Thursday, March 11, 2010
Interview with Nathan Rothman, Optimum Energy
As part of our news coverage, we are regularly profiling local high tech firms to hear what they are working on. For our profile today, we spoke with Nathan Rothman, founder and CEO of Seattle-based Optimum Energy (www.optimumenergyhvac.com), a firm which develops software to help manage energy usage in commercial buildings.
What is the idea behind Optimum Energy?
Nathan Rothman: We are in the HVAC -- heating, ventilation, air conditioning -- sector. We help building reduce energy and management costs through software. Most heating and ventilation systems are controlled by computer, through building automation systems. Some of the more well known companies providing those systems are Siemens, Johnson Controls, and Honeywell. What we have, is software that sits on top of those building automation systems, which operates that equipment in a much more, efficient manner, based on power relationships. Cooling and heating is the area of our specialty,.
How much more efficient does your software make those HVAC systems?
Nathan Rothman: Anywhere from 40 to 70 percent, depending on the state of the building. For a data center, which might be state of the art, we'll get around 40 percent savings. But, for a building eight to ten years old, we might provide as much as 70 percent in energy cost reductions--plus, we'll help improve occupant comfort, and reduce people who complain about being too cold or too hot. We hold a building at 72 degrees, so there are no hot or cold spots.
What is it that you are doing which makes it possible to improve things so much?
Nathan Rothman: All of the pieces of equipment in a building--chillers, pumps, cooling towers, etc.--are all powered by electric motors. An electric motor runs at a constant speed, usually 1800 rpm. There's a law of physics, the affinity law, which says if you slow down an electric motor, you can reduce electric consumption by a factor of three. So, if you run that electric motor at full speed, you might use 100 units of electricity. If you run it at 70 percent, you only use 34 units of electricity. It seems like a simple thing, but the problem is that there are all sort of pieces of equipment in a 30 story buliding. Its really the equivalent of an electric locomotive in terms of horsepower. You've got 1500 to 2000 horsepower of electric motors, pumps, chillers, cooling towers, and you have to figure out how to coordinate them as the situation changes. During the day, the sun comes up, but it's cool in the morning. However, toward the middle of the day, you have more people working, more computers on giving out heat, and it gets hotter. We're constantly changing and controlling all of these motors as things change. Our patent lie in how our algorithm and software operates.
Is there a specific size of building where it starts to make sense to use your software?
Nathan Rothman: Usually, it's for a building about 100,000 square feet and larger. Any building that has a hydronic, water-based cooling system is a potential customer for us. In terms of the market, there are 110,000 buildings in the United States with hydronic cooling systems, and we have only 70 installed so far--so there's a long way to go.
How did you decide to start Optimum Energy?
Nathan Rothman: I was building manufacturing plants around the world. I'm a serial entrepreneur, and I've started companies which have revolutionized that industry. With those plants, the biggest costs are labor, then electricity and energy costs. I'm an outdoors kind of guy, and I'm very concerned about the environment. When I was building those manufacturing plants, we were building them to North American standards in terms of environmental usage, in using less electricity and water, and I came across this technology. I went to investigate how it was implemented, contacted the person with the patents, and I asked him how he was selling it. It turned out, it was as an engineered service. Working with the computers that controlled the building systems, they would write software, taking three months to write software to work with those building automation systems. I asked if we could take the software, and put it out as a plug and play solution. I convinced him to license the technology to us, and subsequently purchase all of the patents from him, and put it into a can. Now, you can just plug and play with any building automation systems, with about 25 companies building automation systems around the world.
How are you funded--you took a venture round earlier, didn't you?
Nathan Rothman: We're actually private equity funded. In my mind, there's a difference. We view ourselves as transforming an industry, heating and air conditioning, which is very fragmented, and has a "we've always done it this way", not-invented-here attitude--and we're trying to introduce radical technology to that industry. Because of that, it's tough to be able to project where the inflection will come. To cite an example, if you look at fluorescent lighting, where we went from mechanical to solid state ballast in lighting, that took 15 years to implement. That's such a basic change--you're still using fluorescent lighting, and it's just that electronic ballasts work cleaner and better. So, in my mind, private equity has a much longer window and view of the world than venture capital. We raised just about $10M from a private equity fund. I funded things in the beginning, and there are few angels who took small chunks before I met these guys, who took the rest--and we've never gotten out of the board room on subsequent raises. We have no plans to raise more money right now, and we're growing 150 to 200 percent a year.
You mention the difficulty of penetrating this market, how are you going about convincing customers that this works?
Nathan Rothman: It's like Harry Truman and the Show Me State. You've got to be able to show it to me, and I won't take it on word alone. However, if you can put the data on the table, and let them call the owners and see that we've achieved the results, that really increases the takeup. It's shortened the sales cycle. Coming from manufacturing, they watch after every penny. Manufacturing watches everything, and is looking at data all the time. We produce the data, so that our customers get the data they need very quickly, in an easily read format. Rather than 27 pages of green and white at the end of the month, it's just one, two, or three pages available over the web. We broadcast live, over the web, exactly how an owner's plant is operating. Even if the owner is not into technology, they can see what is going on. That building operator can see what is going on, the mechanical contractor can see what's going on, it's measurable all the time, every day. We also know how those plants are operating, and guarantee that performance. They can see it, and hold us accountable. That, coupled with our results, allows us to speak to the owner and shorten that sale cycle. That said, where we are in the adoption curve is we're not at th the left hand bottom, but we're not at the top. We're somewhere past the early adopters, and getting into maybe the more mainstream adopters. We've just started with the large, Fortune 500 companies, and have done one or two installs, and they're now looking to roll us out enterprise wide. We've gotten really positive feedback. With new legislation, like Title 24 in California, plus the federal government putting on the mandate to reduce energy usage by 20% in 2012, and 50% by 2020--we can look at a government building, and do 50 percent today. So some of the adoption will be us working through that bureaucracy and government.
What are you big goals for the rest of the year?
Nathan Rothman: We've got a couple of big ones. We're constantly developing our product, and have around five more on the way. One is a rooftop unit package, to handle the HVAC units you might see on top of a Best Buy or Costco on their roof. There are five million of those installed, with 500,000 of those being replaced every year. So we're hoping to have a product to market for those. Plus, we've got some big revenue goals for the year.
Thanks!