Helping Consumers Decarbonize their Purchases: A Conversation with Climate Rising
Commons' CEO Sanchali Pal joined host Mike Toffel of Climate Rising to discuss how the Commons app is empowering individuals to take climate action. Below is a trancript of the episode.
You can listen to the full episode here, or wherever you subscribe to podcasts.
Helping Consumers Decarbonize their Purchases
Mike Toffel:
This is Climate Rising, a podcast from Harvard Business School, and I’m your host, Mike Toffel, a professor here at HBS.
We’re continuing to talk about corporate net zero climate targets. In this episode, I’m talking with Sanchali Pal, Founder and CEO of Commons and an HBS alumna. Commons is an app created to help people make more climate-friendly purchasing decisions. I’ll ask Panchali why she chose an entrepreneurial pathway out of business school and what inspired her to focus on bringing corporate climate action straight to the consumer. I’ll also ask her how she raised capital to start the company and where she plans to take the app from here.
Here’s my interview with Sanchali Pal of Commons.
Sanchali, thank you so much for joining us here on Climate Rising.
Sanchali Pal:
Thank you so much for having me, it's great to be here.
Mike Toffel:
So let's just start with an introduction. What's your current role and tell us a bit about how you got there?
Sanchali Pal:
I am the CEO and Founder of a company called Commons, which helps people make spending choices that are better for them and better for the planet. It's an app that helps you basically track and offset the emissions of everything you buy and get guidance to buy better in a way that's more sustainable. I started the company about four years ago after I graduated from HBS.
Mike Toffel:
Right. So you were an MBA student here, presumably facing lots of potential opportunities to start your own company or join various companies. What led you to think I want to join the growing hordes of folks who are starting their own companies?
Sanchali Pal:
Well I wasn't on the typical founding path, I wasn't in tech before. I started my career in international development, I was working and living in New York. Working at a company called Dalberg which does strategy consulting for social impact and emerging markets. I had the opportunity to move with them to Mumbai and I worked in the India office and then I actually moved to Ethiopia and started their office in Addis Ababa and that was an amazing experience. Entrepreneurial, I got to live in a new place, very exciting but I also was exposed to the effects of the climate crisis in a much more personal way living in Ethiopia or living in India and it made me increasingly concerned honestly. Also, I realized that climate was not a separate sector to be interested in. It was embedded in every sector of the economy and I wanted to be working on this problem that was limiting growth and development in every sector of the economy.
So I came to business school with that intention to better learn about climate and shift my career in that direction, not thinking I would necessarily start a company but that I would work in that space. I actually interned at Tesla, had a really great experience there and as I was trying to decide whether to go there after school, I realized that I couldn't stop thinking about this idea for a consumer tool to help people make more sustainable choices, it was a problem I had encountered in my own life since I was a senior in college. I had actually been tracking my carbon footprint in an Excel spreadsheet for six years at that point and I realized that no one had solved this problem and if I didn't, maybe no one would do it soon enough. So with the 2018 IPCC report that came out, I was feeling very motivated to try to build a tool that would empower people to take action on climate change through their own spending choices and decided to do that after school.
Mike Toffel:
So then you started a company that launched an app that allows folks to see what's the climate impact of my purchases that I don't have to track it in a spreadsheet as you were doing. Which must have required a lot of data gathering because that information is not super easy to come by. Can you just tell us about the process? How did you go about finding that information? Figuring out where did you want to focus on first, which industries or which types of products?
Sanchali Pal:
Yeah. Well luckily I had the experience of the pain of doing it myself for six years and I knew a lot of where the data sets were by that point. Because I had looked for the emissions of my flights and my food and my clothing and all the choices that I was making and I'd actually lowered my emissions by about 30% over that period of time and saved about $2,000 a year. So I knew a little bit about what I was doing, but certainly not enough. I didn't feel that I knew enough to build the algorithms myself to be able to estimate a user's carbon footprint based on their spending data. So I actually used my time at HBS to connect with folks at MIT who were working on this problem. I went to a bunch of research events and I connected with a group of graduate students who were thinking about this exact topic. How do we better measure the emissions of consumer choices? We looked at a variety of different data sources.
