Why Did Cleantech Fail? Broader Lessons for Business


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Technology is growing exponentially, and so is our need to store the digital data we generate through use. Whether we use the cloud or not, somewhere there are physical centers that store our data. Facebook, for example, has four data centers in Oregon, Iowa, North Carolina, Sweden, and has plans to build a fifth in Texas, and a sixth ten miles from Dublin.

These facilities typically house computer systems and associated components# — such as telecommunications and storage systems. They generally include redundant or backup power supplies, redundant data communications connections, environmental controls like air conditioning and fire suppression, and various security devices.

For them, we can say they are are “always on.” Having visited a few in my corporate days, I can confirm that large data centers are industrial scale operations. They use as much electricity as a small town and are just one example of the need for clean technology.

This is not a new development. In Zero to One: Notes on Startups, or How to Build the Future, entrepreneur and VC Peter Thiel says when Al Gore launched his campaign to educate citizens about global warming with the documentary An Inconvenient Truth in 2006, “people got busy: entrepreneurs started thousands of clean-tech companies, and investors poured more than $50 billion into them.”

But, despite the best of intentions, it didn't work. The reasons why have broader implications for business of any kind. Thiel says all happy companies are different. Below are specific areas we should pay attention to to create these differences, build scale and sustainability from the start.

Seven questions every business must answer

1. Engineering Can you create breakthrough technology instead of incremental improvement? The order of magnitude of better than the next substitute should be 10x.

2. TimingIs now the right time to start your particular business? Just because there is a lot to be figured out and improved does not mean the market is ready. It takes a definite and realistic plan to take over a slow-moving market.

3. MonopolyAre you starting with a big share of a small market? Do we understand the appropriate measure of comparison? For example, renewal energy in general vs. other clean-tech in U.S. creates a new scale. “Huge markets are highly competitive, not highly attainable.”

4. People Do you have the right team? Here Thiel makes the case for having the right CEO/leader at the right time in the company's development cycle. Salesman-executives, he says, are good at raising capital and securing government subsidies, but are less good at building products customers want.

5. DistributionDo you have a way to not just create but deliver your product? How we bridge the gap between selling an idea and getting it in the hands of customers. We should not forget the customers.

6. DurabilityWill your market position be defensible 10 and 2 years into the future? In the case of clean-tech, there was a “failure to anticipate competition in manufacturing the same green products” in China. It also goes back to using the right frame of reference when understanding the market.

7. Secret Question — Have you identified a unique opportunity that others don't see? Say Thiel, “great companies have secrets: specific reasons for success that other people don't see.

Seven for seven

This is about how Tesla answers all questions above well, but it made me chuckle because it reminded me of the classic 1954 musical Seven Brides for Seven Brothers we used to enjoy watching growing up at Christmas time.

Tesla is one of the few companies started during the clean tech boom that thrives ten years later. Thiel and Elon Musk were part of a very diverse team at PayPal. Tesla's seven for seven:

TECHNOLOGY. Tesla's technology is so good that other car companies rely on it: Daimler uses Tesla's battery packs; Mercedes-Benz uses a Tesla powertrain; Toyota uses a Tesla motor. General Motors has even created a task force to track Tesla's next moves. But Tesla's greatest achievement isn't just any single part or component, but rather its ability to integrate many components into one superior product.

[…]

TIMING. In 2009, it was easy to think tat the government would continue to support clean tech: “green jobs” were a political priority, federal funds were already earmarked, and Congress even seemed likely to pass cap-and-trade legislation. But where others saw generous subsidies that could flow indefinitely, Tesla CEO Elon Musk rightly saw a one-time-only opportunity. In January 2010 — about a year and a half before Solyndra imploded under the Obama administration and politicized the subsidy question — Tesla secured a $465 million loan from the  U.S. Department of Energy. A half-billion-dollar subsidy was unthinkable in the mid-2000a. It's unthinkable today.

[…]

Some insights about the angst that preceded the loan's approval in this interview about making a difference in the world. In it he talks about the difficulty in making the decision of whether to split the money between Tesla and SpaceX or to bankroll one instead of the other. What if both fail because each did not have full funding — and consequent attention?

MONOPOLY. Tesla started with a tiny submarket that it could dominate: the market for high-end electric sports cars. Since the first Roadster rolled off the production line in 2008, Tesla sold only about 3,000 of them, but at $109,000 each. Starting small allowed Tesla to undertake the necessary R&D to build the less expensive Model S. […] They sold more than 20,000 sedans in 2013 […] and are in a prime position to expand to broader markets in the future.

A snapshot of Tesla's business plan and how change happens. Innovators know all too well that change doesn’t happen on a familiar landscape—change has to construct the landscape itself. Yet none of the change would be possible without the determination and persistence of the people that bring it to life.

TEAM. Tesla's CEO is the consummate engineer and salesman, so it's not surprising that he's assembled a team that's very good at both.

[…]

Elon Musk says, “A company is just a group of people gather together to produce a product or service. And a company should only exist if that product or service is truly useful for customers.”

DISTRIBUTION. Most companies underestimate distribution, but Tesla took it so seriously that it decided to own the entire distribution chain. […] The up-front costs of Tesla's approach are much higher that traditional dealerships distribution, but it affords control over the customer experience, strengthens Tesla's brand, and saves the company money in the long run.

For example, we can see and test drive the Model S at a mall.

DURABILITY. Tesla has a head start and it's moving faster than anyone else — and that combination means its lead is set to widen in the years ahead.

[…]

SECRETS. Tesla knew that fashion drove interest in clean tech. […] While generic clean tech companies struggled to differentiate themselves, Tesla built a unique brand around the secret that clean tech was even more of a social phenomenon than an environmental imperative.

We should not under estimate the importance of solving the right problem. Tesla proved that the biggest idea behind clean tech was spot on, “the world really will need new sources of energy.” Generating energy, but also transporting it, and storing it ready for use.

 

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