As business owners, we use a range of risk analysis tools, up to and including the results displayed by a Magic 8 ball or the toss of a lucky coin.
Sometimes, we even use facts. Let’s take a quick look at one business case.
Let’s say, hypothetically, we have an opportunity to invest in a green energy company that produces solar panels. The product stats are quite simple:
Per unit manufacturing cost: $6Hmmmn. On the face of it, the company is selling every unit at 50% of its real costs. Even at this radically discounted rate, the company is charging two to three times as much as its competitors.
Selling price: $3
Competitors’ sales price ranges: $1 to $1.50
The company and its products are designed for the commercial rooftop market. Further, it considers 100% of the 11 billion square meters of commercial rooftop surfaces available worldwide to be a fair reflection (no pun intended) of its target market.
Let's do a quick risk analysis with just the minimal facts at hand.
Is selling a product below cost a positive indicator? Does every commercial building owner and every commercial rooftop (regardless of latitude, location and economic viability) represent: A genuine potential customer? A valid opportunity for a solar panel installation?
I’ll go out on a limb here and say, no and no and no. Even the most casual review indicates this company isn’t operating in a world ruled by facts and objective analysis.
Every business person knows not all business risks pay off. As we've shown above, however, even a superficial analysis raises serious business concerns.
So, who invested in this company? As US taxpayers, we did.
The company is called Solyndra, and in 2009 it received $535 million in US government loan guarantees. On August 31, 2011, the company laid off 1100 employees and filed for bankruptcy.
Do the math for per unit job cost, and each Solyndra job cost US taxpayers more than $486,000. That's the good news.
The bad news is several media sources are alluding to a gaggle of similar green energy companies, backed by US taxpayer dollars, which are also floundering, failing or ready to call it quits.
Goodbye greenbacks, hello green energy. Wouldn't it be more cost and fuel efficient to simply pile money in a pit, put a match to it, and harness the BTUs for heat and light?
Price Pressure | Self-Inflicted Wounds
Price Pressure | Market Forces & the Solyndra Fiasco
Sales | How Do You Jumpstart Sales? (series)
Green Tech Media: Solyndra 1.9M Project Installed, Fraught with Uncertainty
San Francisco Chronicle: Solyndra Closes Fremont Plant
Washington Times: Energy Firm Goes Bankrupt