Over the past few weeks, we’ve had countless conversations with the installers in our network about ADT's high-profile exit from the solar market. For those not fully caught up on the headlines: Despite acquiring Sunpro Solar for $825 million and expanding into 22 states, ADT's solar ambitions came to an abrupt halt in January, underscoring the volatility within the sector.
This was not an isolated incident; over 100 solar companies have filed for bankruptcy within the last year, setting a disconcerting record. A report from SolarInsure reveals a grim outlook, with 75% of California's solar businesses classified as 'high-risk' for bankruptcy, and other states feeling the heat right alongside The Golden State. These developments prompt a crucial question: What can solar companies learn from these failures to forge a more resilient path forward?
Below, we share five lessons learned from last year’s bankruptcies. By examining how and why other solar businesses have folded, our hope is that you can build a more resilient business that can withstand even an extreme economic downturn.
Lesson 1: Pay attention to politics
Everyone knows that politics plays a crucial role in the solar industry, significantly impacting companies’ operational and financial viability. The introduction of NEM 3.0 is a case in point, demonstrating how policy changes can disrupt the market. New installations in California are now seeing a reduction of 75% in net metering credits, reducing sales by 90% in Q3 of 2023.
This drop in sales laid victim to companies like Kuubix and Suntuity. Even a $80 million investment in Kuubix from Solegreen couldn’t save them, and the company will be shut down shortly. Both of these companies were battling state policies that impacted the demand and profitability in their markets.
And this type of policy shift isn’t restricted to CA. Already, we’re seeing net-metering changes coming to other states across the country, including Arizona, Idaho, and West Virginia, as well as other anti-solar bills.
These policies can seem impossible to stop — but they’re not. Just last year, Florida vetoed an anti-solar net-metering bill. And while solar activists in Texas were not able to secure a full victory in 2023, they still were able to convince the legislature to reject a discriminatory permitting program for wind and solar.
Lesson 2: Revenue isn’t enough, focus on cash flow
Solar is a considerable investment — and not just for the homeowner. Solar businesses need to invest major capital prior to project completion, which means that paying attention to cash flow is crucial to staying afloat. After all, the timeframe between sale and installation takes 2 months on average in the US, and all the while a solar business is looking to recoup the sales and marketing costs on the project.
In the past year, we’ve seen plenty of solar businesses get this calculus wrong, among them Sunpower. Even though they haven’t filed for bankruptcy, SunPower is proof that a cash crunch can come for any business, no matter the size. The publicly traded company made headlines in December when it shared that it was failing to make payments on its debts. While the company has now secured financial waivers that will hopefully allow SunPower to avoid complete collapse, their financial instability should be a warning to other installers.
The most important thing a solar business owner can do is to keep a close eye on company finances and cash flow. Build a company emergency or “rainy day” fund, so that you still have some operating runway, even if sales slow or permitting gets delayed. Keep your eye on the market, so you can be better forewarned of big market shifts and downturns. We’ve also heard of solar business owners working with their lenders to see if they can secure more favorable terms. Other installers have also looked to keep their operations lean by investing in technologies that can help get more efficiency out of your existing team. If that’s not enough, at least have the foresight to make some really tough staffing cuts to head off a big cash crunch.
Lesson 3: Don’t compromise on your sales team
In the highly competitive world of solar sales, companies often resort to outsourcing or aggressive marketing tactics to boost their sales figures. However, while this may seem like a quick fix, it can have long-term detrimental effects on the quality of service and the reputation of the brand.
Pink Energy is of course the poster child of bad sales practices. Their salespeople used deceptive sales tactics and lied to customers, resulting not only in customer complaints but a widespread distrust of the solar industry that every installer now has to deal with.
While it can be frustrating to have to deal with the fall-out of another company’s misleading claims, Pink Energy does serve as a definitive reminder that it’s never worth lying to your customers or making promises that your team can’t fulfill.
In fact, companies that take a more measured approach, focusing on quality and customer experience, have been proven to be more resilient during market fluctuations. Part of the secret of their success is that these companies maintain control over their sales processes, ensuring that their customers receive consistent, high-quality service that meets their needs. The other aspect is that, because they deliver such an incredible customer experience, they’re able to generate the majority of their business from referrals.
For example, a Midwestern installer found that by shifting to an entirely in-house sales team, they were able to maintain control over the sales process and ensure that the customer experience was consistent and of high quality. This approach allowed them to avoid the pitfalls that affected other companies who relied on outsourcing or aggressive marketing tactics in the Illinois market.
Lesson 4: Diversify your product offerings
One of the many reasons that resi solar businesses went out of business last year was that their project load was largely reliant on traditional, bigger-is-better PV systems. When consumers could no longer finance these larger projects, pipeline dried up and companies crashed.
For example, Phoenix-based installer Erus Energy focused fairly exclusively on residential PV systems. When interest rates no longer made these offerings attractive to homeowners, they had no other products or services to meet the market where it was. This, along with other challenges like permitting delays, forced the company to close.
Here at Bodhi, we often talk about solar as a gateway energy product. If someone is interested in solar, chances are high that they’re also interested in follow-on products and services, like EV chargers, heat pumps, or batteries.
In fact, one installer out of Texas last year was able to weather the rough solar market by selling potential customers on an “energy road map.” They talked frankly with their prospects about what they were hoping to achieve and what they could afford in the moment, and then explained how they might be able to start with a smaller system now, then level it up in 6 months time, then add on an EV charger after another half year. Not only did this help the homeowner with more manageable project costs, but it gave the installer a red hot lead he could return to over and over again.
Lesson 5: Invest in reputation management platforms and processes
In this digital age, a company’s reputation is one of its most valuable assets. One negative customer experience can escalate quickly, causing issues to get out of control fast. And in an already tough solar market, bad reviews can accelerate a bankruptcy or closure.
Once your reputation is in decline, it’s difficult to bounce back. Prospective customers are sure to Google you and then find the bad reviews, scaring them off from your business. This happened to solar installer Sun Energy Co out of California, whose Google review history shows a death spiral of bad reviews before the business shut its doors.
That’s why it’s so important to invest in a reputation management strategy or tool. By using a platform that can help you solicit customer feedback throughout the project, you can detect problems before a customer goes to Google. That way, issues can be addressed proactively AND privately.
A robust platform will also allow you to improve and even automate your communications — that way your customers never feel in the dark to begin with. The right tool can help you deliver a white glove service that will ensure your customers are delighted when working with your company, leading to referrals and stellar reviews.
Finding the right partner to help you
By learning from the lessons of those who have come before, you can guard your solar company against the oncoming challenges of 2024. And if you’re looking for a partner to help you build a more resilient business, Bodhi can help by allowing you to deliver amazing customer experiences with ease. From helping you avoid those one-star reviews, to helping you market new product offerings through automated marketing campaigns, Bodhi can help you do more with less.Get started today for free!