How a Cleantech Failure Can Be More Valuable Than Success
- August 18, 2011
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Failure is tough. Many businesses fail, including some very viable ones. They fail all the time. In fact, according to the Small Business Administration (SBA), 50 percent of all new businesses fail during the first year and 95 percent during the first five years. Some fail fast, some die a slow, painful death.
The question is not whether failure is good or bad, it’s what you learn from it that counts.
We can’t learn from failures, however, if we don’t tell their stories. While there have been a number of failures in cleantech over the past few years, their stories get drowned out by the noise surrounding the latest heavily hyped technology.
Case in point: Global Green Solutions (GGS), about which Michael Gilbert spoke recently at a NYC Cleantech Opportunities event hosted by the law firm of HodgsonRuss.
Gilbert, the company’s former VP for strategy and business development, thought he had found his dream job and company in Global Green Solutions. He was excited about one of their key technologies, their high-density vertical bioreactor (HDVB), which produces algae for biofuel feedstock and other products. The algae business was a 50/50 joint venture (JV) with Valcent Products (OTC:VCTZE), who had initially developed the technology and partnered with GGS to commercialize it.
With agricultural, biological and environmental engineering degrees from Cornell and an MBA from the University of Connecticut, Gilbert worked for several with the EPA before joining Pitney Bowes, first as its energy and environmental manager, and later as its manager for Futures Strategy.
During a downsizing at Pitney Bowes, he took the leap into entrepreneurism by signing on for a leadership role with GGS, where he managed relationships between the company and its customers, partners, and investors. He also analyzed the engineering, and translated the technology’s operating parameters into an economic model for the business.
“Some of the numbers, however, didn’t demonstrate economic viability, and critical productivity and operating questions remained unanswered,” Gilbert said.
The company initially projected a yield of 100,000 gallons of algae fuels per acre/year. According to the Department of Energy’s National Renewable Energy Lab (NREL), however the theoretical limit is about 20,000 gallons per acre, with a practical limit of around 4,000 gallons/acre/year.
While they initially projected a target price of $25/barrel, the company was never able to validate its productivity or cost estimates, which in Gilbert’s opinion, undermined the company’s ability to raise capital, attract partners and commercialize the technology.
When the company started missing key milestones investors, customers, and strategic partners began to wonder about the company’s credibility and its ability to deliver.
Admittedly, Gilbert suggests, many of the factors were out of management’s control: the capital markets were in turmoil, the government funding pump had not yet been primed, and it was a bad time for raising money.
The technology was also the subject of a ton of media hits, including one CNN piece, which Gilbert shared, that essentially parroted the JV’s targets as if it was gospel.
Gilbert held on, hoping for a breakthrough. Alas, he concluded, “Hope is a dangerous thing. Hope can drive you insane,” quoting a line from The Shawshank Redemption.
Gilbert isn’t bitter and he’s still on good terms with company management. He wishes them well; in fact, as a shareholder – GGS is a pink sheet stock under the symbol PINK:GGRN, which, as of this writing, was trading at $0.08 – he hopes it makes a big comeback.
GGS, along with its former JV partner Valcent, had scrapped the algae effort altogether. GGS is now solely focused on developing their low emissions biomass combustion business, Greensteam, which has solid technology and business fundamentals.
Now, two years after he left the company, he even hopes to find another start-up in the sector, where he can apply his knowledge, expertise and, most importantly, lessons learned from this experience.
What advice does he have for other entrepreneurs in the sector?
“You need to think like an investor, not like an entrepreneur, especially in terms of balancing risk, reward, and resources,” Gilbert advises. “You need to constantly reevaluate these over time as your business and personal situation evolves within the context of the external environment.”
And you need to know when to leave, when to walk away.
This last is probably the hardest thing, especially when you believe in the potential of the technology to achieve great things.
In hindsight, Gilbert feels he held on too long, something he now attributes to what psychologists call “cognitive dissonance,” the concept of holding two contradictory ideas simultaneously, which can lead you to ignore the danger signals and favor information that corroborates what you “want to believe.”
Gilbert is learning from his experience with GGS and offers that even “a bad experience can be a valuable experience.”
Some in the audience called Gilbert brave for sharing the story of his cleantech failure.Others worried that the two presenting companies following were done a disservice by the story.
“The poor companies,” I overheard one guest say. “No one will believe their numbers or their claims now.”
I was seated next to one of the investors in GGS, who lost a “ton” of money on the company and didn’t want to be named in this article. He said to me after Gilbert concluded, “Michael’s painted a very accurate picture of what happened with this company.”
Looking at the failures in the cleantech sector is as important as celebrating the successes. Without telling the stories of failure, we may never learn from the mistakes and may not be able to make an accurate assessment of the true value of a company or its technology – whether we’re an investor, entrepreneur, or potential customer.