How to build an energy giant, with Greg Jackson
Breaking incumbents' stranglehold & scaling in a regulated market
Hi everyone,
At Form, we’re obsessive about the craft of company-building in regulated markets. Decisions about product, go-to-market and competition all look different in a regulated context. So we’re delighted to bring you this interview with Greg Jackson, founder & CEO of Octopus Energy, which is one of the most insightful interviews we’ve done about this challenge. So many lessons here for founders in across every regulated market, including but not only in energy:
Leveraging your agility as a challenger to gain market share in regulated sectors
Navigating the ferocious behaviour of incumbents
Being strategic about policy influence — don’t get distracted before you’ve proven your product
How the energy system is changing and the opportunities that presents
Responding to a discussion kicked off by Index’s Martin Mignot about Revolut’s multi-product, multi-country strategy, Greg Jackson recently highlighted how “Europe/UK can create truly scaled disruptive tech businesses in regulated markets. In both energy and fintech, Europe/UK arguably has a better regulatory framework for competition than the USA”.
Octopus and Revolut illustrate our founding thesis at Form, that investing in regulated markets can deliver venture scale outcomes. But there’s no doubt that scaling under regulatory constraints is a unique craft — founders need to have a calculated strategy for how to build in these conditions.
If you only have a few minutes, here’s the tl;dr, but strongly recommend that this interview is one you read in full:
When you’re a challenger in a regulated market, you have a huge opportunity to rethink the legacy incumbent’s assumptions and relentlessly focus on unmet consumer needs.
Never underestimate the ferocious behaviour of incumbents in protecting their turf. They have decades of relationships in media, policy and regulators over you. But you can leverage your agility: be so superior in operation, technology, and service that you don’t even need to think about your competitors. Do something different.
In the early days, you’re a condition taker. Be strategic and don’t get distracted by lobbying for regulatory change before you’ve proven the value of your product. In time, by innovating in support of consumers, you might then find you’ve built up the track record and trust with regulators to shape policy more proactively.
At that point, the opportunity comes from aligning your company’s interests with consumers and wider society. You don’t have to retrofit innovation, you don’t have legacy incentives focusing you on value extraction. You can campaign from a genuine, authentic position that supports consumers.
The number one issue for the future of energy is the move from a top down, central system where you switch baseload energy on to meet fixed demand, to a bottom up system where you shift consumption around to meet variable supply. That’s the opportunity to make the energy transition cheaper and faster.
Full interview with Greg Jackson, Founder & CEO of Octopus Energy
FORM: At Form, we invest in startups taking on regulated markets — which are often enormous, undisrupted and dominated by weak, technologically inept incumbents. How has this shaped Octopus’s opportunity and differentiation?
GJ: We saw a huge opportunity to serve customers who were underserved in the energy sector due to companies running on legacy tech stacks that were inefficient and unable to take the opportunities of changing energy systems and bring benefits to customers. At first, we spoke to a couple of large energy companies about building new software in this space. One said they didn’t need any help, and the other said they needed someone else to try it first. So we decided to build our own technology platform, Kraken, to transform the sector and launched Octopus Energy as its demo client. And since there was no overly complicated chain of procurement approvals or inflated cost quotes from enterprise software suppliers, being our own client allowed us to innovate in ways that incumbents couldn’t.
From the beginning we were very customer focused and asked which ways customers were being underserved, which can lead you to some unintuitive places. Take Uber. If you’d asked anybody in the incumbent cab industry to spec an app for cabs, an absolute must have requirement on day one would have been to be able to book a cab in advance. But Uber knew that the number of failure cases, if you book in advance, is so great that they were better off delivering a perfect experience everywhere that goes smoothly and automatically. In the same way, when we were building Octopus, there were a tonne of assumptions in energy which — it’s not even that we challenged it, we didn’t think about it. We just built what we thought was the right product for customers. It turns out there were loads of things we did that energy incumbents were doing the exact opposite of.
