Water Shortages: Opportunities for Entrepreneurs (Part 3)

By Guest Author Dominique Trempont

The third and final part of the article discusses how conserving the existing fresh water supply can have a considerable impact and concludes with an analysis of what entrepreneurs must do to change the way the market, governments and consumers think about water.

5. Conserve available fresh water by reducing the water footprint of existing products and services

The last category is made up of water conserving solutions that dramatically reduce water usage. Roughly 85% of the world’s water is used is by agriculture, 10% by industry and 5% by households. To understand water consumption across the supply chain for products and services, Dutch Professor Arien Y. Hoekstra used a water footprint approach to analyze how much water is consumed at which stage of the production of a good or service. For instance, he calculated that between the grass and grain required to feed one head of cattle, one pound of beef requires roughly 4,000 gallons of water to produce. Between growing, harvesting and transporting the grain, the distillation and packaging, a glass of beer ends up consuming 20 gallons of fresh water. A pair of jeans, over its lifetime from cotton harvesting, processing and washing, consumes something like 3,000 gallons of water. Other examples of this interesting analysis are published by waterfootprint.org.

There is a tremendous opportunity for new technologies to reinvent agriculture: food will have to be grown on much smaller pieces of land to conserve scarce and probably more expensive water.

Other fundamental transformation processes will need to be invented to dramatically reduce the water footprints of industries and households. In the next five years, the key driver for adoption of new technologies and processes will be fast-rising water prices.

Another way to reduce one’s water footprint is recycling domestic water. On average, an American consumes 200 to 300 gallons of water a day for showering, drinking, flushing, dishwashing etc. This “gray water” could be cleaned and recycled economically by leveraging new technologies for filtering and cleaning used water. This “gray water” can be combined with collected rain water and make households quasi water-independent over time. The other advantage is that this approach would reduce the pollution and contamination of existing fresh water reserves.

This is the category that has been the least invested in by entrepreneurs and venture capitalists, and it is probably more a longer term re-engineering effort by incumbents who reinvent their core business under increasing price pressure rather than an area on which entrepreneurs and venture capitalists will focus.

The role of governments in water safety and sustainability

Governments will be a driver to accelerate the adoption of these emerging technologies. I expect regulations to continue to focus on water safety and quality standards. Public policy across the world will continue to set subsidized water quotas for agriculture. On the other hand, I bet that governments will increasingly rely on the private sector to build the infrastructure and meet drinkable water demand from industry and households in a market price format. I base this prediction on a 2006 United Nations report that focuses on governance and leadership as the core of the water crisis, saying “Water insufficiency is often due to mismanagement, corruption, lack of appropriate institutions, bureaucratic inertia and a shortage of investment in both human capacity and physical infrastructure”. Assigning a market value to water and having market forces play a role here would, in my estimation, reduce the political risks and the lack of public leadership to act in time to avoid a disaster of planetary proportions.

Stay tuned

In the past five years, entrepreneurs have started to focus on innovating with new technologies on several water market opportunities.

The good news is that this water space is potentially rich in core technology breakthroughs. New patents have not yet been completely captured and controlled by big companies, as is the case in alternative energies by oil companies. This new intellectual property is protectable and represents credible barriers to entry.

The big question mark is the role of governments vs. that of private companies in sustainably and reliably delivering quality fresh water to agriculture, industry and households. In addition, water is a space that has traditionally been dominated by government regulations and moves very slowly. It is a world in which the priority is not to deliver customer delight but rather to avoid making mistakes. With a few notable exceptions, most governments are reacting too slowly to respond to this looming water crisis.

As a result, I predict that we are facing a major industry shift, and that there is an opportunity for entrepreneurs to enable an efficient, sustainable and profitable fresh water infrastructure.

This water industry needs emerging companies that have the following traits:
• The potential to become the “Intel Inside” – the unique enabler – of their space
• Targeting a billion-dollar market segment, with credible and possibly contrarian business models
• Led by an executive team that can change the dynamics of the water industry

I contrast these high potential ventures with companies that have weak patents, unsustainable differentiation (potential commodities), tackle small niches and management that thinks it knows everything.

The water industry is going to have to transform itself if it wants to deliver on its goals. With the right ingredients and leadership, this fresh water business is ripe for major market discontinuities, which is music to the ears of entrepreneurs.

Unless a company is focused on a killer innovation and on fast global market adoption, it won’t make it. My opinion is that the only way for entrepreneurs to build and scale an exciting company in this water industry is to focus on unique and compelling enabling technologies that credibly solve big problems and can be distributed worldwide in a scalable manner.

This segment is part 3 in the series : Water Shortages: Opportunities for Entrepreneurs
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