What it means
Agassi first made his name in business software. He founded TopTier Software, which was acquired by the German software group SAP in 2001, and he went on to join SAP's executive board, where he led the product and technology group.
He left SAP in 2007 to start a new venture in a very different field. That venture was Better Place, which aimed to make electric cars practical by separating the car from its energy supply.
Drivers would pay for mobility through a subscription, similar to a mobile phone plan, while the company operated a network of charging points and battery-swap stations. The idea was to remove the main worries about electric cars, which were range and the high cost of the battery.
The financial model was the hard part. Better Place needed to spend large sums on stations, batteries and software before it had enough customers to cover those costs.
It raised a very large amount of capital from investors, but sales of compatible cars stayed far below plan, and it ran out of money and entered liquidation in 2013. Agassi stepped down as chief executive in 2012, about a year before the company was wound up.
By then the business had built charging and swap infrastructure in a small number of countries, but the number of drivers using it was far too low to cover its fixed costs. The speed of the collapse surprised many observers, because the company had been widely praised in its early years.
For finance professionals, the story is a standard lesson in infrastructure economics. Businesses that need a network before they have customers face a chicken-and-egg problem, and they carry high fixed costs while demand is still uncertain.
The key questions are how much capital is needed to reach break-even, how quickly customers will adopt, and who else must cooperate, such as carmakers and governments. The nuance is that a failure does not mean a bad idea in every respect.
Some elements, such as battery software and charging networks, later became mainstream in other forms, and analysts debate whether the business failed because of strategy, timing or execution. Care is needed to separate the facts from commentary.
In practice
Real-world examples.
Example
A business school professor uses the Better Place story in a course on capital-intensive start-ups. Students are asked to estimate how many subscribers the network needed to cover its fixed costs, and what would happen if adoption was half the forecast.
Example
A venture investor reviewing an infrastructure start-up compares it with Agassi's venture. She asks the founders how many customers they need before the network pays for itself, who controls the supply of key components, and how long the cash will last.
Example
A corporate strategy team at a carmaker studies the subscription model for mobility. The team examines what worked in the idea, such as predictable revenue, and what exposed the business, such as dependence on partners and large upfront spending.
Case study
Seen in the real world.
Voltaic Ride is an illustrative, fictional start-up inspired by the general challenges of electric-mobility infrastructure. It planned to build 200 battery-swap stations at an average cost of $1,500,000 each, a total of $300,000,000, before it could offer a reliable service.
The founders forecast 100,000 subscribers within three years, each paying $150 a month. At that level, yearly revenue would reach $180,000,000, but the stations would also have substantial running costs, and the plan depended on carmakers building compatible vehicles.
When only 12,000 subscribers signed up in the first three years, revenue was a small fraction of the plan while fixed costs remained. The illustrative lesson was that when most of the cost is fixed and upfront, a shortfall in adoption can be fatal, and the investors learned to stage spending against customer milestones.
Watch out
Common mistakes.
- Assuming Better Place built the cars, when it was an infrastructure and services company that relied on carmakers for vehicles.
- Judging his whole career by the failure of one venture, ignoring his earlier success with TopTier and at SAP.
- Treating the failure as proof that electric vehicles or subscription models cannot work, when the lessons are mostly about capital, timing and partnerships.
Questions
People also ask.
Who is Shai Agassi?
He is an entrepreneur who founded TopTier Software, served as a senior executive at SAP, and founded Better Place in 2007.
What was Better Place?
It was a company that planned to sell electric-car mobility as a subscription, supported by a network of charging points and battery-swap stations.
What happened to Better Place?
It ran short of funds because sales were far below plan, and it went into liquidation in 2013.
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