Accelerating the path to profitability and scale in the UK's innovation economy
The UK's climate technology ecosystem has the potential to become more competitive with innovative UK start-ups scaling in line with US-equivalents. But to do that, as McKinsey partner Gisa Springer, reminded us at the GBB Summit London 2024, “we have to come together as an industry―investors, startups, and corporates who are all excited and invested in the space—to really drive growth going forward.”
The UK has long been known for its technological innovation, with investment in the UK tech sector ranking first in Europe and its valuation surpassing £1 trillion in 2024. The climate tech ecosystem is prolific, hosting over 5,000 startups and scaleups, and attracting over £2.6 billion in funding in 2023. However, the UK faces significant challenges in scaling climate technology startups compared to their US counterparts.
At GBB Summit London 2024, Jayanti Kar, McKinsey Partner, opened the Summit by putting to participants three key challenges faced by the UK today: “The first challenge is that our investor community is risk averse and dearly loves near-term profitability. So, we are looking at a lack of ambition, but we are also looking at a push towards early profits, which makes it hard for early-stage climate technologies to attract the right amount of capital.” Jayanti also talked about the UK falling short in raising later stage scale up capital for breakout growth as well as gaps in critical points of climate technology ecosystems which hinder progress towards scale and competitiveness.
To tackle these challenges, McKinsey convened over 110 leaders from disruptors, investors, and corporates in the Green Business Building Summit in London on 28th November 2024. The summit asked two critical questions:
- How does the UK climate technology ecosystem become more competitive?
- How do climate technology companies accelerate the path to profitability and scale in the UK?
Over the day, speakers and panellists identified five factors to drive competitiveness and accelerate scaling of UK climate technology: forming strategic partnerships, focusing on cost and speed, mapping out a path to profitability, building experienced teams, and embracing adaptability and resilience.
Form strategic partnerships
Successful scaling hinges on forming strategic partnerships, particularly with corporates, to demonstrate market demand, facilitate project execution, and access crucial execution advice and experience. For instance, collaborations with industry incumbents can help startups de-risk revenue generation for innovative technologies while securing early-stage funding. Such partnerships offer not only financial backing, but also expertise, and networks, significantly enhancing the startup's growth trajectory.
Focus ruthlessly on cost and speed
Startups should focus on creating a sequence of manageable sprints which they can deliver and learn from quickly. McKinsey Partner Alastair Hamilton summarised, “Achieving cost-parity with traditional alternatives is crucial: a ruthless focus on cost and speed ensures that new technologies can compete among end users with established solutions.” World class operations at the best cost also make startups more attractive to later-stage investors.
Map out a path to profitability
‘We're moving past the age when people just talk about green premia…it’s about bringing together economic value and environmental value in one,’ says McKinsey Associate Partner Harry Forbes. Having a sound economic model and a clear path to profitability from day one is essential for climate tech startups. Investors are looking for a well-thought-out plan covering capital expenditure, revenue, costs, and delivery practicalities, managed by a team with the experience to face inevitable challenges. They also seek economics that stack up, including a good gross margin or a cost-down plan, market traction, and a solid business model. Startups that demonstrate a clear path to profitability—with early-stage cash generation—are more likely to attract investment and scale successfully.
Build experienced teams
Startups must assemble experienced execution teams to navigate the complexities of scaling technology and project delivery. Investors favour teams that are transparent about their skill gaps and have actionable plans to address them. Such experienced teams are better equipped to manage risks, overcome challenges, and ensure timely, budget-compliant project delivery. By attracting and retaining experienced talent, startups can out-execute and scale their operations effectively.
Embrace adaptability and resilience
The climate tech market is constantly evolving, and startups must learn continuously to stay relevant. This requires start-ups to be adaptable and resilient, responding to changing market conditions while pursuing emerging opportunities.
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The UK's climate technology ecosystem has the potential to become more competitive with innovative UK start-ups scaling in line with US-equivalents. But to do that, as McKinsey partner Gisa Springer, reminded us at the GBB Summit London 2024, “we have to come together as an industry―investors, startups, and corporates who are all excited and invested in the space—to really drive growth going forward.”