This blog first appeared as Steve Wunker's piece for Forbes
By Steve Wunker
The green tech darling Better Place has flamed out, burning through $850 million with fewer than 1,500 electric vehicles sold. The company's impending liquidation says little about the potential of EVs; indeed, it occurred within days of Tesla repaying its federal loans nine years early. But the story holds a trove of lessons about how (not) to launch innovative products.
A quick primer: Better Place sought to make EVs accessible through selling a single Renault model, leasing a battery and the electricity it uses. For about $350 a month, buyers would be able to access batteries and charge points. Even more enticing, they could access a network of "swap stations" at which depleted batteries could be changed out for fresh ones in just a few minutes. A nifty idea.
Alas, the grand vision failed to account for several rules of marketplace adoption:
1. De-risk the buying decision: In just about any new market, the rate of early adoption is related directly to the amount of risk that buyers are taking. Surgical robots -- pretty slow adoption. New soda flavors -- fast. Better Place forced people to buy an EV with uncertain resale value, or to lease one from a company if leasing firms were willing to take the risk of buying the asset (unfortunately, they weren't). The company also locked people into purchasing expensive charging stations if they wanted one at more than a single location, or to use a network of a few dozen swap stations. If swap station locations were inconvenient...tough luck. Contrast this approach with how Nissan leases its Leaf EV, or how Tesla's long range doesn't require dependence on charging locations. Rarely is an innovation so compelling that customers will give up all flexibility to be one of the few lucky early adopters. It is better to lead with something innocuous and slowly embrace the customer, as Apple first did with iTunes, then the iPhone, then the iPad. Once the customer realizes how intertwined he has become with the company, disentanglement is difficult.
2. Avoid fragmented decision-makers: Better Place should have remembered the lesson of indoor plumbing, which took 4,500 years from its invention to broad adoption due in-part to fragmented decision-making. Great ideas can take a long time to get traction if decision-makers abound. To succeed, Better Place needed to convince automakers, leasing companies, and customers of its value. Just why would an automaker engineer its EV so that its batteries could be interchangeable with Better Place's? Not to take advantage of the company's whopping 1,500 customers, nor to lock itself to a business partner with uncertain prospects. Why would a leasing company invest a lot of capital into an asset with unclear value? Not for any good reason they could discern.
3. Prevent chicken-and-egg situations: What made Better Place unique and compelling was its swap station network. Unfortunately, each station required about $500,000 to build. It made little sense to build a vast network for few drivers, yet customers were averse to signing on without a substantial network. These situations can require a lot of time and money to work through. Perhaps the chicken-and-egg conundrum wasn't even necessary: in France, when Renault launched the same EV it was making for Better Place, the company sold 800 units in the first month alone, with no swap stations to offer.
4. Target a foothold: New markets get traction in well-defined footholds, which are customer groups that will adopt an innovation quickly and prove its value to others. These groups may be small, but they are influential. Better Place had difficulty defining what foothold it was pursuing. Initially it aimed to penetrate the US, Australia, Israel, and Denmark. Eventually it pruned its ambitions to Israel and Denmark, but a whole nation is not a foothold. What was the compelling reason that a targeted foothold would rush to adopt this innovation and showcase its success to others? The company couldn't really say. Contrast this approach to France's Autolib' scheme, which has created a network of locations throughout Paris at which trendsetters can rent a proprietary EV (the "Bluecar") by the hour, trying it out and driving a distinctively decorated car about town. Because the focus is so local, the charging station network is ample. The approach has led to demand generation, with the Bluecar becoming the top-selling EV in France in 2012.
5. Give people an easy choice: Revolutionary ideas take hold if they are simple. Better Place did not qualify. The company sold a business model more than a car; moreover, the car it offered was unenthusiastically reviewed by the automotive press, and it looked boring to boot. So customers were being asked to buy a mediocre car with uncertain resale value, a nascent network of swap stations, and an unfamiliar contract for battery power. No thanks.
The rules that Better Place tried to break have been proven time and again, in industry after industry. By all means, flout industry convention. But ignore the rules of marketplace adoption at great peril.
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