We looked at location data, utilities data and spending data was one of them and I learned a lot from that group. I met my co-founder in that group who ended up not actually starting the company with me full-time but becoming an advisor as I got started, whose PhD was in this topic. That allowed me to build the foundations of the first version of the app and I also luckily won some business model competitions that gave me a little bit of grant funding to get off the ground as I was getting started. I actually took a research position at HBS's entrepreneurship department for the first six months after graduating so that I could pay for rent and groceries while I explored this idea further.
Mike Toffel:
Right. So the data sets I can imagine come from utilities about the energy intensity of electricity, flights, there's a bunch of calculators out there. But for other types of products and services that people purchase it seems like there's estimates, how much emissions per pound of beef, for example. They're sort of at the commodity level but then an iPhone as far as I know, Apple hasn't reported the carbon footprint of an iPhone. Certainly I would doubt four years ago that they did that, so how do you get into this with more complicated products?
Sanchali Pal:
So we actually use a mix of what's called spend based data and activity based data. Spend based data is from the U.S. EPA and from state level data sources. So that means we actually get the US reports on carbon emissions factors per dollar of various parts of the US economy. So the carbon emissions per dollar of wooden furniture is reported in this database from the U.S. EPA, we modify that data using local and user level data. So if we know a user is based in Oakland, California like me their price of gasoline may be higher than someone based somewhere else in the country. So we actually scrape on a daily basis the price of gasoline in every zip code in the United States. We also scrape the carbon intensity per kilowatt-hour on the grid, so there's some of that information that's able to be super local and super accurate. Others have to be quite generic and we use US averages, we can modify them if we know the user is vegetarian or drives an electric vehicle.
We can provide them a more accurate footprint, and then where possible we do combine it with activity based emissions. So that's things like, we can ask a user where exactly they flew from or flew to or what class of flight they purchased Soon a user will be able to say whether they rode with Uber Green instead of Uber. So there are certain pieces of information that we can't know from the spending data, but a user could help us understand their actual activity in which case we can make the estimate even more accurate.
Mike Toffel:
Got it. So when one is using averages, you can get a sense of if they shift from eating beef five times a week to two times a week and what are they substituting that with? Vegetarian or chicken for example and I know those sliders are all in the app where you can sort of ask people to self-report that information. What about one brand versus another? That's part of this whole net-zero series we're doing, which is companies that are pursuing net-zero or other types of carbon reduction targets are trying to get some credit in the marketplace for having done so. So if you're a New Belgium Brewing and you have independently certified carbon-neutral Fat Tire beer. They're hoping that you're considering that and not just incorporating beer or three ounces of beer per night on average in the calculator. But actually they want you to say, "No, this is our beer and therefore it doesn't accelerate your carbon impact." How do you think about those types at the company level?
Sanchali Pal:
Well overall our goal with users is to not be perfectly accurate, it's to help people develop a carbon intuition or an inherent sense of the relative emissions of their various choices. So that they can include carbon in their decision making the way that they include cost or convenience in an intuitive way in their decision making. So when we're picking a flight we know $1000 is a lot, $100 is pretty reasonable. With carbon we don't have that intuition, what we should know is that actually similarly 1000kgs is a lot and we should be very careful about those choices. We don't make them that often, only usually when we're buying flights. 100kgs is less but actually still a significant choice, we should still think about spending 100kgs on something. Whereas a single digit kgs CO2 only really matters if it's a very frequent purchase. If it's something you're doing every day like eating, then single digit kgs can make quite a difference over time. But if it's something that you're making a decision on once a week, once a month, I wouldn't sweat the single digit kg choices.
So that kind of intuition is what we're trying to help people get so that they don't become calorie counters but sort of healthy eaters overall. So that means that until now our focus has been on getting sort of the rough granularity correct. So that people can understand what are the biggest choices I'm making and what are the most impactful things I can do to target those choices. That's meant that we account for things like if you take public transport, that's much lower carbon than if you take an Uber or if you buy from a thrift store it's much lower carbon than if you buy new. So in those ways we are inherently rewarding companies that have sustainable business models. However, one of the new features we're working on that will just be released when this podcast comes out will actually allow customers to start distinguishing when companies have taken meaningful steps to address the emissions of their supply chains. This is an important thing, not necessarily because that small kgs difference will matter at a consumer's carbon footprint in a meaningful way right away.
