Common goods: Fighting materials’ impact on climate change

The materials used to make physical goods produce a large share of greenhouse gas emissions. Origin Materials thinks it has the solution to that pressing problem.

n this episode of the McKinsey on Start-ups podcast, McKinsey senior editor Daniel Eisenberg speaks with John Bissell and Rich Riley, co-CEOs of Origin Materials, a California start-up that has developed a proprietary technology platform to help a wide variety of companies produce their products or goods without the materials they use contributing as much (or at all) to climate change. An edited transcript of their conversation follows.

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The scope and severity of extreme weather events seems to be increasing exponentially these days, with the devastating impacts of climate change and global warming never far from our minds. Yet for all the attention this existential threat to our planet rightfully receives, the myriad causes of it don’t always get the focus they warrant. While the well-known use of fossil fuels for energy produces more than half of global greenhouse gas emissions, another, less well-known source is responsible for a sizeable portion of the problem: the materials traditionally used to make all manner of both consumer and commercial goods and products in our world, which today account for close to half of emissions. On this episode, we talk to John Bissell and Rich Riley, co-CEOs of Origin Materials, a more than decade old start-up that is on a mission to solve this urgent environmental challenge.

Origin took a major step forward in its scale-up journey earlier this summer when it went public via a SPAC (Special Purpose Acquisition Company) merger. With demand across industries growing for its sustainable, carbon-negative materials technology platform, the company is entering rapid growth mode.

John Bissell co-founded Origin Materials in November, 2008, and has served as its CEO and a member of its Board of Directors since inception. Bissell has extensive experience in R&D, engineering and business development in the chemicals industry.

Rich Riley has served as co-CEO and as a member of the Board of Directors of Origin since October, 2020. Riley has been an investor and an advisor to Origin since 2010.

John and Rich, thanks so much for joining us today.

Let’s start with the overarching question: What do you guys view as the mission of Origin Materials?

John Bissell: The mission is to take the materials that make up all of the physical stuff that humanity uses to exist in the world, to take all of that into a sustainable future.

The physical goods of our species are so ubiquitous that we sometimes forget about them. We think about energy. We think about all the other stuff that we do. But this stuff that makes it up is so important and constitutes so much of the impact that we have in the world.

And if we don’t do a better job making that stuff more efficiently and with a lower carbon footprint and with sustainable resources, we’re just not going to get there. That’s really the mission of the organization, to make materials, physical goods, more sustainable.

Daniel Eisenberg: How do you view that mission playing a bigger role in society as companies around the world are committing to achieving net zero climate impact in the coming years?

Rich Riley: We’ve seen enormous awareness globally with governments, companies, individuals all realizing that climate change is real. We’ve got to reduce our CO2 emissions, we’ve got to transition to sustainable practices, and the role we play is to help companies achieve their net zero and sustainability goals.

Half of their emissions footprint comes from power and transportation, which are what get a lot of the press and a lot of investment and a lot of awareness. There’s the other half that comes from the products that are made that creates fully half of the emissions footprint. And that’s where we help—to reduce the carbon footprint of those materials and products.

Daniel Eisenberg: Is part of the mission in some sense to give more visibility to this critical component that doesn’t get enough attention?

Rich Riley: Oh, absolutely. I think a lot of people don’t realize there actually are alternatives to petroleum-based materials. We’re driving awareness and helping people understand that $1 trillion worth of products are made each year that need to make what we call a once in a planet transition away from fossil-based to sustainable feedstocks.

Daniel Eisenberg: John, let’s talk briefly about the origins of the company. Tell us about the journey from a piece of technology at UC Davis to your successful recent SPAC transaction.

John Bissell: I think a lot of that journey is characterized by what Marc Andreessen calls the “idea maze”.1 And the idea maze for materials hasn’t really been navigated from the ground up in a long time.

This isn’t precisely true, but I think of the last major chemical start-up as Dow Chemical. The world in the early 1900s was obviously very different than the one that we’re living in right now. A lot of the materials companies were built in a totally different ambient environment. A lot of the same principles do apply now, but in a different ambient structure of talent and technology and geopolitics and drivers. Nobody cared about CO2 footprint or climate change in 1906. But people do a lot now.

As we’ve discovered in the tech industry, it’s really difficult to take an old legacy company and adapt it to a new environment. It’s a lot easier actually to build a new one from scratch in that new existing environment. So a lot of what we’ve been doing is figuring out what are the logical conclusions to draw when you’re building a company that has the technology we do to reduce the CO2 footprint dramatically of the materials that are being produced. How do you get to the right scale to have an impact from the starting point of, as you said, a technology that was pulled out of a university instead of doing it in-house at a really, really large chemical company?

Daniel Eisenberg: Rich, you’ve been an entrepreneur in multiple places. What in particular inspired you to take on this challenge at Origin?

Rich Riley: My relationship with Origin started over ten years ago when I was introduced to John and realized his incredible entrepreneurial passion and mastery of chemistry could change the world. I became an investor and an advisor and invested more along the way. For much of that time, the company was really focused on the technology and there wasn’t a lot of value for someone like myself to add, other than telling John he’s doing a great job.

But over the last year, it became clear that the technology was proven, that the customer demand was exceptionally strong, and that the customer needs to have these materials faster than previously planned. As a result, we needed to go out and raise a lot of money and scale up the company quickly, and really connect those two dots between proven technology and enormous customer demand.

