The cleantech business is filled with a lot of frothy claims from startups and their investors.

We know from recent experience that when the froth bubbles away, it often doesn’t end well for many of those startups.

American entrepreneurs are well known for their risk taking and their ability to admit mistakes. But in the cleantech market, where many risks were taken in recent years with the hope that gobs of venture capital and stimulus dollars would keep pouring into the sector, there aren’t many entrepreneurs or investors willing to publicly say they failed.

Which is why Adrian Tuck, the CEO of Tendril, stands out.

“I realized our path didn’t end well,” said Tuck in an interview with GTM about his company’s 2012 downsizing and restructuring. “We made mistakes that needed correcting.”

Founded in 2004, Tendril was one of the first movers in the home energy management space. Fueled by over $100 million in venture capital, a boom in stimulus funding, more than four dozen utility partnerships, and optimism about the untapped efficiency resource in homes across the country, Tendril was riding high on the first wave of cleantech investment. 

But all that capital didn't necessarily make Tendril a better company. If anything, it masked the underlying problems with the company's initial strategy, said Tuck. 

After realizing that Tendril's approach to hardware development and customer acquisition wasn't reaping results that were sustainable, Tuck said he needed to face the "silent conspiracy of optimism" and make hard choices about where the company was headed. That meant layoffs and dismantling a lot of utility relationships.

"We took a couple missteps in there...and I lost a bit of focus," he admitted, talking about how the company spread itself too thin and started chasing other competitors.

Tuck was in Washington, D.C. at the Cleantech Global 100 last week giving a presentation he called “How I Almost Killed My Company” to a room full of investors and fellow entrepreneurs. We caught up with him at the event to talk about what he learned from Tendril's hardships and about what he sees happening in the next phase of home energy management.

Below is an abbreviated transcript of our conversation.

Greentech Media: Up until 2012, you had brought on a lot of utility partnerships and seemed to be growing fast. What was going on at that time?

Adrian Tuck: We started with this land-grab strategy based on landing every single piece of business we could. Pretty much anything got through. At our peak, we had 55 concurrent utility projects going on. But our mistake was misunderstanding the effects of stimulus dollars.

In an undistorted market, you should have a reasonable expectation that somebody who is trialing something is doing it with an outcome in mind. But the stimulus made trialing an endgame in itself. We weren’t sophisticated enough in the early days to understand that. So we took on lots of projects where there was no direct correlation between the project and some sort of deployment at the end.

The projects were well-meaning. People genuinely wanted to understand the effects of the technologies. But when trialing is your endgame, boy, do you trial. As a consequence, we were adding more resources to support these test scenarios. So we entered this trap where we kept taking on customers, which meant we needed lots of people, which meant we needed to raise more capital, which meant we needed to get more customers, which meant we needed to broaden our filters in order to get those customers in.

GTM: When did you realize that wasn’t sustainable?

AT: In early 2012, I realized it didn’t end well. Every morning I was waking up and there was some cleantech company hitting the wall. There was this sense that people weren’t coming out the other side of this chasm of pilots. So on the night before a board meeting, I pulled an all-nighter and looked at the numbers. I realized our path didn’t end well.

To put this into context, we had bankers prepping us for an IPO at that time. From an outside perspective, we had huge growth, lots of customers and all this froth around Tendril. So my investors were gradually working themselves up this pyramid of expectations being fueled by bankers.

But I laid out this scenario to the board showing we only had about fifteen customers really doing something. And all of our expenses -- we were burning $2 million per month at our peak -- were supporting customers who I didn’t think were going anywhere. I knew that if we let it go on for another twelve months, we were going to find ourselves in trouble.

I outlined three options. We could keep doing what we were doing, with a potentially bad end. We could take what we had and sell it. But I didn’t want to throw the towel in. And the third option was to resize and refocus the team -- building a business that supported fifteen companies that were actually doing something, not 50. That would enable us to focus on profitability.

I thought maybe the board would fire me. And if I’m brutally honest, a part of me was thinking that wouldn’t be a bad thing. At this point, I was six years into building the company, and it’s a hard road trying to change an industry this big and with this much inertia.

But the board listened and agreed to give me ten days to build my plan. We started talking with our utility customers, and most of them understood. We also reduced the employee base at the same time, going from 225 employees down to a base of about 60. And we also accelerated the transition away from building hardware.

GTM: As you made those choices, what did it look like from the outside versus what it felt like from the inside?

AT: I actually think it unfolded pretty well. We decided to tell the story unvarnished to the press as we were doing it. It effectively gave us the space we needed to transform the company. Now, a year on, the transformation has gone better than our most rosy scenarios.

We felt there were three things that could kill us during the change. The first was that customers we wanted to keep would get spooked and leave. The second was that employees would get spooked and leave. And the third was that the press would write some sort of bloodbath piece and the whole market would write us off. But none of those things happened. So the things that could have killed us didn’t. But that’s not success -- that’s just not dying.