But because it helps consumers directly express demand for companies that are taking responsibility for their emissions and for their business practices. It's one of the most important ways that we as consumers can make a difference is by supporting those companies and helping those companies justify those decisions. Because ultimately consumer choices influence over 65% of global emissions, most of that is through companies' business practices. So that's something we're really excited to roll out, is to start showing users the difference between companies that are taking responsibility for their emissions and have lower or no emissions as a result of those actions. Actually reflecting that not only in consumers carbon footprints but also in the overall impact of our community on the app.
Mike Toffel:
I can imagine you can measure that at the corporate level or at the brand level or at the product level and perhaps there's other units of analysis I haven't even mentioned. What's your focus?
Sanchali Pal:
So because we're using spending data and we connect into user's credit or debit cards the way that most fintech apps do, the data that we receive is usually at the retailer level, it usually corresponds with a brand. So we can see if someone has shopped at Starbucks or they've shopped at Chevron or they've shopped at Allbirds. We don't necessarily know what products they've purchased at any of those companies. But we do know which brand they've purchased from or which retailer they've purchased from and so that's where we're starting.
Mike Toffel:
Got it. So you're selecting some of the retailers to feature on your app as better choices in a sense.
Sanchali Pal:
Exactly.
Mike Toffel:
So how good do they have to be? Do they have to be just top 10 percentile of their industry or do they have to have declared a net-zero target or climate neutral products? Where are they on the continuum in order for you to give your seal of approval in a sense?
Sanchali Pal:
Overall, we consider three types of action that a company can take. One is on carbon and that's most important as we are reporting to consumers on emissions and our goal is ultimately to help people tackle the effects of the climate crisis. But we also look at ecological and social factors in the company's supply chain. To start with we're partnering with the nonprofit Climate Neutral to show companies that have measured, reduced and offset the emissions of their supply chain in a way that is aligned with our 2050 climate targets. But we also believe in progress over perfection, no company is perfect. It's really important to encourage companies to move farther along the sustainability chain faster. So we will be introducing after the launch a tiered system of rating so that we can show companies that are really great as well as companies that are good or on their way.
Mike Toffel:
Got it. So it sounds a little bit like the LEED system for buildings where if they're pretty good they get the introductory LEED certified and as they get better they're silver and if they're even better they get gold and ultimately platinum. Is that a reasonable corollary to what you're intending?
Sanchali Pal:
That's a great analogy, yes. I think it's something that's really interesting about the climate space, is that we often hear about extremes being the only thing that's acceptable whether it's as an individual or as a company. That you have to be vegan or you have to be perfectly net-zero in order to have any climate credibility at all. It's really important to have high standards and to enforce them in a consistent way so that consumers and regulators can distinguish between different levels of sustainability. However, we're not going to get to our 2050 climate targets with a few people going vegan or just a handful of companies going net-zero. We're going to need the majority of people to shift towards more sustainable ways of living and we're going to need the majority of companies to shift to more sustainable business practices. So we really believe that incentivizing and recognizing steps in the right direction is important.
Mike Toffel:
how do you reach out to consumers to make them aware of your app and to encourage them to engage with it?
Sanchali Pal:
Well as a Series A company, we're still relatively early. A lot of our customers have found us through word of mouth, so customers sharing it with others. It's a relatively new space, there isn't really another app like this in the US at least. So we have benefited a bit from the novelty of the product that we're offering. We've also gotten some early PR and earned media and we found that content generally has been a way that folks have found us. So that's an area that we're investing in more, whether it's social media or our blog and website. So social media has been more successful for us in the last few months especially and then we're also looking at ways that we can partner with companies now as we're starting to promote the companies that are doing well. We found that folks that are buying from the brands that we are recommending are also interested in an app like Commons. So if you're a customer of Allbirds, you might be the kind of person who's interested in managing the sustainability of your spending overall.
So that isn't something we've really worked on yet but it's something we're exploring.
Mike Toffel:
Yeah. I imagine there might be some concern or caution about how to deal with companies that you're rating, given the potential perception of conflict of interest. If they're funding in some way to be on this platform then people might worry that the data might be skewed in their favor even if it's not. So are you keeping an arm's length relationship with them in that regard?
Sanchali Pal:
Definitely. I think this is one of the most important things is that we need to first and foremost be a source of truth for our customers in a space that's already overwhelmed by greenwashing. We want to be the trusted source of information for our customers and that's how we can actually provide value. So for now there is no monetary relationship and actually there never will be as an initiation. So we are doing all of the evaluation ourselves and partnering with third parties, nonprofits and certifications to get the data about companies and we will never allow a company to pay for a good sustainability rating. But if a company has earned a good sustainability rating then they could be a company that we're willing to partner with. A company that has decided to go climate neutral for instance is an example of a brand that we would feel comfortable promoting and so I think that's an exciting opportunity going forward.
