Startup Series: Runwise
Today's guest is Lee Hoffman, Co-Founder & COO of Runwise.
Lee Hoffman is the Co-Founder and COO of Runwise. Over the past 18 years, Lee has co-founded and managed technology for companies as diverse as Time Warner, Razorfish Studios, and Terabolic, Inc. Most recently, Lee co-founded and served as CEO of Veri, a venture-backed NY mobile startup that in 2018 was acquired by The Knot.
Runwise is the first end-to-end boiler and heating system management platform. Founded in 2010, the company combines a proprietary heat computer and sensor network, machine learning systems, and a team of trained boiler experts to reduce fuel consumption by an average of 20-25% across over 2000 buildings in New York City. Runwise's customers include some of the smallest owners, all the way up to the biggest, including Lefrak, Related, Fairstead, Columbia University, and Lemle & Wolff. Heat Watch's platform is the only end-to-end boiler monitoring and management system that saves owners money, increases tenant comfort, and radically lowers carbon output across New York City.
In this episode, Lee walks me through Runwise's charter, the problem they are tackling, and how commercial buildings impact the climate. We also dive into Runwise's solution, how the company supports its customers, and how policy and government mandates affect its success. For those interested in the intersection of infrastructure and climate, this is a must-listen.
Enjoy the show!
You can find me on Twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded August 19, 2021
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Jason Jacobs: Hey everyone, Jason here. I am the My Climate Journey show host. Before we get going, I wanted to take a minute and tell you about the My Climate Journey or MCJ as we call it, membership option. Membership came to be because there were a bunch of people that were listening to the show that weren't just looking for education, but they were longing for a peer group as well. So we set up a Slack community for those people that's now mushroomed into more than 1300 members. There is an application to become a member. It's not an exclusive thing. There's four criteria we screen for: determination to tackle the problem of climate change, ambition to work on the most impactful solution areas, optimism that we can make a dent and we're not wasting our time for trying and a collaborative spirit. Beyond that, the more diversity, the better. There's a bunch of great things that have come out of that community: a number of founding teams that have met in there, a number of nonprofits that have been established, a bunch of hiring that's been done, a bunch of companies that have raised capital in there, a bunch of funds that have gotten limited partners or investors for their funds in there, as well as a bunch of events and programming by members and for members and some open source projects that are getting actively worked on that hatched in there as well. At any rate, if you want to learn more, you can go to myclimatejourney.co, the website and click the become a member tab at the top. Enjoy the show.
Hello everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help.
Today's guest is Lee Hoffman, co-founder and COO of Heat Watch. Heat Watch is the first end-to-end boiler and heating system management platform. The company combines a proprietary heat computer and sensor network, machine learning systems and a team of trained boiler experts to reduce fuel consumption by an average of 20 to 25% across over 2000 buildings in New York City.
I was excited for this one because building efficiency is such a big problem and Heat Watch has so much scale and they've done so under the radar. This company started as a side project more than a decade ago. But I think if you haven't heard of them yet, you will be soon because they are having a serious impact and building a serious company. We cover a lot in this episode, including some of the reasons why buildings are such a big source of emissions. We talk about some of the existing tools and some of the incentives and other reasons that contribute to the problem. We talk about the various solutions and why they're insufficient and we talk about the unique nature of heat watches approach. We also just talk about some of the twists and turns of the entrepreneurial journey from the origin story all the way through where the company is today and of course where they're going and how it fits into the bigger picture of overall decarbonisation. Lee, welcome to the show.
Lee Hoffman: Thank you. Excited to be here, Jason.
Jason Jacobs: Excited to have you. And it's funny because Heat Watch is such an amazing company, but it's also a company with a ratio of amazingness to visibility, is probably bigger than- than most. So I have a feeling that many listeners are not familiar with Heat Watch and are going to be blown away when they hear about it.
Lee Hoffman: Yeah. We're one of those companies that probably impacts many, many, many people's lives and yet you never heard of us unless you probably work in the property management industry.
Jason Jacobs: Well, maybe that's a good segue. What is Heat Watch?
Lee Hoffman: Yeah. Heat Watch is really a software and hardware platform for buildings that helps run buildings and building systems better. So the platform really consists of a computer and wireless network and sensors that go into a building and then we use that data to control the building systems more efficiently, better for tenants, better for owners to cut carbon output.
