Zero to One: Notes on Startups, or How to Build the Future

New York Times
called “the biggest
mass poisoning in history.” In the U.S., Hurricanes Ivan and Katrina were said to be
harbingers of the coming devastation from global warming. Al Gore implored us to
attack these problems “with the urgency and resolve that has previously been seen only
when nations mobilized for war.” People got busy: entrepreneurs started thousands of
cleantech companies, and investors poured more than $50 billion into them. So began the
quest to cleanse the world.
It didn’t work. Instead of a healthier planet, we got a massive cleantech bubble.
Solyndra is the most famous green ghost, but most cleantech companies met similarly
disastrous ends—more than 40 solar manufacturers went out of business or filed for
bankruptcy in 2012 alone. The leading index of alternative energy companies shows the
bubble’s dramatic deflation:
Why did cleantech fail? Conservatives think they already know the answer: as soon as
green energy became a priority for the government, it was poisoned. But there really
were (and there still are) good reasons for making energy a priority. And the truth about
cleantech is more complex and more important than government failure. Most cleantech
companies crashed because they neglected one or more of the seven questions that every
business must answer:
1. The Engineering Question
Can you create breakthrough technology instead of incremental improvements?

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2. The Timing Question
Is now the right time to start your particular business?
3. The Monopoly Question
Are you starting with a big share of a small market?
4. The People Question
Do you have the right team?
5. The Distribution Question
Do you have a way to not just create but deliver your product?
6. The Durability Question
Will your market position be defensible 10 and 20 years into the future?
7. The Secret Question
Have you identified a unique opportunity that others don’t see?
We’ve discussed these elements before. Whatever your industry, any great business
plan must address every one of them. If you don’t have good answers to these questions,
you’ll run into lots of “bad luck” and your business will fail. If you nail all seven, you’ll
master fortune and succeed. Even getting five or six correct might work. But the striking
thing about the cleantech bubble was that people were starting companies with zero good
answers—and that meant hoping for a miracle.
It’s hard to know exactly why any particular cleantech company failed, since almost
all of them made several serious mistakes. But since 
any one
of those mistakes is enough
to doom your company, it’s worth reviewing cleantech’s losing scorecard in more detail.

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THE ENGINEERING QUESTION
A great technology company should have proprietary technology an order of magnitude
better than its nearest substitute. But cleantech companies rarely produced 2x, let alone
10x, improvements. Sometimes their offerings were actually 
worse
than the products
they sought to replace. Solyndra developed novel, cylindrical solar cells, but to a first
approximation, cylindrical cells are only 
1
/
π
as efficient as flat ones—they simply don’t
receive as much direct sunlight. The company tried to correct for this deficiency by
using mirrors to reflect more sunlight to hit the bottoms of the panels, but it’s hard to
recover from a radically inferior starting point.
Companies must strive for 10x better because merely incremental improvements often
end up meaning no improvement at all for the end user. Suppose you develop a new wind
turbine that’s 20% more efficient than any existing technology—when you test it in the
laboratory. That sounds good at first, but the lab result won’t begin to compensate for the
expenses and risks faced by any new product in the real world. And even if your system
really is 20% better on net for the customer who buys it, people are so used to
exaggerated claims that you’ll be met with skepticism when you try to sell it. Only when
your product is 10x better can you offer the customer transparent superiority.

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THE TIMING QUESTION
Cleantech entrepreneurs worked hard to convince themselves that their appointed hour
had arrived. When he announced his new company in 2008, SpectraWatt CEO Andrew
Wilson stated that “[t]he solar industry is akin to where the microprocessor industry was
in the late 1970s. There is a lot to be figured out and improved.” The second part was
right, but the microprocessor analogy was way off. Ever since the first microprocessor
was built in 1970, computing advanced not just rapidly but exponentially. Look at Intel’s
early product release history:
The first silicon solar cell, by contrast, was created by Bell Labs in 1954—more than