Mike Toffel:
Got it. Who are your customers? So you've mentioned targeting folks who shop at some of the leading brands that you're rating, the Allbirds customers for example. Are there demographic traits, either geography or gender or age or ethnicity that you are finding are particularly attracted to this solution?
Sanchali Pal:
There are, and it's probably who you would imagine. It is more prevalent among people ages 25 to 55, a little bit older maybe than Gen Z. Because the app is based on spending decisions and so someone has to be financially independent in order to use the app and actually someone who has some disposable income to be able to make decisions that are more sustainable. So we do target customers who are making over $75,000 a year in general, they tend to be more female than male but pretty close in the distribution. The app is available across the US and Canada, especially urban centers but all across the country. It's really interesting because I think that our demographics really mirror the research on who cares about climate change. Increasingly, it's the majority of Americans who are concerned about the climate crisis. But about a third of Americans are what Yale's Climate Change Communication Center classifies as climate alarmed.
So those are our early target customers is the 30% of Americans who are climate alarmed and especially those of them who have already started taking action in some way in their life. Whether it's shopping from sustainable brands, recycling, switching to plant-based diets. Those are the types of folks who are more likely to want to manage the sustainability of their overall lifestyle.
Mike Toffel:
Got it. So what we've been talking about so far is how you got the data and the dollar per spend in different brands. Now you're not requiring your users to type in all the things that they purchase like what you were doing with the spreadsheet, you have created a more automated way to bring in that data. Can you talk a little bit about that?
Sanchali Pal:
That was the first thing that was really important to me because I had personally felt the pain of manual entry and I knew that, that wasn't something that folks would be able to sustain. I wanted it to be as easy as tracking your footsteps or tracking your finances, these behaviors that have become incredibly commonplace in the last few years. That carbon could be just as commonplace as well, it's just as important a currency and if we could make that tracking as easy as possible then that would sort of remove the hassle from including carbon in our choices.
Many fintech apps nowadays have been enabled by Plaid, the API that allows users to securely link their spending information to apps. That includes Venmo, Robinhood, probably any app you use is using Plaid as the tool to securely connect and so we too are able to use that to connect to your transaction data. It was a really important part of understanding how we were going to track someone's carbon footprint was realizing that spending data is linked to the 65% of global emissions and is probably the best real-time data source for being able to take action to lower your emissions as a consumer.
Mike Toffel:
So to connect a consumer to their Plaid data, they enter in their credit card details which then gives you the permission to observe the purchases that they make. Are they going to Allbirds? Are they going to McDonald's? Are they going to Delta Air Lines to purchase a flight? From each of those line items you're like, "Well, we know for airlines from point A to point B." Or you maybe recognize it as a long haul or a short haul flight. Then we come up with a carbon footprint and then you give them sort of updated information on their carbon footprint. Do you give them daily or weekly or monthly scorecards, how does that work?
Sanchali Pal:
Yeah. Your carbon footprint data will show up on a daily basis. Sometimes transactions will register multiple times a day, so it's as close to real time as you can get. Usually transactions are recognized a few hours to maybe a day after the transaction has happened depending on how quickly the vendor sends that information to Plaid. Then we can display to users their carbon footprint over time by week, by month, by year.
Mike Toffel:
Got it. You can also observe I imagine changes in their spending. The prior year they went on three trips and next year they went on only two or they reduced their meat consumption from beef and they transferred it to chicken or things like that. So you can actually observe some of those patterns, is that right?
Sanchali Pal:
We can, we can help people see their patterns over time. We can highlight to them what their largest carbon driver is this month versus last month. How their changes have manifested, even at the level of has your groceries footprint changed this month versus last month? As well as what kinds of purchases you're making that are more or less sustainable. So you might have 25% more public transport rides this month than last month because the weather is great. So good job, we can congratulate you for that. Or we might anticipate that winter is coming up, so we would suggest that you invest in greening your utilities before the winter because that'll really lower your carbon footprint. So we do actually not only show people their data but also link that data to recommended actions. Whether that's switching to a more sustainable company for that purchase or switching to a more sustainable choice like green energy.
