Complexities of Automotive Supply Chain. Ikea distributing cars!

There have been some rather bold and interesting investments made by leading VCs in automotive technology companies…but not many can be bolder than entering the business of designing, manufacturing and assembling entire vehicles from scratch. Yes, some companies like the Tesla (here, and here) are basically outsourcing the vehicle completely to the likes of Lotus, it remains to be seen what Fisker will do.

But can a startup put together an automotive assembly line and do a good job at it? I am told Lotus Elise was developed with merely a budget of approx. $7 million, and the Think car is assembled using 700 components (instead of the typical 20,000+) by a staff of 35 people. This remains a question in my mind. How many new car companies have been successful and profitable in the past 40 years?

Anyways - I got this image from a friend that humorously illustrates the core of the issue. Can there be space for an incompatible disruptive forceto shake up the automotive supply chain in a dramatic fashion?

IKEA DISTRIBUTING CARS - DISRUPTIVE INNOVATION

KAUST in Saudi Arabia announces its Global Research Partnership Investigators

Oil prices are at a record high, Middle East economies are flush with cash, but something is different! The new generation of Arab leaders have realized that (a) petro-dollars may not be there forever, (b) they cannot allow the ‘Dutch Disease’ to cripple their long-term growth, (c) their population is growing faster than their oil revenues , (d) they cannot continue to spend as a socialist welfare state, and (e) they need to link their economies to the value-add of energy inputs and not to the oil and gas prices in international markets.

Hence, you see a fast growth of economic zones and theme-cities, which in reality are just a creative way to create from scratch eco-systems that can cultivate, grow and sustain the technological and business innovations for the future. One important part of this city-creation is the renewed focus on education and research. As would be expected, these rich countries are reaching out to the very best of the best and luring their talents with money to help build local research institutions. This is happening Middle East wide, and I will hopefully find time to write a bit more on it later….but for now, I wanted to share the news from Green Car Congress that KAUST in Saudi Arabia has just announced its list of inaugural Global Research Partnership Investigators. A majority of research themes are clearly clean-tech oriented, and I am enthused by it. I have high hopes.

King Abdullah University of Science and Technology Announces Inaugural Global Research Partnership Investigator Winners
from Green Car Congress by Mike Millikin

King Abdullah University of Science and Technology (KAUST) in Saudi Arabia has named the winners of its Global Research Partnership (GRP) Investigator competition. Twelve international scientists—among them Dr. Yi Cui at Stanford (silicon nanowires for li-ion batteries) and Dr. Bruce Logan at Penn State (microbial fuel cells)—were selected as KAUST GRP investigators for the 2007 round of nominations, which featured more than 60 submissions from 38 of the world’s leading research universities.

GRP investigators receive five-year individual grants to investigate a wide range of research topics. As an example, Dr. Logan’s grant is for $10 million.

Each KAUST Investigator is expected to spend between three weeks and three months per year on the KAUST campus in Saudi Arabia participating in the research and academic life of the institution. Additional personnel exchanges including the Investigators or their research personnel will be arranged according to the needs of the collaborative work established with KAUST’s faculty.

Research topics include water desalination, renewable and sustainable next-generation energy sources, genomics of salt-tolerant plants, durable and environmentally friendly construction materials, hydrocarbon utility, low-cost solar cell efficiency, and disease immunization.

Client 9 and how to spend our tax-cut dollars in the US?

The business circles have been buzzing with jokes about (former) NY state governor Eliot Spitzer, who is now better known as Client 9, and his scandal involving a prostitute called Kristin (real name: Ashley Duprey). Hardly a day has gone by since the scandal broke out on news that I have not heard a joke related to it. I even joined a business conference call last week where one party dialed in and instead of using their real name, announced themselves as Client 9. There was a deadening silence… until we realized the joke and broke out into laughter.

All realities around Client 9, his beloved Kristin (who has a My Space website and yes, I did check it out), and his poor wife aside, I am amused by the whole issue. Why do we care so much about other peoples’ sex lives? Why are the holier-than-thou usually found with their pants down by their feet? and why are the democrats paying $5000+ for a sexual rendezvous while republicans are looking for it for free in public restrooms? (this is a Jay Leno joke!)

Anyways…I am outside the country right now and even here, the Client 9 story is following me. Or at least I can’t seem to get over it. Allow me my fun, please.

Here is a short letter to the editor I read today in the International Herald Tribune:

George W. Bush said each American would get a $600 check as a part of a stimulus package. If we spend the money at Wal-Mart, it will all go to China. If we spend it on computers, it will go mostly to Korea or India. If we spend it on gasoline, it will go to the Arab countries. None of these scenarios will help the US economy.

