How one startup is tapping into the $100 billion AC market

The Gunther Report

How one startup is tapping into the $100 billion AC market

speed skaters in ice rink

A great salesman, they say, can sell ice to an Eskimo. Perhaps so, but try selling ice skating in Israel, where it’s hot all the time and most people can’t skate.

Five guys from Israel -- brothers Dan, Tom and Mordecai Forkosh, with their father and their uncle -- tried to do just that. Back in the 1980s, they brought indoor ice-skating rinks to Israel after visiting a skating rink while on vacation in the U.S. It didn’t go as planned. In 1991, during the first Gulf War, a Scud missile destroyed the company’s first ice rink at a mall in Haifa. Eventually, the family built 22 ice rinks in Israel and Europe. But, along the way, they learned how to efficiently cool air in a humid climate to keep their energy costs down. The technology they developed became Advantix Systems, a “startup” that, under the right circumstances, can reduce the cost of air conditioning in commercial and industrial buildings by 30 to 50 percent.

This is a big deal, says Hannah Choi Granade, the U.S. president of Advantix, who left a prestigious consulting gig at a McKinsey & Co. to join the company, trading in her heels for the steel-toed boots that she now wears on customer visits.

“This is the un-sexiest company in clean tech,” she says. “We make air conditioners.” But air conditioning is a $100 billion global market, and it grew by 13 percent last year, despite the sluggish global economy. “The developing world wants air conditioning,” she says. “The rate of growth of air conditioning massively outpaces the growth of renewable energy.” And, of course, it matters to the environment whether AC is provided efficiently or not.

Advantix is in every respect a global company. It manufactures its equipment in a factory on an Israeli kibbutz, south of Haifa. It has an operations, sales and engineering center in Mumbai. It has a sales office in Shanghai. And its U.S. headquarters in Miami is led by Hannah Choi Granade, who is the daughter of immigrants from South Korea who grew up in Ohio and New Jersey.

I met with Hannah, who is 34, recently in Washington. She told me she discovered Advantix Systems after writing a 2009 report on energy efficiency for McKinsey that found “that the U.S. economy has the potential to reduce annual non-transportation energy consumption by roughly 23 percent by 2020, eliminating more than $1.2 trillion in waste -- well beyond the $520 billion upfront investment (not including program costs) that would be required.” In other words, the payback from investment in efficiency measures was about 2 to 1.

“If you’ve got all that net negative cost opportunity out there, that’s a market failure,” Hannah says. Of course, it’s also a big opportunity.

Image of speed skaters in an indoor ice rink provided by Corepics via Shutterstock.

Investors read the report, and one of them, a private equity firm called Matlin Patterson, found Advantix. The firm asked McKinsey to take a closer look at the company, and Granade was given the assignment. “We kicked the tires on the IP (intellectual property), the technology, the ability to commercialize,” she says. The company looked solid. The private equity firm bought in. Then they brought in Hannah to lead the U.S. operations, with a focus on sales and marketing.

Today, Advantix Systems has about 140 employees, and it has done about 850 installations around the world. The company’s competitive advantage is a technology that removes moisture from the air and thereby makes it easier to cool. You’ve heard the expression: It’s not the heat, it’s the humidity. That happens to be true. The Advantix techonology uses liquid dessicant -- described on its website as a “non-toxic brine solution with a high affinity for water” -- to dry and cool the air at the same time.

As my friend Matt Wald explained last year on The New York Times’ green blog:

Conventional air-conditioners have only one way to squeeze the humidity out of the air that they cool: by chilling the air to a low enough temperature that it reaches the dew point and the water drains out.

If it gets cold enough, the humidity will condense on hard surfaces, like beads of water accumulating on the outside of a glass of iced tea.

But to do that, a conventional air-conditioner may have to chill the room air to 52 degrees or even lower. That can make the air too cold to use directly, so some systems have to reheat it before introducing it into the room being air-conditioned.

You read that right. Some AC systems actually cool the air, and then heat it to a comfortable temperature. That’s wasteful.

The Advantix product isn’t for everyone. It works best in places where humidity is a problem -- Miami or Washington, D.C., say, as opposed to Phoenix or Las Vegas. It is especially effective in buildings such as pharmaceutical, electronics or food processing facilities where the air needs to be dry as well as chilled. Other customers include hotels and apartment buildings that worry about mold or mildew.

And, yes, among the case studies on Advantix website is one titled: “Reducing Energy Consumption in Ice Rinks.” Which goes to show that you never forget where you came from.

This article is reprinted with permission from Marc Gunther’s blog.