Tradition Is Not A Business Model: Zero Motorcycles

10/05/2009 @ 3:32 am, by Jensen Beeler17 COMMENTS

Tradition Is Not A Business Model: Zero Motorcycles Neal Saiki Zero Motorcycles 635x425

Walking into the office of a company is always an interesting experience. For a company, the work place is the first expression of the company’s culture. Similarly, workspaces are often a reflection of the people that work inside them, an occupational rorschach test if you will. Yet, despite its importance and revealing nature, a company headquarters is rarely experienced by the end-consumer. It is an interesting disparity that occurs in every industry, and the electric motorcycle scene is no different.

Nestled just outside of Santa Cruz, California you’ll find the offices of Zero Motorcycles in a nondescript commercial building. With sales and management offices on top, the ground floor is dedicated to the bevy of engineers who make the magic happen. Humble and to the point, the engineering bay is true to task with its utilitarian layout. Test bikes abound, and are in various stages of build. On one lift, half a Zero DS can be seen, presumably still being tinkered on by the Zero team before it goes into final production.

Compare this scene to the spotless and chicly decorated office of MotoCzysz, where one expects to see Italian fashion models scurrying around the halls of the building, changing the oil of the numerous C1 MotoGP prototypes that decorate the corridors. Conversely the Brammo headquarters, with its green walls and large open warehouse space, mimics the green Ashland hills that provide inspiration for the company’s progressive environmental outlook. Only Mission Motors shares similarities to the Zero workspace, and unsurprisingly is another company whose nucleus is driven and directed by pure-bred engineers, and it is engineers that this article’s premise revolves around.

You can’t talk about engineers at Zero Motorcycles without talking to the company’s founder and CTO, Neal Saiki. Neal doesn’t keep an office on the top floor. Instead, you’ll find him in a cluttered office next to the company’s engineering bay, with drawings from his children decorating his office walls. After talking to Neal, it becomes abundantly clear who provides the driving inspiration for Zero’s decorum. Literally a rocket scientist, Saiki fits your quintessential profile for a Californian entrepreneur: highly educated, passionate, and above all else your prototypical engineer.

Tradition Is Not A Business Model: Zero Motorcycles Zero Motorcycles battery pack 635x425

Its not uncommon in technology based ventures for the company to revolve around an engineer or group of engineers. Often the driving force of innovation, engineers by their nature question and look to improve upon the established norm. Conversely, left without direction and hard deadlines, a group of engineers can whittle away at the same project, improving it ad nauseum, with no product launch date in sight. Because of these qualities, engineers are both the greatest asset and greatest detriment to a young company. For this reason, at some point early in a tech company’s life there must be some discussion of management succession, and Zero is shining example of a company that has survived its first transition in management gracefully.

The classic story that I usually use to personify this phenomenon occurred while doing I was doing due diligence for the Penn State Nittany Lion Venture Capital fund. An inventor came to our fund with a promising product. An engineer by trade, the inventor spent his free-time working out of a garage based workshop to create a simple product that cured an increasingly common problem. With a simple design, this engineer’s machine had been developed to use only two moving parts, and would likely outlive its owner. It was truly a shining achivement. It was the ever elusive elegant design.

The product had one problem though. Properly patented at its inception, this inventor had spent over 15 years perfecting his product to be as simple and full-proof as possible. Leaving likely only months of patent protection, this engineer’s pursuit of perfection closed any doors of the product coming to production. It is very likely that the product’s second or third revision would have easily satisfied the point-of-pain in the marketplace, but with virtually hundreds of revisions completed, the marginal utility of each improved design delivered ever decreasing amounts of value back.

All too often a company’s founder becomes the company’s worse enemy. For many entrepreneurs, their company is an extension of themselves; but for a company to grow successfully, it must also take on a life of its own, beyond its founder. Consider the analogy of a parent who nurtures their child through life, but then must take a backseat in that journey as they move away to start a life of their own.

For Saiki, Zero’s journey begins with the acknowledgment of where they began.

