Leading Finance for an Impact-Driven Startup, with Tom Parkinson of SteamaCo
Tom Parkinson is an award-winning CFO with over 10 years of experience across different industries. From the Big 4 to banks to a fast-growth PE-backed company, he eventually landed at SteamaCo - an impact-driven, VC-backed startup working hard to improve access to electricity through smart technology.
We recently had the chance to meet Tom and learn about his finance journey, the particularities of an impact-driven business model, and what it looks like to be both sustainable and profitable.
Let’s start with a little about your background, and how you got into finance.
I was born and raised in rural Cheshire so I’m a little bit of a country boy. It’s close to Manchester, where I spent many of my formative years. I’m also a big (Manchester) United fan, so I have a lot of fondness for the city.
When the time came to choose a career, my early plan was to become a doctor, primarily for 3 reasons: to help others, to make a good living, and to impress my parents. Soon enough, I realized these aims of a 16-year old were perhaps not the best reasons to move into such an intense vocation as healthcare. This left me with a basket of A-levels with no real direction, so as opposed to finding a career, I thought best to go for what I both enjoyed and had competence in. I’d always had an aptitude for working with numbers, and was forever doing logic puzzles so I decided to go for a Mathematics degree and see where that took me.
It sounds like there has always been a desire to help others?
Well, yes, but it didn’t happen right away. Once I got my degree, I decided to get an accountancy qualification to keep my options open. I didn’t know it at the time, but it really is a good grounding in business. So I started at Ernst & Young, but it didn’t take me long to understand that auditing wasn’t my passion. I really wanted to move onto the other side of the fence, helping businesses in their day-to-day challenges. With my qualification in hand, I leapt into financial services where I spent some years at Santander then HSBC (in investment banking, dealing with asset-backed securities and structured credit products).
The roles were challenging and involved lots of number-crunching, but there’s a “casino” side of the investment banking industry that I found a little demotivating. Whilst on my honeymoon in NZ, I was inspired by how much they really care about biodiversity and the climate. Staring out from the pristine bay in Kaikoura, it hit me: I wanted to use my finance skills to help contribute towards positive change and to leave the world a better place.
And so the SteamaCo adventure began?
Correct! I moved back to Manchester from London and first worked at a local PE-backed company to gain some transactional experience. Back then I was volunteering to help pre-qualified accountants in taking their next steps. That’s where I met a recruiter, to whom I mentioned I was looking for opportunities to work for a purpose-driven startup. I stressed the sustainability aspect and that I wanted to work for someone undertaking a big challenge.
A few months later the recruiter told me about SteamaCo although warned me it was at a really early stage (this was 4 years ago!). After I met Harrison Leaf, the founder, I decided to seize the opportunity. The team (based in Kenya - at the time) was highly motivated, dedicated, and driven by its mission. I also spoke with their investors, which comforted me because firstly, they were of high calibre, but secondly, they were also realistic in terms of the outcomes of the business. It was a risk, but a calculated one.
Can you tell us more about what SteamaCo does?
SteamaCo was born in Kenya, that’s where it all began. The purpose of the company is to connect the unconnected. There are nearly two billion people around the world that have little, if not zero, access to reliable electricity services. This is, of course, fundamentally unfair. What really annoys me is that this lack of electricity is an unnecessary drag on individuals which hampers them from improving their lives. This individual struggle trickles up to the countries’ wider economies. Many areas in Sub-Saharan Africa still rely on diesel generators, kerosene lamps, and wood-fuel to meet their daily energy needs - these are harmful to health, polluting, and relatively expensive for the end-users. So our ultimate goal at SteamaCo is to help utilities bring affordable electricity to even the most remote places.
To do so, we offer a smart meter solution that operates in areas where others can’t. It is all managed remotely by our systems - completely controlled via the cloud. The remote control reduces costs for the utility, which in turn lowers the cost for the end-users. We also enable the end-user to pay by mobile phone or other means. When their credit runs out, the meter goes off and they can pay again to turn it back on. Smart metering isn't a new idea. It's been around for a long time. What’s new is reliable IoT connectivity in Africa, which hasn’t been solved.
What challenges do you face operating in your market?
The main challenge is we operate in a broken market - our founder came to this realization in his early days in Kenya. The real problem in bringing connectivity to people is that collecting revenue and scaling a utility in Africa is extremely hard. Part of the reason utilities don’t collect enough revenue is, frankly, because too many consumers get away with stealing power. Now, these consumers don’t pay, partly because they don’t get caught, but also because the service in itself is bad. As too few consumers pay for the service, not enough money comes in, and therefore the utilities and governments don’t (or sometimes can’t) invest in the infrastructure. This creates a chronic cycle of underinvestment and a broken market.
At SteamaCo, our central thesis is that by using modern technology, we can help utilities out of this cycle. We can help them collect more revenues, which in turn will lead to more investment and a better quality product for the end consumer. In time, we believe this will lead to everyone being connected to a reliable source of electricity.
Another big challenge is that we work in a severely price-constrained market which demands low-cost technologies. This isn’t a bells-and-whistles technology, this is about reliability and robust connectivity. Our design ethos takes the hard-computing out of the meters and into the cloud. This means we can offer a lower-cost metering service to utilities.
How would you describe SteamaCo's business model?
We have two sources of revenue, the smart meter, from which we get a one-off payment, and the SaaS fee (cloud control), from which we get a recurring revenue stream. The key behind this model is to install as many software endpoints as possible, using the smart meter as the vector. As the meters have a lifetime of 10-15 years, our product is inherently sticky, which is a great position for a SaaS company. In saying that, it's a two-way street - we have to constantly earn our recurring revenue by providing superior value to the utility.
