In a village pub one Sunday evening I met an inventor who had conceived something that could outperform, and potentially displace, every competing technology of its type in the automotive industry. Pre-existing technologies, with their roots in the pioneering 1920s, forced compromises between comfort, performance and cost. Motorsport priorities are different from luxury priorities, luxury priorities are different from economy priorities.
From Formula 1 to trucks, from limousines to motorcycles, the inventor’s idea was better. It would also be of considerable benefit to boats, electric vehicles and even industrial machinery. World domination beckoned.
The inventor had just parted company with a group of backers because the project had moved nowhere. His focus was to develop his idea, their focus had been to draft a massive business plan – right down to details like the sophisticated alarm system which would protect their purpose-built HQ – and head off to the City to raise millions. This is not the way to prepare a business plan; the City did not subscribe.
I was intrigued, not to mention a little skeptical, and invited him to bring his model and explain to me how it worked. The principle made perfect sense. Given the unfortunate exposure generated by the earlier attempt at commercialisation, the only way to restore credibility was to prove it. I assembled a small engineering team, found a seed capital investor and drafted a plan.
The structure of the business:
Board (3):
making it: Technical Director (inventor)
flogging it: Managing Director (acting Marketing Director)
counting the beans: Managing Director (acting Finance Director)
The investor also held a Board seat.
Management:
making it: Technical Director
flogging it: Managing Director
counting the beans: Managing Director
Operatives:
making it: engineering team
flogging it: Managing Director
counting the beans: Managing Director
The plan was to convert one of my cars as a demonstrator. At the same time we would court a supply chain and customers. There were three goals:
- establish the means to manufacture
- present my car to the media as a functional demonstrator, ‘the media drive’
- take orders from a variety of vehicle manufacturers
In the Henry Ford era, his massive River Rouge plant in Dearborn, Michigan started with raw materials, produced its own tooling, made components and then famously assembled them on a production line. Only a small proportion of the Model T was produced by third parties. In those days you could take an idea to the likes of Ford, they could buy it, produce it and apply it to their vehicles. That was a century ago.
It is important to understand the evolved structure of the automotive industry. At the top of the hierarchy are the vehicle manufacturers (VMs) assembling and selling whole vehicles. VMs are supplied by Tier 1 companies who provide specialist assemblies to several VMs. Tier 1 is supplied with components by Tier 2 companies. Tier 2 companies have further tiers supplying them – the lowest tier being mining companies blasting bauxite and iron ore from the earth.
Sophisticated supply chains have been established for decades. The same principle of Tiers applies to many other industries. Rocks-to-goods complexes – like River Rouge in the 1920s – are rare in the modern age, the preserve of less developed nations.
Despite this, there persists a belief that one can sell a bright idea directly to a VM. You can only do this if you are a Tier 1 and, in that case, you can sell to multiple VMs.
A Tier 1 ‘start-up’ is a colossal undertaking. I devised a means of using alliances to make our company a virtual Tier 1, and to enter the market through the back door of the aftermarket and motorsport. This meant we could supply VMs, and I took three paid orders for prototypes (one directly from Detroit), with a pile more conditional on the media drive.
Intoxicating stuff. The final part of the plan was to finish the prototype in my car.
The inventor had now arrived at the frontier of great riches and developed an obsession with share price. He claimed a fortune teller had once told him he would be a billionaire. Equity was already changing hands on an eight-figure valuation based on potential – he thought it was worth 100 times as much. More than one billion pounds!
This was a business yet to deliver a prototype, directly employing only a dozen people, in which investors were clamouring to subscribe. In a surreal role reversal, I focused on the neglected engineering while he obsessed about valuation, alleging my neglect of it. Surrealism soared when the shareholders became hypnotised by the inventor’s talk of 100x multiples on their stakes.
I left. The orders I had taken were either refunded or never completed. The inventor raised more money and acquired a massive headquarters. It was mostly empty, but looked impressive from the outside and, naturally, had a quality alarm system. Fund raising then dominated proceedings, engineering suffered. Meanwhile the auto industry evolved its existing technologies and marginalised the invention’s advantages. Millions of pounds in the hole, the opportunity inexorably evaporating over a decade, the company collapsed.