How to future-proof your climate startup with scenario modeling

In climate, uncertainty is the norm. Whether you’re navigating policy shifts, scaling a novel technology, or responding to erratic funding cycles, one thing is clear: the future is full of unknowns. For startups in this space, your ability to survive depends on your adaptability – which is why scenario modeling is key. While often overlooked by startups, this method will mean you stay one step ahead of potential obstacles, so you can plan rather than panic.

Mina Khan is Lead, Financial Planning and Analysis at Enduring Planet. We sat down with her to find out how climate startups can start scenario modeling, and why it can help your business weather the unexpected.

What is scenario modeling?

Scenario modeling isn’t about predicting the future – it’s about preparing for multiple possible futures. While traditional forecasting often extrapolates from past data to predict a single, most likely outcome, scenario modeling embraces the unexpected. 

It’s a structured process for identifying critical uncertainties, combining them into a handful of plausible, divergent future worlds, and then exploring how your startup would fare in each one. For instance:

• What happens if your grant is delayed by three months?
• What if you launch in Q4 instead of Q2?
• What if your manufacturing cost per unit increases by 25%?
• What if you double headcount to meet a pilot deadline?

All of these are very real possibilities, and if you’re not prepared, some could derail your business. But by using scenario modeling to understand the potential ways your plans could change, you can chart the course that will make you resilient across each one.

How climate startups should approach scenario modeling

1. Start with a solid base case
Before you start delving into alternate futures, you need a clear picture of your most likely case – your base scenario. This is your best estimate based on what you know today. It will include your:

• Go-to-market timeline
• Revenue drivers
• Hiring plan
• OpEx and CapEx assumptions
• Working capital dynamics
• Funding timing and size

Your base case acts as the anchor – the benchmark you’ll measure other scenarios against. The more realistic and grounded it is, the more useful your alternative scenarios will be.

2. Define your key uncertainties
Next, pinpoint the variables that are most uncertain and therefore subject to change, where this change would have a dramatic impact on your business. As a climate startup, it’s likely these will include:

• Timing of grant disbursements or regulatory approvals
• Changes in customer demand or project pipeline
• Raw material costs or supply chain availability
• Pricing and unit economics assumptions
• Policy or market incentive changes

3. Build three core scenarios
Start simple with three core cases:

• Base case. 
• Bull case. Think positive with events like faster customer growth, favorable policy, or early funding.
• Bear case. Things might not go to plan, such as delayed grant payouts, slower sales, or cost overruns.

Each scenario should include variations in two to four of your key assumptions. These changes will trickle down into your forecast model – affecting your runway, burn, revenue ramp, hiring capacity, etc.

4. Link to strategic decisions
With your models all set, you can start running hypothetical situations, allowing you to weigh the pros and cons of different courses of action. Ask questions such as:

• How many months of runway do you have in the downside case?
• When is the latest you can raise funding while still meeting hiring goals?
• If your subsidies are delayed, which costs can you defer?
• Does the upside case justify a more aggressive hiring plan?

These are real tradeoffs you’ll encounter as you grow your business. By using scenario analysis for a glimpse of the outcomes, you’ll be able to make smarter decisions in your day-to-day operations. 

But beyond short-term planning, scenario analysis will also help you sharpen your long-term strategy. By forcing you to ask critical ‘what if?’ questions, the process will help you uncover hidden opportunities and risks around your product development, market entry, and business model. For example:

• How would your product need to change if your target customers face new climate adaptation regulations?
• Which geographic markets become more or less attractive under different climate impact scenarios?
• How can you redesign your business model to stay financially viable amid shifting policy and market conditions?

In exploring these questions, you might identify the need for a more modular product design, diversify your supply chain, or establish partnerships that hedge against specific regulatory risks. 

With the addition of scenario modeling, your strategy turns from a static plan into a dynamic playbook, ready for whatever the future throws at your business. In a field that moves as quickly as climate tech, this adaptability is essential.