 Hi there, I'm Nate Adams. Welcome back to part two of the Electrify Everything course. We're going to be talking about scaling electrification, and you should be wondering why I'm bringing this up so early. And the reason is this is probably the most important piece of this course. Because if we don't succeed at what I'm going to be talking about here, electrification is going to fail, and we aren't going to move as quickly as any of us wants towards electrification. So critical concepts here. So please open your minds, hear me. I really care about this, but I really want to see it happen. But it's going to take a whole lot of people pulling in the same direction for this to actually work. And this chart right here is the key. So hopefully it's familiar. This is the technology adoption curve. And this happens every time something new enters the market, be it a technology or product or whatever it might be. And if we don't get from early market to mainstream market by crossing the chasm, we fail. So we need to put a great deal of time and thought and effort into this. So I want to walk through our thought processes on this because we put a lot of time into this and we think we actually have a way to do it. And it's the only one that I know of for residential single family that I think crosses it. Okay, so here is the core syllabus. This is the second piece on how to scale electrification. Starting with the next video, we'll dig into nuts and bolts, which is probably what most of you are here for. But I highly, highly recommend that you stick with me through this, because otherwise you may actually end up hurting the cause and not helping it. So I want to plant several mental pictures in your minds. This is the second one really, because the adoption curve is the first. But this is what the path to residential electrification looks like. It is narrow, and you will fall to your death if you go very far at all to one side of the other. And this is also kind of a good picture because you can't see where it's going off in the distance. So we will have to make course corrections as we go through all of this. But this is not an easy thing to reach the mainstream and do it quickly. So it can be done, but it will be fairly gradual. Accelerating that progress is not the simplest thing in the world. So there's no room for missteps. So important point here, if you see me pushing back on you, on social media somewhere, you're probably unknowingly trying to push us off this very narrow path. Here's the next kind of mental picture. I want you to think of the scene from the Princess Bride. So I love this scene. It's hilarious. It's a fool. You're following victim to one of the classic blunders. So electrification really is a land war. And this isn't a land war in Asia. It's a land war in the US. I'm going to excuse my poor use of PowerPoint here. But we have 105,000 individual HVAC contractors. And there's many, many more if you look at the employees that work for these companies. And about a hundred million individual homeowners that have to be convinced that electrification is a good idea, is in their best interests, and is worth paying a little extra for because it's almost always extra to do this. This is not an easy task. And this is really important to do this because we need to stop the first clock. So we think of this in two clocks. The first clock is coming from 0% penetration of heat pumps at replacement in plenty of markets have higher than that. But some markets like where I live are almost 0%. We need to push that to 100%. So anytime a new piece of residential HVAC equipment goes in that has a compressor. So like air conditioners have a compressor and heat pumps have a compressor. Anytime a compressor goes in, it is a heat pump. Now the curse here is we are going to be talking about quite a few hybrids, which is a heat pump stacked on top of a furnace. It is what it is. I don't love it. You don't love it. But particularly in northern climates in older, leakier homes, it's going to be the option because you're going to need more power to heat them the cold days. So that just is what it is. If you want to change that, we are going to need to shift incentives. If you see me talking about resale value, the shell projects that you need to do, so insulation and air sealing is what I mean by building shell, those projects generally cost between $10,000 and $30,000 for most houses. You're not going to get that back at resale. So as it stands, I don't see more than a few percent penetration of houses doing that. And for any leaky older houses and some newer houses, for that matter, in cold climates, they're going to have to get a hybrid. But at least they will be getting a hybrid and not an air conditioner on top of a furnace. So that's an important piece. But what's really critical to understand here is until we get to 100% replacement being heat pumps, we don't start the 20-year replacement clock. So about 5% of residential HVAC is replaced every year. So it's about a 20-year lifespan, might be 15, might be 20, but 5% is a nice conservative number. So that means that it's going to take 20 years, once we get to 100% replacements, to get to 100% penetration. So like a 2030 target is really aggressive to get to 100% replacement with heat pumps. This is why I proposed a