The [goal of the] first half of this transition year was don’t die. And the second half was proving that we can continue to grow. We’re profitable, growing at about 50 percent, and we’ve landed a couple of new big pieces of business that we’ll announce soon.

One of the key lessons I learned was to just lay it out and be open and honest with everyone, because people welcome the lack of spin.

GTM: One of the big issues was building hardware. How did that become a problem?

AT: When we first started out, there were no devices to talk to. I thought we’d see the emergence of what we now see from Honeywell, Nest and others. Because there weren’t any [such devices back then], we found ourselves sucked into having to build hardware and then actually became known for building those things.

We took a couple of missteps in there -- a couple of times, we got fixated on others out there, and I lost a bit of focus.

GTM: What companies were you trying to follow?

AT: There is always one company that becomes the ‘big thing’ of the year. That’s part of the cycle. When we started, there was GridPoint. Then there was Comverge. And then we had Google, Microsoft and Cisco entering the market. This year is Opower; next year is probably Nest. And each year, there was a question about how Tendril was going to keep up.

As a result, our customers were like, "Oh, this is shiny over here -- check out this thing that has a different color." It was almost like we were trying to sell a Christmas tree and everyone was simply interested in all the things that were hanging on the tree and not the tree itself. So we tried to keep up with that by expanding, rather than focusing on the core of our software.

GTM: What were the pieces of hardware you were building? And what were the challenges in building it?

AT: We built a thermostat, a gateway device, a low-control switch, a smart plug, and an in-home display.

But the biggest challenge was that we weren’t a hardware company. Consumer design wasn’t in our DNA. If you look at our products, they performed well -- they are built by engineers, for engineers. But you would never lust after anything that we built. We just didn’t have that DNA.

GTM: How has the technology landscape changed so you don’t have to build any of that stuff anymore?

AT: The biggest change has been the availability of a screen on a smartphone or tablet that wasn’t there before. Almost everything we now do takes advantage of something that the customer already has, rather than giving them something new. 

This has also guided the utility approach. Utilities don’t want to be the ones to choose the technology in the home. Whatever they think is cool and sexy today will be supplanted by something cooler, sexier, faster and cheaper tomorrow. These guys take forever to make decisions because that’s the way they think about things, and yet consumer electronics are changing all the time. We are the common secure layer that deals with anything new that turns up in the home.

GTM: Talk about the changes you’ve seen in the home energy management space. It was so new when you started, but now a variety of companies seem to have found their way into homes. How have things changed?

AT: In order to answer that question, you have to look at the motives for getting into the home. We’ve discerned several different motivators for different types of service providers. The vast majority of utilities doing things in home energy management are doing them for compliance reasons. The regulator told them to do it, so they’re doing it. That’s Opower’s current sweet spot. They’re able to deliver enough energy efficiency to keep the regulator off the utility’s back, but not so much energy efficiency that it changes the bottom line. And I take my hat off to them. Not only was that a good strategy, but they’ve executed against it well.

Above that is an emerging set of utilities that are starting to understand the economic benefits of playing beyond the meter. Coming from the other side, you’ve got service providers in the home like cable companies and telecom firms -- and increasingly the solar companies -- that are looking to build new services. Those companies have a new set of motives to add services and retain their customers.

The utility doesn’t want to be in the game of picking what goes in the home, or even sending someone into the home. They want to partner with someone who does that for a living. So I expect to see an increasing emergence of those kinds of models. I also think solar companies will be disruptive to everyone in this space. The solar services guys have established a twenty-year relationship with the customer, and they’re thinking about new ways to enhance that and increase the economics of that relationship.

These service providers need a platform to reach customers, and you can use our technology to do that. The stuff we’re doing is in this convergent space.

GTM: Given Tendril's new approach, what’s your advice for entrepreneurs?

AT: Be honest. If you’re honest with people, they will give you the room. You diminish yourself by not being honest. As entrepreneurs, we get surrounded by professionals who coach us on how to talk with reporters and stay on message. I’ve backed away from a lot of that now. And the response has been positive.

With twenty years of startup experience, I’ve also learned that if it smells bad, it probably is. There’s often a temptation to wait until you have conclusive proof of something before acting. And that usually takes more time. I am pleased that I reacted to my instinct that things weren’t right, and that my board reacted to that instinct as well. Moving more quickly on that instinct allowed us to create more options, rather than waiting to hit the wall.

This is where the venture capital community can be counterproductive. There is sometimes this silent conspiracy of optimism where everyone is keen on getting to the next stage of high value or an IPO. You can find yourself in this uncritical mode when looking at your business, and that can be very unhelpful.

You have to be able to get beyond the conspiracy of optimism, and talk openly and honestly about your problems. People give you more credit and more space if you’re honest than if they feel that you’re spinning them.