Inventing Entire Industries

27 June 2013

That Which Exists Must Be Possible

Innovation is a key theme in many posts to this blog; especially innovative products, innovative processes, and innovative business models. Simply put, a continuous, systematic stream of innovations is essential to thriving in perpetuity [1]. Many, if not most manufacturers today recognize this fact, and are actively working to innovate within their business and their industry.


However, it is possible to go much farther. It is possible to start from zero and invent entirely new industries. One individual — Elon Musk
[2] — is, right now, bringing three new industries into commercial reality: the commercial space transport industry, the electric automobile industry and the distributed solar electric power industry. Yes, governments have provided space transport for some time (with public sector economics). Yes, electric automobiles were first produced over a century ago, although with scant commercial success. Yes, there are plenty of people selling and installing solar panels, but few have even attempted to bring about sufficient scope and scale to be called an industry.


Even those of us that don’t intend to birth new industries can learn something about innovation from studying Elon Musk’s businesses. Here is a brief look at each of his three primary business models, from the Value Proposition side and from the Delivery Mechanism side.


Space Exploration Technology Company (SpaceX) – Private sector space transport
(Established 2002) [3]


Vision
– To revolutionize space transportation with the world’s most advanced rockets and spacecraft, ultimately to allow people to live on other planets.

Business Model – Value Proposition

>> Latest rocket and spacecraft design and technology

>> Full range of lift capabilities

>> Heaviest lift capability since the Saturn V moon rocket (in development, commercial flight already booked for 2015)

>> Launch and recover capability (Dragon spacecraft)

>> Human transport capability (in development with NASA)

>> Launch from East or West Coast


>> Docking capability (demonstrated at the International Space Station)


>> Simple, fixed prices, same for all customers


Business Model – Delivery Mechanism


>> Advanced, proprietary rocket and spacecraft designs and technology


>> Design for commercial use; “simplicity and reliability are closely coupled”


>> Manufacture rockets and spacecraft in house


>> Rockets and spacecraft are designed to be fully reusable, reducing cost


SpaceX is privately held. It is said to be profitable. SpaceX already boasts a litany of achievements in commercial space flights and a substantial order book of future launches.


Tesla Motors – Electric automobiles
(Established 2003) [4]


Vision
– To bring uncompromising electric automobiles into the mainstream.


Business Model – Value Proposition


>> Uncompromising product. Consumer Reports gives the Tesla Model S a score of 99 of 100, the highest rating ever achieved.


Tesla Roadster>> Fuel economy. Electric to recharge costs roughly 1/6 of the cost of fuel to drive a comparable car the same distance.


>> Performance. Simply amazing.


>> Maintenance. Few moving parts means much less to repair or replace.


>> Battery Life. Reported to be in excess of 100,000 miles.


>> Comprehensive warranty.


>> Leasing / residual value. Leasing is available and end-of-lease value is guaranteed.


>> Recharging. Recharge overnight almost anywhere an outlet is available, or recharge to 50% range for free at Tesla “supercharging” stations.


>> Battery quick change option. Change out battery in about 90 seconds.


>> Choice of models. Model S sedan today, Model X SUV for 2015, smaller and less expensive model(s) (compare to the BMW 300 series) to follow, perhaps 2017.


Business Model – Delivery Mechanism


>> Award winning technology and design. Motor Trend 2013 Car of the Year; Automobile Magazine 2013 Automobile of the Year.


>> Sophisticated manufacturing capabilities. Manufacturing plant built by Toyota.


>> Direct sales. Tesla automobiles are ordered on-line or by telephone and made to order. Tesla does not have a dealer network, hence no dealer inventories.


>> Service Centers  / Service Rangers. One or more service centers are available or under construction in 31 states and in Canada as of this writing. Service Rangers are available by telephone or on-line. Mechanical or electrical problems can be diagnosed remotely. Service Rangers provide road service when necessary.


>> Continuous improvements. Tesla pursues a systematic process of identifying and addressing objections to electric automobiles as mainstream products. Examples include recharging options, leasing and warranty enhancements.


Tesla Motors is an exchange – listed company. It reported a profit for 1Q 2013 on delivery of 4,750 Model S cars within that quarter, along with income from zero emissions vehicle credits and electric drive technology licensing arrangements with other manufacturers. Model S unit sales exceeded those of comparable vehicles (Mercedes S series, BMW 700 series and Audi A8 series). Tesla recently repaid a loan from the U.S. Government in full, with interest.


Solar City – Solar electric power for residences and commercial buildings
(Established 2006) [5]

Vision – To make it easy for homeowners and commercial buildings to economically enjoy distributed solar energy

Business Model – Value Proposition

>> Use distributed solar power to reduce energy expenses.

>> Pay for power scheme – zero money down.

House with Solar Panels>> Customers enjoy stable long-term electric power prices

>> Latest technology.

>> Coordination with power utilities and local building authorities.

>> In-house custom systems design, permitting and coordination with utilities. Hassle-free for customers.

>> Continuous on-line system monitoring to confirm proper operation.

Business Model – Delivery Mechanism

>> Technical capability in choosing and purchasing components.

>> In-house systems design, installation, maintenance staff.

>> Marketing – partnering with Home Depot on lead generation, as well as lead generation incentives for customers.

>> Financial strength – Solar City has the working capital access necessary to fund a large number of simultaneous projects.

Solar City is an exchange traded company. It reports rapid growth, although it is not yet profitable. Solar City expects to install 270 MW of solar electricity in 2013.

For Smaller Manufacturers

The purpose of this post is to provide real world examples of innovations across all aspects of the business model. When innovative new industries come into being, as these three have, they present new opportunities for suppliers and other businesses.

Innovation may also be disruptive for incumbent firms. For example, Solar City’s distributed power generation model, should it achieve sufficient scale, would challenge the centralized power generation business models of numerous electrical utilities. Similarly, Tesla’s no dealers – make to order sales model threatens existing dealerships, who don’t want to be bypassed by direct sales models.

Innovation isn’t optional.

Chuck - BrittanyThoughtful comments and experience reports are always appreciated.


…  Chuck Harrington
(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability … CH

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.

Disclosure – I don’t hold stock in, nor do I get paid by any of these companies. Joan and I are recent Solar City customers. Solar panels are now installed on the roof of our home. So far, so good. When I have enough hard data, I will report on our experience.


 

[1] Adam Werbach defines Sustainability for businesses as “thriving in perpetuity”. Adam Werbach, Strategy for Sustainability, Harvard Business Press, Boston (2009), page 9.

[2] For a brief biography on Elon Musk, see Wikipedia, http://en.wikipedia.org/wiki/Elon_Musk

[3] Learn more about SpaceX at www.spacex.com/company.php

[4] For more on Tesla, see www.teslamotors.com. You might find a tongue in cheek blog post by Elon Musk, www.teslamotors.com/blog/secret-tesla-motors-master-plan-just-between-you-and-me, to be especially interesting. I did. Also, Tesla Motors is listed on the NASDAQ (TSLA).

[5] For more on Solar City, see www.solarcity.com. Solar City (SCTY) is listed on the NASDAQ.