Tuesday, May 28, 2013

7 Market Entry Pointers for Starts-Ups : Why Better Place Failed & Tesla Succeeded

Last week, the inevitable happened- the famed Israeli company- Better Place, often touted as a symbol of the ingenuity and resilience of the nation (read, Start-Up Nation) failed. Touted at its beginning as a home grown solution to hydrocarbon fueled economy, after many years of support and nearly a billion dollars invested it will be closing shop and liquidating. This is a blow in many respect to the world of green technology and above all futuristic automobiles- or not?. In many ways however, it is also a big lessons learned- to the next big dreamer out there. Better Place cellphone business model to car making, was to sell specially co-branded vehicles that came with batteries that is swapped out by consumers at charge stations on depletion just like refueling. The idea? Pure electric vehicle without the distance/refueling fright! And cheaper, since consumers don't own the batteries outright!
Dreams as big as remaking two gigantic industries- automobile and petroleum - by itself are big; but they become dumb when braggadacio is not well thought out and the innovator fails to understand first the status quo it seeks to supplant - especially its consumer (or "would-be" consumer). The story of Better Place stand anachronistically diametric to that of Tesla Motors, started by the Billionaire African - Mr. Elon Musk and who seem to have pursued this the right way and are now in the black for the first time ever- selling cars and driver trains! I will contrast both companies in the next few, and identify few reasons why some start-ups succeed while others fail even with $850 million!

1. Know your stuff: Anyone that knows the journey of Elon Musk with electric vehicles will realize he was never a Shai Agassi driven by pure idealistic underpinnings in a summer camp for future entrepreneurs. For one, Elon understood the art of the impossible when it comes to breaking boundaries and building machines. Granted he made his money from software- founding Paypal; formerly x.com, just like Agassi was a former SAP Executive; but he also built Space X- the first private sector answer to NASA. Imagine that, the man has remade the way we buy stuff online, how we go to space and now how we drive. He understood machines and disruption. Reading the book Start-Up Nation, it was clear Agassi didn't even understand car making! He just understood how hydrocarbon hurt the world (environmentally, geopolotically), and was convinced electric vehicles were the future; well, so do I. But I shouldn't be building cars verily! So coding is not enough to start an online ticketing platform; do you even know the event creation and event management world?
2. Patience Is a Virtue: After knowing your stuff, patience and how that impacts your strategy (fundraising, market entry or otherwise) is particularly germane to the success of a start-up. Victories don't come over night; they come in bits and pieces. While Better Place's Agassi was all about landing that big government support, buzz and investor dollar, Mr. Musk labored away to sell 120 pieces of the first version of Tesla Roadster to the high end. He also knew the idea will need some mini-testing and pilot. He wasn't rushing to expand; from 120 cars, it is now selling 4,800 and power trains to its auto maker partners. Hey, it couldn't land BMW without earning some respect and credibility as a man that knows his stuff! I always tell our entrepreneurs at Wennovation, they will go from prototype, to working prototype, to commercial pilot to market ready products; you can shorten the period between each stage but that natural evolution cannot be skipped; do so, at your own peril!
3. Right Capital, Right Sense: He knew this was a long game; as a result he didn't go about raising investor money to back just an idea/ideal; he first used his own money and sweat equity to prove the idea! Entrepreneurs? Learn anything? Don't come to the pitch without a commercial pilot; investment raised to incubate an idea is a dangerous one because it comes with lots of risk. Ask Better Place. Of course, Elan Musk raised the right capital when it took government grant over investor money prior to its latest IPO and payback. Taxpayers were backers of Tesla, we're just never gonna get the upside!  Investor money is not for learning (see 1 above) or experimenting! If need be when still pre-commercial pilot: go for grant money, FFF Network, small angels- those folks will understand when you lose their money experimenting. Even if you get a large VC, tread with caution.
4. Under Promise, Over Deliver: If anything, this is the secret of Elon Musk. Always working away unapologetically away from the kleiglights, he was the master of the UPOD strategy. His products (at Paypal, Tesla or SpaceX) were nearly always unveiled once the hard work of R&D, fixing the bugs and knowing the market was done. When he releases a pre-market product like early versions of Telsa Roadster- you found them in New Orleans Jackson square being used by the NO Police, and just stationed in the sunlight to the admiration of passersby. He didn't take them to the race course! Smart guy. Better Place on the other hand, could never wait to deploy to Denmark, Los Angeles and these other places even when still figuring out how to swap batteries and parotting to the media with the help of President Shimon Peres. And by the way, Agassi promised 52 minutes  to swap batteries when Better Place started; he was able to deliver 6 minutes at best according to many users! Entrepreneurs can learn that friendly media is not always friendly; talk less, deliver more!
5. Diversify the Revenue Stream: Especially if you're planning to disrupt two giant industries! Heck, you have targets on your back, so you better be making money in more ways than one. Just imagine what the $850 million Better Place raised can be used for. It can cure malaria, fix schools, develop an oil field whose revenue can be used to fund climate change research (lol), and heck, fund a million other start-ups like a crap shot with better chances of success! In restrospect of course. Tesla makes money not just from selling cars, but also selling power trains. Agassi's singular revenue plan, the direct to consumer battery plans were his ultimate undoing. Only 800 or so customers, when he promised 100,000 - four years later. Lessons to would be entrepreneurs out there- make money from everything. Thou shall not come to me with a single revenue stream plan!
6. Understand the Status Quo: Lesson number 6 is as connected to Number 1 as jam is to bread. Better Place ultimate undoing was that it ignored its number one barrier to business: the consumer. Lets for a minute ignore the refuelling fright consumers are likely to experience with this new technology, do you seriously think an Audi addicted buyer will buy a Renault simply to go all electric? I doubt it. Car buying is about brands and brand loyalty. Tesla got it; they started from the high end. They curated the customer. They grew that loyal base and can backward integrate in the future by creating a lower end line from a high end maker just like BMW and Mercedes Benz. They did not delude themselves to thinking consumers will buy high performance vehicle from just any partner, so they went about learning how to build vehicles themselves. This was a fundamental flaw in Better Place's business model. It may have been better off in fact partnering with a company like Tesla to design that battery swap technology, and offering the station like a car wash. Now that is a better use of $800 million! Lessons for Entrepreneurs- know your customers!
7. Right Market Entry Strategies: The combination of one through six can be summarized in a solid market entry strategy. Market Entry Strategy encompasses how you plan your product development, fundraising to support it, customer group(s) to target out of the door, business vertical to focus on and even how you manage your PR Coverage (UPOD?) and Branding Strategy. Start-Ups are fond of screwing this up, hence 8 out of 10 are bound to fail. Tesla is not resting on its oars; it is going about changing the way consumers buy cars. Direct online, bypassing the middle man! This again is necessary for it as an upstart to survive. Just imagine, an automaker without inventory and a car that is always customized to your taste after you test drive in a local display center! This is Just In Time turned on its head with Afro-American; I mean South African bravado!

Michael Oluwagbemi is Co-Founder of Lagos Based Start-Up Incubator- the Wennovation Hub


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