“We started out as a technology company. We developed a battery pack, which is why we’ve had the two or three years completely out in front of the industry with the smallest and lightest battery pack for the amount of energy it contains in the world. Having said that, there will be bigger companies with bigger resources that will dominate, that’s just the way it is.”

The bigger companies Saiki speaks of, are of course the Japanese Four (Honda, Kawasaki, Suzuki, Yamaha), which have dominated the motorcycle industry to date. With vastly larger resources, the Japanese Four have been able accomplish their domination primarily because of the barriers to entry in the motorcycle industry.

Essentially a motor with wheels attached to it, Neal hits the nail on the head when he describes that the Japanese Four have been able to exert such a large control over the market because of their understanding of the internal combustion motor. “Gasoline engines had a 100 year run, these things don’t change overnight,” says Saiki. “The barriers of entry are steep mainly because of the gas engine. Companies like the Japanese Four that have this incredible amount of resources to make the best engines in the world. You can’t compete against that. The great thing is you have electric vehicle technology, which is relatively simple and is revolutionary.”

Tradition Is Not A Business Model: Zero Motorcycles Zero Motorcycles DS lift 635x425

There are many ways in which we can talk about how the electric motorcycle industry is a revolutionary (as opposed to evolutionary) step in motorcycling, and its probably best left for another article of its own, but approaching the comment purely from a barrier point of view creates a striking prospect.

As Saiki explained to us, “The thing that’s kept people from making motorcycle companies in the past is that the engine technology is so horrendously hard to master, and this electric technology allows others like Brammo, us (Zero), and Mission to flourish, and provide some choices in the marketplace.” When it comes to electric motors and battery packs, all the players, both big and small, are on an equal playing field. Arguably, this is the last thing the Japanese Four, and the rest of the motorcycle industry wants.

Consider the stake-holders involved with a shift to electric motorcycles. “The Japanese Four don’t want to be the first ones into this, because they have dominance, and  they have a lot invested in gasoline technology. They really are the only ones that can produces a great gasoline engine. It’s going to be hard for them to get away from that technology, and go to another level playing field,” explains Saiki. The resistance goes beyond the major manufacturers though, consider all the parts suppliers whose products will be useless on an electric motorcycle, and the consider the motorcycling gold rush/land grab that will occur as electric motorcycles take off.

No one can make the argument that the industry will be able to avoid this change indefinitely, but we have an interesting phenomenon where the largest players have refrained from showing their hands. “They [the Japanese Four] typically use the fast follower business model. Japanese companies, they never like to take the bleeding edge on this kind of stuff. They want to see the market established, and then come in and take it over…it doesn’t make sense for them to take risks.” Instead, it would appear the major OEM’s are content for now to watch the fledging industry, and its flock of startups, do the heavy lifting in customer education and technical proofs of concept.

As the company’s CTO, the technical aspect is where Saiki’s job focuses now. If you take a quick look at the geographical map of the electric motorcycle industry, it becomes painfully obvious that it skews towards areas that flourish with technically advanced resources. Hoping to capitalize on those resources, Neal explained to us the reasoning behind Zero’s Santa Cruz locale:

“For us it made sense because of the electronics technology. We have three micro-processors on the bike, and getting talent for that type of thing, it helps to be close to Silicon Valley. There are a lot of electronic sub-systems that have to be developed if you want to have a robust system that’s reliable…I know for us Silicon Valley made sense, half our engineering staff is for electronics.”

It also probably doesn’t hurt that the west coast has been a center of the green movement, but talking to all the companies involved with electric motorcycles the first item on the agenda is very clear: price and performance parity with internal combustion engines.

For Saiki, the electric motorcycle in its current state is not too unlike the automobile when it first came out. Originally only for the rich, the automobile didn’t become a mainstay of American culture until Henry Ford came along with an affordable offering. Saiki has been quick to chastise his more expensive competitors, saying that they have missed the mark on what the consumer needs. Instead, Saiki says that he considers Zero to be the Ford of the electric motorcycle scene:

“We’re really into not just building electric vehicles and electric motorcycles, but also trying to make them affordable. We’re trying to bring our prices down, and be more affordable than guys like Brammo and Mission Motors. It’s really going to be who can be the first Henry Ford of this industry. Who can actually produce an electric motorcycle at a reasonable price that everyone can afford. And at that point if you have performance and reasonable price, there’s no reason not to buy an electric motorcycle.”

