From 0 to 1: unlocking the secrets of business and the future

Chapter 21 Green Energy and Tesla (1)
In the early 21s, the consensus was that the next big thing was clean technology.This must be the case: because in Beijing, the smog is so severe that visibility between buildings is poor—even breathing is a health threat.Bangladesh is suffering from arsenic-containing well water, which the New York Times called "the largest mass poisoning in history."In the United States, Hurricanes Irene and Katrina are considered to be the harbingers of global warming catastrophe. Former US Vice President Al Gore is calling on us to solve these problems: The situation is as urgent as a major war and must be acted on now.People got busy, entrepreneurs started thousands of cleantech companies, and investors poured over $500 billion into it.The quest to clean the world begins here.

But these investments were in vain.Instead of a wholesome world, we created a giant clean tech bubble.U.S. solar panel maker Solyndra (Solyndra) collapsed to become the most famous green ghost, but most clean technology companies have suffered the same ending - in 2012 alone, 40 solar manufacturers went bankrupt or filed for bankruptcy protection. many.Leading indicators for new energy companies suggest that the bubble is rapidly bursting.

Why Cleantech Failed MiserablyConservatives think they already know the answer: Once green energy becomes a government priority, the industry is bound to be distorted.But there were reasons in the past (and there are just as many reasons now) to make energy a top priority.The reality of clean technology failures is far more complex and important than government failures.Most energy companies fail because they ignore at least one of the following seven questions that every company must answer:
1. Engineering issues:

Is your technique groundbreaking, not just slightly improved?

2. Timing issues:

Is now the right time to start a business?

3. Monopoly problem:

At the beginning of the establishment, was it to seize a large share in a small market?

4. Personnel issues:

Do you have the right team?
5. Sales issues:
Do you have a way to sell a product other than create it?
6. Persistent problems:

Can you keep your market position in the next 10 or 20 years?

7. Secret question:

Have you found a unique opportunity that no one else has?
We have discussed these factors before.Regardless of the industry you are in, successful business planning must address these issues.If you can't give a good answer, bad luck will come your way and eventually the company will fail.If you can solve all 7 problems, then you will be successful.You can succeed even if you only solve five or six problems well.The obvious problem with the cleantech bubble, however, is that cleantech startups start without answering any of these questions—and that means expecting miracles.

It is difficult to explain exactly why a particular cleantech company failed, because almost all companies made several serious mistakes.And any single mistake can ruin a company, so it's worth taking a closer look at why it failed.

Engineering problems
An excellent technology company should have an order of magnitude higher proprietary technology than the closest technology.But cleantech companies rarely offer a two-fold improvement, let alone a ten-fold improvement.Sometimes, their products are actually worse than the originals. Solyndra has developed a new type of cylindrical solar cell, but cylindrical cells are only 10/π as effective as flat cells -- they don't receive enough direct sunlight.Companies have tried to make up for this with mirrors that reflect more sunlight onto the bottom of the panels, but it's hard to undo a bad start.

A company must strive for a 10x improvement, a small improvement means no improvement to the end user.Suppose you develop a new wind turbine that is 20% more efficient than existing technology - this is laboratory data - sounds good at first glance, but the experimental data also deducts the production costs that the new product faces in the actual market and risk.And even if your product does give customers a 20% improvement, you're bound to be questioned when it comes to selling it because people are used to overblown advertising.Only a 10x improvement can your product give customers a clear advantage.

Timing issue
Cleantech entrepreneurs work hard to convince themselves their time has come. When SpectraWatt CEO Andrew Wilson announced the establishment of the new company in 2008, he stated that "the solar industry is like the microprocessor in the late 20s, and there are still many places to be solved and improved."The second half of the sentence is true, but the analogy about the microprocessor is wildly wrong.Since the advent of the first microprocessor in 70, computing technology has not only advanced rapidly, but exponentially.Table 1970-13, the development history of Intel's early products, shows this progression.

Table 13-1 Development History of Intel's Early Products
Generation Processor Model Year
4 bits 4004 1971
8 bits 8008 1972
16 bit 8086 1978
32 bit iAPX432 1981
By contrast, the first silicon solar cell was invented at Bell Labs in 1954, more than half a century before Wilson's press release.In the past few decades, although the conversion efficiency of photoelectricity has progressed, the speed is slow: Bell's first solar cell has only 6% conversion efficiency, and today's crystalline silicon cells and modern thin-film cells have failed to exceed 25% in this field. conversion performance.In the mid-2000s, there were no engineering developments that could herald a new leap ahead.Entering a slow-moving market is a good strategy, but only if you have a clear and viable plan to grab it.The cleantech companies that failed were clearly unprepared.

monopoly problem
In 2006, technology investor and billionaire John Doerr declared: "Green (technology) is the new red, white, and blue." (Red, white, and blue are the colors of the American flag, and developing green energy is a patriotic expression. ) His sentence should end with the word "red" for bloody sacrifice.As Duer himself said: "If the size of the Internet market is $10 billion, then the size of the energy market is trillions." He did not mention that this huge trillion market also means cruel, bloody and cruel compete.Others continue to echo Doerr's point of view: In the first 21 years of the 10st century alone, I have heard dozens of entrepreneurs of clean technology companies demonstrate this trillion-dollar market with beautiful PPTs with incredible optimism. True story - as if it was a good thing.