One thing, for example, was not having estimated bills. A huge part of billing engines is built around the idea that you get a meter reading at some point in the month, and then you always have to issue a bill on the last day of the month. It was a batch process requiring a bunch of clerks, once a month, going down a list of everyone’s accounts and issuing a bill. But we’re in a world of continuous data. The moment you give us a meter reading, we give you a bill — there is no estimate. It may sound like a small thing, but it absolutely, fundamentally changed an enormous amount of the back end of an energy company.
Another amazing feature of our business is in the customers that are going through our collections process, who are significantly in debt or behind on paying. I’ve got to work out how to stem the spiralling of debt and how to recover it, to the extent it’s going to be possible. Those customers give us a higher NPS than the rivals get among their total customer base, even when people are in those difficult conversations. That happens because we genuinely care about the customer, it’s not lip service. That’s the key to delivering in these sectors. Never underestimate the ferocious behaviour of incumbents in protecting their turf. While some of them improve their customer service and get more innovation, it’s a lot easier to do it through regulatory capture and their ability to use their market power, not just with consumers but with the media, with lobbying, where they’ve had decades to build those relationships. When you’re a challenger in this space, everyone loves you. But you know who spent 30 years getting to know the people that are now running the system? The incumbents.
Were you prepared for that, personally?
GJ: We were genuinely shocked that, during the energy crisis, when we put every ounce of our effort into how we look after our customers, some of our rivals focused on ‘how do we use this to destroy the competition from challengers’, like pushing completely false messaging about financial stability of challengers. Of course, plenty of companies failed, but some of us, I mean, we weren’t just resilient, we were astonishing in that crisis. But those briefings, and the digging for dirt, it’s what you’ve got to live through if you’re successful in the space. When it happens, it’s a validation. It’s a huge compliment.
But the extent to which we’ve been superior in operation, service, technology and innovation meant we hadn’t even thought about our competitors. I mean, literally, we do something different. And one of my teams said, ‘just be aware that these machines have got the most phenomenal defence mechanisms’. It’s not even always cynical. They just literally can’t believe that a startup can be better than them, and therefore they feel or think there is something going on. But their reaction…if you’re in a school athletics race and there’s one kind sprinting ahead of everyone, it’s may be easier to nobble them than to try to improve your own performance.
We’re always interested in how regulatory is a variable for companies and how they build in response. And clearly in energy, your route to market is shaped by policy and regulation, e.g. you need a licence from Ofgem, your unit economics are shaped by the price cap and the single electricity market structure, etc. How have these challenges evolved as you started, and since scaled, Octopus?
GJ: As a startup, you’re a condition taker. I see a lot of startups from day one try to challenge regulation and, on the whole, there’s extremely high failure rates. If you’re dependent on changing regulation before you can actually deliver any real business, then you’re not in control of your destiny. I sometimes think in the early days, you’re like the mice on the kitchen floor, looking for crumbs. But that’s alright. You’re a mouse, you don’t need a lot. Then as you get bigger, some of the crumbs aren’t enough and you actually have to participate far more fully in the role of groceries and kitchens. To begin with, you’re kind of irrelevant to the big guys, and that’s an amazing opportunity. Until you’ve got a real business, everything’s irrelevant. If you’re lobbying to change regulation, and even if you’re lucky and you get it, and then you launch your amazing product and discover that no one wants it, what a waste. But by getting going and just accepting that things are what the are, I think you can learn so much. What we really did was we built the fundamentals.
And I think my second observation is, at the end of the day, regulators are largely aligned to the objectives of disruptors. Our objectives are to drive down energy costs, to make energy more transparent, to make energy cleaner, to build renewables, and to do an efficient, outstanding service. Building the fundamentals and the Octopus brand around those things meant that even when we were small, we could demonstrate time and again that what we were doing was what the regulator wanted. So a great example is how energy companies have always said that it’s a shame that bills are so complicated. They have to be because the regulated has defined what an energy bill looks like, that’s true. But there was nothing to stop you creating a beautiful, transparent email in which you attach a regulated PDF. The email has got all the information in a human readable form and then you’ve got the regulated document attached. So you can show it to a regulator — they’ve got all their needs, but you’re also innovating in the interests of consumers.