Unafraid of the looming prospect of the Japanese Four entering the industry with their larger budgets, partnerships, supply chains, and resources, Saiki believes that “there’s a lot of room for us as a company to exist with the Japanese Four.” Funded through private equity investments, Zero motorcycles aims to compete with the Japanese Four as they enter the marketplace, whereas other companies’ business models provide for an acquisition strategy. We might be getting ahead of ourselves with discussions of mergers, acquisitions, and investor exits, but it adds further intrigue to this budding industry, where we see all the major players funded via different methods, and with end goals just as equally diverse.

We may be some time off before an article about such possibilities can occur, until then we’ll agree with Neal’s statement that “we’re really just at the beginning of this technology,” and indeed we’re really just at the beginning of the possibilities.

Comment:

  1. Tradition Is Not A Business Model: Zero Motorcycles – http://bit.ly/2uqXPp #motorcycle

  2. jar_o_flies says:

    What does/is this article attempting to say?

    The Emarket exists for entrepreneurs like Saiki, until the big four decide to dominate? Then their only hope is to partner/merge/or sell?

    What is Zero’s long term strategy? Does new battery development figure in? New motor development?

    Saiki acknowledges a battery advantage, now, and then admits that the fight is futile against the vast resources of the Big Four – isn’t that the case for his product as well? If not, why not?

    Saiki feels that there is space for Zero within a market that is also filled with Honda, Suzuki, Yamaha, and Kaw all doing Emoto’s. What does Zero look like at that point? How does he fit? Who does he fit?

    After reading this piece, I feel like I know a bit more about Zero and its founder, and a bit more about their direction (I like that the vehicle is not “green for green’s sake” but rather is being developed as an “option” – just as buying a twin, triple, 4 or 6 are “options” that work), but I still know little about how this business can survive after the game is really turned on.

    Again, it feels like a “coach building” era is coming at us with batteries and electric motor sourcing being put in various “framers”. Which is not to say such a development is a bad thing, only that this article fails to sway my opinion, or even point out a viable alternative.

  3. http://bit.ly/GB4dq Tradition Is Not A Business Model: Zero Motorcycles – Asphalt & Rubb.. http://bit.ly/pK5Pf

  4. Brammofan says:

    RT @Asphalt_Rubber: Tradition Is Not A Business Model: Zero Motorcycles – http://bit.ly/2uqXPp "who can be the first Ford of this industry?"

  5. skadamo says:

    Excellent article! RT @Asphalt_Rubber: Tradition Is Not A Business Model: Zero Motorcycles – http://bit.ly/2uqXPp #electric #EV

  6. Tradition Is Not A Business Model: Zero Motorcycles – Asphalt & Rubber http://bit.ly/1EowK2

  7. RT @brammofan: RT @Asphalt_Rubber: Tradition Is Not A Business Model: Zero Motorcycles – http://bit.ly/2uqXPp "who can be the first Ford…

  8. Tradition Is Not A Business Model: Zero Motorcycles – Asphalt & Rubber: Motorcycle news, Industry Rumors, M.. http://bit.ly/1uhuYH

  9. I’d really like to see Zero and other players in this market produce an affordable high-performance streetbike that can be ridden agressively for a couple of hours before needing a recharge. The motocross style machines are great, but what I want is an electric motorcycle that can do the same job as a 600cc sports bike.

  10. skadamo says:

    This piece is telling me electric technology will flatten (probably temporarily) the market share of motorcycle sales. Right now a disproportionally small number of brands enjoy a large percentage of the sales. Zero is grabbing a piece and if they can deliver a better product long term with the right business model and services (clear your mind of motorcycle industry cliche) they can become the new leader.

