Booz Company London September 2011 Succeeding in an

Booz & Company London, September 2011 Succeeding in an Emerging Industry ARCSA Conference, September 27 th, 2011 This document is confidential and is intended solely for the use and information of the client to whom it is addressed.

Why the rainwater industry is important to me • Live in Houston – last 11 months the driest in Texas since 1895 and hottest summer in history • Large water bill - ~$300 per month • Wife is a prolific sprinkler, but there are severe water restrictions and potential fines • Water will be the next high priced, scarce resource • Have built several businesses in emerging industries – lived through the good, the bad and the ugly… 1

Today’s discussion • Rainwater industry growing rapidly • Key factors for success in an emerging industry • Questions to consider 2

Rainwater industry growing rapidly Reported growth rates are explosive Annual growth rate % 2010 88% 2009 2005 -2010 35% 15% Most businesses are growing % growing 92% 93% 79% Source: U. S. Rainwater Industry Analysis 3

U. S. rainwater market to exceed $1 billion by 2015 U. S. Market With Significant Growth Potential 100% = $426 Million Revenue, 2009 +15% annual growth rate $1 B 35% 40% 25% $*M 71 Residential Commercial Government Total Market Tanks Labor Accessories 2009 2015 $2 B at avg. reported growth rates Source: U. S. Rainwater Industry Analysis DATE 4

Drivers of industry growth Supply side growth Demand side growth • Industry standards developing • Improving reliability of solutions • New technologies and product offerings • Robust industry value chain • Increasing water costs • Water scarcity Industry Growth • Desire to conserve • Growing awareness of rainwater solutions • Government incentives • Go local movement Source: U. S. Rainwater Industry Analysis 5

Robust industry value chain % surveyed participating in value chain 23% 25% 35% Manufacturer Wholesaler Retailer 80% Designer 71% Installer § Average number of employees per business = 14 ( range from 1 to 400) § 81% of businesses have certification or license § Over 50% are ARCSA certified § Average number of years in business = 6 years (range from 3 months to over 50 years) § Average number of systems installed per business per year = 40 § 62% of installations are active vs. passive Source: U. S. Rainwater Industry Analysis 6

Today’s discussion • Rainwater industry emerging and rapidly growing • Key factors for success in an emerging industry • Questions to consider 7

Feedback from rainwater businesses interviewed • Interviewed a cross-section of businesses (e. g. , designers, manufacturers, distributors, installers) • Discussed biggest challenges and opportunities facing their businesses and the industry • Excited about the industry potential and facing many of the same challenges that other small businesses face in an emerging industry 8

Key factors for success in rainwater 1. Coherent business definition 2. Customer focus 3. Partnerships with real value 4. Digital capabilities 5. People (recruiting, developing and retaining) 9

1. Coherent business definition needed “I need to figure out which customers to target – what industries, geographic focus, types of customers to go after” “I need to get clear on where I am taking my business” “Need to figure out who the customer is, architects, city, end customer? ” “I have no business plan yet, but I really need one, and I need capital for inventory, where will I get it? . ” “It’s easy to lose focus in our industry where there is so much opportunity” “In the U. S. cities and States keep changing policies, it is hard to decide where to focus” Source: Booz interviews 10

Winning with a coherent business The Power of Coherence How are we going to create value for our customers? Right to Win What do we need to do well for our customers? What are we going to sell and to whom? - 11 -

Coherence creates more value for companies Passenger Auto Indusry Toyota Porsche BMW Nissan Hyundai Ford VW GM Mazda Mitsubishi EBIT % Honda 32 Consumer Packaged Goods Industry 28 The Coca Cola Company 24 Clorox Campbell’s P&G 20 16 12 Con. Agra 8 4 20 30 40 50 60 70 80 90 100 Portfolio * Score Wrigley’s Heinz Pepsi. Co Kimberly Clark Nestle Kraft Unilever Sara Lee 0 20 40 60 80 100 Portfolio Coherence Score Sources: Booz & Company; Capital IQ; Bloomberg; Automotive analysis based on 2003 -2007 financial data Booz & Company 12

Capabilities must support each other Example: The Pepsi-Frito Lay Capabilities System Direct-store delivery (DSD) allowing easy testing of new products by introducing them in a handful of stores Continuous innovation of new products with store level response information going directly to R&D Skillful global consumer marketing to rapidly build demand for initially successful products Way to Play Rapid innovation, distribution and marketing to stimulate and meet customer snacking needs Booz & Company 13

Building a coherent business • Define what your business stands for and what differentiates you from your competitors • Determine what products and services you will and won’t offer…focus is a good thing • Decide what skills and capabilities you need inside your organization…focus on those that will make you stand out…less is more • Put together a business plan with goals, timelines and a financial plan • Determine where you are going to get capital and find people to help you make it happen 14