Once you’re demonstrating that what you’re doing is fundamentally better aligned with regulators than the incumbents, you actually find you’ve got an open door to start influencing regulation, or finding ways through it that would not necessarily be anticipated by regulators. A great example early on is how we introduced a Tracker Tariff, where the price changes every day reflecting the market price. Now, there’s actually a bunch of regulation that, it’s not like they ever ruled out a tracker, it just doesn’t fit the formula of an energy product either because you couldn’t do a comparison. All the regulations say that when someone signs up to a tariff, you have to tell them what the annual estimate is. But the price changes every day, we literally couldn’t meet that regulation — unless we took today’s price and multiplied it by 365, but that wouldn’t be helping customers. So I think what we had to do was demonstrate from our track record, and the genuine integrity of what we were doing, that the regulator can be relatively benign towards these things and let us get our innovation out there.
And then the final stage is when we began influencing regulation. For example, in the case of the energy price cap, I don’t think it would have happened without our company. At the time, we only had 100,000 customers. But we employed very early on great data scientists, analysts and customer people. We were able to demonstrate to the regulators that the way we were pricing modern energy was detrimental. And to demonstrate that to politicians, our Chief Data Scientist ended up becoming a lobbyist. He was just down in Westminster all the time with his laptop, talking politicians through the problems in the energy sector.
I remember when we set out on that journey, every incumbent was like: I don’t know why you’re wasting your breath, this is never going to happen. And 18 months later, it fundamentally transformed the sector. And the reason we pursued it was it was better for consumers to move away from a market where you had unsustainable teaser prices that they didn’t really understand, and then opaque long term pricing that is essentially designed to rip them off. But it was very good for our company because Kraken gave us operating efficiencies the other companies couldn’t match. So in a world where you couldn’t deceive customers to make a margin, you have to be efficient and we were way more efficient. So I think there’s a real bit of philosophy here, which is this idea that if you aligned your business with consumer interest in the beginning, it’s not a surprise when a regulatory change in favour of consumers is also very helpful to you.
On the price cap, heat pumps and hydrogen, you’ve also campaigned on issues that extend or expand your competitive advantage. For other founders in other sectors, what have you learnt about doing this well? What matters, what doesn’t?
GJ: The advice here is to relentlessly align your company’s interest with your consumers, and maybe wider society. In our case, the interest of customers is transparency and innovation to bring prices down and to improve service. With wider society, it’s about climate change. None of this for us is a retrofit. A huge benefit you have as a startup is you don’t have public company investors demanding a quarterly dividend. You don’t have a history of outrageous behaviour that somehow you have to cover up. You don’t have a legacy team that over time has become focused on optimising extraction from consumers. The disadvantages are that you don’t have regulatory relationships. You don’t have that profile, scale or balance sheet on day one. But by maximising the benefits of the blank slate, all those campaigns are genuine, they’re authentic.
If you look at some of my rivals, on Monday they’re campaigning for one thing, on Tuesday they’re campaigning for the exact opposite. They have to wriggle their way through mazes of their own creation. A really great salesman I was once lucky enough to work with once said to me: “never lie to a customer, because you have to remember a lie forever”. I think a lot of legacy companies have got this trail of stuff they’ve said in the past that they now have to defend. We get out of that problem.
We talked a little at the beginning about how you scaled and what you prioritised. Looking forward, you talked aligning what you’re doing with both customers and wider society. So thinking about climate and technology change, how do you see the future of the energy market evolving?
GJ: Looking on a global basis, the big trend in energy is obviously the transition but the number one driver by a mile is electrification, especially where electricity is supplied by renewables — which are often intermittent. But electrification for end use transport and heating are largely shiftable. So we move from a top down central system where you basically switch coal power stations on and off to meet fixed demand, to a bottom up system where you shift the consumption around to meet the variable supply. That is the single biggest feature, and that’s everything we’re focused on, because that’s how we make the energy transition cheaper and faster.
Hit reply with follow up questions, suggestions of regulated market founders we should interview next, or get in touch if you’re building at the frontier of tech and regulation.