Mike Toffel:
Right. Are you able to track engagement with those recommendations? So that's a whole other piece we haven't really talked about. So you're educating folks by helping them see which of their purchases are more carbon intensive than others, that was the first part. Now the second piece here is like a recommendation engine based on their behaviors. So you're showing for example, "Hey, winter's coming. Most people who insulate their homes can reduce their heat by this much which will have this much percent reduction in their carbon footprint." Things like that?
Sanchali Pal:
Exactly, yeah. We can help people understand not only based on their own emissions and their own patterns of spending but also other people like them. People like you in your area might be interested in this thrift store that's near you or might be interested in this green utility program from your utility provider. So that's where the real power of the spending data comes in is to be able to help consumers make better decisions more easily.
Mike Toffel:
Yeah, interesting. Now, are you going all the way to include geo-located data on their phone? Can you tell if they visited the thrift store?
Sanchali Pal:
We don't use location data yet. The only way we would know is if they had a transaction from that thrift store and they actually purchased something from it.
Mike Toffel:
Right. Which is at the end of the day where the rubber hits the road anyway. So then a third piece that you have which is in a way a corollary to organizations pursuing net-zero or climate neutral targets, you have the opportunity that you provide for your users to zero out their emissions or at least reduce their emissions, not only by making different decisions on the purchasing side. But also by purchasing offsets or carbon credits to offset their emissions. So can you tell us a little bit about that? We've had on prior episodes a couple of interesting stories about the opportunity and the complexities and some perils of the carbon credit market due to challenges in really understanding is it real? Is it durable? Is it double counted? A whole host of concerns. So how do you cut through all that and decide on what's good enough for you to offer in good standing opportunities for your users to offset in a legitimate way their emissions?
Sanchali Pal:
It's a really important point because offsets are completely imperfect and very difficult to measure and verify. But as a consumer it can be frustrating to not have the option to offset, we found, especially if you're a consumer who cares about the environment and has the means to do something about it. Because as long as we spend money we're going to have a carbon footprint, it's impossible to get to zero as a consumer unless all of the companies we buy from have gone to zero.
Mike Toffel:
Yeah.
Sanchali Pal:
So we can influence that 65% of global emissions to the extent to which we can purchase in a sustainable way and we can buy from companies that are more sustainable and then there's still 35% of global emissions that we can't really influence no matter what. That's things like public services or hospitals or education or our country's infrastructure that we don't have control over even through our spending and we need to influence through other ways like advocacy and voting.
Mike Toffel:
Yeah.
Sanchali Pal:
So as a consumer we found that early on when people started to see their carbon footprint, it could be very disheartening to not have a button to make it go away. So we said okay, we know that our customers are going to start buying offsets at a higher rate once they see their carbon footprint. How can we help them spend their money on offsets in the highest quality way? Not all offsets are created equal, and we knew that ourselves as consumers trying to buy offsets. So we set out to try to partner with these certification platforms to find the best quality offsets. But what we found through that process was that the certifications themselves are not sufficient, Gold Standard, Vera, good start. But just having that certification alone does not mean that, that is a good quality offset. So we ended up having to develop our own evaluation approach aligned with the Oxford Offsetting Principles, which is also sort of setting the standard for how to do net-zero aligned offsetting.
We use that same approach for constructing our consumer offset portfolio so that individuals can get access to the same quality offsets that companies who have sophisticated sustainability strategies are buying into. So we construct that portfolio, we partner with other rigorous buyers to share data on evaluations and we've included in our portfolio a mix of forestry and other nature-based solutions. As well as more engineering-based solutions that have really high durability. We curate that portfolio and evaluate our providers and provide impact updates on those providers to our customers on a quarterly basis.
Mike Toffel:
Got it. You charge customers I think $25 at the moment for per ton of offset?
Sanchali Pal:
Correct. For that balanced portfolio that's aligned with the Oxford Offsetting Principles, it currently includes six providers. We charge about $25 a ton, and as the space increases in quality and also as supply continues to be constrained for high quality credits, we anticipate that the price of that portfolio will go up over time, also if we continue to increase the percentage of long duration credits in the portfolio.
Mike Toffel:
Right. Which at the moment translates to more engineered solutions, I think?
Sanchali Pal:
Correct.
Mike Toffel:
Right. So what have you learned over time? I mean, we teach at HBS our MBA students and many other schools teach this as well, when you're innovating it's helpful to do this in an iterative process because you want to learn as you go and launch a minimum viable product, observe how it's used, see where power users go with it in ways you hadn't anticipated. See areas where people or no one's clicking on it and let's bolster the salience of that or maybe people just aren't interested. I wonder if you could tell us a few lessons you've learned along the way.
Sanchali Pal:
The first was the one we just talked about: is that seeing your carbon footprint information can be kind of scary for consumers. I think I had gotten used to it over six years of tracking it, and I was just very curious about it. So I didn't necessarily feel the same level of nervousness that a lot of our users feel the first time they log into the app. But having a way to make that go away right away, some sort of instant gratification was really important and was the reason we launched the offset subscription. I sometimes make a parallel to if we were spending lots of money and racking up lots of debt and no one told us, and the first time you saw the statement of your debt you would be really upset about it. But if someone told you the only way to build wealth was to know how much in debt you were, then you might change your behavior. You might be incentivized to actually look at that debt if you knew that you could build wealth.
So that's kind of what the offset button does, is it says you can start from climate neutral and then you can continue to improve and build from there. I think another thing that we're in the process of learning now is that maybe carbon tracking and offsetting was really appealing for this early adopter customer segment who has been trying to understand their carbon footprint or is curious about offsetting and wants a better tool to do it. But the average American might not know very much about carbon footprint and in fact, the average American cares a lot about climate change and wants to include sustainability in their spending choices. But might be starting from more of a how do I pick sustainable companies or sustainable brand's standpoint. When I'm at the grocery store, I'm at the clothing store, how do I make a sustainable choice? That's the first entry point, and that's one of the reasons why we've really prioritized showing this company-level data. It's also very empowering for the consumer to feel like they're having a voice with the companies that they care about and the companies they're buying from.
Mike Toffel:
So let's talk a little bit about the business model. So you're clearly a multi-sided platform where you sit in the middle and there's companies that you're getting information from and that you're highlighting. There's estimates based on these different climate models that you mentioned. You have users on one side and then you have carbon offsets providers on another, and you're bringing these folks all together and you're funded as you mentioned a moment ago as a startup. So they have faith in your growth and in your profitability. Where do you get paid in this milieu of players?
Sanchali Pal:
A great question. Yes, we are a for-profit company, we are VC funded and therefore we do have a business model that will get us to profitability. We make money when users buy offsets. So currently the primary service we provide that customers want to pay for is if they want to offset their footprint, the average subscriber pays between 25 and $30 a month. Because it's proportional to their own emissions based on their spending data they could be spending less or more in any given month, so people who emit less might pay as little as $10 a month. For instance, students who have lower credit card purchases or people who have large families or high carbon footprints might be spending hundreds of dollars a month. We actually do have customers who spend thousands of dollars a month if they have very high carbon footprint lifestyles. So that means it's kind of an interesting business model for an app. Most apps, maybe you pay 2.99 or something a month for a digital subscription.
We're not providing a digital subscription, we're providing a subscription to an actual product, although it's invisible, in the real world and that means that the amount that people are willing to pay is much higher. We take a 19% fee on that transaction for curating and evaluating the offset projects and helping customers figure out automatically how much to buy. But that's baked into the $25 a ton that users pay. So right now, that's how we make money and actually for an app of our size it means that our revenue model is pretty interesting. Because most apps don't make money until they have millions of users and we get to make money earlier with a higher value subscription model. As we look forward, we are interested in also aligning our business model with people actually reducing emissions, not just offsetting them. So when people make choices that are lower carbon, for instance switching to green utilities or switching to a bank account that doesn't invest in fossil fuels. That could also be an opportunity for Commons to make money.
It's not something we do yet, but also once we can prove that we're successful at helping people make these low carbon switches that's definitely something we're interested in.
Mike Toffel:
Got it. What percent would you say the average user who does offset is offsetting? Are they opting in to 100% or 50% or 10%?
Sanchali Pal:
The average user who's offsetting right now is offsetting about 75% of their footprint and that means you can set a max for yourself when you're subscribing. So you can say I'm willing to offset my footprint, but only up to 20 bucks a month. So whatever that means, I just want to cap it at 20 bucks a month. So when the user subscribes they let us know what their max willingness to pay is, and then we show them every month what percentage they offset. So sometimes that might be 100%, sometimes it might be 80%. On average, the maximums are the limits that folks have set on their subscriptions cover 75% of their emissions.
Mike Toffel:
Wow, that's really interesting. So in a way $25 strikes me as low actually, but let's imagine that that were the social cost of carbon. Which I think is probably a couple of times higher than that, but let's imagine that for argument's sake. That means those folks are kind of opting in to a carbon priced world where they're recognizing this externality of carbon emissions, which are, as you mentioned, sort of a liability that currently people are not being charged for. But they're opting into a system where they're like, "No, no, I want to pay. I want to pay my fair share." Is that the right way to look at it?
Sanchali Pal:
Yes, that's exactly how I think about it. I mean, I think that's what gets me excited about this is that consumers are voluntarily opting into a carbon price, and as an economics major that's very exciting. We're very interested in sort of testing right now if folks could opt into the social cost of carbon, would they do that? It's obviously a higher price, people can buy offsets for as little as $3 a ton on the open market, perhaps of questionable quality. But $25 a ton is a reasonable price, it's still not the social cost of carbon as you pointed out. What could be really amazing as the Biden administration has set the cost of carbon at $51 a ton, maybe the true social cost of carbon is over $100 a ton. But if we could allow users to opt in to a carbon price, I think that could be a really interesting step in the direction especially as there's broader consumer awareness of helping individuals advocate with their dollars for carbon taxes that ultimately maybe companies should be paying.
In the cases when companies are paying them, then the customer sees that their own offset subscription is less expensive and that's true in the app today. If they're buying from these brands that have taken responsibility of their emissions, their monthly offset cost is lower, which is a really interesting incentive as well. But otherwise that they can actually pay the carbon cost themselves I think is super interesting. Because the ultimate best case scenario would be if carbon cost was baked into the economy from the start, and we all saw the carbon cost of items and those carbon costs were paid for by the producers.
Mike Toffel:
Right. It strikes me that perhaps the closest analogy to what you're doing in the marketplace in the US are these opt up electricity deals that in many places around the country you can opt up from whatever proportion of the grid electricity is renewable, you can opt up to 50% or to 100% green as in the Boston area there's many programs like that. It seems like that those folks would be the same folks because they're similarly saying in some cases I'm willing to pay more. Sometimes it's actually not even costing more nowadays, but it seems like that's a market. Do you know how large that market is? Is that your near term addressable market?
Sanchali Pal:
I think that's a really interesting way of getting at the target market. I think you're right, that's one of the few programs that exist that's similar to this and I do know that over half of Americans have the option to opt into green energy through their utility provider. I don't know what current rates are today, but this is actually the next action that we're building into the app as well this month is guidance for customers regardless of where they live in the US on how they can opt into green energy. For many folks, it's available through their utility provider. For other folks actually who live in deregulated utility markets, they can just switch utilities entirely from one that's not using renewable energy to one that is. Or if none of those options are available to you, you could switch to community solar or buy into renewable energy credits. So that's an interesting recommendation I think that we can make to folks and hopefully a good opportunity to partner with utilities one day as well.
Mike Toffel:
Yeah, super interesting. we haven't talked much about fundraising on the podcast. But since we have an entrepreneur-founder in front of us, I wonder if you can talk a little bit about what are the basics of that process? So you figure we need some capital in order to invest in the app and pay salaries of folks. How do you figure out how much you want to seek? And then how do you decide who to go to ask and what's the pitch process look like?
Sanchali Pal:
As I mentioned I'd never worked at a startup, I'd never worked at a tech company before besides my internship at Tesla. So a lot of this was brand new. Luckily I took great courses at HBS that started to prepare me for this process, including Founder's Journey where we actually wrote a case about the early days of starting this company. But raising money, first I mentioned we got some grant funding to get a prototype off the ground. I think when I first raised that grant funding we got about $30,000 from MIT and HBS business plan competitions and I thought that, okay, I'm going to use this to do my user research and save most of it. Once I write a PowerPoint deck with my pitch idea and I have it all thought out, I'm going to pitch a bunch of investors and then I'll get my pre-seed funding and then I'll get to build my product and pay myself a salary. But it didn't work out that way.
I went out and pitched with just a deck and some user research, and I got no's from everyone. So I pitched 10 investors, all of them said no. Actually, one of them said maybe but you really need to go build a prototype of this and test it with some users. So I went and did that. I used the $30,000 to pay a developer to work with me for a few months to build the first prototype of the product and tested it in Apple's beta testing platform TestFlight with about 30 users over three months. That first MVP of the product got me a bunch of really interesting learnings and some really interesting information on retention rates and user interest that I was able to then go pitch to investors in the spring of 2019 and I also applied to a bunch of early stage incubators, including Techstars and Y Combinator. Luckily that time around I had a lot more success. I also targeted investors who had much more consumer experience.