Jason Jacobs: And what's the origin story of the company? How and when and why did it come about?
Lee Hoffman: Yeah, so Heat Watch is one of those typical 10 year, overnight success stories. So I come from the tech startup background. I've been writing code since I was a little teenager. I have a computer science degree. This is my fifth startup. My last one was randomly in the wedding tech industry and sold to The Knot. And my co-founder Jeff comes from the real estate side. So really the company started about 10 years ago because Jeff was managing 150 buildings in the city for a single owner and really was just paying the energy bills.
And literally just by paying bills could spot that one building might be using 70, 80, 90% more energy, whether heating fuel or electricity than another building on a per square foot basis. And this just looked ridiculous to him. So he went to the owner who's worth billions of dollars, known as one of the best and most efficient operators in the country and the guy literally had no clue that his buildings were wasting millions of dollars.
And so that was kind of the genesis of there being a problem here. And as we dug into it, what we really figured out was that almost every building in New York and pretty much the entire country is running on control technology that really hasn't changed since the 1950s. So you might go into uh, like brand new LEED-certified, green glass building, and it's, you know, has a fancy set of like controls that you know, have digital displays and I can almost bet you that the algorithms on those controls are hard-coded and are the same ones that were running buildings in the 1950s.
And so what we really did together over the last 10 years is we built a much smarter, more advanced computer that goes into buildings and a wireless sensor network, and both are really, really fast and easy to install. There's no wiring, it's not like a 10 day manual design process. It's all standardized, all wireless, goes in. We can usually, and even in big buildings, get it in in less than a day. And then we use the sensors and the data and software to essentially control the core building systems much, much, much more efficiently.
So we started with heating as an example, and last year in the average building we controlled heat, we were able to reduce the energy usage by 21% while making tenants more comfortable. So the end result is property owners and co-ops and condos can basically save 21% on their heating costs, which could be, you know, fifty, a hundred thousand dollars a year in certain buildings and they'll pay a small fraction of that to us to do it. So it's an incredible investment and the ROI is usually less than a year.
So one of the best investments you can make in real estate, but at the same time, it actually makes the people in the building more comfortable and as a by-product, you're cutting carbon output by 20 plus percent. So we've looked at over the thousands of buildings we're now in, the average building will take about eight to 10 cars worth of carbon output off the road simply by controlling pieces of the building slightly better. We started in heat, now we're doing it with water. We're going to be rolling out cooling. There are a whole series of applications. Almost every aspect of buildings are not being run efficiently today. And what Heat Watch does is it uses technology to run buildings better.
Jason Jacobs: So how big a source of emissions are buildings in general? How big is the problem?
Lee Hoffman: It's really big. So everybody likes to talk about electric cars, and I'm a huge advocate of electric cars, love Teslas, it's fantastic. But when you look at the carbon output threshold from different industries, almost 30%, like almost a third of all of carbon output in this country is coming from buildings. So literally just by running buildings more efficiently and better, you can have a gigantic impact on carbon output and you can fundamentally change cities. And I think that's really kind of one of the things we've clued into. Simply by operating buildings better, we can make cities substantially more affordable, cleaner, and more sustainable. So it's kind of a win for everybody all at once.
Jason Jacobs: And stepping outside of Heat Watch for a moment. If you just look at that problem of buildings and the significant carbon output that you mentioned, why is that? What are the biggest factors that are creating that excess in waste?
Lee Hoffman: A lot of it has to do with where buildings started from. So like when you think about electric cars, right? To fundamentally change how efficient cars are, cars get recycled every 10 years, like 10, 15 years. So you can build a better mousetrap, a better car, exactly what Tesla is doing and you can wait 15 years and eventually all the cars will be replaced and be efficient and awesome, right?
Buildings last hundreds of years. So, right? So when you look at like a lot of time and energy and thought goes towards new buildings, right? But new buildings are a tiny fraction of the market and even in 50 years, they're still going to be a tiny fraction of the market. So when you're looking at like the carbon output from buildings, you're really looking at the decisions that were made in the early 1900s through the 1950s when the vast majority of today's building stock was actually constructed.
And it's fascinating if you look at the history, particularly of heating in these buildings, it was really designed around the first Spanish flu in the early 1900s. So just like we're starting to realize today with COVID, having fresh air is a good thing, a lot of buildings and their heat load were designed around having windows open all the time. And oil was incredibly cheap back then, nobody really knew about the environmental impact.