We need to keep the money in America. Currently, it seems that the only way to do that is to drink beer, gamble, or spend it on prostitution, the only businesses still left in the United States.

- Ted Rudow Menlo Park, California

Disruptive Technologies: Compatible or Incompatible?

Technology startups are all about disruption. If your technology is not disruptive, then it is hard to get funded, and even harder to succeed. Why would someone buy your stuff when someone else has something rather similar, and with lots of experience (and scale) behind it?

But then…the clean-tech startup movement has provided a reason to more critically analyze this disruptive nature of innovation. While disruptive technologies typically arrive with a different S-curve which eventually aspires to surpass the S-curves of incumbent technologies, how should they enter the marketplace, especially in entrenched industries where change is hard to come by? i.e. Do you blow up value chains and do everything completely different (as was described in Blown to Bits by some BCG alums), or is there a way to introduce disruption while working with existing value chains so the adoption is easier and less risky? The former could be Incompatible Disruption, while the latter could be called Compatible Disruption.

There are examples of both right before us in the clean-tech sector. For example, electric cars are disruptive (needing all kinds of infrastructure changes to improve fuel economy), but diesels and hybrids are not (minor change from a user point of view). GEO2 itself is a probably going to be an interesting case study on this issue at some point - but I am not allowed to speak freely about it as yet. So I won’t. But some decisions we will make will tell our thoughts on this problem in our industry.

But I want to point to two very interesting articles on this topic. I am linking them here so read them on… Exciting stuff.

The two kinds of disruptive clean technologies

GreenTech Media
by Rob Day

Almost all VCs will say that they look to invest in “disruptive” technologies — new products or systems where the value proposition is so markedly better in comparison to the incumbent choices that the market will have little choice but to go with the new option. Venture capital, needing to see rapid growth potential, naturally needs to see such opportunities, so it’s easy for VCs to say that they’re looking for Disruptive Technologies.

But VCs mean different things when they say this. And in cleantech, the differences between what I’ll call Compatible Disruptive Technologies and Incompatible Disruptive Technologies are, perhaps, even more stark than in other sectors.

Built to Last, or Built to Flip…

I am attending a class at Sloan next week - discussing how we built the GEO2’s entrepreneurial organization, developed our business plan, and worked towards execution on our strategy for entering a staid automotive component market place. The class, I am told, read this following article by Jim Collins which may be on their mind as they speak with us….I am sharing it here. Interesting ideas. I particularly agree with the last para.

March 2000

Built to Flip
Fast Company
by Jim Collins

“I developed our business model on the idea of creating an enduring, great company—just as you taught us to do at Stanford—and the VCs looked at me as if I were crazy. Then one of them pointed his finger at me and said, ‘We’re not interested in enduring, great companies. Come back with an idea that you can do quickly and that you can take public or get acquired within 12 to 18 months.’ ”

A former student was reporting to me on her recent experiences with the Silicon Valley investment community. As an MBA student at Stanford, she had taken my course on building enduring, great companies. She had come up with a superb concept that involved doing just that. But when she took the idea to Silicon Valley, she quickly got the message: Built to Last is out. Built to Flip is in.

Built to Flip. An intriguing idea: No need to build a company, much less one with enduring value. Today, it’s enough to pull together a good story, to implement the rough draft of an idea, and—presto!—instant wealth. No need to bother with the time-honored method of most self-made millionaires: to create substantial value by working diligently over an extended period. In the built-to-flip world, the notion of investing persistent effort in order to build a great company seems, well, quaint, unnecessary—even stupid.

The built-to-flip mind-set views entrepreneurs like Bill Hewlett and Dave Packard, cofounders of Hewlett-Packard, and Sam Walton, founder of Wal-Mart, as if they were ancient history, artifacts of a bygone era: They were well-meaning and right for their times, but today they look like total anachronisms. Imagine Hewlett and Packard sitting in their garage, sipping lattes, and saying to each other, “If we do this right, we can sell this thing off and cash out in 12 months.” Now that’s an altogether different version of the HP Way! Or picture Walton collecting a wheelbarrow full of cash from flipping his first store after 18 months, rather than building a company whose annual revenues now exceed $130 billion. These entrepreneurs and others like them—Walt Disney, Henry Ford, George Merck, William Boeing, Paul Galvin of Motorola, Gordon Moore of Intel—were pedestrian plodders by today’s built-to-flip standards. They worked hard to create a superb management team, to develop a sustainable economic engine, to cultivate a culture that could withstand adversity and change, and to be the best in the world at what they did. But not to worry! In the built-to-flip economy, you can get rich without any of those mundane fundamentals.