couple of weeks ago the policy of pay the HVAC manufacturers who currently make about 5 million air conditioners in the US and 3 million heat pumps, pay them to make all heat pumps. That will at least stop this first clock basically instantly. It could be a year or two out. So 2021, 2022, we could stop that. It's a pretty inexpensive thing. It also aligns incentives of everyone involved because the manufacturers aren't being bullied into doing something. They're being paid to do it. And because there are a number of small things that need to be done differently in installs to prevent warranties, they are likely to train contractors and supply houses in how to install heat pumps better. So they'll likely take a bunch of the bumps out of the process. Bad news is though, that is going to incentivize single and two stage heat pumps, which have just okay experiences. My in-laws have a single stage heat pump on their house. They normally heat with a wood boiler that's outside, but early in the season they'll heat with a heat pump and single stage and it's hugely noisy. So the fan is noisy. It wakes my mother-in-law up when it turns on. So that can be a struggle all year. But the outdoor unit, I forgot how loud it was. We stayed with them for a couple of days back this past fall and it was like, wow, that thing is noisy. Every time it turned on, I heard it. That is not a good experience and that is what single and two stage equipment is going to deliver. And so if we just switch everything over, we're still going to deliver or even bad experiences to a lot of people. So it's important to understand that as we ramp this up, we need it to be good experiences. We're going to come back to that. But noisy is bad. Good news on ramping to 100% is that 40 million homes in the U.S. are already electric thanks to the southwest, sorry, the southeast and the northwest, which both for economic reasons have ended up tending towards electrification. Now if we're going to win this land war, we're going to need an army. Might as well extend the metaphor. The key thing here to note though is it needs to be an existing army. So we've spent a long time figuring out how to do this. And if we need to build a brand new infrastructure, a brand new type of contractor to do this, it's not going to be fast enough. We need to take what is out there now. And then the good news is on the manufacturing point, the difference between an air conditioner and a heat pump is a few hundred dollars in parts. And the supply chain is already there. The manufacturers could switch over in six to twelve months without a great deal of trouble, especially if they were incentivized to do so. But we need an existing army of contractors to work with. And the HVAC contractors are the natural choice for this. Because A, they're already changing out to that we want to change out. They don't always do water heaters, but that's okay. That can be a separate thing. But they are already in homes working on air conditioners and furnaces and heat pumps and things like that. So they're already there. They're often going to have a lot of resistance to moving the heat pumps, particularly in colder climates. But that we can work on. So there's a few critical things that are needed to convert this army, though. They need a sales process because selling heat pumps is different from selling other pieces of equipment. It's much more of a consultative sale about comfort than it is the traditional business model. And then the business model also needs to be better because this needs to be attractive enough that HVAC contractors naturally want to install heat pumps. So whether or not we get the policy in place, we want them to be happy about heat pumps. So they need ideally better profit margins, better closing ratios, lower callbacks. And the callbacks relates to the good installs. The installs need to be good both for homeowners to have a good experience and not have to call the contractor back and also help the contractor avoid expensive callbacks. Because that's one of the biggest profit killers in the HVAC world is the callback. It's expensive to go back to somebody's house. So those are key. So I'm going to put out there that the HVAC 2.0 army may be the one to do this. So we have built in these things, the sales process, the business model, and naturally good installs because we'll be publishing a bunch of the pieces of their work, the measurements of their work, and then they'll be competing with each other for results. So it's a race to the top on results, rather than a race to the bottom on price. And so there's nothing like engaging our competitive instincts to push that sort of thing. So I do submit that the HVAC 2.0 army might be what to do it. We're early on, so later I'll give you a couple of paths to help us build this network in this army. All right, so back to the adoption curve. Let's dig into this a little bit more deeply. So electrification has a couple of really big risks, and there's more beyond this, but these are the three biggest ones that stick out. So the worst thing is if somebody electrifies their house and then they get a thousand dollar January or February electric bill. I've seen these. I helped one client with it. It surprised me at a single stage heat pump, but the house is relatively tight, and it turned