So it was a great fit for me to join John, to really enable him to focus on what he’s best in the world at, which is advancing this technology, and have someone like myself come in and help take a lot of other things off his plate in terms of scaling, fundraising, administrative stuff, commercial relationships, and some of the strategic stuff.

As an entrepreneur, I’ve always been attracted to disruptive, world class technologies that have the potential to do a lot of amazing things. And then to work to commercialize those and help them scale.

Daniel Eisenberg: Speaking of pivotal moments in the company’s journey so far, what do you anticipate will or might change in the organization following the SPAC and this new structure going forward?

John Bissell: There’s been a lot already starting to happen. One is tightly linked to what Rich was just talking about, which is this scale difference. Until relatively recently, our internal logic was, “how do you do this in measured, cautious, frankly overly conservative steps?” because we were proving all of the different components as efficiently as we possibly could. What’s changed about that really is the environment. As Rich said, there’s just an enormous amount of demand.

There’s probably a separate, entire podcast discussion to be done someday on the relationship between existential risk to human society and COVID. How the pandemic made human beings understand that perhaps there was more risk in the world than they had realized. I think that has been reflected in the way that the world is approaching climate change. We’re seeing companies finally make decisions—just a tidal wave of infrastructural decisions—around the way that they consume goods and energy and materials.

That scale change obviously has caused us to change the way that we operate. We have access now through this SPAC process to more capital than we had before. And the orientation is much more towards executing quickly and effectively.

While efficiency is always important, the most important thing is getting it done on time at the right quality and scale for our customers and for the world, frankly. And I think that’s a dramatic change that we’ve seen over the last 18 to 24 months.

Daniel Eisenberg: Looking forward, Rich, what do you see as the principal operational challenges that Origin might face over the course of this scale up journey?

Rich Riley: To tie it to your last question, a pivotal moment was on Friday when we had the experience of opening the NASDAQ and raising hundreds of millions of dollars. That really takes the company to the next level of financing, stability, and just reality, which is important when you’re trying to attract talent.

We’re on a materially different foundation than we were even a week ago. In terms of going forward, it’s attracting that key talent, continuing to bring on those key partners, whether they be customers or engineering firms that are going to build these plants for us or other parts of our supply chain.

It really is execution. We’re fortunate to have the tailwinds that we’ve been talking about, whether it’s customers being pressured to find solutions and purchase the kind of things that we’re selling; financial institutions trying to find ways to lend into companies like ours; or talent looking to move over to the future of materials and be part of transitioning the world.

The challenge for us will be to execute and stay focused and deliver.

Daniel Eisenberg: How do you approach working with established players in the industry?

Rich Riley: We’re very confident in the exceptionally proprietary nature of our technology and what we do. That really lets us be pretty open and explain how we do what we do.

It allows us to really view every other chemical company as a potential partner, and not a competitor, which is great. So we get excited to meet with chemical companies. We’ve partnered with several of them.

This is where we’re a platform company. These intermediates that we make can go on to make an enormous range of end materials. In fact, we think it’s over $1 trillion.

For a lot of those, we want to partner with someone else to get to that end application. One example is we partner with Solvay, a leading European chemical company, to build on top of our intermediate products, apply their technology, apply their go-to-market, apply their relationships in the automotive sector, to where our materials end up inside the engine in a very high-end, automotive component that’s very high-value to our customers. And we love partnerships like that.

Daniel Eisenberg: It sounds as if you don’t have to deal much with it now, but has there been any point earlier where you had to overcome any misunderstanding or hesitancy from established players who didn’t initially know what to think or accept you as a partner in the space?

John Bissell: It’s an interesting question. As I said earlier, there haven’t been a lot of chemicals and materials start-ups that have successfully made it to scale over time. Most of these organizations don’t have much of a start-up muscle, they have a Fortune 100 company muscle. That’s the way they understand how to interact. And that manifests differently depending on whether you’re talking about a customer or another chemical company.

But that’s actually been one of the things that has influenced our organizational development in a lot of ways, being able to engage productively with a lot of these larger, more mature companies. I don’t know if I’d say it’s fully on their own terms, but certainly closer to their own terms.

“Misunderstandings” is probably not the right word. I would say it’s almost like you have to learn how to speak the same language. As an organization, we’re focused on speed and execution and bringing a new thing into the world. And a lot of these companies have been around quite productively, in some cases for centuries.

Aside from just scale, the mindset that comes from an organization that is centuries old versus an organization that until recently wasn’t even a decade old is just very different.

On top of that, chemical companies are some of the most capable companies on earth. They have deep expertise in an enormous number of areas. And they have sophisticated ways that they bring that expertise together.

So in order for us to be able to engage in all of those different areas meant that we had to have a pretty sharp game before we could have really useful conversations. I think we figured that out. But it’s a meaningful hurdle to play in the big leagues with these kinds of companies. Much of what we think of as modern business, and the modern economy, was built by chemical companies or petrol-chemical companies. They’re almost the incarnation of the global economy of the last 50 years, 100 years, in all of the different areas. And that’s something that I really enjoy. But it took some real skill and development and time to figure out how to engage with companies like that.

Source : mckinsey