So You Want to Start your Own Business? Make Sure You're Cut Out For It First

Many people I know are contemplating with starting their own business these days so I thought I would share a superbly realistic article from today's WSJ. At the end of the day, having done the big company and the start-up in many different ways, I do agree that being an entrepreneur requires a special kind of person....so are the right kind?

Thinking about starting a business? Make sure you're cut out for it first.

In this bleak economy, lots of people are contemplating striking out on their own -- whether they're frustrated job seekers or people who are already employed but getting antsy about their company's prospects.

For some people, entrepreneurship is the best option around, a way to build wealth and do something you love without answering to somebody else. But it's also a huge financial gamble -- and some people, unfortunately, will discover too late that it's not the right fit for them.

Building a successful business can take years filled with setbacks, long hours and little reward. Certain personalities thrive on the challenge and embrace the sacrifices. But it can be a hard switch for someone who has spent years sitting in a cubicle with a steady paycheck.

So, how can you figure out whether you're suited for self-employment? We spoke with entrepreneurship researchers, academics and psychologists to come up with a list of questions you should ask yourself before making a big leap. Entrepreneurs, of course, come from all sorts of backgrounds, with all sorts of personalities. But our experts agreed that certain attributes improve the odds people will be successful and happy about their decision.

Keep in mind that any self-analysis is only as useful as the truthfulness of the answers -- and most people aren't exactly the best judges of their own character. So, you might enlist a friend's help.

Here, then, are 10 questions to ask to see whether you're up for the challenge of entrepreneurship.

1. Are you willing and able to bear great financial risk?

Roughly half of all start-ups close within five years, so you must be realistic about the financial risks that come with owning a business -- and realize that you could very well lose a sizable chunk of your net worth.

Consider how much you'll have to ante up and how losing it would affect your other financial goals, such as having a sound retirement or paying your kids' college tuition. Weigh the importance of starting a business against the sacrifices you might face.

Entrepreneurs should be sure that "if they lose this capital, it either won't destroy their financial situation, or they can accept the concept of bankruptcy," says Scott Shane, an entrepreneurship professor at Case Western Reserve University in Cleveland. "Some people thrive on the financial risk; others are devastated by the thought of losing even $10,000."

And don't assume you'll be able to lower your risk substantially by finding investors. Less than 10% of start-up financing comes from venture capitalists, angel investors and loans from friends and family combined, Prof. