Volts podcast: Andy Frank on how to sell whole-home retrofits to skeptical consumers

In this episode, Andy Frank, president and co-founder of Sealed,
discusses his company’s pay-for-performance model for home
electrification.


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transcript)


(Active
transcript)


Text transcript:


David Roberts


One of the greatest riddles of the decarbonization effort is the
residential sector, responsible for about 20 percent of US
energy-related carbon emissions. There are about 142 million
housing units in the US, around 83 million of which are
“owner-occupied.” Substantially changing them involves dealing
with 83 million separate owners, each with their own
circumstances and preferences.


Residential decarbonization seems incredibly difficult to scale
up, and attempts to date have not been particularly successful.
At the rate we are going, it will take hundreds of years to
decarbonize America’s housing stock.


The crew at New York-based climate tech company Sealed is trying
something new, imported from the commercial efficiency market.
Rather than trying to persuade homeowners to buy and install
things with their own scarce resources, Sealed covers all the
upfront costs and coordinates the work with trusted contractors.
Homeowners pay the retrofit back out of energy savings, which
means Sealed only gets paid if there are, in fact, measurable
energy savings.


This kind of pay-for-performance arrangement is called an energy
services agreement (ESA). Listeners of my pod with Rob Harmon
will recognize the concept: customers are paying for metered
energy efficiency, in the same way they would pay for energy.


Sealed started small but is growing quickly, so I’m excited to
talk to its president and co-founder Andy Frank about the
frustrations and failures of residential energy efficiency to
date, what he’s learned about homeowner preferences, and what
kind of benefits come along with having a fully electrified home.


Without further ado, Andy Frank of Sealed, welcome to Volts.
Thanks for coming.


Andy Frank:  


Thanks for having me.


David Roberts:   


Where do residential emissions and energy use sit in the larger
picture? How big of a piece of the climate puzzle are they?


Andy Frank:  


They’re a pretty big piece of the puzzle. Home energy use
represents about 20 percent of US carbon emissions. It's a big
enough piece where we're really not going to be able to meet our
climate goals without nailing residential efficiency and
electrification. It is a large opportunity, but also one that has
historically been very frustrating to make progress on.


David Roberts:   


The arguments for home energy efficiency stand regardless of
climate change; it makes sense to save money and use less energy
to do so. We've talked for decades about weatherization and
nation-wide retrofits, etc., but nothing ever seems to get off
the ground. Why has this been such a tough nut to crack and why
have previous efforts not cracked it?


Andy Frank:  


There have been many more ambitious goals than there have been
success stories. There's essentially been what I'd call 50 years
of failure. The first efforts to really promote energy efficiency
– they mostly called it conservation back then – were around
1973, with the first oil embargo, the first big energy crisis.
Fast forward to today, we're still not in a great place. At the
current pace of retrofits, it's going to take us more than 500
years to retrofit every single home. We don't have 50 years, much
less 500, so we definitely need to do something.


David Roberts:   


What have we been trying and why hasn't it been working? 


Andy Frank:  


We've tried a lot of things; not a lot of them have worked. A lot
of people associate the early days of energy efficiency with
Jimmy Carter asking Americans to wear a sweater. But actually,
President Nixon, a Republican, was the first one to push for
conservation in the early 70s – to turn down thermostats and take
shorter showers and change your behavior. 


Obviously, we're American, we don't like conservation, we don't
like having to sacrifice. So the next wave, which was through the
late 70s and 80s, was led by legends of this field: Amory Lovins,
who was a big inspiration to me, and Art Rosenfeld, and folks
saying hey, this isn't about sacrificing; this is about producing
more with less, a better quality of life. The old line “people
don't want kilowatt hours, they want cold beer and hot showers” –
that was the next wave, and that, of course, makes sense and has
always made sense. 


One of the original sins of the energy efficiency industry, at
least in my mind, is it was created by government for government,
and through the utilities and local contractors. What that meant
was you were essentially pushing largely home energy audits, very
technocratic solutions, on the populace. 


I loved your pod recently talking about the economic style of
thinking; that was very en vogue with energy efficiency. The idea
was, if only we could educate people and give them exactly the
right amount of information about what they're doing with home
energy use and how much energy they can save, of course they
would spend thousands of dollars to make their home efficient.


David Roberts:   


They are rational interest maximizers, so why wouldn't they?


Andy Frank:  


Exactly. The value prop of residential efficiency essentially
evolved to assume that homeowners are all classical PhD
economists and have a Masters in building science.


David Roberts:   


And are willing to balance short-term investment with long-term
payback and can calculate those things for themselves.


Andy Frank:  


Perfectly rational.


The sales pitch has historically been horrible. The way that
energy efficiency has been sold for pretty much the last 50 years
is, “Would you like to save money on your energy bills? Great,
get an energy audit!” You have to schedule it, you have to take a
half day off of work or at least be in your home and aware of it,
and someone who you don't know trucks around your house for three
hours, goes into all of the most private parts of your home – I
won't even speak to all the stuff that we saw when we were doing
energy audits. 


At the end of the day, if you're lucky, they will sit down with
you and say, “This is what we found, here's how much energy we
think you're wasting, here's what you can do about it, and by the
way, that's going to cost you thousands of dollars to do” – to
potentially save what you, as a homeowner and consumer, largely
see as fake money. 


David Roberts:   


Homeowners are not carrying the one; they're not calculating
their energy costs down to the penny. What are their thought
processes? When they do go forward with a retrofit or something,
what motivates them to do so?


Andy Frank:  


The great news here is there's actually a lot that motivates
people to move forward with these efficiency and electrification
retrofit projects. But it's not energy, and it's usually not
saving money on energy bills. It’s comfort, it’s health, it’s
safety, it’s quality of life. 


For anyone who's seen the now classic movie Fight Club, the first
rule of fight club is you don't talk about fight club. At Sealed,
the first rule of selling energy efficiency is you don't talk
about energy or efficiency. These are not things that generally
resonate with real people. What you talk about is getting rid of
drafty rooms and cold floors and upstairs rooms that feel like a
sauna. You solve people's comfort and their quality-of-life
issues, and the energy savings are a way to make it affordable to
install those solutions.


David Roberts:   


How much of this is anecdotal and how much is nailed down by
research? What's the balance? Are any homeowners talking about
energy and saving money?


Andy Frank:  


There has obviously been a lot of research over the years,
largely through surveys that ask people what motivates them to
adopt energy efficiency measures. They're normally set up,
though, in a way that doesn't actually give you great
information. If I ask you “would you like to save money on your
energy bills?” you'd be an idiot to tell me no. But if I then ask
you “would you like to spend $10,000 to save $100 a month?” your
answer is probably, “Not sure about that. Tell me a little bit
more.”


Part of this is around mistaking people's general desire to save
money – which, if you watch any number of commercials on TV, is
of course a motivation for people – with their desire to not
invest money to save money. 


The other big problem is that the industry generally assumes,
including in the research that they do, that most people actually
believe in the energy savings. If you look at the data – not just
in residential, but across sectors – energy efficiency is by far
the biggest and most powerful energy and carbon-reduction
resource we've had over the last seven years; but at the same
time, it's invisible. It's the lack of something. I analogize it
to dark matter – the most powerful energy resource we have, but
we literally can't see and feel it. 


That's always been the challenge, both at the macro level in all
of the fights over the years with measurement and verification,
but also at the micro level with a homeowner. Very early on at
Sealed we did a survey asking people, “If somebody did an energy
audit in your home and projected that you would save $100 a
month, how much do you think you would actually save?” The answer
across the US was less than $25. In other words, people are
discounting 25 cents or less on the dollar from what you tell
them. So the money's not real. 


David Roberts:   


Another barrier has always been that even if you sell people on
the fact that they could get a lot of energy efficiency, it's
still a huge project to do so and to know what to do. Was the
original vision for Sealed just to make that project easy? Is
that the whole point? If I call Sealed to my house, what are you
offering me that overcomes that dread of dealing with things,
which I feel so acutely?


Andy Frank:  


Sealed is a climate tech company on a mission to stop home energy
waste and electrify all homes. That's what we're trying to do
when we approach each home.  


First off, I consider myself a lazy environmentalist. I want to
use as little energy as possible and reduce my carbon footprint,
but I'm not a do-it-yourselfer. As my wife will probably tell
you, I'm not Mr. Fix-it in the home. I need help. 


I actually recently got my own home sealed. After working in this
space for a while and building up Sealed, I can finally, as they
say in the startup industry, eat my own dog food.


David Roberts:   


So how did you find the experience with yourself?


Andy Frank:  


I'm a very biased source, but it was great. 


Basically, we design, manage, and finance home weatherization and
electrification projects, and we aim to make it both easy and
affordable for people to be comfortable while using less
energy. 


We focused initially on the affordability piece, trying to make
it as affordable as possible.


David Roberts:   


Did you go in with the conventional assumption that this is
mostly about money and saving money? Did you share that
misapprehension at first?


Andy Frank:  


Oh, yeah. I went into this believing all of the “best practices”
and all of the received wisdom in the space. I was essentially
classically trained in neoliberalism in college and took courses
from all of the very smart and wonderful professors who believe
in things like the preeminence of the Kyoto Protocol. So I came
in with a very technocratic view. 


Obviously, being in the field and spending time with our
contractors and with homeowners really shaped my view of how we
needed to change things. Early on, my co-founders and I would go
to train stations to talk to people to find out what they thought
about their energy or comfort. I interviewed every single
homeowner that I could in my network to really understand how
people think about this; shadowed lots of energy audits; did a
lot of grounding research to understand what this looks like; and
came to the conclusion – which again, is not rocket science –
that people are motivated to do things that improve their quality
of life and make it easy and affordable to do.


We have a pretty simple framework for creating value that we like
to reference sometimes, which is “GAF is greater than LAF.” This
is a family podcast so I won't do the full translation of that,
but – everyone  is greedy. We want things. We're Americans.
We want to live well, but we're also a little bit lazy. Like I
said, I consider myself a lazy environmentalist.


David Roberts:   


Some of your research found that people will often say that
they're looking to save money, but once the time comes, they
don't actually act that way. In some sense, survey results
talking about saving money are about people's identity, their
image of themselves, which does not always play out in practice.


Andy Frank:  


We focus a lot on finding the pain of people. In my case, we
moved into this wonderful house, we love it, but it was not
sealed. The floors were cold all the time; my wife had to
literally decide when to use different bathrooms depending on
what the weather was like outside because it was too cold to go
into some. We were wearing slippers all the time, at least two
layers at all times, including while in bed; it was just not a
comfortable place to be. Of course we want to save money, we want
to reduce our bills here and there, but that's not really the
primary motivation. 


One of the things that's interesting about the space is that for
the past 50 years, the industry has trained people to think about
saving money on their energy bills as the equivalent of energy
efficiency. A lot of times the challenge that we have with our
marketing messages and our sales conversations is that we need to
separate that out when we're talking to people. Most people that
we talk to, of course they want to save money generally, but they
also have very real comfort and quality of life problems. 


David Roberts:   


How many people even know that greater comfort is among the
product offerings when they think about energy efficiency and
retrofits? 


Andy Frank:  


That's a great question. We spend a lot of our marketing
education investments on making that explicit. We focus a lot on
explaining – through gifs, live action video, text, articles,
whatever it is – the connection between people’s comfort problems
and energy efficiency. Because, to your point, a lot of people
don't know that. 


I can't tell you the number of conversations we have with
customers where they call up and say, “You don't need to talk to
me anymore. I know what my problem is. It's my windows.” And 90
percent of the time it's not their windows, because of what’s
called in building science the stack effect. You think it's your
windows, because that's what feels cold, but it's actually your
lack of insulation or lack of balanced heating and cooling in
your home.


David Roberts:   


So Sealed comes to me, the homeowner, and what is the value
proposition? What are the steps I go through?


Andy Frank:  


You click on an ad on Instagram, YouTube, wherever you find us.
The first step is that you give us a bunch of information about
yourself, what your comfort problems are, what things you want to
solve, as much information about your home as you know and can
share, and your energy usage history. Then our team takes that
information, pairs it with third-party information and tools, and
puts together a proposal for you. Without ever going to your
home, without having to roll a truck, without ever having to send
a contractor to you, we can say “this is what we think is going
to make sense for your home and is going to solve your problem.”


David Roberts:   


You can get pretty close without a site visit?


Andy Frank:  


Yeah. I remember several years ago, I was on an energy audit with
one of our contractor partners. We pulled up to the house and he
looked at me and said, “Andy, I'm going to crush this house. This
is going to be $10,000. We're going to reduce their heating usage
by 30 percent, I'm going to do this amount of insulation here,
there's probably two knee walls there that I’m going to do, we'll
do some rim joists and we're done.” 


I said, “Great, that's awesome. So why are we doing the energy
audit?”


And he said, “Well, we have to go through the program. We have to
show the customer that we did a whole bunch of work and that we
did the blower door test and we did X, Y, and Z.”


I wish I could say the next day we shifted to this remote audit
model, but it took us a little while. Credit to Ali Adler, our VP
of marketing, and Dan Hochman, who was our head of sales for a
long time and is now at SolarEdge; we really found out that you
can do most of the work remotely, especially with today's tools.
Obviously with Covid that's only accelerated, as people get more
and more comfortable with having these kinds of conversations
remotely.


David Roberts:   


So what is the proposal?


Andy Frank:  


We essentially say, here's the project that we think makes sense
– this tonnage heat pump, these number of heads, this amount of
weatherization, this amount of air sealing. And this is what the
market value is if you were to pay cash; if you want to finance
with us, we will cover the upfront costs and these are the terms
in which you would pay that back to us based on the amount of
energy that's actually saved. 


One thing that's very unique about Sealed is that we put up the
upfront cost to pay for these projects. You, as a Sealed
customer, would not have to pay anything. The only payment to us
is based on the actual amount of energy reduced. If we don't cut
energy waste, we don't get paid, so we're very accountable for
the performance and aligned with the project working.


David Roberts:   


That model – paying for actually produced, measured energy
efficiency as though it were energy – has been around in some
form or another in commercial buildings for a while. I had Rob
Harmon on the pod a few weeks ago talking about his model. Are
you, as far as you know, the first to bring this to the
residential space?


Andy Frank:  


As far as we know, yes. This has always been the holy grail of
the residential space: can you bring this performance financing
model, this ESCO model, from commercial and government to
residential? That's really what we think we've cracked.


David Roberts:   


You're not doing the work, you're coordinating with local
contractors, right? Do you have binders full of good contractors?


Andy Frank:  


Normally it’s spreadsheets, but yes. We get the customer to the
point where they know what project they want to do, the pricing
comes from the negotiations that we have with contractors in
their area, and once they sign an agreement, we say “great, we're
now going to connect you with the best local contractors to
confirm the project and then install it.”


This is important because, especially with bigger home
weatherization and electrification projects like mine, I had
three different contractors. Normally, if you want to get your
home weatherized and replace your fossil system with a heat pump
system, which more and more people want to do, you essentially
have to be your own GC and coordinate a bunch of different
contractors. 


David Roberts:   


I went through a similar process nine years ago and I used one of
these “we'll coordinate it all” type of service companies. As
long as I was talking to the coordinate-it-all service company,
they were super great and attentive and had all the right answers
to my questions. But then I’d get passed off to a contractor, and
in my experience, it was not a guarantee that the contractor
would know exactly what was going on, or have any good answers,
or be as accountable as I was led to believe by the great
customer service I got from the coordinating company. I assume
you're putting a lot of work into making sure these contractors
are as attentive to customer service as you are?


Andy Frank:  


That's a big focus for us. It's not just important for the work
itself to be done well – because if the work isn't done well and
the customer’s not saving energy, we're losing money – but also,
we have a long-term relationship with the customer. When we talk
about managing your project, that's from beginning to end. That's
from when you first click on a Sealed ad and fill out some
information until up to 20 years after your project is complete.
So the level of service and the experience that you have is super
important for us. 


We spend a lot of time working closely with our contractor
partners to make sure that people are going to be on time, and
that the right protocols are going to occur with keeping the site
clean, and any number of small details. It's residential
construction; things don't always go perfectly. But we're
motivated to make sure that they go as well as possible, because
our relationship is not done with the customer when the project
ends.


David Roberts:   


So as a customer, some insulation contractors show up and do
their thing and leave. Then a heat pump contractor shows up, does
their thing, and they leave. What is Sealed’s ongoing
relationship with me?


Andy Frank:  


We only pay the contractors after receiving photo verification as
well as written verification from the customer that the project
was performed to spec. First, we’re verifying that the project
was done well and the customer is happy. 


After that, you're enrolled in Sealed’s platform, where we're
literally tracking the performance of your project. We're doing
this for two reasons. One, of course, we want you to understand
how much energy you’re actually saving. That's also how we bill
you – you are only paying Sealed based on the actual energy
reduction that you receive. We look at your energy usage before
the project, we adjust for weather, and that's your baseline. We
measure that against your actual usage after the project and
you're only paying Sealed based on that delta. It’s
direct-to-consumer metered efficiency.


David Roberts:   


The customer, then, in the years following this project, is
seeing on a monthly basis how much energy they saved and how much
is going to Sealed out of that. Your business model relies on
there being enough energy savings in the house to pay for these
projects. Do you ever get contacted by someone and hear their
story and say, we can't really squeeze enough juice out of your
apple to make it worth it? Or can every house be improved enough
to make the numbers work?


Andy Frank:  


I would say most houses. We will sometimes get overzealous energy
nerds who have done everything – have insulated their halls, have
heat pumps, and want to see what they can do. We tell them,
“Looks like you've done a good job, I don't want you spending
money that you don't need to spend to marginally improve your
home.” 


For most homeowners, this makes a lot of sense. But we do one
thing differently compared to most of the rest of the industry,
which has generally had a Maginot Line of bill neutrality – God
forbid that I improve my comfort and quality of life if it's
going to mean that I spent one penny more.


David Roberts:   


In theory, the customer’s total energy bill going forward could
be lower; they could be saving enough energy to pay Sealed and
take a cut. But Sealed is not guaranteeing that the customer’s
total costs will decline.


Andy Frank:  


Frankly, in most cases, their total energy budget including what
they're paying to Sealed goes up. We've found this is more honest
and very powerful with the customer, because we're telling them
that they are going to pay a certain amount of money to live in a
better home. Just like you would pay for remodeling your bathroom
or retiling your floors, you're paying to have a more comfortable
and healthier home. 


Now, you're only paying if the project actually performs, unlike
most home improvements, where you're paying for the sight unseen.
That's a big difference. But we're not trying to pretend like
you're only going to pay for things that are going to lower your
overall energy budget, because that creates a lot of weirdness in
how you scope projects and ultimately ___.


David Roberts:   


Let’s say my house was built in 1954, a normal suburban house.
I've got a natural gas furnace, I've got half-ass insulation like
most houses do. What is the merit order of improvements? Is there
a baseline thing that you do first for almost every house? How
bespoke is it from house to house?


Andy Frank:  


Right now we offer two plans. The first is our comfort plan,
which is focused on weatherization. For your house, that would
likely be looking in the attic; in any knee walls; see if you
have any exposed rim joists in your basement; trying to
essentially keep the outside out, seal all the places, and put in
the right amount of insulation. We’ll give you a smart thermostat
as well to make sure that you're modulating everything in the
right way. 


Typically we'll do the attic, and the basement if it's
unfinished. Usually homes have something else that we're doing
too. In my case, it was what we call a FROG, or “freezing room
over the garage.” My bedroom is right above the garage and the
garage ceiling was not insulated, so the company that came in and
did the weatherization for my home, Dr. Energy Saver, basically
drilled some holes in the ceiling of my garage, blew insulation
in there, and now my bedroom is a lot more comfortable.


Other people have overhangs; sometimes people get their walls
insulated as well. It depends on the home.


David Roberts:   


The comfort proposition of insulation is very clear. What are
people's motivations on heat pumps? How do you sell heat pumps?


Andy Frank:  


Heat pumps are part of what we call our climate control plan.
Typically, if someone's home is not weatherized, we will include
a weatherization component of that plan. We will not install heat
pumps into an un-weatherized home because they're not going to
perform and we won’t make money.


The motivation for heat pumps is really strong. It depends a
little bit on circumstances, but you're essentially getting a new
modern heating and cooling system that is more comfortable,
healthier, quieter, safer, just better. 


When we were doing research and putting together the plan, we did
a survey around the things that people were most excited about
when it came to heat pumps. Ali, our VP of marketing, was
insistent that we put in a question around the fact that it does
both heating and cooling, that it's a two-for-one deal. I
thought, “Who cares about whether it's two for one? This is going
to be a wasted question, we should ask something else.” But she
was very dogged, and put it in. 


Of course, out the other side, the number one thing that people
were attracted to with heat pumps was the fact that they did both
heating and cooling together. People just love the idea that it's
two for one, you can save space, it's this modern type thing. So
that was interesting. And of course Ali has not let me forget
that I was against including the question.


David Roberts:   


From your experience, how big of a deal is indoor air health
related to natural gas? I'm curious whether that knowledge has
started penetrating the wider public yet.


Andy Frank:  


It’s definitely started. The talking point here – and this is
mostly with gas stoves, but it's even worse if you have other
appliances – is that from an indoor air quality perspective, the
health effects of having a gas stove are basically the same as
having a smoker inside the home. There are more articles coming
out and we're hearing that more and more from our
customers. 


There are also a lot of other health implications of heat pumps
that people think less about. When we were doing our research to
put together this plan, we talked to a lot of people who had
considered or gotten heat pumps for health reasons because of the
need to have constant temperatures at all times. There are a lot
of people with health conditions where you can't have
temperatures that get too hot or too cold; you need to stay at a
certain rate. Heat pumps give a constant temperature at all
times, vs. traditional fossil systems that turn on and off.


David Roberts:   


People are paying Sealed back out of their energy savings. How
long are people typically taking to pay you fully back?


Andy Frank:  


We have a standard term of 20 years, which is very similar to a
solar lease or a PPA. We like to do it as long as we can, given
the conservative view of the life of the measures, because we
want to keep the monthly payments as low as possible for the
customers and make it as affordable as possible.


David Roberts:   


What happens when the house is sold? Is your arrangement somehow
tied to the house, or does it go with the homeowner? 


Andy Frank:  


We don't have a lien on the house. Unlike something like PACE or
home refinancing, we can't take your home if you don't repay us.
It's ultimately an unsecured product. We still have some leverage
over you; knock on wood, we have not had any defaults to date.
But it's not something where we can take your home. 


The options that you have when you move are to transfer your
agreement to the next homeowner (who needs to qualify and accept
the Sealed terms); or to exercise an early payment option. In
everyone's contract there's a schedule that goes down over time
in terms of how much money they can pay us to buy out of the
agreement. So you can leverage that. 


One thing that's really great about the investments that we're
making in the home is that it's increasing the home value.
There's more great data around this coming out all the time, but
these types of energy efficiency and electrification improvements
are increasingly things that people are looking for when they buy
their home. So you can essentially pay us back for whatever is
remaining in the agreement out of your increase in home value.


David Roberts:   


This is about making a market for home comfort or home sealing,
but there are social benefits too; you’re reducing greenhouse gas
emissions, and there are ways in which it helps utilities that
aren't necessarily captured in a private transaction. Is your
vision and hope that the market will take over and mainly drive
this, or do you think even given a market, there still is an
argument for some form of public subsidy and public policy to
help?


Andy Frank:  


We think policy is very important. I'm a recovering political
junkie and policy nerd, and we think there's a huge role to play
for policy, in particular around appliance performance standards,
which have been neglected. A lot of the big gains we've made in
energy efficiency are because of appliance standards, not fancy
programs. It was simply saying “now your refrigerators need to be
this more efficient, go do it.” 


There are ways to be more aggressive than even what the Biden
administration is doing today when it comes to performance
standards; being able to go beyond 100 percent efficiency,
because heat pumps and other electrification devices are more
than 100 percent efficient. I'm not in the policy world full
time, so may be a little naive, but you talk to a lot of folks in
the space and they'll say some version of “well, we don't want to
go that far because we could get sued.”


David Roberts:   


Well, you're always going to get sued. It's just part of the
process now. When's the last time one of these things was not
sued over?


Andy Frank:  


I'm preaching to the choir here. 


So we're very pro-policy levers, in particular performance
standards, but we also see a huge value driver from the utility
and societal value of energy efficiency. You can either meet your
energy needs by increasing supply or by reducing demand or some
combination thereof, and historically, despite a lot of efforts,
energy efficiency has not been valued in the way that it should
by the utilities, by the grid operators, from a carbon
perspective, etc. 


What we believe needs to be done is that the utilities and
government and the policy space need to provide a simple and
performance-based market incentive to companies like Sealed and
many others.


David Roberts:   


I hear critiques all the time about traditional weatherization
programs as they’re run now through utilities. Do you think it
would be better to scrap those and move over to something like a
market incentive to try to bring private capital in, or do you
think there's still a role for those old weatherization programs?


Andy Frank:  


I very much think that the shift needs to happen. We've talked to
folks in a number of states that I won't name, and private
capital is not always welcomed in a lot of places in this market.
It's, let's just throw ratepayer or taxpayer money at it. That's
great, but eventually you run out, and the private capital
markets are so much bigger than what we've historically thrown at
the problem.


David Roberts:   


This seems like a classic case where a small-c conservative
critique can apply, in that you create these government programs
and they become, at a certain point, partially dedicated to their
own ongoing survival. You get interests on the policy side, on
the utility side, that are very accustomed to this way of doing
things and have their hands on big pots of money and don't
necessarily want the apple cart upended.


Andy Frank:  


My co-founder, Lauren, is both a small-c and big-C conservative,
and whenever we run into this dynamic we joke that I'm moving a
little bit to the right today.


David Roberts:   


Regulatory capture is a real thing. There's no sense pretending
it's not. 


Andy Frank:  


It’s a real thing. Though the good news is that we're seeing more
progressive points of view on this in the last few years. We work
with a number of utility partners, in New York in particular and
a few other states, and one thing we've been talking with a lot
of them about is moving from this very command-and-control
program structure – it's as close to Soviet-style planning as we
have in the US – toward what we call a performance playbook, or
basically a market-aligned model for doing things.


There are essentially three steps to make that happen. The first
is access. To even participate in most of these programs, you
largely need to be one kind of company; in normal times, you need
to be a contractor. Sealed a lot of times doesn’t qualify for
programs, even though we are spending lots of money in customer
acquisition, financing, coordination, and all these different
things, because we don't actually install the project. 


You're asking contractors to basically do all this coordination
in addition to being great at construction management and scoping
and all this stuff; it's not really fair to them. These are hard
businesses to run, especially at scale, so you need to expand who
can qualify for these incentives. You can create a much greater
innovation ecosystem. A lot of times, the thing that's not
captured in all of the models is the innovation tax that you have
by putting out a hundred-page RFP. I've been in the trenches
filling those out; those will kill innovation really quickly. You
need to make it accessible, easy for lots of different kinds of
real market actors. 


The way I define “real market actors” is if you make money based
on a customer, like a homeowner or business paying you money.
That's important a lot of times to distinguish in this space, and
we need to have more of those that are able to participate at
scale in these incentive programs. 


The second thing is around sustainability. A lot of states and
utilities will jack up downstream rebates or customer-facing
rebates to get people to say yes. Denver just put out some crazy
rebate program that's probably going to run out in a couple of
weeks if it hasn't already. It’s basically giving a sugar crash
to the market, telling all the people “do this when it's really
cheap, when there's huge rebates.” They’re not going to do it any
more after that, because they’re expecting the next round, which
may or may not happen. You create bad incentives for the market
and you're ultimately making it not sustainable. 


Even with large incentives, which are great, we want as much
ratepayer money invested in these projects as possible. You do
those through midstream incentives: you have the money go through
the actual market actors, and then those market actors can figure
out the best way to use those dollars to increase adoption,
whether it's through customer-facing incentives, investing more
in (God forbid) sales and marketing, which is how markets
actually grow, or building the infrastructure to grow even
further. 


The third thing is performance-based. A lot of these programs
give incentives or rebates based on how much the project costs,
which obviously creates horrible incentives. You get what you pay
for. So you really need to have a performance mindset in terms of
pay for performance.


David Roberts:   


I talked about this with Rob Harmon, too, that measuring energy
efficiency with enough precision to make it into a saleable
market product is relatively new. A lot of market and policy
structures that were built before that was possible are lumbering
to move to take account of it, but it's a new and exciting thing
that you can now commodify energy efficiency like this.


Andy Frank:  


You hit the nail on the head. That's something that's really
changed in the market, and it’s certainly made a business like
Sealed possible. We're not the first one to think about or try to
do something like performance financing for residential, but what
we did that was different was, instead of trying to solve
essentially an engineering problem and try to calculate the
energy savings based on any number of crazy DOE energy models, we
threw that out and said “I don’t know if that's an impossible
problem, but it's a stupid problem to solve. Let's solve a very
possible problem, which is actually measuring this from a
statistical basis.”


We leverage machine learning, specifically predictive analytics,
to look at how actual homes use and save energy based on
different home characteristics and different project types. So we
can be very confident in a portfolio of homes that a certain
amount of energy is going to be saved, to the extent that we can
go to an insurance company, Hartford Steam Boiler, which we have
a reinsurance policy with, and say “here's the math, here's what
we're investing in” and they’re actually going to lend us money,
or reinsure this portfolio of homes based on the accuracy of our
predictions.


David Roberts:   


Where is Sealed currently operating? You just got some new
funding; where are you looking to expand next? And long term,
more speculatively, I'd love to hear blue-sky dreaming about what
could be the next step in making things even easier for
customers, being even more thorough in what you do in a house.
Where's the next frontier in the residential space?


Andy Frank:  


To give you context, Sealed has raised more than $60 million,
including $29.5 million in our last round, which was a Series B
extension with Fifth Wall, Keyframe Capital, and Footprint
Capital, which has Robert Downey, Jr. as an investor. So we’ve
got some great investors.


My co-founder, Lauren, who's our CEO, led that round and did a
great job; as far as I know, it's one of the largest venture
investments in home energy retrofits in many years. We're in a
great position to be able to expand our model and be able to
grow. As you can imagine, with that kind of funding, we've been
growing fast and plan to continue to grow fast in the
future. 


To give you some perspective, over the last year or so we have
seen revenue growth of about 4.5x year over year, we grew
headcount about 2.5x, and we grew from one state, New York, where
we've been based and built our business for many years, to now
five states: New York, New Jersey, Connecticut (where I live
now), Pennsylvania, and we recently launched in Illinois (which
is where I'm from originally, so it was very heartening for me to
be able to see that). We dramatically grew our heat pump sales as
part of that as well. 


David Roberts:   


Still mostly Northeast, then. Which way are you marching? South,
or are you going to come west?


Andy Frank:  


Our wonderful market expansion team is taking a look at different
markets that we're going to go to. We do want to start to
experiment with markets that are warmer than what we've seen so
far.


David Roberts:   


Intuitively, my guess is that the colder the place, the easier it
is for you to make business.


Andy Frank:  


Well, we're not sure about that. We're a very sick business – we
like pain. We want it really hot or really cold, ideally both in
the same year. I know in your climate, and in other climates,
unfortunately due to global warming it's getting warmer and
warmer in the summer. So we're taking a look at the different
market dynamics in different places. We have not made a decision
on some of the next markets we're going to go to yet, but you
should be seeing us in many more states over the next year or so.


David Roberts:   


Are there competitors yet? Anyone else doing what you're doing?
Do you expect other people to start doing what you're doing soon?


Andy Frank:  


We'll see. I will say, the things you have to put together to
create a business like Sealed are varied and a little bit weird,
so it's definitely a natural competitive advantage there. But the
space of home electrification is generally starting to explode on
a few different fronts, so we certainly expect competition. 


This is a model that's working, we're expanding, and part of the
reason why what we're doing is possible now is because of the
proliferation of digital tools. We don't have to open up a
physical office, where we're storing insulation and trucks. When
companies in the past, like Next Step Living or Mark Group,
wanted to expand, they had to make big capital bets and move from
one place to another. We can be a lot more agile in terms of how
we do that, and that makes a big difference. 


As we grow and invest in the future, I'm excited about what we're
going to be able to do in terms of creating a digital experience
for buying home weatherization and electrification and other
clean home improvements. We recently hired a new VP of product,
Paul Zeckser, who came to us from HomeAdvisor. We're really
excited about what he and his team are going to be able to
build. 


We've recently also brought on a new chief revenue officer, Sarah
Pierce, who comes from Better.com, from the mortgage industry.
Seeing high-volume sales, being able to create digital
experiences that allow people to buy in a way that is a great
experience for the customer, also makes it easier for our team to
be able to service them. So that's a big part of what we're
investing in. 


At the end of the day, our North Star is making it easier and
more valuable for people to buy clean home improvements – to buy
a heat pump instead of a new boiler furnace.


David Roberts:   


You could imagine getting into stoves, into water heaters and all
kinds of appliances; getting into smart home load coordination;
getting into EVs, even, because they are a piece of the
electrified home. How comprehensive a take on the electrified
home do you want to do?


Andy Frank:  


Well, I'm not going to commit my product team to anything
specific on the podcast, but I can tell you from going through my
own home weatherization and electrification journey that there's
a lot of great technology out there. Another reason why this kind
of business is growing so fast right now is because the hardware
is there, the technology is there. We've got smart everything. I
recently bought a smart washer (and my smart dryer is backlogged
a little but should get here soon). It's much more efficient than
my old washer. I just put in a canister of laundry detergent, and
then I never have to think about pouring out laundry detergent. I
throw the clothes in the washer and press go, and it's
done. 


This is one of the great things about the technology that's out
there now, but also why we need companies like Sealed spreading
the message and talking about this. 


David Roberts:   


The average homeowner can't possibly be keeping track of all
these technology loans in all these different areas. They need
someone to paint a big picture for them.


Andy Frank:  


Exactly. We're excited to help, and ultimately our goal is to
take homes off of fossil fuel. When we are able to weatherize and
electrify a home and pair that with renewable energy, we're
taking homes fully off of fossil fuel. We're hitting the big
stuff first, heating and cooling and your water heater – we do
offer heat pump water heaters, I've got one myself now, works
great. That's where you want to start. But to your point, where
we want to be able to get people to is taking them off of fossil
fuel and having a completely clean home.


David Roberts:   


That sounds like a great place to conclude, with a nation full of
fossil-free homes. Thanks so much for coming on and
sharing. 


Andy Frank:


Thank you for having me.


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