What Happened To Next Step Living & Why Did It Fail?

Next Step Living was a Boston-based startup focused on home energy efficiency, offering services like energy audits and solar installations. Founded in 2012, it quickly grew with substantial venture capital backing. However, financial mismanagement and external factors led to its abrupt closure in 2016, leaving many unemployed.

What Was Next Step Living?

Next Step Living specialized in home energy audits and installations, including solar panels, heat pumps, and insulation. Their unique value proposition was making energy efficiency accessible through state incentives. Notable achievements include raising $80 million in venture capital, reaching $100 million in revenue, and conducting over 100,000 home energy audits.

What Happened to Next Step Living?

The story of Next Step Living is a classic example of rapid growth followed by a swift decline, marked by several critical phases:

• Initial Success and Expansion: Next Step Living quickly became a prominent player in the home energy efficiency market, raising $80 million in venture capital and reaching $100 million in revenue. The company conducted over 100,000 home energy audits, benefiting from state incentive programs like Massachusetts' Mass Save.
• Rapid Expansion and Growing Pains: The company expanded into low-margin industries such as solar installation and insulation, which required significant cash and led to financial instability. This rapid growth stretched their resources thin and contributed to operational challenges.
• Financial Mismanagement: Despite its initial success, Next Step Living faced a high rate of cash burn due to its low-margin business model. Efforts to pivot to a software-based model and secure bridge financing were unsuccessful, leading to financial losses.
• Investor Withdrawal: The company's financial instability led to venture capitalists pulling out their funds. A last-minute withdrawal by lead investor VantagePoint was a significant blow, ultimately leading to the company's shutdown.
• Closure and Aftermath: Next Step Living ceased operations in March 2016, leaving about 200 people unemployed. The company's assets, including its intellectual property, were used to spin up a new venture, but the original business could not recover from its financial and operational challenges.

When Did Next Step Living Shut Down?

Next Step Living shut down in March 2016. The company ceased operations on March 18, 2016, due to financial difficulties and the withdrawal of key investors.

Why Did Next Step Living Shut Down?

1. Venture Capital Overreach: Investors pushed Next Step Living to aggressively expand into low-margin industries like solar and insulation. This rapid growth led to significant financial strain and operational challenges. An unnamed investor noted, "The message was pretty clear from the new investors and from others: Go grab every dollar of revenue."
2. Fiscal Mismanagement: The company lacked a consistent CFO and exhibited signs of fiscal irresponsibility. This internal mismanagement contributed to financial instability, making it difficult to sustain operations. The complex revenue model, entangled in subsidies and payment plans, further complicated financial management.
3. Environmental Challenges: The severe winter of 2015, which brought 110.6 inches of snow to Boston, severely impacted the company's ability to conduct home visits and installations. This disruption led to significant cash burn and operational delays, exacerbating the company's financial woes.
4. Investor Withdrawal: The last-minute withdrawal of VantagePoint from a crucial bridge financing deal left the company without the necessary funds to continue operations. This withdrawal was a critical blow, leading to the company's abrupt shutdown in March 2016.
5. Low-Margin Industries: Expanding into capital-intensive sectors like solar required significant cash, which Next Step Living could not sustain. The low margins in these industries made it difficult for the company to generate sustainable revenue, contributing to its financial difficulties.

Lessons Learned from Next Step Living's Failure

• Manage Growth Carefully: Rapid expansion can strain resources. Ensure sustainable growth by balancing ambition with operational capacity.
• Maintain Financial Discipline: Consistent financial oversight is crucial. Avoid fiscal mismanagement by having a dedicated CFO and clear financial strategies.
• Diversify Revenue Streams: Relying on low-margin industries can be risky. Diversify to create a more resilient business model.
• Prepare for External Factors: Environmental and market conditions can impact operations. Develop contingency plans to mitigate unforeseen challenges.
• Secure Reliable Funding: Dependable investors are vital. Ensure strong relationships with investors to avoid sudden financial withdrawals.
• Focus on Core Competencies: Stick to what you do best. Avoid overextending into areas that require significant capital and expertise.

We Shut Down Startups

Next Step Living's failure underscores the complexities and challenges of winding down a startup. If you're facing a similar situation, Sunset can help you navigate the legal, tax, and operational burdens seamlessly.

Don't let the stress of shutting down a business overwhelm you. Book a demo with Sunset today to ensure a smooth transition and focus on your next venture.