Every startup needs to focus on one thing, its core competency. When it gets bigger it can expand its horizons both in terms of vertical products or additional competencies, but only once it has firmly planted a stake in the ground.
In Better Place’s case they tried to develop several business segments at once, without actually developing the core competency they needed.
They were lauded for their vision, built a network of battery switching stations and sophisticated software, and created an excellent customer service team. What they didn’t do was focus on the one thing that was core to their business. Instead they tried to control all aspects of their offering.
Very few companies can successfully pull that off, and they are more an anomaly than the rule. Apple is a good example of the exception: they directly control design, software, marketing, sales, branding, and hold the reins very tightly on supply chain management and production. But not even Apple is able to control 100% of the user experience: to wit, the extensive third-party app collections for their handheld products, and, to a lesser extent, their computers.
(Which actually created a competitive barrier for Apple, although the company at first refused to allow third party apps.)
Steve Jobs, upon retaking the helm of the company in 1997, reduced the company’s product line to 10 from 50 (from an all-time high of 350), focusing only on the key products that constituted the company’s core competency and directly addressed the needs of the company’s natural customer base.
In contrast Better Place was all over the place by trying to manage the entire user experience, but in actuality controlling very little of it. So what were they – a car company? A leasing company? A technology company?
Better Place created their own predicament by being a car company that didn’t make cars. They had to find some. Only one manufacturer agreed to build a car for them – Renault – and only once Renault extracted a financial commitment from Better Place to buy 100,000 units from them (I have also seen this reported as 20,000). Tellingly, upon announcement of Better Place’s bankruptcy, Renault announced that “(t)he investment in the partnership hasn’t been significant” in the project.
By all (user) accounts the single Renault model is a great car. But Better Place left its entire business dependent on the whims of one supplier. The single supplier also became Better Place’s potential single point of failure (absolute dependency), something that every engineer – and good entrepreneur – tries to avoid.
Oops number 5: building a business on top of someone else’s platform and goodwill (see numerous examples of companies who tried and died at Facebook’s and Twitter’s upside-down thumb). Wanting to control the entire end-to-end chain? That’s just arrogant and greedy.
The car also had another critical performance issue: the battery. The Fluence’s battery was essentially good enough for a few around-town jaunts, a typical suburban-urban commute, but that’s not how the typical customer drives. Even if they had, when they explored the “edge cases”, e.g. a weekend drive out to the countryside, which is not such an extreme edge case, they could reasonably only make a 50km trip, needing the other 50km to get back to their plug-in chargers.
Quite simply this was a technology fail, or more of a management fail, by launching a company on a vision for which the technology wasn’t available. Other companies in this situation merely invent the technology they need, whether it takes them 10 months or 10 years; this is a reasonable gamble since their competition will be in the same situation.
The right play for Better Place would have been either to engineer their own cars, à la Tesla, or focus on building better battery technology with 2x or 5x performance (10x performance is probably a real moonshot). From there they could have controlled the game with car manufacturers and consumers alike. Instead Better Place was forced to operate from a position of weakness and not strength.
Oops number 6: not having the power they needed, in several senses of the word
You Mean You Don’t Have $810 Million?
Ok, so you’re a small startup with maybe only a few million in the bank. Or a few thousand. It doesn’t matter. There are a lot of great lessons to be learned here. In brief:
- Know who the customer is. Give them a reason to buy (maybe I’ll get around to writing about this someday), creating demand
- Secure key customers, not just any customer
- Don’t invent new business models, learn the ones that are out there and that your customers know, and pick the best one
- Make it simple for customers to own your product
- Understand the difference between marketing and PR
- Don’t base your entire business on someone else’s proprietary platform*
- Negotiate from a position of strength, not weakness**
- Startups are a risky proposition. Mitigate business risks.
- Be able to deliver on your vision
Above all, stay humble. It’s good for business.
*Yes, iP*** apps would be nowhere without iOS, thousands of shrinkwrap programs would have never happened without Windows, a million websites would have never launched without WordPress. However – how are all those Token Ring networking businesses doing today?
**Easy to say, hard to do