View from the top: New entrants need deep pockets

“Most start-ups have ideas that can revolutionise industries but fail because they quickly run out of capital.”

As a new entrant into the energy industry, it is imperative to assess the strengths of the market, while more importantly beginning to understand the size and scale of the issues found within it. It is only after gauging what you have to offer to improve the sector that you can successfully gain access and transform monopolised areas. The nature of the beast when it comes to energy is that although the market can appear saturated it has always functioned in the same, conventional manner. These traditional models leave space for innovative technologies that provide a true understanding of the market to disrupt and thrive within these arenas.

When researching the energy sector, it becomes apparent that the industry is a competitive market that is dominated by monopoly. Despite the arena having around 60 suppliers, the bulk of the sector is ultimately dominated by a handful of providers.

Of these suppliers, customer complaints and reports of overcharging are at an all-time high; it is evident that the traditional dynamics found within the industry are not working. This is fundamentally due to the fact that there is an unusually high percentage of disenfranchised customers, yet in spite of this, they do not shop around for their energy. In the UK, we have a nation of consumers who are overcharged for their energy yet remain somewhat reluctant to switch providers. This reluctance comes from customers fearing that any potential savings from auto-switching could be offset by exit fees. It is undeniable that while the energy industry appears fully saturated, there is always going to be room for those who can enter the arena and put the customer and their needs first.

Monopolised arenas require you to think about how you can make a difference, when others have not. Within the energy industry this is outlined by the lacking number of people who switch providers. The market is inefficient because the process of switching has been difficult, technical and time consuming. At Labrador we felt that the best way to make a difference was to produce a platform that is free to use, automatic so it can be scaled up, and based on accurate data. We had to deviate from the complicated processes that had previously been promoted by price comparison websites and use innovative technology to create something appealing to the consumer.

Most start-ups have fantastic ideas, ideas that can revolutionise the industries they aim to disrupt. However it is a sad reality that a large proportion of start-ups find it difficult to compete against these large corporations. This is not because the concept cannot work, but because businesses quickly run out of capital. When starting Labrador, we wanted to ensure that our financial strategy was faultless. We started with a seed/anchor investor and from this began to build an investor base that would be called upon whenever further capital was required. To date, Labrador has more than 500 investors, 65 of which are high net worth, and within these we have a many institutional investors who would invest at any point. One of the main benefits of this financial strategy is that when we wish to scale up, and at that point will undoubtedly require further investment, Labrador has investors to hand. This financial strategy is the lifeblood of successful small and medium-sized enterprises.

In conclusion, there is no reason as to why you can’t break into an existing, established and monopolised market. You simply need to be smart and clear about your idea. You cannot copy other models – you have to be innovative and forward thinking about your design and be prepared to be nimble, to test and to learn.