The first time around I went to a lot of investors with more impact and energy experience, and none of them had much experience with an app-based business model, the kind that I was proposing. So it's very hard for them to evaluate the idea, whereas actually more traditional tech investors who knew not very much about climate knew a lot about app-based business models and were able to evaluate the idea. So I actually got into Sequoia's early stage accelerator and the summer of 2019 moved out to the Bay Area to start that accelerator with my first million dollars in pre-seed funding.
Mike Toffel:
Yeah, and what's next in the funding journey? Are there benchmarks you're trying to hit to show to Sequoia or others that this is a viable journey? Or do you have a long ramp? Do you have a short ramp?
Sanchali Pal:
We just raised our Series A at the end of last year, and Sequoia was also in that round. What was exciting about that, was it was based on our retention and unit economics being very strong. So we were showing that we had customers who really loved the product, who were willing to pay for it and were sticking around when they did. What we have to figure out now with this next stage is growth. How can we make this market as big as possible? Can we really scale to the hundreds of thousands and millions of users we're looking for to make this a successful business model? So that's what we're in the midst of experimenting with now. Luckily, we've raised enough to be able to work on that for a little while. So right now our team is trying a bunch of different growth experiments as well as experiments on the value proposition. We talked a little bit about how we're shifting our positioning to appeal to a broader audience, going beyond carbon tracking for the folks who maybe that's not their first interest.
But they want the more practical guidance on how do I actually spend my money? So starting there with the value proposition.
Mike Toffel:
Interesting. So for those interested in finding out for themselves about Commons, how do they do that?
Sanchali Pal:
You can go to the App Store on iOS or to the Play Store on Android and Search Commons to download the app. It's free to use, and you can also follow us on social media at the.commons.earth, on Instagram or on TikTok.
Mike Toffel:
Great. I downloaded the app last night in preparation for our conversation, and it's got a really intuitive interface so I applaud you and your team for that. It's very obvious what's going on and how to plug in, and it's an easy onboarding experience.
Sanchali Pal:
Thank you, that's wonderful.
Mike Toffel:
What advice do you have for those who are thinking about getting into business and climate, who are just getting started in their journey? Or might be in a vertical where they're in the space but want to look to see what else is out there?
Sanchali Pal:
I think that what's really exciting about climate is that no matter what you've done before, you probably have experience that will be incredibly valuable in the new climate economy. Everything we do today are things that we're going to have to figure out how to do in a lower carbon way going forward. Whether that's building and deploying software or construction, apparel, food, no matter which sector you're in, it's part of the climate economy and we need to shift all of our jobs to become climate jobs. So whether you're working at a big company or a small company, there are probably ways that you can start to influence the emissions of the company that you work at. Whether that's through advocacy as an employee for benefits or for resources that can help you live more sustainably. Or whether that's on the operational level for you as a manager or a director, the teams that you manage or influence. How can those products or services be delivered in a way that's lower carbon and that is going to be successful in the new world that we're moving towards?
So one is, I would say just have the confidence that what you're doing is important and the way that you do it matters. Our labor is a really important resource that we have, and we can think about deploying in a way that will support a climate friendly economy and then also, I think let yourself be guided by the things that you're passionate about. I hear a lot of people who are excited about moving into climate and want to do an analysis of what's the highest impact thing that they can do so that they can make a decision. So they're like, "Well, I believe that concrete is the most important choice that we need to make, and so I need to work in concrete." Well, that's not true. I mean, there's a lot of things that are really important and if you're passionate about food or you're passionate about media. There's a really unique influence that only you can have by focusing on the things that you're passionate about. So I would focus more on that rather than taking a quantitative approach to deciding where to play.
Mike Toffel:
Yeah, that's super interesting. Great. Well, thank you so much for spending time with us. It's always a pleasure to talk to folks who are building new things in new ways, and especially exciting when they're HBS MBA alumni. So thank you for joining us.
Sanchali Pal:
Thank you so much for having me.
Mike Toffel:
That was my conversation with Sanchali Pal, CEO and Founder of Commons and an HBS alumna.
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