So really the systems were designed to just run 24/7 non-stop, doesn't matter how much energy you use, the only output is people are in the case of heating, warm, can keep their windows open. It really is only in the last, it's going to be shocking, but like 10 years where people have started to think, "Maybe we should be more efficient." And just to put this in scope, I'll walk into buildings that were built in 2005 that have building systems that are insanely inefficient put- that were designed in the early 2000s.
Because again, even then people were not thinking about efficiency, they were thinking about purely cost, ease of management, those types of things. So there's a huge opportunity that's opened up in the last 15 years. And I think unless you're really coming at it from a software perspective where you can constantly use software and algorithms and sensors to calibrate buildings, you're really not going to be able to solve this problem. And I think that's really where our unique take has been. And, you know, we've been very myopically focused on that, and that's why we've been able to spread to thousands of buildings in that time period, we're more than doubling every year and why we can have such a large impact.
Jason Jacobs: And you mentioned some of the different systems you work with, you said heat and cooling and water directionally. What are, I mean, just as a buildings novice, what are the key systems in a building and how do those break down in terms of their contribution to this carbon excess that you're describing?
Lee Hoffman: It's different every building, right? So, you know, I could say heating would be one of the large ones, right? But if we go to Florida, that's probably not true, right? So it depends on the type of building, the age, where it's located, what the type... Is it a residential building, is it an office building? So it changes in every building. But there are probably a handful of key systems that are using a ton of energy, right?
Heating especially in cold areas is a gigantic one, right? You know, like you can be spending... like a big building could be spending a half a million or a million dollars a year on heating gas or heating oil, right? Cooling can be a gigantic one, particularly in office settings. Like the amount of energy used to cool a building is significant. You have your chillers off for even 10 or 15 minutes, people notice it. So that's a gigantic one.
And then the one that we're really bullish about particularly is water. It's one that's been overlooked for a long time. But just to put this in scope, like a running toilet in New York City can cost, you know, like everybody's familiar with it, right? The toilet just keeps running, running, running. We all kind of like, "Oh, I should call somebody about it," we leave it. Like average building has a ton of these. And the average running toilet can cost thousands of dollars, a single toilet can cost thousands of dollars a year.
And there's a tremendous amount of energy that goes into cleaning that water. And particularly in areas where- where you're- you have droughts, it's an even bigger issue, right? It's not even just a financial issue, it's an environmental issue. So, you know, those are the three big ones. And then the last is obviously electric. That goes to common, but also to like common systems like elevators, fans, pumps. So those are really the four, and then within each of those, you have many different types of systems.
And really what we've done is we've looked at what are the common types of little verticals of applications and we spend a year or two doing it really, really well so that we can guarantee that when we take on this type of heating system, we're going to guarantee to reduce the energy usage by 20%, make tenants more comfortable every single time in every situation no matter what goes wrong, and then we'll move to the next type of system. And that's what we've been doing really for 10 years.
Jason Jacobs: And the actual software and sensors and hardware that you were describing, is it the same providers that are providing this equipment across these different systems in a building, or is it a completely different landscape from one to the next? And also within these, is it a very fragmented landscape or is it consolidated where there's a handful of dominant players that have a lion's share of the market?
Lee Hoffman: So the easy answer to that question is most buildings have no sensors. So if you were to look at 95% of buildings in this country, just look at heat or cooling alone. The sensors have literally no... there's nothing in the building to tell the system what the temperature is. So most buildings run on what's called an outdoor reset, which is literally a hard coded table of it's 40 degrees run 22 minutes inside, could be 96 degrees inside and nobody has any clue. And that's how almost every building in the country for heating still runs, except for the Heat Watch buildings.
So there isn't a standard here. In fact, we wanted to use off the shelf sensors and things. We didn't want to build hardware in the beginning. It just didn't work. None of the sensors out there were easy to install and lasted 10 years on a single battery charge, which meant when you're in thousands of buildings, you're replacing batteries in every apartment. It just- it wasn't tenable.