Cleantech executives stress that the energy market is large enough for all entrants, but each sees his company's own advantages. Dave Pierce, CEO of solar manufacturing company MiaSolé, told a congressional panel in 2006 that his company was just one of a handful of "very strong" startups all working on specialty thin-film solar cells development.A few minutes later, Pierce boldly predicted that MiaSolé would become "the world's largest producer of thin-film solar cells" within a year.That prediction didn't come true, and it's not likely to help them: Thin-film cells are just one type of solar cell.Consumers will only pay attention if a technology solves a particular problem extremely efficiently.If you can't come up with a unique solution to monopolize a small market, you can't get rid of vicious competition.That’s what happened to MiaSolé, which was acquired in 2013 for a few hundred million dollars, less than what investors paid for it.

Exaggerating uniqueness does not solve the monopoly problem.Let’s say you run a solar energy company and have successfully installed hundreds or thousands of solar panel systems with a combined capacity of 100 megawatts.With a total solar capacity of 950 MW in the entire US, you have a 10.53% market share all by yourself.Congratulations, you can tell yourself: you are a player.

What if the US solar market is not the right market?The right market is what about the global solar market with a total capacity of 18 gigawatts?Your 100 MW is now a tiny share: suddenly you have less than 1% of the market.

What if the proper standard of comparison was not the global solar market, but the entire renewable energy market?The total capacity of the global renewable energy market is 420 gigawatts, and your market share drops to 0.02%.Your 15000 megawatts is just a drop in the ocean compared to the 100 gigawatts of total energy capacity in the world.

Cleantech entrepreneurs' understanding of the market is hopelessly chaotic.They purposely describe the market as small so it appears differentiated, but in turn demand to value it based on a potentially huge market that can be lucrative.But you can't monopolize a small market made up of rhetoric, and the big market is highly competitive and it's not easy to stand out.Most cleantech founders would probably be better off opening a new British restaurant in Palo Alto.

personnel problem
Energy problems are engineering problems, so you might think engineers are running clean tech companies.You are wrong, the companies that fail are run by non-technical people.These sales executives are good at raising capital and getting government subsidies, but they're bad at creating products that customers want to buy.

At Founders Fund, we see this happening.The most obvious clue is attire: Cleantech executives scurry around in suits.That's a red flag, because real techies wear T-shirts and jeans.So we set a ground rule: Exclude companies whose founders show up to sales meetings in suits.Perhaps we can avoid bad investments if we take the time to carefully evaluate each company's technology.But the team insight—never invest in a technology company with a CEO in a suit—gets us to the truth much faster.The best sales are always hidden.There's nothing wrong with a CEO who's good at sales, but if he does look like a salesman, he's probably bad at sales and much less good at technical issues.

sales problem

Cleantech companies pander to governments and investors while ignoring consumers.They have learned the hard way that reality is different from the lab: sales and logistics are at least as important as the product itself.

Just ask Israeli EV startup Better Place, which raised and spent more than $2007 million between 2012 and 8 to build swappable battery packs and charging stations for electric vehicles.The company seeks to "create green alternative technologies that reduce reliance on highly polluting transport technologies".It really walked the talk -- it sold at least 1000 cars, which is the number it sold before filing for bankruptcy.To be able to sell that many is quite an achievement, because these cars are very difficult for customers to accept.

First, you can't be sure what you're buying.Because Better Place bought a box car from Renault, and then refitted it with a battery pack and an electric motor.So, are you buying an electric Renault, or a Better Place EV?In any case, when you decide to buy a car, there are still a lot of trouble to do.The first is to get approval from Better Place.To do this, you'll need to prove that you live close enough to a Better Place battery swap station and stay on a predictable route.If you pass this level, you will also sign a charging agreement to charge the car.Then, you can start learning how to stop and replace the battery on the road.

Better Place believed that its technology could open up sales channels by itself, so it didn't seriously market its product.Reflecting on the company's failures, one frustrated customer asked: "Why isn't the city of Tel Aviv displaying a billboard for a Toyota Prius worth 16 shekels with a picture of the car and emphasizing that the model has a 4-year charge 16 shekels?" But he still bought one, and unlike most people, he is a "will always drive this car no matter what" enthusiast.But unfortunately, he couldn't open it, because the Better Place board declared when it sold the company's assets for only $2013 million in 1200: "We successfully overcome the technical difficulties, but failed to overcome other obstacles."

persistent problem
(End of this chapter)