Can Better Place get better?

Idan Ofer could take Shai Agassi's conceit, but not his failure to deliver. Will the ousting of Better Place's founder make a difference, or is the concept fundamentally flawed?

A great deal of black humor did the rounds in the corridors of Better Place last week, following the ouster of founder and CEO Shai Agassi. For example, employees recalled an event held to mark the New Year, at which Agassi distributed a booklet he had written entitled "Chapter 1". Next time, the joke went, it will be "Chapter 11".

Everyone also agreed that for Batya Ofer, wife of Idan Ofer, who met her husband thanks to Agassi (she came with Agassi from SAP, where he was a senior manager), the Better Place project had been a resounding success.

But there were also less amusing thoughts, for example about the fact that Agassi brought into the company his two siblings: his sister Dafna, as head of marketing, and his brother Tal, who was responsible for Better Place's activity in Europe. Dafna Agassi had experience in senior marketing positions, but today people at Better Place find it hard to point to any significant contribution from her there, and even the company's hugely expensive marketing campaign to launch its activity failed to produce results. "At the end of the day, she had to ensure that the rate of sales would rise," said a source close to the company, "and it didn't happen. Most of the vehicles went to the employees and to people with business ties to the company, so that if you deduct them from the 500 cars sold, you reach a result of a few dozen cars."

On the eve of Rosh Hashanah, Better Place held its traditional reception for its workers. The event took place at the company's showroom at Glilot. Although there were slaps on the shoulder all round, in retrospect it is clear that the whole time Idan Ofer, controlling shareholder in Israel Corporation (TASE: ILCO), which owns 32% of Better Place, was nursing a great deal of aggravation over Agassi. A source close to Agassi says that "I always felt that, although they were on good terms, Shai never felt secure in his relationship with Idan Ofer; he was very scared of losing his percentage holding."

Ofer, it would seem, kept things inside, until matters reached bursting point: the aggressive ouster of Agassi from the CEO position. "Idan could take a lot," says a source close to the company, "Shai's spendthrift ways, his self-glorification, not to mention messianism, his arrogance, but when he doesn't deliver bottom-line results, the problem starts. Idan is not prepared to be the sucker who loses the money, while the global CEO goes round the world repeating the same messages."

Agassi's associates call the ouster a putsch. "He was completely taken by surprise," one of them says. "When all over the world the brand is associated with you, and you are considered a success story, you assume that they will let you get on with the job."

Better Place's staff received the news with dismay. "There was no sign of anything," they say. In retrospect, it turns out that actually there were several indications. One of them was a remark by Israel Corp. CEO Nir Gilad to "Globes" a month ago. "I too would be glad to know when we will start making a profit on Better Place," Gilad said after the release of Israel Corp.'s second quarter financial statements, showing that during the quarter Better Place lost $64 million, and $132 million in the first half. Altogether, since it was founded, the loss is $490 million.

The word in the company is that Agassi was not liked, but that he was very highly esteemed. "His behavior was showy and conceited," a source close to the company says, "He did not recognize the fact that there was a problem, and all the time he was only concerned with how great his vision was. The vision is terrific, but when you are deaf to criticism, failure is a matter of time. They gave him rope, but instead of pulling it and making progress, he would it round his neck."

"Shai is a Steve Jobs type," says someone who knows him well, "It's a thousand tons of charisma. I've been with him at meetings with investors: he is very dominant. He had HSBC investors sitting opposite him, experienced people. You felt that even if this or that detail was inexact, they were under his spell. He is very fluent. He knows how to speak to people with no technical background, he knows how to simplify the numbers. He is very articulate, and has a command of English and also of German."

They say of him that he is not a details person. Just as he is capable of talking about things outside his area of expertise, inaccurately, so he is not always bothered about the fine financial details.

Dozens of people were employed at the display center in Glilot, and huge sums were spent on public relations. This spending, they say at Israel Corp., drove Ofer crazy.

"It was an unavoidable collision course," says a source at the company. "The visionary isn't necessarily the person suited to lead the way forward. When it comes to the stage of operations, sales, marketing, and back-up, he crashes. Then starts the big pressure from the shareholders and investors to cut expenditure. This is a cash incinerator like nothing before. Penetration is slower than they thought; deploying the recharging stations is costlier than they thought. The state benefits are less good. Things like these caused delays, and tensions, until Agassi and Israel Corp. found themselves on a collision course."

