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!

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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

 

Does Mali Prove the Need for an African Super State?

One thing is clear as the French hurriedly mobilized to save Mali's besieged capital last week, African current weak states lack capacity. Many being product of colonial power deals and the Berlin Conference lack the cohesive semblance of state or economic status to sustain cohesive nations that can defend territory or people. Africa is filled with separatist groups. Check this interactive map, and this in itself shows that Africans are not satisfied with the current configuration of Africa!

African General Takes Instruction from French Colonel..LOL

Think of it, France? The fact is many states in Africa are just mere post-colonial outposts of their ex-colonial masters. What the ex-colonialists have done was to cut off the expensive appendages of colonial administration and potential influx of immigrants a collapsing world structure will bring if that relationship were still in place and replaced it with a cheaper structure of weak states governed with military bases and commercial exploitation. The new task masters are Africa's diabolical elites- educated abroad, turned internal warlords or thieving political class that does the bidding of the Europeans! This classic mis-governance of the past 40 years have led to an even weaker state filled with intrigues that ensure uprising that a weaker state with no capacity to stand up to rebellion can beat back. This is the story of Mali and many other African nations.

Even the relatively stronger ones like Nigeria, Algeria, Egypt or South Africa can barely manage internal uprisings as evidenced by the recent history of these foursome. One of the former Super-Giants- Sudan, had to eventually crack into two under the weight of its own state of misnomer , and Darfur is still brewing within a much smaller Sudan. And the new South Sudan is spiraling fast into the pit of poverty, internal rivalries, corruption and reality of being a landlocked state that most of its older brethren are learning to cope with!

Fact is even the much vaunted African Powers can only brutishly deal with some form of internal rebellion, and can barely handle external aggression like Egypt (remember 1967 territory loss to Israel and uprising in the Arab Spring?), Algeria (we were just reminded of how brutish it can be with internal rebellions) and Nigeria (Oh the mighty crippled by Boko Harem and won't bat an eye lid as Cameroon took Bakassi).

Clearly, it is time to rethink African states. Most of them are failing. Somalia, CAR, the Sudans (40 years conflict),  both Congos, Angola- many of these states much larger than entire Western Europe have been in perpetual state of war for decades! Internal strife and insecurity is the order of the day in West, North, Central and Horn of Africa. Political tension is wrecking East Africa as it is increasingly drawn into the Horn of Africa conflict. Mali, Burkina Faso, Chad and Niger are hapless as their vast desert territories are overran by eager jihadists seeking their own Afghanistan base to fight their insane holy war.

Perhaps if Obama wants to do something transformative in his second term, he can take Africa more seriously and double cross the European- as a true son of the soil, that can make this new Africa morning become a truism. Sub-Sahara Africa's border can be redrawn into 5-7 more sustainable Federal Nations, at least anything below Algeria-Egypt-Morocco line. These states will be democratic  they will elect sensible leaders; they will practice true federalism that acknowledges their diversity and internal ethnic configurations; they will be larger and have access to sea; they will also be multi-lingual and work towards adopting new, generous identities beyond what the crazy 60s left them. They will have stronger and effective security apparatus, that can respond to the challenges of terrorism without borders.

A new Trans-African national order aided by a true son that emerged the most powerful man in the world. Even if he doesn't finish it, he can help start the conversation. Africa must Unite.

Let them eat cake! Happy New Year!

Here is Krugman saying it was a good deal, but still complaining. Of course, now we get defense cuts and across board spending cuts while getting higher taxes on wealthy and no cuts to Social Security, Medicare and Medicaid. Indeed, Dems also get unemployment taxes, payroll tax rightly expire and child credits are back in. The 250k limits to deductions, capital gains also stay in place.  I think this is a very good deal, even he now agrees- depending on what happens in March!

The only part I wish the Dems got right was Estate tax. At least they could have insisted on fixing the carried interest loophole for that. Some say they needed to leave that and capping deductions which could raise another $500bn on the table, and eliminating corporate welfare for March discussions on sequesterization and debt ceiling debate.

However, the more I read blogs on the left - I think folks forget get confused between the sequesterization and the fiscal cliff (sequesterization + tax cut expiry) . This tax deal had nothing to do with the first debt ceiling debate where Dems basically ate shit to avoid hostage taking agreeing to 1.2 trillion in advance cuts (mostly in freezes in program growth and savings from Afghan) plus 1.2 trillion in painful sequesterization in return for 2.4 trillion raise. It was all 1.2 trillion in spending cuts then, now this is 600 billion in tax raises which they get in return with little or no spending cuts. The game is now 1-1 or may be 1-2 if you assume Liberals cried for Afghan war ending.

The next game is when the 1.2 trillion in sequesterization which are the real spending cuts in both discretionary and defense spending will kick in about March (about time for Debt Limit raise again). Today GOP is claiming they don't like those sequesterization, and the defense industries will die if it happens. There is no way Dems will just let those pain sequesterization go away in March without obtaining revenue in return or save their own programs. So there will have to be an even negotiation on what gives of the 1.2 trillion just happen and everyone cries. 

So either there is a mutual disarmament (which basically means everyone agrees deficit don't matter), or adults come to the table to negotiate evenly in March, or there is mutual assured destruction (the 1.2 trillion cuts over 10 years hitting both GOP and Dem programs evenly). I sense you will get A or C. There are no adults left anymore. In fact my bets is on C, and hey who cares? Everyone keeps their tax cuts, and government cuts defense and some welfare programs. Medicare and Social Security stays intact, the selfish baby boomers win. LOL

And yes, the right strategy for Obama is to separate the debt ceiling from deficit talks. Debt ceiling should be routine and he must insist so; thank goodness there is no Triple A credit to protect again. I like the tactic of reminding the country they racked up the debt, and stop acting like kids. Let them eat cake! 

Happy New Year Folks!