Growing the Top Line

CHAPTER 5What BUSINESS MODEL Will I Use?

About a decade ago, there was a fundamental shift in the physics of competition among publicly traded corporations. They began to allow changes in their traditional business models.

The first time I really dug into this was helping a client study the emerging market for energy services. Companies were being merged to create super‐ESCOs, or energy services companies. These were large companies that combined excellence in the provision and management of massive HVAC infrastructure with financial risk management. Let me say this more clearly.

Imagine you run the infrastructure for a skyscraper in Manhattan: 50 stories, 200 units, 200 tenants. Manhattan is in the northeastern US and experiences every climate imaginable. So it’s critical that as a top‐notch landlord, you have to keep tenants at a constant 71 degrees, winter, spring, summer, or fall. There was really only one way to do that before the late 1990s. You bought and maintained a massive heating, ventilation, and cooling (HVAC) system.

What you learn from studying landlords in Manhattan who own skyscrapers is that they are fairly sophisticated financially, and they know exactly what they spend to finance that equipment on a monthly basis and the amount of electricity and maintenance cost that they spend to provide that service to their tenants.

For the sake of illustration, let’s say that the AC units cost $750,000 to buy, $250,000 to install, and $40,000 a month to run. So a cool ...