How does Idan feel?

"Idan is distraught. He thought highly of Shai, and still does."

How does Shai feel?

"Shai is very insulted. You have to take into account that his telephone doesn't stop ringing. Many companies want him on their boards. After all, he has become an international celebrity, and I wouldn't be surprised if he were to take a significant job at a global company."

According to the same source, "Better Place is the first in its field. It developed a concept from A to Z. Now it just remains to prove that it works on a business level, and so they are making changes in the leadership. Better Place is now at the 'show me the money' stage, and they decided to take someone who is more hands on. I'd say that we are very far from being able to pronounce the business a failure."

Question marks at Israel Corp.

Not everyone at Israel Corp. liked the investment in Better Place. According to a source at the company, "There were those who thought that the size of the investment was not proportionate to the stage at which the venture stood, and that there were still substantial risks. There were question marks and concerns about the venture's business and technological feasibility."

Someone else who didn't like the investment was the late Sammy Ofer, Idan's father. Sources who were close to Ofer senior say that one of the things that disturbed him was the fact that Agassi did not invest money in the venture.

"Sammy belonged to another generation," says someone who was very close to him. "Idan Ofer had a vision appropriate to his time, and Sammy did not find it attractive."

There were constant disputes with the Carasso Group, importer of Renault cars in Israel. Renault makes the electric vehicle, the Fluence ZE, and Carasso wanted Better Place to buy the cars through it and not import them by itself. Agassi objected.

Among the leasing companies there was no great enthusiasm; nor was there on the part of Israel Corp. group companies. "Israel Corp. wanted Israel Chemicals to buy a fleet of the vehicles," says a source close to Israel Corp., "but the more time went by, the less enthusiastic Israel Chemicals became. First of all, the terms Better Place originally offered were better than the terms that were talked about as negotiations progressed; secondly, Israel Chemicals employees travel long distances, and the electric car isn't suitable; thirdly, the car is more suited to people who live in private houses, where a charging point can be installed in the driveway."

A nineteenth century solution

From the first, Agassi's electric car model aroused disbelief and antagonism in the Israeli car dealing industry. Industry sources say that "sometimes you change the coach because you can't change the team."

Shmuel Harlap, chairman of Mercedes importer Colmobile, told "Globes" two years ago that Better Place's failure to expand its range of manufacturers and consumers was not temporary but inherent, stemming from the fact that it was a monopoly vis-a-vis both manufacturer and consumer. Today, he is more than ever confirmed in his opinion. "Over the past two years, it has been realized that the future lies with open systems, not closed systems, as the failure of the BlackBerry against smartphones illustrates. The smartphone revolution began with the individual consumer and moved to the business community. At Better Place, they went in the opposite direction: they approached the institutional consumer, the leasing companies, and assumed that from there the product would reach the private consumer. That is a strategic error. Today's consumer is not prepared to be tied to closed systems. Shai Agassi and Idan Ofer did not digest this, and they created a hermetically closed system that controls the consumer.

"There is uncertainty about the future value of the product, whether it will be possible to sell it, and at what price" Harlap adds. "A question mark like that over a product as expensive as a car deters both institutional and private consumers. These elements, and the inability of the Agassi-Ofer pair to bring in other manufacturers besides Renault, spell the demise of the model, and a huge gap has opened up between the hubris, rhetoric, and arrogance of Agassi, and reality. No board of directors in the world can sustain such a gap, so that the dismissal was probably inevitable."

According to Harlap, the Better Place board is mistaken if it thinks that it will make any difference. "The problem is systemic, not one of personnel. Better Place is a logistical solution to a technological problem: the problem is the small number of kilometers that the battery allows. Agassi's solution is to change it, just as a puncture repairer mends a flat tire. Agassi set up the world's biggest puncture repair shop. It's a solution that belongs in the nineteenth century.

"All over the world today they are going for the hybrid vehicle, with a battery and a gasoline engine that together give a range of 800 kilometers continuous travel. This generation of cars is in development, and the manufacturers will have them within two years. This is an interim solution, but it will be sufficient for 10-15 years, until there is a genuine technological breakthrough in electric vehicles."

Published by Globes [online], Israel business news - www.globes-online.com - on October 11, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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