What do SunEdison’s CEO Ahmad Chatila, NRG’s David Crane and Shell’s Marv Odum have in common?
Your first responses might be bankruptcy, being ousted or failure. And you wouldn’t be wrong. You also wouldn’t be totally right.
These leaders gambled big because they know the game (theory that is).
SunEdison, once America’s fastest growing renewable energy company, recently filed for Chapter 11 Bankruptcy protection. David Crane, former CEO of NRG Energy, recently “resigned” amid investor anxiety over his aggressive green energy investment strategy. And Marv Odum, former U.S. Chair and President of Royal Dutch Shell, recently “retired” after big plans to drill for oil in Alaska’s Chukchi Sea fell flat.
In economic game theory, the first to enter a new market gains a host of advantages over its competitors. This first mover advantage can lead to greater revenues and profits over time by exploiting economies of scale, becoming operational experts, gaining consumer/investor confidence, and making it harder for other rivals to enter the market. First movers also bear a lot of risk and failure rates are high.
In the end, theorists suggest that it might not be as important to be the first mover into a market, but the first to scale.
And that is what Chatila, Crane and Odum were trying to do. Be the first to enter into a new, high-value market and dominate (i.e. scale) through breakneck expansion.
For Odum, it was trying to dominate oil drilling in the newly opened Chukchi Sea, a bet that didn’t turn out when the expensive wells under produced just around the time cheaper onshore oil shale wells took off in the U.S. The bet was oil, and that game has been around for a long time.
For Chatila and Crane, the game was new and the proposition presented greater value because (many believe) the market for cleaner energy resources is growing and while there are many start-ups and mid-size companies and some large caps with clean energy divisions, there is plenty of room to dominate and scale as the(e) large cap company in the clean energy space.
The thought of climate change being real may give energy investors a lot of anxiety about their prolific financial bets on traditional energy resources. But for those that take a deep breath, overcome initial fears and begin to think creatively, they might find opportunity that is not only real, but very, very big.
If citizens of the country (not to mention, the world) and their political leaders want and need solutions to a global problem, don’t you want your company to be the leading solutions provider? And with climate change, the energy sector already knowns what some of the “new market” solutions are going to be, like renewables, efficiency and storage.
Chatila and Crane bet big in an effort to dominate and scale in a new market that shows huge value and growth potential for the future, probably more than anyone has seen in a long time (including those in the shale-gas industry). Unfortunately, the timing wasn’t great, as power sector prices collapsed due to low natural gas prices, making the debt loads that financed rapid expansion too heavy to carry.
The question now is, who will be the next to bet big in an attempt to grab this “green and brass ring” of opportunity?