As a finance team, we track revenue per endpoint, the number of endpoints installed, and capstone metrics for SaaS companies, ARR (Annual Recurring Revenue) and LTV (Lifetime Value).
How do you balance sustainability and profitability as an impact-driven company?
One of our core beliefs is that the biggest problems will only be solved if there’s a financial incentive behind them.
It is incumbent on us, as new technology, to prove that our model provides better value to the entire utility ecosystem. We are up against entrenched and well-established business models. Kerosene subsidies in Africa are enormous. Diesel generator manufacturers are going to stop marketing their products because a start-up in Manchester (amongst others!) believe they should. This puts a lot of pressure into creating a business model that works.
We know that we’re part of a trend towards cleaner and improving electricity systems. We’re working to get to a point where we’ll have cost parity with existing technologies and infrastructure - and helping the utilities we serve get to that point too.
We've driven down the cost of our meter and our communications costs - this is one of our USPs. Our smart meter is now the price of a classic non-communicative meter. We then have to prove that our recurring SaaS fee is worth paying for. As we help recover more revenue and reduce Opex, we’re able to prove our worth to utilities. This is what we mean by a superior value proposition to incumbents.
By providing this value, and building an effective business model, this creates a profit margin which enables us to grow and find investors. We also enable our customers, the utilities, to do the same. I think you have to see our role from a big picture perspective. In the end, it’s all about our role in the entire market and connecting two billion people to a more reliable (and hopefully more renewable) energy source.
What does your finance team look like, and how has being sustainable impacted the hiring process?
We’re currently a team of four - including me. This includes a managerial position and two more junior profiles. One is focused on all things data and the other works closely with the sales team.
About hiring: I think it’s a challenge for any startup - we all fight for the best talent. As a software-led solution we’re up against the likes of Google, Amazon, and Facebook Because of this, graduates leaving university with a Computer Science degree have huge earning potential at the moment. Ultimately, our recruits have to be inspired by SteamaCo’s core mission, we believe ours is a strong one. We want people who are high quality, and who see the wider context of what they are working towards. Those who join the adventure are in it because they believe in our purpose.
I try to push my team to make the most out of themselves and grasp the opportunities they have here at SteamaCo. A startup gives you the opportunity to cover a lot of ground in a very quick time period, so you become a true generalist across the business. It’s a great training ground. If I could go back in time I certainly would have looked to get into the world of start-ups earlier.
Looking back on your career, what has changed about the finance function?
My sense is that technology has changed the role of an accountant from that of a processor of information to one of an interpreter. I used to spend lots of my time fixing data out of systems so that it was accurate, complete and understandable. Now we’re in a position where technology can do a lot for us meaning we have more time to understand and convey key messages to decision-makers.
I believe that those who’ll succeed in this changing space are those who choose the right tools, maximize them, and concentrate on enabling strategic decision making. I don’t buy the idea of AI replacing accountants wholesale. Decision-makers need to understand the constraints they are working with and the trade-offs that will be made by taking a specific strategy. Hard choices help businesses win. Accountants can help inform these choices and give a context to trade-off, giving their companies the edge.
Now you’ve mentioned tools, do you have any you like and recommend?
Everywhere I worked previously we had on-premise software that tended to be a little clunky. With the best will in the world, fixed software always struggles to adapt to a constantly changing business landscape. At SteamaCo, we have a tool-stack that we believe can follow our pace. On the finance side, Xero has been a game-changer and we love it. On the communications side, I couldn’t be more of an advocate for Slack and Confluence (an Atlassian tool) for team collaboration. We’re lucky we had all this in place within the business before lockdown - it made the transition to working from home almost seamless.
I almost forgot another important one, Excel. I can’t go a day without using good old Excel.
What has been the best advice you’ve received throughout your career?
Be humble and always assume the person you’re speaking to knows something you don’t. I’m amazed by how much more I learn in deploying this mindset. I feel that sometimes people are too eager to have their voice heard as opposed to really addressing the problem at hand. To me, there is nothing better than really going at a hard problem with someone when both egos have been put aside. Something I love at SteamaCo is that our founder is all about facilitating answers and not just providing them. Of course, none of this is new, but I don’t think it’s promoted enough across businesses and the world.
Any good reads you’d recommend to your peers?
Certainly, there are a few “startup” minded books I loved, like The Hard Thing About Hard Things by Marc Andreessen (of Andreessen Horowitz). It’s the blood-and-guts story of his career in Silicon Valley and he lays out the rollercoaster reality of startups in a brilliant way. I also recommend reading Shoe Dog by Phil Knight, the Co-Founder of t Nike. This is a great story about building a brand - it shows that focusing on the customer is so important. Finally, Principles by Ray Dalio, the founder of Bridgewater Capital - one of the biggest hedge-funds in the world. He shares his life principles and how he merges them at work. There’s a curious juxtaposition between the Zen Buddhism that he practises and the traditional view of the alpha-male hedge fund manager.
On a wider range of topics, I’m an avid reader/podcaster of Dr Jordan Peterson and Douglas Murray, both of whom suggest we should focus more on our responsibilities as individuals in society as opposed to what rights we are entitled to. They are brave in promoting dialogue as the route towards a better understanding.
Now, one last question just for fun, if you could interview a finance 'celebrity', who would that be?
The Sage of Omaha, Warren Buffet. I think you would learn so much about business from just spending an hour or so with him. I love his witticisms. A favourite, which is pertinent in the wake of businesses struggling due to the impacts of COVID-19, is “It’s only when the tide goes out that you realise who is swimming naked.” On that note, I must get back to ensure that SteamaCo is appropriately attired.
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