In his book Zero to One, Peter Thiel examines why the cleantech industry crashed. He believes that most cleantech companies failed to adequately answer one or more of seven fundamental questions about their business. Although these questions are primarily for businesses - particularly technology startups - they are equally applicable to new product innovations. It’s worth investigating if your pipeline of innovations can adequately respond to each.
1. The Engineering Question
If we are truly talking about innovation, then the product will not be an incremental improvement. For it to be innovative, it must be ten times better than what is currently available.
Apple’s iPad was 10 times better than previous tablets. Google’s search performance, accuracy, and simplicity were 10 times better than the plethora of previous search engines and portals. PayPal was 10 times better than sending cheques to pay for eBay items. It costs about £100m to send a rocket into space, and Elon Musk wants to do it for £10m - a 10 times advantage.
Only when you have this significant technology advantage, you can offer transparent superiority to the customer.
So the question is - is your solution ten times better than anything else available in the market?
2. The Timing Question
Are you entering an existing market with a new product? Is it a slow-moving market or a fast-moving one?
Cleantech compared itself to the silicon chip industry of the 70s but failed to appreciate the speed at which that market was moving - it was expanding exponentially with Moore’s law - whereas the cleantech industry had no such advancement. There was no explosion in growth, and the industry lagged. Facebook launched at a time when broadband infrastructure was rapidly expanding, and it exploded when mobile devices and smartphones became ubiquitous.
So, infrastructure readiness, social norms, government regulations, established platforms, and ecosystems all play a role in the timing question.
3. The Monopoly Question
Peter Thiel believes monopolies are a good thing and competition is bad. Monopolies allow you to innovate because you have cash flow and room to try radical things. Competition, on the other hand, prevents you from innovating.
Google has had a monopoly on search as an engine for over a decade - nobody even comes close to its market share - and it can therefore invest in innovation. Think of Google Glass, Driverless Cars, Project Loon, and Internet Barges.
Most companies do not enjoy a monopoly. They are instead engaged in fierce competition. Don’t overestimate how unique your product is. Be realistic about the competitive threats.
True innovation has no competition. It has a 10 times technological advancement and is, therefore, clearly distinct in its space.
4. The People Question
Cleantech is a perfect example; where you find cleantech companies, you would expect to find engineers running them. Still, Thiel found this not to be the case. Many companies that pitched cleantech to him were led by men in suits.
More broadly, you need to ask yourself if you have the right people capable of working on real product innovations. Also, do you have the best people on the team to push the product to the market? A technical intrapreneur can lead and sell a product better than many salespeople can.
5. The Distribution Question
You might think your technology speaks for itself, but it probably doesn’t. You still need an effective distribution channel. Primarily a way to get close to the customer, so they can experience the superior advantage you can bring.
Better Place, an electric vehicle startup, had the technology but failed to market it to customers. People were confused about whether they were buying a regular car like a Renault or a Better Place car. It wasn’t clear what the offering was. The company bombed, and in 2013 when selling off the assets, they admitted they overcame the technical obstacles but failed in the distribution ones.
6. The Durability Question
You should plan to be the last mover in your market. What does the market look like in 10 and 20 years? And how will your solution dominate the space? What possible competition could you face? For example, can China make it cheaper, and is the customer still ready to pay for your solution when circumstances change? You need to ask these questions to see how durable your future is.
Cleantech relied on government subsidies and backing, which is not necessarily a durable path. It also relied on the premise that fossil fuels were peaking as an energy source. However, the rise of fracking in the mid-2000s changed the picture, more than doubling the fracking oil industry. China became the bogeyman for US solar companies, with Abound Solar blaming “aggressive pricing actions from Chinese solar panel competitors” when it went bankrupt. Also, upon going bankrupt, Energy Conversion Devices filed a $950 million lawsuit against Chinese competitors for their aggressive competition.
The cleantech companies might have asked a simple question: What will stop China from wiping out our business? If there’s no good answer, perhaps the durability question was a problem.
Tesla had a head start in its field, and its design and technology are moving faster than anybody else - its lead is always widening. It also has a distinct and trustworthy brand, which has consumer envy. Given that buying a car is one of the biggest purchasing decisions people make, having trust in a brand is a hard thing to win - Tesla has that trust where others don’t. Similarly, Apple has that brand trust, which is very hard to displace.
7. The Secret Question
All great companies are built upon finding answers to secrets. This is the heart of innovation. Secrets are problems that have an answer, but nobody has figured it out yet.
Pythagoras discovered the secrets of the triangle, Newton discovered the secrets to gravity, and NASA figured out how to land humans on the moon. These are big secrets, but every great company and product solves a problem for the customer in a new way. Think Airbnb and Uber.
Does your innovation uncover a secret that solves a fundamental problem for the customer?
So here it is, the seven questions Peter Thiel recommends you ask yourselves. They are not easy to completely satisfy - but neither is innovation.