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 / Fall 2003 / Issue 32(originally published by Booz & Company)


Making Patient Capital Pay Off

What transforms a craze into sustained growth? Trust.

Illustration by Lars Leetaru
From a purely technological standpoint, this should be a great time to be an entrepreneur. Computers are more and more powerful. Many scientific and technological fields — basic physics, biotech, materials science, military technology, and, most important, energy — are poised for breakthrough innovation. As futurist Peter Schwartz writes in his new book, Inevitable Surprises: Thinking Ahead in a Time of Turbulence (Penguin, Gotham Books, 2003), the predominant fuel for automobiles in 2025 is currently a toss-up: It could remain gasoline, or that could be replaced by hydrogen (through fuel cells), natural gas (through turbines), electricity, or some hybrid. Companies that provide the winning fuel sources could end up dominating the next industrial infrastructure for decades. The last time such promise and uncertainty existed was the turn of the 20th century, when nobody knew for sure whether steam, gasoline, or electricity would become the fuel of choice for horseless carriages.

Yet, in this jittery postbubble economy, the capital necessary to fund the next wave of technology is a lot harder to raise than it was a few years ago. It’s not that capital is in short supply. Nor is there any shortage of places to invest it. A friend of mine, plugged into venture capital circles, says he is continually approached by entrepreneurs asking if he can put them in touch with potential angels. “I know lots of people with money,” he tells them. “But they’re not interested in talking to you, or anyone else, right now.”

Traditionally, the kind of investment that supports long-term innovation is known as patient capital. When patient capital is scarce, its champions, such as Harvard University strategist Michael Porter and former Secretary of Labor Robert Reich, tend to blame tax and fiduciary laws, which promote short-term investments. But the real shortage is trust.

How are the potential leaders of the next industrial revolution supposed to finance themselves? In January, that question led me to visit Plug Power Inc., a small (320 employees) company based near Albany, N.Y., where trust and patience are being explicitly invoked as the foundation for the company’s success.

Turnaround Artist
As one of the first independent commercial producers of hydrogen fuel cells, Plug Power has depended on the confidence of investors since its inception. Founded in 1997 as an offshoot of Mechanical Technology Inc., itself an offshoot of a General Electric Company technology lab venture composed mostly of former GE engineers and scientists, Plug Power rode the roller-coaster of the dot-com boom from $15 per share at its IPO to a peak of $157 in February 2000 and then back down below $7, where it has stayed ever since. On the way down, the company went through a crisis: Founder and former CEO Gary Mittleman abruptly resigned in mid-2000, and a series of lawsuits followed.

The current CEO, Roger Saillant, was recruited in December 2000, by which time the share price had fallen below $20 and was still going south. An unlikely choice to lead the troubled company, Dr. Saillant was a first-time CEO, and neither an energy expert nor an experienced entrepreneur. He was a 55-year-old car guy from Detroit, a production-executive-cum-troubleshooter who had risen through the engineering and manufacturing ranks at Ford Motor Company.

I met Dr. Saillant when he was at Ford; we both traveled in organizational learning circles. He looks like a stereotypical Marine sergeant: He has close-cropped gray hair, rugged features, and the wrestlerlike build of someone who got into a lot of impulsive fistfights in his youth. But behind this he has both a gentle manner and an assertive edge, which comes through in his thoughtful outspokenness. Dr. Saillant argues, for instance, that CEOs should be fired or financially penalized when layoffs occur on their watch. He says they should have seen the problems brewing in time to forestall job losses.

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