Shyam's Slide Share Presentations


This article/post is from a third party website. The views expressed are that of the author. We at Capacity Building & Development may not necessarily subscribe to it completely. The relevance & applicability of the content is limited to certain geographic zones.It is not universal.


Sunday, June 30, 2013

Don't Draw the Wrong Lessons from Better Place's Bust 06-30

Don't Draw the Wrong Lessons from Better Place's Bust

By Ron Adner – 

The failure last month of green-tech start-up Better Place, which promised to free drivers and nations from oil dependence and revolutionize transportation, has generated both attention and derision.
But a blanket dismissal of its effort is a mistake. For entrepreneurs, investors, and policy makers, there is plenty to learn from both the strategy and the outcome.

There was good reason for the attention and funding (over $800 million) that Better Place attracted. While every other player in the electric car space was focused on innovating individual pieces — vehicles, batteries, charge spots — Better Place's strategy was unique in innovating the larger puzzle to deliver an affordable drive-anywhere, anytime solution. Its approach was the first to align the key actors in the ecosystem in a way that addressed the critical shortcomings — range, resale value, grid capacity — that undermine the electric car as a mass-market proposition. (Note to Tesla owners: you are not the mass market).

Better Place's most visible and best-publicized innovation was its switchable battery technology, a novel way to overcome the short-range limits and long recharge times dictated by existing battery technology. Skeptics initially doubted the engineering feasibility of fast battery switches, the ability to roll out infrastructure on a national basis, and the willingness of carmakers to come on board. 

Renault came on board as the first (but ultimately only) car manufacturing partner, and switch stations deployed along major traffic routes successfully offered an almost-instant range extension that held the promise of promoting the electric car from a secondary short-haul vehicle to a primary, and possibly sole, family car.

Less touted but more important than the physical separation of the battery from the car was Better Place's innovation of separating ownership of the battery ownership and the car. EV advocates are quick to note that technology improvements in batteries will one day eliminate the range problem. What they often miss, however, is that these very same improvement will destroy the resale value of used electric cars with older batteries. Since resale value ranks high for mass market buyers, this has all the makings of a deal breaker.

Better Place's solution eliminated this risk. Instead of buying batteries, consumers would buy subscriptions for miles (just as mobile-phone operators sell subscriptions to minutes). Better Place would then use these multi-year contracts to finance its infrastructure investments and battery depreciation.

Finally, adding a service dimension to what had been a pure product sale allowed Better Place to address the final roadblock to mass adoption of electric cars: the generation and distribution of electricity itself. If just 5% of drivers in Los Angeles County were to attempt to charge their batteries at the same time, they would threaten to bring down the power grid, adding a load equivalent to two midsized power plants in an already strained system. Better Place's model, which had the firm intermediating in real time between utilities and drivers, allowed it to control the battery-charging load that would be placed on the system at any given moment.

What Went Wrong?

The shallow answer is not enough customers. Better Place started selling cars in Israel and Denmark in late 2012. By May 2013 it had sold fewer than 3,000 vehicles. A small number, but these are also small markets. In relative market terms, the results looked less than dismal: in May, Better Place sales accounted for 1% of cars sold in Israel, and its single available model, the Renault Fluence ZE, was outselling Toyota's category leading Prius. Moreover, Better Place's customer-satisfaction ratings were off the charts.

The deeper answer is not enough time to get enough customers. The clock, which started ticking in 2007, ran out. Which begs the question of why it took so long to get to market. Part of this time was spent, wisely, in perfecting the technologies (battery switch, network management, in-car intelligence) that would make the system run. Customer satisfaction is the testament to the success of the technology. 

Part of the time was spent in navigating the institutional hurdles that inevitably accompany every attempt at doing something new (zoning rules, insurance). But too much of this time was lost to wasteful efforts to establish toeholds and run pilots in a slew of new geographies (e.g., Australia, the Netherlands, California, Hawaii, Japan, China and Canada) before Better Place's two core markets, Israel and Denmark, had been secured.

When Better Place was founded, its strategy called for initial rollouts in Israel and Denmark. These were inspired choices to prove the viability of its strategy: They are small countries where gasoline is exceptionally expensive and purchase taxes on gasoline-powered cars are very high. They are superior to everyone else's target of California, where the high-end niche of rich environmentalists is attractive but cheap gasoline, vast driving distances, and an incredibly competitive car market undermine the appeal of electric cars for mainstream buyers.

Despite their relatively small populations, the economics in Israel and Denmark were such that even modest market success in just these two markets would have yielded the attractive financial returns critical for investors. Just as importantly, they would have yielded the meaningful sales volumes critical for retaining and attracting partners, most importantly automakers.

But in my conversations with Better Place executives over the course of the past three years, it was clear that the emphasis was shifting from "an idea this novel needs to demonstrate unquestionable economic viability," to "an idea this good needs to be deployed across the world as fast as possible." These were not opposing goals, but prioritizing the latter over the former would have profound implications.

As Better Place pursued new geographies it used up its limited resources: money, management attention, and, most precious of all, the patience of its partners, especially Renault. In early May, Renault announced that it was scaling back its commitment to switchable battery cars and that the long-awaited second model, the Zoe compact that Better Place had counted on to complement the mid-sized Fluence, would not be coming after all. This vote of no confidence would make it infinitely harder for Better Place to line up new car manufacturers, without which it was dead in the water.

In February 2013, after a series of mismanaged leadership transitions including the firing of founder and CEO Shai Agassi, Better Place finally reversed course. It announced its exit from all non-core markets to focus exclusively on Israel and Denmark. Within months of the decision it had captured 1% market share in Israel, but by then it was too late. It declared bankruptcy on May 26.

The tragedy is Better Place delivered on the most novel aspects of its business model, succeeding in both technology development and aligning the interests of the critical actors in the electric-car ecosystem. Its failure lies in its own discipline and execution. Entrepreneurs, investors, and policymakers should distinguish between the drivers of the failure and the elements that carry the seeds of (someone else's) future success.