So we had to develop our own custom wireless network that could go through four to six floors without a repeater. It could be installed in minutes, lasted 10 years. And that allows us to then instead of saying, "Run the heating system randomly for some number of minutes," we can precisely predict using machine learning what the temperature indoor should be and literally minute by minute, change the ideal set point based on our machine learning models and precisely keep the building at a temperature that's going to be the most comfortable for tenants, but also minimize fuel usage.
Jason Jacobs: And are the bulk of your customers retrofits where you're coming in and adapting to existing systems, or do you try to time it when the systems are getting swapped out anyways, or if it's new construction?
Lee Hoffman: We're primarily retrofit and that's not because of there's anything radically different with new construction, it's primarily just the bulk of buildings [laughs] [inaudible 00:16:07] are retrofits, right? If you have, there's like 12 million buildings in the United States, you know, you might have a handful of thousand new ones every year by definition in most of your business. If you want to have a big business that they get back to, it's going to be retrofit. So that's where most of our attention goes, but, you know, even new buildings really don't run much better than the old ones. So, you know, we can work with pretty much any type of buildings that have central systems.
Jason Jacobs: Uh-huh [affirmative]. And is it more of an open approach where the different hardware and sensors tend to integrate and talk to each other or are there attempts either by Heat Watch or others to have more of a vertically integrated approach where there's kind of one system and all the different components that sit under one roof and then don't play nice if you don't use, let's say Heat Watch branded product.
Lee Hoffman: It's really funny 'cause for 20 years there's been a system called BACnet, which is, was like the design of BACnet was a beautiful idea, was any type of system can talk this universal language and talk to any other site or system. And it was literally a beautiful idea. Everything would be open, right?
What actually ended up happening was because everything could talk through the system, you ended up having an industry built around contractors who made these incredibly complex like wiring designs where it would talk through BACnet but there only be the one guy who installed it who actually knew how it was- it was set up and literally would take weeks and months to design and install and nobody would pay for it because it was too expensive and then you're- you're beholden to this one person.
And by the way, it actually wasn't very efficient because systems weren't actually designed. And I think what we kind of, not because we wanted do, just because we had to stumble into, is that I think this is a lot like Apple. We had to go in and we had to vertically integrate and make software that fit with sensors and hardware. They were all tightly coupled so we could get these things installed incredibly quickly, incredibly cheaply, and make sure that we could deliver results every single time in every building.
And that wasn't a business decision, that was purely a necessity decision to do that. Now that we've done that and we're in thousands of buildings, we're now working backwards and saying, "Can we make this open?" So we're building APIs to allow other people we work with, dozens of parties and other contractors to use our APIs to push data in, pull data out. We're working on ways that potentially third parties could write applications and build a platform on this.
We want to make buildings open, but it doesn't work, it hasn't worked when it's a distributed way of doing that. It works when somebody really has a vision for how to make a set of systems and a platform that's really easy to install, easy to use and genuinely can deliver results a hundred percent of the time.
Jason Jacobs: And are there certain aspects of these systems that you wish you had access to that could be high impact from a cost and carbon or efficiency standpoint that today are walled off or closed or not connected or otherwise not compatible with Heat Watch?
Lee Hoffman: I don't think there's anything that- that's not compatible. I mean, there are- are things we don't take on yet. Like we're not touching elevators for example, right? Probably there's a substantial amount of waste in the electricity and how the elevators run, but we're not going near that right now. I think it's everything we look at is not designed to be integrated with, right? When we talk to a boiler, right? That boiler was probably put in 40 years ago or 30 years ago.
Like it's not like it has like digital inputs and how [laughs] that we can talk to that are meant to talk to us. It's literally a mechanical boiler and we built technology, mostly wireless technology that will retrofit onto that however it's constructed to make it a smart boiler, right? So we don't really look at it as like walled off. That's not really an issue, it's more of, we have to be really intelligent in how we design our hardware and our software to be able to integrate and deliver results no matter what the system is and how it's designed.
And every building is different. I mean, you literally can walk into 10,000 different types of buildings in New York with a thousand different variations of how the heating system is working often designed by one guy who just decided to- to wire it up and connect it that way. So the software and the hardware have to be standardized, but also be incredibly adaptable to, you know, real world situations.
Jason Jacobs: And are any of these hardware makers, let's say the boilers, for example, are they starting to come out with connected alternatives?