out to be bad thermostat settings. In fact, the thermostat was bad. It wasn't capable of the settings it needed to use the heat pump effectively. So by not spending an extra $75 or $100 on the thermostat at install, it has cost that client upwards of $10,000 in money for the resistance electric to run that heat pump, not the way that it should be. So $1,000 winter electric bills are very possible. This will make a lot of angry people, and this is really going to hurt lower income clients as well. So we have to be careful with this. Second one is discomfort. I've heard a number of people that are like, yeah, I had a heat pump, man, my house was cold. I'm never getting one of those again. Heat pumps applied poorly deliver really bad comfort. It can be even worse than gas furnaces. And again, single and two stage heat pumps are usually at fault there. In fact, for all three of these, they're usually at fault. The last one is noisy HVAC. So I mentioned that with my in-laws. The fan is loud, and then the outdoor unit is really loud. You can hear, you know, and take off. And it's just really noisy. The issue with that is that bad experiences don't scale. So the general round marketing numbers are a happy customer tells two other people about their experience, and an unhappy customer tells a dozen other people about their bad experience. If we don't manage experiences to make them super positive for both the contractor and the homeowner or script, it's not going to scale. We're not going to cross the chasm. We're in real trouble. So when it comes to these risks, if you are here, you're pretty much by definition early market. And so bending your mindset here is really important to do for pushing us to scale. So you might deal with these. You won't necessarily be happy about it, but you probably won't scream bloody murder. But the mainstream market, if they get any of these things happening to them, they're telling that dozen people. And with social media, it can be a lot more than a dozen real, real quick with some negative reviews. So we have to be very, very careful not to create bad experiences for homeowners or contractors. And if we don't do a good job of creating good experiences, we're not going to get to this 100% heat pump replacement. That's going to be a real problem. Now another way to look at this is that early market, so these folks over here and mainstream market, they speak very different languages, like very, I mean this would be like democrat versus republican or vice versa and trying to get them to switch sides. Good luck. You may be successful once in a blue moon, but man it's not going to move them. So we have to be very careful at the language and the tactics that we use reaching the mainstream market. So here's how they basically think the different groups. So tech enthusiasts or innovators, which are the first couple of percent, and I oftentimes fall into this camp. So behind me I've got a bunch of indoor air quality monitors. I was excited about those because I saw their potential for proving that what we do actually works, and they have been really useful for that. So I dug into those years ago. So sometimes I am a tech enthusiast and that is basically, ooh shiny, it's the latest, it's new, I want that. I don't even care if it doesn't work well, I'll try it. But oftentimes those things end up in the back of the kitchen drawer. The next group, the visionaries, generally like to have things before their friends. And lots of different motivations here, some positive, some negative, but if you are an early adopter you like to have things first, oftentimes for the sake of having them first. Those don't move the mainstream market. So the mainstream market is held together by the fact that products need to be demonstrably better than what they're replacing and they need to be easy to buy. If we can't provide both of those we're in real real trouble. The good news is inverter based variable speed heat pumps can definitely provide being demonstrably better and easy to buy. But again we have to remember that the mainstream market, they hate early adopter language. So let's look at an example. This is a great example of a huge market failure. 1980s diesel, so in the 70s there were two oil crises and so there was a push for fuel efficiency and diesel is naturally 30 or 40 percent more efficient than gas because it burns all of the fuel. And so the manufacturers came out with the diesels really a bit late. It was 82, 83 before they came out and oil prices were back down. But they were miserable pieces of garbage. They were awful. So this is an article from AutoWeek and it just says cough cough and it's got this little car driving away. They were terrible. So the early market will put up with some of the bad experiences come from that. I mean so here's early market reactions. I mean you still see old Mercedes diesels driving around. I mean the dumb things don't die. They smoke but they don't die. So the early market will brag about the mileage. Hey I get 40 or 50 miles of the gallon out of this car. Again as they smoke on by. I had a buddy in college who had a late 70s or early 80s Toyota diesel and man I never wanted to follow him. I'm like you follow me. I don't want to breathe your fumes. Or another common thing would be it's the latest thing. You know it's new and exciting. So let's try this. Or you still see the biodiesel stuff. It can run on frying oil. These arguments are arguments that mainstream buyers hate. They don't just dislike them. They hate them. This does not move them. If you use these arguments it will push them in the wrong direction very very quickly. So we have to be super careful not to use early market arguments with the mainstream. So the mainstream here's what they said. It's underpowered. It's smokes. It's noisy. It is not a better experience. I mean I have an example of this from my own life. My dad bought a 1983 Chevy Dooley diesel and that thing was gullus and it smoked and it was noisy and I still remember him trying to pull our boat up a hill in the neighborhood and the truck just got stuck. Engine's howling and the boat and the truck are actually rolling backwards down the hill and it wasn't that steep. Like it shouldn't have been a problem pulling it up. My dad was furious. He talked about pulling that motor out and dropping it on the driveway of the the executive who okayed that project and I actually talked to one of those executives who's one of my marketing professors in college and he said that's exactly what happened. They took an engine design that was meant to be gas, jammed it into being diesel and stuffed it into a truck and they knew it was a piece of crap as they shipped it out the door. That is not how we get things to scale. Don't do that. We need to provide really good experiences for both sides and boy my dad was hardcore against diesels for decades after owning that truck so that was not good so we can't do that. Now the bad result like I said is diesel reputation was damaged for decades in the US and it failed across the chasm here which after dieselgate might have been a good thing but in Europe on the other hand they continued to develop that out. The turbo diesel came in and they became the most common engine in European cars for a long time. They're now starting to flip particularly Norway as they're electrifying but I rented a Ford Mondeo wagon in 2004 and I drove that thing all over Europe. I drove it just the whole time and I put 4,000 miles on that car in three weeks and had a blast, loved that car, came back, wrote a letter to Otto Eek which is where this picture came from and it actually got published saying how often do you rent a car and really really want to buy that car but it wasn't available in the US at that time. So the EU and the European markets in general moved to where the diesels were actually a good product until dieselgate anyway. The irony though is that a lot of the VW money is being used to build the electrify America charging network which will move us to EVs and it also forced VW to move towards electrification faster than perhaps they might have otherwise. Now there's a big danger that's related to all this though is that heat pumps already have a bad reputation among many homeowners and contractors particularly in cold climates in the US. So this is something that has to be very carefully dealt with and if we don't shift that we are going to fail to cross the chasm. So to shift the entire thought process of this we have to design for the mainstream. We can't design for early market, we need to be planning ahead so I'm here talking to you as the early market but we are obviously thinking very strongly about the mainstream and we have to design for both sides of the transactions here so it has to be homeowners and contractors. And to do this we coined the phrase here the church of the kitchen table so there are two parties that matter in residential electrification. Homeowners, contractors, nobody else matters sorry you don't matter I don't matter for that matter in this because you know I can help facilitate these but at the end of the day I'm not writing a check or doing the work. So here's why contractors sell and do the work and homeowners write the checks so that's why it's so important. Both of them must have amazing experiences if we're going to see scale so we need to see a massive growth every year at least 50% growth is what we want to see. This is not an easy thing to do it just isn't but if we can provide really good experiences clients will naturally tell other people about them refer people in hey it's this fellow was magic I can't believe what he did to my house it feels totally different I can't believe it's the same place that's a super common piece of feedback that we get and if you do that well you can have basically zero marketing cost and still have very very fast growth best example of this is Tesla they don't spend money on marketing yet they grow very very quickly. So to do this we have to make sure that homeowner and contractor interests rule above all so whatever other incentives there are for other people though their incentives don't matter it's only the incentives of what homeowners need and contractors need that really matters. Now to do this we think about having either friction or grease so if you picture a machine are you pouring sand into that machine and adding lots of friction and you're going to kill it or you adding grease to that machine this is what we want to think about so this is the question in our minds which is anything that you want to do does this add friction or grease to the kitchen table transaction if it adds friction don't do it seriously don't you're you're going to slow things down you're going to screw things up and if you wonder why we generally don't like residential energy efficiency programs it's because pretty much 100 of the mad friction to the process so here are some examples any kind of paperwork that either the homeowner or the contractor has to do those are friction that slows things down anything that requires a certain type of equipment to be used that slows things down anything that requires a certain method to be used or certain material to be used that can slow things down so you want to leave the solution paths as open as possible and you more want to see results than anything and if we're aiming at electrification what you want to see is well installed heat pumps whatever that might be now a grease example really the only thing that works for this is upstream incentives so we want to hit things before it ever makes it to the kitchen table so it doesn't affect the contractor or the homeowner directly you know the contractor might know that this equipment is now less expensive because of incentives but it's not going to slow the process down at all so there's two different ways to do this you can do it the manufacturer level or the supply house level so again i mentioned the policy proposal to pay all of the the HVAC manufacturers to make all heat pumps no more air conditioners and that will again kind of grease things coming down but i've mentioned several times single and two stage heat pumps they don't really provide that great of experiences they just don't because they run at the two stages still only a hundred percent and two-thirds power and you really want something to be able to dial way back down i mean imagine trying to drive a car at either two-thirds throttle or full throttle and those are your only options nobody would want to ride with you because they'd be snapping their neck all the time same thing goes for HVAC in houses we want to move inverter variable speed equipment as much as possible and that could be local and state incentives aimed at supply houses to make inverter equipment look less expensive so we need to get to the mainstream market we must get there or else we can't stop that first clock or we don't stop it soon enough and remember until we stop the first clock where every new piece of equipment is a heat pump we don't start the 20-year clock of running through all the inventory and every six seconds a new piece of residential HVAC is started up in the US so during this video there's going to be a whole bunch of them all right so how do we actually do this we need to speak mainstream in everything that we do and this is going to be the vast majority of the market it's 84 percent by the numbers so we need to talk to the mainstream about how new technologies like the inverters in particular are better than current options and they are they need to be easy to buy so contractors need to offer them and not offer them begrudgingly we need to ask what people value because the the better equipment does cost more so we don't have to justify the all the cost of the equipment but we do have to justify the cost of basic equipment to the higher end stuff that works better and we do that by seeing what do they value and is there enough value there to justify that extra cost and if there is we're good the equipment sells and usually those fall into comfort and health buckets as you were filling out last time by answering the four questions of the comfort quiz important note here climate usually isn't worth much when it comes down to actual dollars and cents so it's not something to really lead with now when it comes to speaking mainstream this is kind of the simplest thing that ties things together that we found so you want to talk to them about something familiar with a twist so this is me and an electrify everything event so the the bald fellow is leaning on a heat pump water heater this is one of our electrifications and i am leaning on the air filter for this hvac system so that is actually called a bad it got nicknamed a big air drop so that filter is sitting horizontal there does a great job with filtration knocks down how much a house needs to be dusted actually it's really good at knocking viral particles out of the air while we're in this covid mess but most importantly it looks like a furnace so there were two different clients that came there that hadn't yet electrified but were figuring out whether they wanted to or not both of them saw and touched this piece of equipment and thought it looks like a furnace it looks familiar i feel safe buying this and then they did and both of them said that this visit affected them and one of them said basically this is what did it for them the other one was already leaning that direction anyway but being able to see that the new technologies don't look that different is really nice so another way is it works just like an air conditioner but it can heat as well as cool which can mess with people's minds but you have a refrigerator in your house running right now that has heat coming out of it but the air inside is cold there's still heat in cold air that's what heat pumps do they extract that heat but the other thing that helped those two clients