    I think this flattening was going to happen anyway with KTM grabbing more sales from the big 4 in dirt bikes. Chinese grabbing sales from low displacement bikes and scooters. Electric will cause this to happen faster. The Big 4 will partner up with the people taking their market share. They have been doing it with the Chinese, Taiwanese and others for quite a while now. I hope Zero, Brammo and others can move fast enough and smart enough to become a big brand and not get sucked up by big $. Pay days are nice but a big American motorcycle brand other than Harley would be cool.

    I like this article because it really got my mind spinning about how the industry will change over the next decade.

  11. jar_o_flies says:

    “Technology will flatten the market share of motorcycle sales” – so, the expectation is for Emoto, produced by those other than the Big4, to capture a certain percentage of existing motorcycle market, thereby reducing the total share each of the Big4 holds of that market? This neglects “new riders”, and I’m assuming here, also those who perhaps would’ve purchased a scooter, and instead purchased an emoto – and keeps the total pool of motorcycle riders available looking the same, just riding a different motorcycle.

    Let’s say I agree with that, but at what point is this “flattening” unacceptable to the Big4 such that they do something about it, which would either be introducing their own product (which they are surely working on – if Honda has the time to pursue electric unicycles, surely they have capacity of some sufficient resource looking into altenative powertrain for their motorbikes), or as you stated, partner/absorb the existing offerings in the market? To me, this is the big question.

    Let’s say Zero’s plan works perfectly, and tomorrow they reveal a product that in everyway compares well with the performance of 600cc sportbikes – with all the advantages an E powertrain brings to the table. Let’s say they also, just as magically, have a dealer and service network in place to distribute and service this silver bullet vehicle – or at least something that performs as a conventional support network. In 2008 sportbike sales in the US were 165K units (this includes triumph, BMW, Ducati, and KTM as well), of which displacements of 501cc-750cc amounted to 82K amongst this group. What % of that figure starts to mean something to the existing players?

    More importantly, what % of that figure does Zero feel they need to capture to sustain existance? Production volume significantly impacts any company’s business case, and we’ve seen no discussion of this point in the article. At $7500, the least expensive MSRP of Zero’s current offerings, how many must be sold to break even? At 1000 units (roughly 1% of current market, so .25% of sales to each of the Big4 – think they will care? They’ll just sell more T-shirts), assuming Zero’s cost to be somewhere around 1/2 MSRP, and considering they are shipping via UPS (so no dealer cut in margin), gross sales would be around 3.5million – not a bad nut, except I’m sure those silicon valley digs (however non-descript), and silicon valley IT, EE, and ME types don’t come cheap – which altogether leaves precious little $$$ to pursue product development, which is probably the most important aspect of this sector.

    At the end of the day, I fail to see how such a player will change the industry. A functional Emoto with perfomance characteristics similar or close to existing ICE vehicles will change the industry, but only in as much as we will have another option along side of 2′s, 3′s, 4′s, and 6′s…….unless, of course, the vehicle delivers competive performance (or superior) and is vastly less expensive, or through electronic gimmickery provides some other novel advantage unavailable to ICE vehicles.

    Two guys will change the face of the motorcycle industry in the next decade. I don’t know their names, and there is a good chance they will not be directly employed by a motorcycle manufacturer. They will be the motor guy and the battery guy, names to be determined later.

  12. Zero Motorcycle, located Santa Cruz, California. – Shift to electric motorcycles – Company Overview http://bit.ly/vUrYG

  13. Zero Motorcycle, located Santa Cruz, California. – Shift to electric motorcycles – Company Overview http://bit.ly/vUrYG

  14. Zero Motorcycle, located Santa Cruz, California. – Shift to electric motorcycles – Company Overview http://bit.ly/vUrYG

  15. Zero Motorcycle, located Santa Cruz, California. – Shift to electric motorcycles – Company Overview http://bit.ly/vUrYG

  16. Edge says:

    Zero Motorcycle, located Santa Cruz, California. – Shift to electric motorcycles – Company Overview http://bit.ly/vUrYG

  17. Biker Pros says:

    Zero Motorcycle, located Santa Cruz, California. – Shift to electric motorcycles – Company Overview http://bit.ly/vUrYG