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


Making Patient Capital Pay Off

At Ford, he built his career by getting startup operations off the ground in Mexico, Hungary, Thailand, and India and by rescuing troubled component-production plants in the United States, China, and Northern Ireland and making them profitable. Typically, he did this by talking with local employees until he understood their fundamental aspirations. In the high-unemployment environment of Belfast, Ireland, this meant job security for local children. Although the plant was on the verge of being closed, Dr. Saillant set up 22 apprenticeship slots for local young people; that spurred a renewed sense of trust. The plant turned around and began to thrive.

At Plug Power, Dr. Saillant is facing a different set of troubles, among them the tension between rapidly dwindling cash flow and a slow development time frame for Plug’s main products. Fuel cells are batterylike capsules that use chemical reactions to produce electricity, with natural gas or pure hydrogen as the raw material. The devices can be small enough to fit inside cell phones, or large enough to power automobiles and buildings. Compared with conventional internal combustion engines, fuel cells are not just cleaner (they emit pure water as waste), but also more versatile (they combine easily with other technologies), quieter (they run silently), and more efficient. But most energy experts say it will take another five to 15 years before the devices are cheap enough to become widespread in homes, vehicles, or elsewhere.

Hence the dilemma facing the company. Plug Power can survive only if its employees and investors take on a seventh-generation ethic, caring more about the long-range impact of their product, over the next 150 years or more, than about (say) cashing in their stock. At the same time, the company has only enough cash, with its current burn rate, to last into 2005. Dr. Saillant, with his background in organizational learning, has chosen to square the circle by talking openly about the dilemma — not just with employees, but with shareholders.

Disappearing Wealth
Gaining commitment from both groups has been a challenge. When Dr. Saillant arrived at Plug Power he found a work force composed mostly of people in their 20s and 30s who, just a year earlier, were paper millionaires. They assumed they would change the world and grow rich. But all that wealth had been snatched away. As Dr. Saillant put it (in a talk to a class taught by MIT management lecturer William Isaacs): “They were angry, frustrated, and expressing that frustration in all directions.”

They also had reason to wonder if the company would survive. One bearish investor’s newsletter (Grant’s Investor, a spin-off from the better-known Grant’s Interest Rate Observer) had singled out Plug Power in February 2001 as a doomed example of high-flying technological optimism. Even if the company met production goals, wrote newsletter editor Eric Fry, the basic business proposition was dubious: “The U.S. Energy Department is only expecting, at best, 100,000 households to be using fuel cell technology in the U.S. by 2020. Which, if we assume Plug Power sells 100 percent of all units, would translate to an average annual sales rate of 5,000 units, well below the rate needed to justify [Plug Power’s current] $750 million market cap.”

Just to keep going, Dr. Saillant (the man who would penalize leaders who can’t avoid layoffs) had to cut about 160 people. Employees, fearing the worst, took their fear and mistrust underground, letting it seep out in small but telling ways. Dr. Saillant got an anonymous note under his door saying, “You obviously have no commitment to the company. You haven’t even switched your address here from Michigan.” The note writer had noticed that Dr. Saillant was still driving to work in a Ford pickup truck with Michigan license plates: “a gas guzzler, no less.”

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