Lee Hoffman: Not really. I think it's a lot like you see in, I always use cell phones as the best example, right? Like you have companies that are really good at making mechanical devices, they are not software companies. And every time you see a shift towards a software industry, it's very hard for people who are like in the business of manufacturing mechanical goods to become software companies culturally, product-wise, it's just a very big jump.
Also you have to really understand how buildings operate and the tenants in them and how property managers operate. And companies that are like used to making boilers, for example, don't really understand that market. They build a boiler 'cause they're experts on, you know, the mechanical systems of a boiler, not because they're experts on how tenants operate in apartments and how data science works. So we really haven't seen that at all and I- I really don't expect much of that either.
Jason Jacobs: And what about from your standpoint, is there any world where you go the other way and you start coming out with connected devices yourself versus the- the retrofits that you've been doing and is there any advantage to doing so?
Lee Hoffman: Yeah. I mean, we're- we're always looking at that. I mean, especially as the company gets bigger and bigger and we have access to more and more capital, like we look at like where can we deploy that capital and have a bigger impact? You know, I think there are a lot of really interesting things going on in the world. You know, electrification is a big one of them that requires a whole new infrastructure both in terms of supplying electricity to buildings, but also in terms of how the systems operate. We're talking about potentially electric boilers, uh, heat pumps, things like that.
We're always looking at those things and saying, "Hey," like, "could we build a better mouse trap?" So far, we haven't found an area where we can add a ton of value. We just very clearly see that it doesn't matter what the system is, whether it's running electric or on oil or gas, like you still need software, hardware that really understands how managers operate, how tenants live and can use smart data science to deliver results consistently every day.
Jason Jacobs: And so if I were a building owner let's say, or a REIT or whoever, and I wanted to start saving money and doing what's better for the planet, it seems like there's so many different places to start because what you guys are doing, for example, I mean that- that's one area. There's insulation, there's new windows, I mean, it's probably a bunch of other things I'm- I'm not even thinking about yet. I mean, what are the key buckets outside of Heat Watch that buildings can do to clean up their acts? And then how does the Heat Watch solution fit in as a- a lever for change?
Lee Hoffman: Yeah. So we're always trying to... Like we come from a property management background. We always want to think like owners. And I think there are a number of different areas that you can make improvements to your building, but we always recommend, and this is a little self-serving, but I think it's generally a good principle for making improvements to a building, start with the highest ROI improvements first, right? Start with the low-hanging fruit.
If you can make a huge, significant improvement in your energy profile with a tiny little investment, do that one first, then work your way up to the much more expensive one. First, you'll see how far you get. That's particularly important with new climate legislation. So in New York City and almost all the major cities, there's been legislation passed over the last couple of years that are setting carbon caps on buildings. In New York City, that starts in 2024, the cap goes down every single year until 2040.
So what we like to recommend is start with the things that are going to deliver significant financial returns to you first and are cheap and easy to install, then see how far that gets you towards your 2024, 2030 goal. After that take on the next project that's slightly larger in capital expenditure and ROI, and then move up and see how far it gets you. Because there are a ton of things you can do to a building, many of which are incredibly expensive and you want to know where you are before you dive into them.
So I'll give you an example. Like one of the best things you could possibly do to a building is completely change the shell of the building, right? Make it virtually passive house, replace the entire skin of the building, replace all of the windows, like make it literally close to passive house. Now for the average building, that would cost 20, 30, $40 million, more than that. So, you know, think about that for somebody who owns an apartment, you could get hit with a half a million dollar assessment to do that. That's probably not the first thing you want to do, right?
So the upgrading controls where Heat Watch fits in is you put in $10,000 to upgrade your control situation. We'll put in Heat Watch, we'll start controlling your heating, your water, things like that. You'll probably make 20 or $30,000 a year back every single year. So now not only have you potentially reduced your carbon output by 10, 15, 20%, but now you have actual positive OPEX in your budget, which now you can use to pay for the next thing.
Then you might say, "Okay, all right, maybe we want to look at a boiler replacement project, or maybe we want to do electrification of the boiler, or maybe we want to upgrade windows because we have really leaky windows," and you can look at those and you can make- do one project at a time, see where you end up and continue to hopefully add cashflow back into the system so you have continued money to pay for more expenditures.
Jason Jacobs: And where do things like mandates fit in? Where do things like subsidies fit in and how important is policy to what you do?
