On May 26, 2013, less than a year after its commercial rollout, Better Place declared bankruptcy. In the six years of its existence, the Israeli-based green-tech start-up that promised to revolutionize transportation and free nations from oil dependence, had raised—and spent— almost $1 billion of private investor funds.
The tragedy of the case is that Better Place delivered on the most novel aspects of its business model—battery switch stations, charging infrastructure, in-car intelligence, and grid management. Better Place’s failure lies in discipline and execution: in the overzealous pursuit of global growth, executives neglected the commercial core. In its proliferation of pilots, it ignored its Minimum Viable Ecosystem. Thus, while its strategy was an exemplar of the principles of Ecosystem Reconfiguration (chapter 7), its implementation was a failure rooted in its approach to Sequencing Success (chapter 8).
Better Place’s own-goals, however, should not obscure the pillars of its strategy. Its failure offers one more opportunity for learning.
Ecosystem-based Problems Require Ecosystem-based Solutions
There was good reason for the attention and funding that Better Place attracted. While every other player in the electric car space was focused on innovating individual pieces— vehicles, batteries, charge spots—Better Place’s strategy was unique in innovating the larger puzzle to deliver an affordable drive anywhere, anytime solution. Its approach was the first to align the key actors in the ecosystem in a way that addressed the critical shortcomings—range, resale value, grid capacity—that undermine the electric car as a mass-market proposition.
Less touted, but more important, than the physical separation of the battery from the car, was Better Place’s innovation of the economic separation of battery ownership and car ownership. EV advocates are quick to note that technology improvements in batteries will one day eliminate the range problem. What they often miss, however, is that these very same improvement will destroy the resale value of used electric cars with older batteries. Since resale value ranks high among concerns for mass-market buyers, this has all the makings of a deal breaker.
Better Place’s solution, analogous to that of mobile phone operators, eliminated consumers’ battery obsolescence risk. Instead of buying batteries, consumers would buy subscriptions for miles (just as mobile operators sell subscriptions to minutes) and Better Place would use these multiyear contracts to finance its infrastructure investments and battery depreciation (just as mobile operators finance their infrastructure and phone depreciation).
The mainstream success of the electric car hinges on solving the three problems of range, resale value, and grid capacity. And for this reason, it requires the successful alignment of the entire electric car ecosystem. Better Place’s model is the only one to date to address all three and so remains the holistic blueprint against which other EV strategies and investment should be judged.
So what went wrong?
The shallow answer is ‘not enough customers.’ Better Place started selling cars in Israel and Denmark in late 2012. By May 2013 it had sold fewer than three thousand vehicles. A small number, but these are also small markets. In relative market terms, the results were turning positive: in May, Better Place sales accounted for 1 percent of cars sold in Israel, and its single available model, the Renault Fluence ZE, was outselling Toyota’s category-leading Prius. Moreover, Better Place’s customer satisfaction ratings were off the charts. This was no overnight hit, to be sure, but neither were customers shunning the offer.
The deeper answer, then, is not enough time to get enough customers. The clock, which started ticking in 2007, ran out.
The real question, therefore, is why it took so long to get to market.
Part of the time was spent, wisely, in perfecting the necessary technologies (battery switch, network management, in-car intelligence) that would make the system run. The high customer satisfaction is a testament to the success of these technologies. Part of the time was spent navigating the institutional hurdles that inevitably accompany every attempt at doing something new (zoning rules, insurance). But too much of the time was lost to the distraction of global expansion—wasteful efforts to establish toeholds and run pilots in new geographies before Better Place’s two core markets had been secured.
When Better Place was founded, its strategy called for initial market rollouts in Israel and Denmark. These were inspired choices for a mainstream electric car proposition—countries with small geographies, exceptionally expensive gasoline, and very high purchases taxes on gasoline powered cars—that were ideally suited early markets for the Better Place model to prove its commercial viability. They stand out in comparison with everyone else’s target of California, where the high-end niche of rich environmentalists is attractive but where cheap gasoline, vast driving distances, and an incredibly competitive car market undermines the appeal of electric cars for mainstream buyers.
Despite their relatively small populations, the economics in Israel and Denmark were such that even modest market success in just these two markets would have yielded the attractive financial returns critical for investors. And just as importantly, they would have yielded the meaningful sales volumes critical for retaining and attracting partners, most importantly automakers. Success in these two countries would be the solid cornerstone upon which success elsewhere could be built. In the language of chapter 8, Sequencing Success, these two countries were ideal Minimum Viable Ecosystems (MVEs).
But in my conversations with Better Place executives over the course of the past three years, it was clear that the emphasis was shifting from “an idea this novel needs to demonstrate unquestionable economic viability,” to “an idea this good needs to be deployed across the world as fast as possible.” These were not opposing goals, but prioritizing the latter over the former would have profound implications.
The markets in Israel and Denmark would have allowed Better Place to reach a sustainable commercial scale within a manageable geographic scope. But as excitement around the company grew and scores of government delegations from around the world came to explore what Better Place might do in their own countries and regions, management attention shifted. Yielding to the temptation of fast, global growth, Better Place launched pilots and spent resources across the world from Australia to the Netherlands, Hawaii to Japan, China to California to Canada.
Strategy comes down to the allocation of resources, and resources allocated to global expansion are resources not allocated to core markets. As Better Place pursued new geographies and the clock ticked away, it used up its limited resources—money, management attention, and the most precious commodity of all: the patience of its partners. Pilots are no substitute for sales, especially not in the eyes of long-waiting partners. In early May 2013, Renault announced that it was scaling back its commitment to switchable battery cars and that the long-awaited second model, the Zoe compact, which Better Place had counted on to complement the mid-sized Fluence, would not be coming after all. This vote of no confidence made it exponentially harder to line up new car manufacturers, without which the company was dead in the water.
It is impossible to know if Better Place could have achieved the promise of profitability had it kept an unwavering focus on Denmark and Israel until those markets succeeded. But it is certain that early global expansion was not the route to success. Controlling the urge to grow— securing success in early markets before moving forward to pursue bigger opportunities— requires enormous discipline, especially in the face of enthusiastic supporters. Confusing enthusiasm for victory is a cardinal management sin.
In February 2013, after a series of mismanaged leadership transitions including the firing of founder/CEO Shai Agassi, Better Place finally reversed its expansionary course. It announced its exit from all non-core markets to focus exclusively on Israel and Denmark. Within months of the decision they had captured 1 percent market share in Israel, an enormous achievement for a company selling a single car model. But by then it was too late.
Better Place declared bankruptcy on May 26, 2013.
What would Better Place’s leadership give today to have reversed its course of expansion one year earlier?
To learn from Better Place’s failure, entrepreneurs, investors, and policymakers need to distinguish between the drivers of failure and the elements that carry the seeds of (someone else’s) future success.
The success of electric cars depends not just on the components—cars, batteries, charge spots—but in how they are put together to solve the problems of range, resale value, and grid capacity. A narrow focus on commercializing the individual pieces without accounting for how they fit together in the bigger picture is a recipe for failure. Unfortunately for Better Place, poor execution on a brilliant model is a potent recipe for failure as well.
Three Better Place Lessons:
- In ecosystems, we must monitor the burn rate of partner patience just as carefully as the burn rate of investment capital.
- A strategy of ecosystem reconfiguration must incorporate within it a strategy for setting ecosystem boundaries. Establishing a Minimum Viable Ecosystem (Ch. 8) is a critical element of any such plan.
- In a world of ecosystems, great execution is no longer sufficient for success, but it remains a necessary condition.
* An abridged version of this epilogue was published online by Harvard Business Review on June 7, 2013.