By Vinod Jose, Principal, Amane Advisors

Earlier this year, I wrote about the ‘digital divide’ in the US water utilities sector and the significant challenges that prevent utilities, particularly on the smaller end of the market, from adopting much-needed digital solutions. In summary, some of the reasons include the fact that digital transformation tends to rank lower on leaders’ day-to-day priority list, the tendency for utilities to be strategically and culturally risk-averse in implementing changes, the difficulty of freeing siloed teams and data, long procurement timelines, and the challenges associated with managing an ageing workforce in a competitive talent market.

It’s an issue that has come up in many of my conversations with utility leaders, investors, and startups –   with many emerging companies lamenting how difficult it can be to gain a foothold – even with seemingly powerful and cost-effective solutions. The challenge is made worse by the fact that the US utilities market is large and heavily fragmented, with a smaller number of very large utilities and tens of thousands of smaller players. Having supported numerous projects across the digital utilities sector, I can confidently say that competition among technology providers to hook those ‘blue whale’ utilities is fierce – and often results in even longer procurement processes and pricing agreements that stop growth in its tracks.

 Whether you’re a technology provider, utility, or investor, it’s important to understand where the greatest number or greatest value of opportunities lie; where there’s ample whitespace to grow (and to do so quickly, with the least amount of resistance.) In the US water utilities market, what we’ve found is that many technology providers are simply not paying as much attention to where the real opportunities lie; namely, among the 40,000-50,000 smaller utilities that also desperately need their solutions.

 This segment of the market is where the unicorn potential lives; and if technology companies want to carve out space, it likely will require a rethink in their product development, pricing models and go-to-market strategy.

 Here’s what I mean…

1. Rethink the product

 When a technology company is targeting the country’s largest utilities, they design their products accordingly; they’re feature-rich, support complex integrations and come with enterprise-level customer support. But these comprehensive products and services also come with long development timelines and enterprise-level price tags; which is out of reach for tens of thousands of potential customers.

These smaller utilities have the same challenges as their larger counterparts – just on a different scale. As such, the products for this market need to be adjusted to suit. This may be counterintuitive for a growing company, as the instinct is to add new features and capabilities. But this adjustment doesn’t mean sacrificing quality but rather prioritizing simplicity, ease of integration, and manageability to align with the realities of smaller teams and budgets. Similarly, products must be capable of being implemented remotely, as opposed to requiring on-site installation and setup (more on that below).

It’s more akin to producing a ‘minimum viable product’ as opposed to the ‘most valuable’ one. The work here is to consider what the ‘lite’ version of your product looks like; keeping focus on five or fewer core features and designing a product that can add value from day one.

2. Rethink the price point

 This advice isn’t a ploy to encourage technology providers to lower their prices. While it’s true that enterprise price points don’t work for the smaller end of the market, the right pricing strategy also ensures the unit economics are stacked in a way that positions the tech provider to grow sustainably.

One of the issues with focusing exclusively on large utilities as customers is that it often becomes too costly for a growing company to acquire them. Long sales cycles and revenue models that drive down profit margins create instability and shorten tech players’ runway. But as I mentioned, there are tens of thousands of smaller utilities in just the US alone – meaning there is a market to crack with the right price point.

 In keeping with your ‘lite’ product design, your product price point needs to work at around one-tenth the cost of an enterprise solution – enabling you to access a potentially larger market segment. By tailoring your pricing strategy to suit the unique needs of this market segment, you can not only make your solutions accessible to a wider market, but also ensure the sustainability of your own operations.

3. Rethink the go-to-market strategy

 The final step to making the first two points land is finding ways to quickly and efficiently access and influence customers at scale. The tried and trusted approach to selling to a large utility would include a ‘key account’ sales and servicing model to develop a strong relationship with the prospect and to help reduce the perceived risk of adopting a new solution by running complex pilot programs. The sales model is ‘high touch’ to say the least.

 But for smaller utilities, a ‘self-service’ model can be more effective at accelerating both the sales process and implementation. This approach is more akin to that of a traditional SaaS player – with the goal being to sell at scale. That means leveraging online channels to reach wider audiences than would be possible with 1:1 meetings at an industry event, building a robust marketing funnel that aligns to your prospects’ maturity and sales readiness, and utilizing automation to ensure your sales pipeline is always flowing.

 As I mentioned previously, a product that can be deployed or installed remotely is ideal when targeting this customer segment to maximize profit margins and enable small businesses to grow quickly.

I realize this is all much easier said than done. But it’s the tough reality in which true entrepreneurs can thrive and maybe even, redefine how things are done.

 The digital transformation of US water utilities represents an untapped frontier, but the approach needs to be strategic. Companies and investors that forge ahead with the belief that all utilities should be targeted or serviced the same way are destined to fail. With deeper insights into the challenges faced within each segment of this market – and the opportunities that lie within the smaller end – technology providers and investors can bridge the digital divide and pave the way for sustainable growth.

I hope that this article is the start of an honest and open discussion – not only on the challenges of accelerating digital adoption within the US water utilities but most importantly, how we can support technology companies to make real inroads with their solutions, empower utilities to quickly implement and generate new value from those services, and shine a light on the most exciting investment opportunities. I welcome your thoughts on this topic in the comments below or via email at vjose@amaneadvisors.com.