Lee Hoffman: I think it's incredibly important. I think there are two sides to the policy. There's advocacy, which even though it's not political, what you do I think fits in that range, right? Just making people aware of the problem and the impact goes a tremendous distance. And I'll give you an example of that. 10 years ago, when we used to go into the room, I won't mention any names, but like brand name, large operators, we would go in, right? And we'd pitch them and we'd say, "Hey, we can cut your carbon emissions by 10 or 15%," and their eyes would glaze over and be like- like, "Why do I care?" Right? That's 10 years ago. It's not even that long ago, literally 10 years ago.
Like we went... I remember going into one of the largest operators in the world and they just didn't care, right? So we always had to deliver incredible return on investment. Put a hundred dollars into the system, we will give you more than a hundred dollars out every single year ever afterwards. We get a few buildings on, they see the economics and they're like, "Holy crap, there's no better investment we can make that'll give us a return," and they'd give us the whole portfolio. That's how we've had to always sell.
What's shifted is because of people like you and the work you're doing, is we'll go into the room right now and we still say, "Hey, put this in, you'll make the money back in six months and you'll make more than a hundred percent of your money every year." But then in the next breath, we can say, "Hey, also this is going to substantially reduce your carbon output." And they know what that means and they actually care. They care as a company, they care, you know, as a brand, particularly the larger operators. So that's piece one.
And then the second are the incentives and the government policy, which really are just like tailwinds to, you know, like ships taking off in the sense that there are huge incentives now, CoNet, almost all of the utilities now have seen the numbers and the reduction we can deliver on a per dollar basis and are now offering to pay for up to a hundred percent of our product in most buildings.
So now we can go to an owner and say, "It's not a hundred dollars in and you'll make a hundred dollars back every year, it's $0 in and you'll make a hundred dollars every year. Do you want it?" Right? So that has certainly accelerated, you know, deployment of technologies like ours. I think it's an immense, immense good for the universe. Like it's literally just encouraging people to do the thing they should be doing and would have done, but would have just done a little bit slower.
And then you have kind of the more overarching policies like in New York City Local 197, which is putting carbon caps on buildings, that takes the buildings who are a little bit more conservative. So like co-op and condo boards, where you have a board of 10 people, it's kind of not their job. Like if you've ever tried to get a decision out of a group of 10 people where they're not experts on something, it's like, "Oh, I don't know. Let's talk about it for six months. Let's wait a year. Maybe we'll decide on it next year."
Now we can go in and say, "Look, this is clearly going to save you money. It's clearly going to make your residents more comfortable. Oh and also, by the way, in two years, if you don't do this, you're going to have a hundred thousand dollars a year fine from the government." So it just puts a little time, you know, like lighting a fire under people who are a little bit slower on the decision making process, which I think is again, a really positive thing.
So, you know, all of this stuff has been great for us, it's been great for a lot of people in the industry. You know, we're big believers in products have to have a value outside of the incentives. If all the incentives went away, we would still be growing pretty quickly every year just based on the economics, based on it's a better and easier way to run buildings, it makes tenants more comfortable. That has to exist in the first place. But when you pour this extra gasoline on the fire, it certainly helps accelerate the adoption.
Jason Jacobs: In whatever metric you're comfortable talking about, give us a sense of where you are at today in terms of scale and traction.
Lee Hoffman: Yeah. I mean, we're in over 2000 buildings. We work with almost all of the largest operators. I mean, Related, Blackstone, LeFrak, Douglas Elliman, FirstService. I mean, name all the way down to the small mom-and-pops. We've been more than doubling every single year. We're opening up nine new cities this year. We started with heating, this year we rolled out water, we're going to be rolling out cooling. So, you know, there's a huge impact.
And you know, there are literally, even though we're been growing very, very quickly and we're probably one of the largest companies in this space in the world, we're still in a tiny fraction of buildings. We're talking about few thousand buildings out of 12 million in the United States. So we're very myopically focused on that and we see a huge potential impact as a result of that. We really do believe like I- when I, you know, there are... everybody who's run a startup knows this, it's brutal at times, especially in the beginning.
And like the thing that you have to have something that makes you wake up every day and get excited. And like when I can look at, we literally take, ingest all of the energy data from our buildings. So we can see literally year over year what the reduction is and we can see literally counts those eight to 10 cars per building we're taking off the road, the equivalent by just running the buildings better, you see how there's a path to making cities fundamentally more sustainable, healthier, and more affordable for everybody that lives in them. And I think that makes us really excited, even on the hardest days when you want to pull all your hair out.
