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

Chapter 22 Green Energy and Tesla (2)
Every entrepreneur should plan to be a stickler for their particular market.At the very beginning, ask yourself: What will the world be like in 10 or 20 years?How can my company adapt to this?

Few cleantech companies had good answers, and they all ended up similar. Months before filing for bankruptcy in 2011, Evergreen Solar explained its decision to close a U.S. plant:

Chinese solar manufacturers have received strong government and financial support... and while our product costs... are lower than planned and lower than most Western manufacturers, they are still higher than our Chinese low-cost competitors.

But it wasn't until 2012 that the voices of "blaming China" became widespread.U.S. Department of Energy-backed Abound Solar said of its bankruptcy filing that "aggressive pricing practices for solar panels in China make it difficult for early-stage startups ... to grow in existing market conditions."When solar panel maker Energy Conversion Devices went bankrupt in 2012, it not only blamed China for its launch, but also filed lawsuits against 3 major Chinese solar manufacturers for $9.5 million - later that same year , Solyndra's bankruptcy administrator sued the three companies for attempted monopoly, collusion and predatory pricing.But is the competition from Chinese manufacturers really unpredictable?Entrepreneurs of cleantech companies should first address the enduring problem and ask themselves: How can we stop China from taking our business?If there is no answer, then the ending can be imagined.

In addition to not anticipating competitors producing the same green products, cleantech companies have been misguided in their assumptions about the energy market as a whole.The industry was founded on the extinction of fossil fuels and the immaturity of fracking (the method of obtaining natural gas). In 2000, only 1.7 percent of natural gas in the United States came from fracking shale gas. Five years later, that figure had climbed to 5%.However, no one in cleantech companies is taking this trend seriously: renewable energy is the only way forward, and fossil fuels are unlikely to be cheaper or cleaner in the future.This is not the case.By 4.1, shale gas accounted for 2013 percent of U.S. natural gas, and gas prices fell by more than 34 percent in 2008, destroying business models for most renewables.Fracking may not be a lasting energy solution either, but it could be enough to devastate cleantech companies that didn't see it coming.

secret question
All cleantech companies use the conventional truth that "we need a clean world" to justify their worth.They delude themselves into thinking that society's overwhelming demand for alternative energy means huge business opportunities for various cleantech companies.Consider how this optimistic view of solar power prevailed before 2006.That year, President Bush predicted that "solar roofs will enable American homes to generate their own electricity."Investor and cleantech entrepreneur Bill Gross claims that "solar energy has limitless potential".Suvi Sharma, then-CEO of solar manufacturer Solaria, admitted that while investing in the solar industry "has a gold rush, and there is gold — or sunshine," the rush to jump on the bandwagon has left many solar panel companies -- Q -Cells, Evergreen Solar, Spectra Watt, and Gross' own Energy Innovations -- quickly went from bright starts to bankruptcy (to name just a few).Every loser uses generally accepted concepts to describe his bright future.But great businesses are built on secrets, the unique reason for their success that no one else knows about.

The Myth of Social Entrepreneurship

Cleantech companies don't just want to pursue success as most businesses define it.The clean tech bubble is also the biggest fad in the history of “social entrepreneurship,” and its biggest failure.This good-doing business approach stems from the idea that for-profit corporations and nonprofits are polar opposites: corporations have a lot of influence but are governed by the profit motive; weak players.Philanthropy entrepreneurship aims to combine the best of both worlds and to “promote success by doing good things”, but it usually fails to do both and ends in failure.

Confusing social and economic goals does not serve any purpose.And the ambiguity of the word "society" is even more problematic: if something is "good as far as society is concerned," is it good for society, or does society think it is good?Whatever is good enough to win everyone's applause must be a very traditional consensus, such as the general view on green energy.

What stands in the way of progress is not the difference between the greed of corporations and the goodness of nonprofits, but doing the same thing.Businesses tend to emulate each other, and nonprofits all prioritize the same things.Cleantech companies have revealed the result: hundreds of identical products produced under the same overly broad goal.

Doing something different is what really benefits society and is how companies make money by monopolizing new markets.The best projects are probably the ones that people ignore, or the ones that don't get a lot of hype; the best problems are the ones that no one tries to solve.

How does Tesla stand out?

