C”lean” tech?

by Louis Beryl

I recently co-founded a high-performance lithium battery startup with a PhD student and technology based out of his research at MIT. Our technology appears revolutionary promising much greater energy density, better cycle life, wider temperature range, and improved safety. Our story on paper sounds impressive and it resonates with people. Who wouldn’t want an electric vehicle that drives 500 miles or a laptop battery that last 24 hours?

Yet during the six months that I have been working on this business most of my peers and mentors, the ones I most respect, have told me not to keep moving forward. “Cleantech businesses are too capital intensive,” I’ve heard over and over.And the history of battery start-ups is no exception. The most notable “success” story, A123, has lost over 90% of its value since IPO and has burned through over $500 million withnegative gross margins.

What examples like this and the lean startup method has taught me is not that I should run screaming away from cleantech businesses, but instead that hypothesis verification is even more important because of the capital intensity. The cost of making a mistake is so much higher that we better feel highly confident that we have the right answer before burning through millionsof investor capital and our reputation as entrepreneurs.

Thus, I have been spending a lot time thinking about the specific parts of the traditional battery business model and about the ways that I can validate our hypotheses for successbefore moving forward. First, a crucial element for any new product is the customer value proposition, which drives consumer adoption and your customer’s willingness-to-pay.

Put simply, are customers even looking for the improved features that our product offers and if so how much would they pay for this improvement? Secondly, how much will your product cost to deliver, and how cheaply can we verify that our cost targets are realistic?

When first looking at our technological advantages we thought our battery would be perfect for electric vehicles, our battery could improve range, remove unnecessary space for packaging and cooling, and was safe in crashes and fires. Plus this was a large and growing market so we thought EVs were perfect. But before moving forward we asked, “What are the buying criteria for electric vehicle companies.” So I called Tesla and GM Ventures, and what they told me was that their main buying criteria wasn’t safety and they didn’t care too much about not needing the cooling system because they used this for air conditioning anyway. What they really cared about was cost; how much battery could they afford to put into the car. As a startup we didn’t win on cost, at least not now, so for our beachhead market electric vehicles were out.

After looking further at our technology development path in comparison to our competitors existing offerings, our team decided that one of our key initial advantages was the wide temperature range and safety characteristics our battery could provide, and we found a market where temperature performance was mission critical, down-hole batteries for oil drillers. Our batteries didn’t even need to be rechargeable because the batteries they are currently using aren’t. This dramatically reduced our expected time to market and we were able to verify this value proposition with several potential customers. But next we had to figure out if we could produce these batteries at our projected cost.

We’re not all the way there yet, but by using lean startup thinking we have started to shed light on this difficult problem. We asked, “what would we need to do to outsource our manufacturing to save us the huge capital intensity of traditional battery manufacturers?”

We have verified that both the cathode and the electrolyte can be made exactly the same way as they are in traditional batteries at no additional cost. Now we’re working to verify that we can do the same with our anode as well. Certainly, outsourcing to contract manufacturing also comes with its disadvantages, what we gain in lower capital needs we might lose in our top line to our manufacturing partner. But models like this have succeeded in other industries; look at Dropboxoutsourcing to Amazon AWS/S3 to lower their upfront capital intensity allowing them to scale rapidly. If we are able pull off a profitable model we might be able to achieve what few startups have in the cleantech space by bringing a major technology breakthrough to market with a minimal amount of investor capital. On the other hand, I want to proceed with caution that as we move forward we don’t get so locked into a process or relationship with a long-term partner that pivoting on our business model becomes impossible.


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