was they looked outside and the outdoor unit looks basically just like the air conditioner they've had it's a little bit bigger and it's up on the legs but aside from that it's the same piece of equipment it was very familiar but it had a twist or another way you do it is you talk about it's like another stage for your furnace so i talked about the the hard on off or the two thirds on off typically a heat pump is going to be something like a third or even a quarter the size of the furnace that's in your house right now so it's going to be a nice little gentle tip in and when you're in spring and fall you don't need nearly as much heat to heat your house so most furnaces are generally two or three times larger than they need to be even on the coldest day which makes them 10 times too large on mild days so we commonly hear that when it's say 45 to 55 degrees outside that houses just feel really cold and not comfortable that's because of oversized equipment in almost all cases so if you put smaller equipment in which is a heat pump and you make that a stage in there you get much better comfort in spring and fall so that can be the bonus that comes out of it the other thing you can do is ask questions so key one is are there rooms that are uncomfortable some parts of the year the rooms you don't like to be in or the rooms you don't use some of the year which happens pretty often and then is it winter summer where is it how much is a bother you that sort of thing ask a bunch of questions is anyone of allergies so that filter i'm leaning on can knock a bunch of the garbage out that makes people allergic so that can be helpful are there mold issues in a house this is more on the east coast than a west coast problem but beginning to hear some of it on the west coast but that can lead into conversations and i should flip back up to this are rooms uncomfortable so my buddy Robert Brearly one of his favorite questions is do you have a weird relationship with your thermostat and that's a great question because a lot of people do it's like it's never comfortable i don't know what's going on you probably have the wrong age back and your house might be leaky so a couple things to avoid in speaking mainstream though don't talk about new technology they don't want to hear it they want to hear this is tried and true they want the second or the third generation heat pump water heaters are on their fourth inverters are the original inverters were heck invented probably the seven days but the current generation of equipment that we're seeing out the cold climate heat pumps are on their second or third iteration so they're coming along but new tech they don't want to hear about they don't want to hear that it's the latest trend that's not what they want to do they don't want to know what the kids say things like that don't talk bands particularly with contractors eighty percent of contractors are politically conservative if you want to rile them up just say the word ban that's a great way to do it and lots of homeowners don't want to hear that either so that's not something to lead with and like i mentioned earlier talking about green and climate generally is not a good way to actually have someone buy so they may indicate interest interest does not equal money and we need people to spend money so to close repeat after me i'm an early adopter but i will speak mainstream so again i am an early adopter but i will speak mainstream that's how we actually scale electrification and to that end we have built the HVAC 2.0 process and system to do this it's more it's a natural result more so than a natural goal because heat pumps just happen to solve all kinds of comfort problems smaller equipment is good heat pumps tend to be smaller well they're almost all smaller than furnaces so it's just the way to go and we'll be talking about that shortly but the way to think of 2.0 is like airbnb for buying HVAC so right now the kitchen table experience is bad for both sides contractors don't enjoy it homeowners don't enjoy it it's just not fun so 2.0 serves both HVAC contractors and homeowners so the two sides of the platform and it delivers a smooth and pleasant experience for the mainstream on both sides so again this is us trying to solve this problem for single family residential electrification so at the end of this when we get into finding a contractor we'll get more detail on this and we'll be touching on HVAC 2.0 as we go through the electrification course speaking of which if somebody sent you this video or you haven't signed up to get the rest of this course i highly encourage you to do so because there's tons and tons of content and so i will put a link below the video please sign up for that all it cost you is an email in your first name and if you want to donate later you can but you don't have to so hopefully you have found some value here i hope this shifts your mindset because again we have to plan on the mainstream now and build things for that now the time for pilots and case studies and so forth it's it's over like that time's gone we've got to move and move quickly and move with something that works across the entire market so hopefully this helps i'll see you next time when we dig into the actual nuts and bolts of electrifying your house i'm Nate Adams have a wonderful day bye