2. Customer focus critical to grow the industry “Biggest problem is awareness and education…people don’t “We can’t put people at risk, we are “Everything depends on realize rainwater is great talking about their drinking water. ”word of mouth, it’s critical I resource” do the job right “I stand for transparency, my reputation, customer service and I don’t burn my customers. ” “Solutions need to be easy and complete at the right “People are actually coming price” back for more because they love the experience” “The best solution is a reliable one, it just works “We need to get more case studies out there so people see the benefit” Source: Booz interviews 15

Zappos best-in-class customer service Zappos Service Principles : Net Promoter Score NPS % § “No questions asked” return policy § Customer-centric call center reps § Best-in-class product information § Real-time product availability Booz 16 &

Delivering a winning customer experience Awareness and leads Conversion and transactions Installation and service Retention and loyalty • Understand marketing ROI • Decide where you are going to excel vs. just compete • Make the customer experience as simple and easy as possible, people want less interaction…not more 17

3. Partnerships will help drive growth “We need more technical training available in the industry – partners should help. ” “Regulatory groups are holding our growth back, we need to partner with them to grow the industry. ” “I always refer customers to my competitors when I can’t meet their needs…we need to support each other” “We need better defined specifications and standards. ” “We need to work together as an industry to grow the pie, that means teaming up with our competitors” Source: Booz interviews 18

Importance of partnering – PC industry example Vertical Integration Horizontal partner ecosystem Vs. 19

Partnering to grow • Look for a few win-win partnerships across the industry to grow… be careful not to over extend • Help set open standards and specifications that build credibility • Support competitors– the goal is to grow the pie • Invest the time to manage partnerships effectively – they take as much work or more than managing customers 20

4. Digital capabilities will convert customers “The big challenge is going from awareness _ that’s a cool idea – to conversion, I want to buy a system” “We use twitter, Facebook, blogging, and online newsletters – this is the way to go” “Part of our mantra is to be green, that means we should be using online marketing, not paper” “Digital is one of my main marketing tools, I got 3 X the clicks when I started blogging Source: Booz interviews 21

Digital important element in finding customers Marketing tools used today % using Digital tools Websites Referrals Networking events Internet advertising Local advertising Direct mail Source: Rainwater Survey 22

Digital tools connect businesses and consumers Small business needs Digital Mobility Consumer needs Social media E-commerce Cloud computing Benefit from digital world Solutions to grow, transact and be efficient Compete with big enterprise Save time and money Connect and buy local Get advice and direction 23

Social media example - Tumblr example Reasons for Success § Micro blogging for topics of interest, not friends § Simplicity - no learning curve, set up of a page takes minutes, little time and effort to maintain a page § Easy to share – Re-blogging and other social capabilities are native to the platform § Mobile device compatible – Unlike other blogging software, excels in usability on mobile devices Interface Actual blog Source: Tech. Crunch, Business. Insider, Press Clippings DA 24

Tumblr growth impressive Vis a vis Facebook Tumblr Users vs. Facebook (Monthly Unique Users, million) WW WW US Source: Quantcast, Tumblr DATE 25

Social monitoring – Bazaarvoice example § Leader in social monitoring and management (ratings and reviews) § 243 billion “conversations” to date § Social commerce partnerships with Facebook and Google § Authentic social monitoring § Helps small businesses be found § Increases conversion rate 77% 26

5. Finding the right people is essential to growth “It’s hard to find people for this industry” “We are dealing with home owners here, this requires great people skills. ” “It’s better to focus on fewer, high quality people than to overextend” “Finding people is the biggest barrier, they need to be passionate about water” “If I try to take on more jobs without the right people, my work quality will suffer. ” Source: Booz interviews 27

Managing talent as you grow Align • • • Vision Strategic Plan Performance Management Workforce Planning Skills and Roles People Systems and Processes Attract Develop Retain • People branding • Sourcing • Recruiting • On-boarding • Leadership Development • Learning & Training • Best Practice Sharing & Communication • • • Compensation Incentives Career Advancement Succession Planning Release Management Motivate • • • Values Purpose Pride Emotional Commitment Psychic Reward Booz 28 &

Today’s discussion • Rainwater industry emerging and rapidly growing • Key factors for success in an emerging industry • Questions to consider 29

Questions to consider • What products and services do I want to offer? • What types of customers do I want to target? • What makes me unique and valuable to my customers? • What are the capabilities I need to deliver value to my customers? • How will I create a great experience for my customers? • Who are the right partners to help me and the industry succeed? • How can I better leverage digital tools to build awareness, educate, convert, transact and retain customers? • How do I find the right people to help me succeed? 30