The brutal business of selling mirrors is not for the faint-hearted. The challenge is category differentiation, given that a mirror has one simple task—reflection. One of Greg Jackson’s first jobs was working for a mirror manufacturer which, at best, broke even or made a small profit. And then he had an idea.
“We started making mirrors that had really wide frames,” the founder of Octopus Energy (the U.K.’s largest energy provider) told me. “And on a picture [on the internet], suddenly we had a mirror that looked different from everybody else’s. And they sold like hotcakes – and that transformed the business.”
Approaching a business from a different point of view is an essential ingredient in the hunt for innovation. Jackson’s essential insight when it came to mirrors was that, online, every product looked the same. That is what the customer saw. And he realized that if the customer saw something different (a mirror with a wide frame), they might buy it. Which they did.
Not seeing something that is obvious to an outsider is a firm’s “incumbency cost”— embedded in the regular behavior of doing the same thing tomorrow as you did yesterday. It is one of the most significant brakes on the ability to grow.
“I think the single biggest factor affecting Europe—and an issue the U.S. is not immune to—is incumbency,” he told me. “China and the Gulf are not held back by incumbent industries. Instead they are, at huge pace, delivering the new world. If I look at electric vehicles as an example, there’s not an incumbent car industry in China that’s struggling to manage the transition to an entirely new technology. But if I look at Europe, European governments and consumers want electric vehicles, but the European car companies have not yet been able to be competitive at building them.”
“If we want more growth, we need to allow creative destruction so new companies can deliver the productivity we need”
Octopus energy ceo greg jackson
Chinese electric vehicle sales in Europe are growing rapidly. Chery has tripled sales in Europe in the past year, BYD has doubled, Geely is up a third, and SAIC is up 23%. Taking the four leading Chinese car makers together, their EV market share is now at 14.6%, up from 9.6%, according to the latest figures from the European Automobile Manufacturers’ Association. In response to claims of state subsidized dumping by China, the European Union has applied duties of up to 35% on top of the standard 10% import tariff. Chinese cars are still over 20% cheaper to buy.
“Incumbents crowd out the innovators in many sectors and markets,” Jackson said. “It wasn’t the Post Office [the U.K.’s public mail service] that invented email. The music industry held back streaming and digital music for 10 to 20 years. What you need is routes to market for new technologies, and I think that can be a challenge in Europe because so many of the big industries essentially have a stranglehold on policy.
“Economists have said that nearly all productivity growth comes from new companies. If we want more growth, we need to allow creative destruction so new companies can deliver the productivity we need.”
Jackson said that Europe has a number of successful sectors that it can learn from—for example, the continent enjoys a vibrant and innovative fintech sector whereas in America “they take my card around the back of the bar because their terminals and processes are so dated.” Few people have seen a check in Europe in more than a decade.
Octopus grew out of the need for a new way to manage energy supply and demand. Jackson initially attempted to convince legacy businesses that they would be far more efficient with a fully overhauled technology platform but, after not progressing very far, decided that he could build a team that could modernize more quickly.
“The idea was that through technology, we would be able to provide lower costs because we’d be more operationally efficient,” he said. “We’d be more agile, so we can incorporate technologies like electric vehicles and solar panels and batteries directly into the energy system very efficiently. That would also help with cleaning up energy because you can use more renewables more cost-effectively if you’re more agile. We set out building that company in 2015, and nine years later, we became the biggest energy company in the UK, overtaking all the incumbents.
“We came from outside energy, we came from tech, and just like the people that built Uber didn’t come from personal transportation, and the people that built Airbnb didn’t come from hospitality, and the people that built Amazon didn’t own bookshops. What we were able to do is build an energy company not based around the assumptions of the industry, but using technology to meet the needs of customers.”
The brute force of market dynamics is pushing the world towards a different energy mix. In the European Union, wind and solar power produced more electricity than fossil fuels for the first time last year, according to Ember, the energy think tank.
“The technologies of electricity are improving exponentially, and the technologies of hydrocarbons are not,” Jackson said. “A car engine costs roughly the same now as it did 20 years ago. They’re not particularly more efficient. Meanwhile, an electric vehicle battery today costs 10 times less than it did 15 years ago. Solar panels cost 200 times less than they did 40 years ago. Wind turbines have come down two thirds in price over the last 20 years.”
Jackson was in China earlier in the year and said that electrification is continuing at pace, with battery swap stations, rather than recharging, reducing the amount of time drivers have to wait to between three and five minutes. “It’s only when you see 49-ton trucks in China running on batteries that you realize how serious electrification is. The drivers don’t care about the price of diesel.” Which might give Donald Trump pause for thought as he eyes both the American mid-term elections and the rising cost of fuel in the U.S.