Tesla is one of a handful of cleantech companies built over the past decade that are still thriving today.The company has navigated the cleantech social craze better than any other company, and its success is instructive because it has successfully solved the following seven problems:

technology.Tesla's technology is so advanced that other car companies rely on it: Daimler uses Tesla's battery packs, Mercedes uses Tesla's powertrains, and Toyota uses Tesla's engines.GM even formed a task force to track Tesla's movements.But Tesla's great technological achievement is not a single part or component, but the ability to fuse many components into a good product.The Tesla Model S sedan, elegantly designed from nose to tail, is more than just a combination of all the parts: Consumer Reports has the highest rating ever, Motor Trend and Global Car Talk magazine called it the 2013 Car of the Year.

opportunity. In 2009, it was easy to speculate that the government would continue to support cleantech companies based on the environment: "Green jobs" are a government priority, federal funds have long been earmarked for funding, and Congress seems to be passing bills on carbon emissions caps and carbon trading .While others thought huge subsidies would keep pouring in, Tesla CEO Elon Musk saw a once-in-a-lifetime opportunity. In January 2010, a year and a half before Solyndra blew up during the Obama administration and politicized the subsidy issue, Tesla successfully secured a $1 million loan from the U.S. Department of Energy.Nearly $4.65 million in funding was unthinkable in mid-2000, and it's unthinkable even now, and Tesla seized on that fleeting moment.

monopoly.Tesla started out by dominating a small submarket, the high-end electric sports car market.Since the first electric roadster (Roadster) rolled off the assembly line in 2008, Tesla's sales volume was only 3000 units, but at $10.9 per unit, it is not a small number.Starting small allowed Tesla to do the R&D necessary to build a slightly less expensive Model S, and Tesla still owns the luxury electric sedan market today. In 2013, Tesla's sedan sales exceeded 2 units, and it is now in a critical period of expanding the market.

team.The CEO of Tesla is a great engineer and a great salesman, so it should come as no surprise that the team he built is good at both.Elon described his employees this way: "When you get into Tesla, it's like you choose to be in Special Forces. It's nice to be in the military, but at Tesla, you choose to accept the challenge."

Sale.Most companies underestimate sales, but Tesla takes it seriously, it has its own complete sales chain.Other car companies rely on independent dealers, just as Ford and Hyundai make cars but rely on others to sell them.Tesla, on the other hand, sells and repairs its own cars in its own stores.This approach makes Tesla more expensive upfront than traditional dealerships, but it controls the customer experience, strengthens the Tesla brand, and saves the company money in the long run.

lasting.Tesla has the advantage of being one step ahead and growing faster than other companies -- which means its lead will expand in the years to come.Becoming someone else's coveted brand is an all-too-clear sign that Tesla has broken through: Buying a car is one of the biggest purchasing decisions people make in their lives, so winning customers' trust is hard work.Unlike other car companies, Tesla's founders are still in charge, so the company's pace of growth won't slow down anytime soon.

secret.Tesla understands that fads drive attention in cleantech.Rich people especially want to appear "green," even if that means driving a boxy Prius or a hulking Honda Accord.It's cool to think that an eco-conscious movie star owns a car like this.So Tesla decided to make cars that make their owners look cool, and Leonardo DiCaprio even traded his Prius for an expensive (and seemingly expensive) Tesla Roadster.While normal cleantech companies compete around differentiation, Tesla built its unique brand around the secret that cleantech is less of an environmental necessity than a social phenomenon.

Energy 2.0
Tesla's success proves that there is nothing wrong with the development of clean technology.The big idea behind it is also true: the world does need new energy sources.Energy is a major resource because it's about how we live, how we build our homes, and how we get what we need to live comfortably.People in most countries dream of living as comfortably as Americans do today, but unless new technologies are developed, globalization will create increasingly daunting energy challenges.There is not enough energy in the world for humans to replicate old technologies, or redistribute them, to thrive.

Clean technologies offer a way for people to be optimistic about the future of energy.Bubbles arise when wildly optimistic investors put their money into cleantech companies that lack a unique business plan based on the general perception of green energy.Chart the market capitalization of renewable energy companies in the first decade of the 21st century, and compare it with the ups and downs of the NASDAQ during the dot-com bubble 10 years ago, and you can see the same trend.

In the 20s, everyone thought that the Internet would flourish.But too many dot-coms hold this same view without being unique.Entrepreneurs can only benefit from macro insights if they come up with their plans at the micro level.Cleantech companies face the same conundrum: No matter how scarce energy is, only the companies that come up with the best solution to a given problem will be profitable.There is no industry so important that simply participating in it creates a great business.

The dot-com tech bubble was bigger than the clean bubble, and the damage caused when it burst was more harrowing.But the dream of the '90s turned out to be true, and skeptics that the Web would revolutionize publishing, retail, and everyday life seemed prescient in 2001 and look foolish today. Just as Web 2.0 startups arose on the wreckage of dot-coms, can energy startups succeed in building after the collapse of cleantech companies?The general need for resource solutions remains, but a worthy company must start by finding a niche and owning a small market. Facebook started out as a service on one college campus before rolling it out to other schools, and then the world.Finding small markets for energy solutions isn't easy -- you could be working to change a remote island from diesel fuel, or building a modular reactor for rapid deployment at a military installation in a hostile area.Paradoxically, the challenge for entrepreneurs looking to build an Energy 2.0 company is first and foremost to find a small market.

(End of this chapter)