The cleantech sector has had its fair share of headline-generating crash and burn stories over the years. In 2013 alone there’s already been a couple. There was the ouster of Suntech’s former CEO and founder Shi Zhengrong in the wake of a financial scandal and the company’s subsequent bankruptcy this week. Earlier this month there was the resignation of Fisker Automotive founder and former CEO Henrik Fisker and the startup’s devaluation and attempts to sell to Chinese buyers.
Late last year there was the ouster of Better Place founder and former CEO Shai Agassi as Better Place struggled to sell cars in Israel, saddled with losses. And no one can forget the posterchild of failing big — Solyndra — as the company’s name was drilled into American minds through the presidential campaign last year after going bankrupt in 2011, and taking taxpayer dollars down with it.
As I’ve been thinking about these types of companies — ones that take a lot of investor money and a lot of media attention and for whatever reason flame out on an international stage — I’ve been trying to think about what characteristics these high profile failures have in common. There was a book written a few years on the habits of unsuccessful executives, which is telling. But these “big failure” stories aren’t just about not succeeding, they’re also about failing under a bright media spotlight; often times going from beloved to beleaguered at a rapid clip, and along the way over-promising across many levels and often times losing a lot of people’s money.
To note, Better Place and Fisker haven’t gone bankrupt, so there could be a slim chance they could succeed in some way down the road. Better Place could suddenly grow its customers; Fisker could launch a second car that becomes wildly popular. But let’s face it, these turnarounds aren’t likely. So while we’re waiting to see how they end up, these are my musings on four ways to fail as big as possible:
1). Overhyping the company or tech from the beginning: The big public fail wouldn’t be so big or so public if there wasn’t excessive media attention shining a spot light on the firm. For cleantech companies, usually these proclamations are about changing the world, and making it a — pun intended — better place. It’s pretty hard to live up to the goal of fundamentally changing the world.
But tech companies across sectors do this, too. Most tech and business journalists have been to the overhyped startup launch, where you watch the spectacle and wonder what the ratio of launch cost to time on this earth will end up being.
The overhype can come from not just the media, but from investors and the community, too. Solyndra, Better Place and Fisker attracted a lot of reputable investors that aggressively courted the companies and gave them really high valuations. Outside of cleantech, app maker Color had all the makings of overhype, as did Airtime.
2). The CEO ego: Sydney Finkelstein writes in his book:
“Instead of treating companies as enterprises that they needed to nurture, failed leaders treated them as extensions of themselves. And with that, a “private empire” mentality took hold. CEOs who possess this outlook often use their companies to carry out personal ambitions.”
We all know this type of CEO. Better Place, Fisker and Solyndra all seem to fall into this category. The CEO’s personal mission is intertwined with the company’s goals, and can even blind them (see my article on the problems with righteous investing).
Finkelstein also highlights how failed CEOs sometimes ruthlessly eliminate anyone who isn’t completely behind them due to their ego. I’ve heard that one specifically about Better Place (and some more successful companies, too, come to think of it). The problem with that approach is that often times it removes healthy criticism and also shows how leaders aren’t open to listening to dissenting opinions. Even if a company has the best idea, the execution can easily fail if there’s no constructive discussion of the best ways to proceed.
Finally, Finkelstein writes that failed CEOs “are consummate spokespersons, obsessed with the company image, but with leadership skills that can become shallow and ineffective.” He adds, “Instead of actually accomplishing things, they often settle for the appearance of accomplishing things.”
On the flip side, there’s always some element of ego in almost all CEOs of aggressive and game changing companies. But it’s when these traits overwhelm a solid business decision-making process that the companies get in trouble.
3). Lacking transparency, until it all comes out: Whether it’s full-blown financial malfeasance, or just mishandling of funds, not being transparent about finances are the fastest way to contribute to a high-profile demise. Suntech Power had its own financial scandal and the company got in trouble with a fund it controlled that financed solar power plant development in Europe.
Solyndra was never found to have used political ties to get its loan, but it seemed to be less than upfront to the media, to state and the federal government, and to its employees about its high costs and looming losses. Around 1,100 of Solyndra’s employees came into work one morning in August 2011 and were laid off that day.
4). Raise and lose a lot of money: It might sound obvious, but companies ultimately fail spectacularly because they raise a lot of investors money, and then lose the lot of those funds. Companies that lose several hundred thousands dollars aren’t going to be touted as a “big fail.” Small failures make up the majority of business in Silicon Valley. The big fails are hundreds of millions, if not a billion, dollars. Solyndra raised almost a billion, Fisker raised over a billion, Better Place had raised $850 million.
These types of losses have happened throughout all bubbles and busts and particularly for infrastructure companies, like the broadband buildout of the 1990s, or the thin film solar investment cycle of recent years. Venture capital firms can survive being involved in maybe one of these in a fund, but not many.