Many cleantech companies failed because they did not consider the seven critical questions every business must answer.
Between 2005 and 2009, an investment bubble was at its height in Silicon Valley. The underlying industry was clean technology, or cleantech, which encompasses products and services that promote things like the sustainable use of natural resources and the use of renewable energy sources.
Thousands of companies had been started in the industry, financed by over $50 billion in investments. Unfortunately, since then many companies have failed, taking the investors’ money with them.
So why did they fail? Because they simply didn’t analyze and understand the market opportunity.
To avoid this, every company should ask seven crucial questions about the market and itself:
1. The Engineering question: Can you create a true technological breakthrough? Cleantech companies didn’t understand that to prevail over established energy companies, they needed technology ten times better than theirs, not just slightly better.
2. The Timing question: Is this the right time to start your business? Some cleantech companies believed the industry was on the cusp of a period of rapid, exponential advances in, for example, solar-panel technology, and that this would allow them to flourish. But in fact clean technology has advanced slowly and linearly.
3. The Monopoly question: Will you start off with a large share of a small market? Cleantech companies were part of the trillion-dollar energy industry, which meant dog-eat-dog competition for even small shares of the market. A smaller market where you have a good chance of building a monopoly fast is a much better bet.
4. The People question: Can your team pursue this opportunity? Cleantech companies were often run by non-technical executives who had no idea how to build great products.
5. The Distribution question: How will you deliver your product to customers? Many cleantech companies, like electric vehicle start-up Better Place, believed their technology was so good that they didn’t need proper distribution channels. After spending $800 million of investors’ money and selling just 1,000 cars, it ended up filing for bankruptcy.
6. The Durability question: Can you still defend your market position in ten or 20 years? Many solar-technology companies were surprised when Chinese companies began churning out similar products at a much lower cost. This should have been entirely foreseeable from the outset.
7. The Secret question: Do you see a unique opportunity that others have missed? At the time, everyone agreed cleantech was going to be huge. But truly successful companies have secrets: they spot opportunities not everyone can see.
Innovative companies like Tesla typically have answers to almost all of these key questions, whereas most cleantech companies had zero. This is why they failed.
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