Jason Jacobs: And where are your bottlenecked? I mean, it sounds like you're growing really fast, which is great. What's holding you back from growing faster? And specifically, what's holding you back from growing faster that's maybe outside of the scope of your direct control?
Lee Hoffman: So the biggest thing that just holds us back is it's really hard to hire onboard and scale, you know, people. Like even in areas that you'd expect like a sales team, like you have to... myself and my co-founder and- and our head of sales have been doing this for years and like so easy to... It's like we know how to make the sale, the product is great and yet you bring in 20 new salespeople and you're like you have to build the system to make sure that each one of them really knows how to talk about the product.
Like when there's problems, you're figuring out where they are and like, as that gets bigger and bigger and bigger, it's harder and harder. And so you have to be great at building systems and processes to basically make it almost like a factory for scaling, right? And that unto itself, it's like you're building a whole new product, which is the factory. And I've never done it before, this is the first time I've ever gotten to this scale. And it's a really hard problem.
And I think that is still the biggest bottleneck, is building that machine that scales the company and scales our growth. I think the second piece is really how do you get into some of the, you know, harder to get into institutions. We have yet to break... We're in a ton of municipalities, we're in a ton of high schools, we have yet to be able to break into the college market. NYU is the largest owner of property in New York City. Like, "Hi, whoever runs that, please talk to us." It's very hard to get to them.
These are decisions are typically made by committees, planned out 10 years in advance. Like it's very difficult. Governments like on the federal level, on the state level, also very difficult. There's a lot of political oriented stuff there. They're, again, some of the largest property owners. I mean, the best eye test I- I always use is, in the middle of winter when it's 20 degrees out in a given city, drive around properties and look for where windows are open, right?
And that's a good indicator that- that that building is not running efficiently, in fact, it's wasting probably 30 or 40% of its energy. And you can see this in almost all of the public housing complexes. The windows are streamed open, every window 22 degrees out. Getting into those where it's not just the, usually like a single owner or a, you know, somebody who's really like clued in on- on making changes is hard and we're- we're getting better and better, but those would be areas that certainly, you know, we'd like to get more traction in.
Jason Jacobs: Well, I mean, it's clear as you're going through this, that the company is having a big impact. I'm curious, would you categorize yourselves as being an impact driven company and- and how important is it that every employee that works at Heat Watch be impact driven if at all, and how do you think about that?
Lee Hoffman: I think it's two sides. You have to balance an impact driven culture with a results for our customers driven culture. And in- the wonderful thing about our business and one of those rare businesses is that both have the ear in the same direction, right? So like if we can cut energy by 25% in a building, that's not only great for the building, it's great for the city, it's great for the tenants because they're more comfortable, et cetera. So it's a win-win.
But you still don't want to get absorbed in the idea of let's just have a giant impact on the world and like, you know, whatever, it doesn't matter like how our products operate, if our customers think it's great. You still want to be on the ground, you want to know what they're feeling. You want to make sure that you're delivering something that the customers walk away and say, "Holy crap, this is awesome. And this is making my life so much better. It makes the building run better."
And it's always a balance between those two- two things for delivering culture that really delivers results. Because if the customers love what you're doing and you're focused on the big picture, ultimately the company will grow faster and you'll have more impact.
Jason Jacobs: If you could wave your magic wand and change one thing that's outside of the scope of your control that would most accelerate your progress, what would you change and how would you change it?
Lee Hoffman: Oh man, that's a really tough question. I would love to see the thermal shell of every building that's already out there change to be incredibly resistant to heat and energy transfer. Like we can do an incredible job running the heating systems or cooling systems of buildings substantially better and we'll cut energy usage by 20, 25%, 30%. But like at the end of the day, when you go into a building from 1950 and like huge side of the building is just leaking, all right [laughs], leaking heat or cool on out, like there's only a certain amount that you can do and it's really hard and expensive problem. And if I could snap my fingers and make every building, you know, perfectly insulated, you know, we could have an even bigger impact on the world.
Jason Jacobs: So are- are people working on that? And if so, what are some of the more promising solutions that you've seen?
