selling something new. That requires different thinking and detachment from established perceptions.’

Four Alternative Strategies

The two outline four alternative strategies in their research. It is undisputed that startups must conduct customer research and understand their position in the entire value chain between companies, partners, investors, and customers, the so-called value chain or ecosystem. The researchers observe that most startups spend very little time on this. Once that understanding is established, they can choose alternative strategies.

The first strategy is collaboration with large, established companies in the initial phase. The data show that this requires less external capital and can accelerate scaling. Startups can leverage existing technology, installations, and knowledge, needing ten times less capital than without that collaboration. This can lead to faster growth and getting their product to market sooner. In this way, they can also gradually draw large, traditional companies into green chemistry. Three startups have chosen this route, including Mevaldi, which produces plastic raw materials from sugar derived from sawdust.

Niche Markets Prevent Price Competition

Five startups opted to begin in a niche market first. They offer a specific chemical product - for example, a biobased plastic - that solves a specific problem for their customers. As they are the only ones, they do not have to compete on price. This niche market serves as their foothold from which they aim to conquer a larger market. They also require ten times less capital than companies following the traditional route, could grow faster, and achieve their set goals sooner.

The third alternative strategy allows a startup to choose to conduct research for a fee, leaving the intense competition in mass production aside. A fourth new strategy, chosen by some, is to develop a project around existing technology in collaboration with a consortium. For example, a startup like Blue Circle Olefins is pursuing the construction of a factory in Rotterdam that will produce ethylene and propylene from sustainable methanol.

More Market-Oriented Thinking Instead of Technology-Oriented Thinking

Van de Molengraft and Wierenga have been involved for three years in so-called scaling tables and a program like the Green Chemistry Accelerator (GCA), in which Green Chemistry New Economy collaborates with Invest-NL and the Regional Development Agencies (ROMs) to help and support startups in finding customers, investors, and other financing. They have compiled their experiences and observations in the research. What these startups have in common is that none of them have yet entered the commercial market and are still at the beginning of their business development. The startups working on a demo plant have collectively raised about €19 million in funding and are still seeking €59 million for their next investment round. None of them has a commercial factory yet.

Most of them still lack answers to the crucial question: what is the market value of my green innovation for potential customers and investors? Of the 35 startups, 28 do not yet know whether their customers want to solve a problem with their invention. They are primarily focused on R&D, spending only 3 percent of their time on market and customer research. However, green startups unable to sell a commercial product will find it challenging to become game changers, the two assert. ‘Most are still thinking too little like entrepreneurs and too much like technologists. But as an entrepreneur, you are here to bring something to market and roll out a successful business model,’ says Wierenga. ‘That is becoming a bit blurred now.’

Forming a Movement Together

The ultimate goal is a chemistry without fossil raw materials. This is the problem that green chemistry must collectively solve. ‘This problem is far too big. Not just one startup, but all those small companies will together form a significant movement and help us with that green transition,’ says Wierenga. ‘Which technologies will ultimately become part of green chemistry, we do not yet know.’

This is a re-posted article from change.inc