Lee Hoffman: We've talked to a couple of entrepreneurs who are working on it. I have yet to see anything that's really truly solved the problem in an economically viable way. Again, incredibly expensive. I've seen a couple of systems come out of Europe that's like a shell that you kind of like put on the outside of the building and then you can run electrical and other things through that outside shell. I haven't seen it done at scale and I haven't seen it done really cost-effectively yet, but I do think that that's a major potential area for innovation.
So anybody that's looking to have a major change on the universe, figure that out. If you can make it compliant so that you don't have to... There's a building code in New York and almost every city has it, it's called Local Law 11, means you have to put people on the side of your building and manually tap every brick and make sure it's not cracking and then you have to patch them. If you can make a shell that is proven to not need to do that or need to do it much less often, you would save buildings millions of dollars a year, be worth it for them to spend five or 10 million to redo the shell and get all the energy savings. So if somebody wants to spend some time doing that or do it, please do. I think it would make the world a better place.
Jason Jacobs: And I- I know you guys are commercial focused, but how much of this applies in the residential landscape as well? I mean, it's the same sport if you look at, let's say single family homes or town homes or- or things like that, or- or does it need to be one of these high rise apartment buildings or office buildings?
Lee Hoffman: Yeah. So just to be clear, we're- we're about 75% residential, but it's residential commercial buildings, meaning like [crosstalk 00:38:29].
Jason Jacobs: Got it. And I realized after I said that, I said commercial, but then we're talking about high rise residential. So-
Lee Hoffman: Yeah. Yeah, we just think of it as six units or greater basically. You know, is it- is it your house, is it your brownstone [laughs] or is it something bigger than that? Right? So... Or a single family house? So I do think all the same things we're doing apply to homes. The only reason we haven't really gone down in that market is that they're vastly simpler and they're a different sale. And I think there are pretty decent solutions for them, right?
Like if you have a home, like I would certainly have hope that you have like a nest or something in there that's controlling the boiler. And in fact, I would tell you to go look at like dandy line and look at geothermal heat pumps. Like it's much easier. You're literally just like there are a few zones like turn it off. You can turn the heating on and off like there's one or two toilets like just don't have them running, right?
Like [laughs] it's a lot easier than when you're in a hundred unit building and you know, these 32 apartments are slightly different temperatures and these apartments that you have, pipes that are distributing equally and the electric for, you know, the fan systems and the pumps are, you know, like not working optimally and you might have 72 toilets and God knows that are running and God knows where they are and you're selling, it's really a business sale, so it's a sales team. It's not a consumer product.
It's just a very different business and there's so much room for us to grow and have an impact on big buildings. Like one big building uses the energy, the same energy as 500 homes. So, you know, we're very myopically focused on that, but it's not to say we might not do something there, but it's just, I think there are other people already doing great things there and we can have a bigger impact on the multiunit building side.
Jason Jacobs: And for anyone listening that's excited about what you're doing, where do you need help? Who do you want to hear from?
Lee Hoffman: Yeah. I mean, we're hiring every day. We're looking for great salespeople. We're looking for great engineers, great client services and client success people, HR. I mean, if you're interested in this space and you know you really want to have an impact and you're a hustler and, you know, are willing to like be creative and- and push the envelope, like you can reach out to me directly at Lee@heatwatch.com and go to our website, heatwatch.com, like, you know, contact us.
Jason Jacobs: Lee, anything I didn't ask that I should have, or any parting words for listeners?
Lee Hoffman: No. I, you know, I think what you're doing here is fantastic. I've been listening to the podcast since we met and I've listened to a lot of the back episodes. You know, you're bringing awareness to an industry that not a lot of people know about. It's really sexy to be into, you know, electric cars and things like that, but that's actually a very small slice of the problem and the solution. And, you know, we're really excited to be- be a part of it and really excited that you're bringing awareness to the space and I love that you're doing that. And I hope there are a thousand more entrepreneurs that'll help solve these problems over the next 10 years.
Jason Jacobs: Awesome. Well, love what you're doing as well, Lee. So thank you so much for taking the time to share it with me and with listeners and best of luck to you and the Heat Watch team.
Lee Hoffman: Awesome, Jason. Thank you so much. I really appreciate it.
Jason Jacobs: Hey everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note that is .co not .com. Someday, we'll get the .com, but right now .co. You can also find me on Twitter at Jjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
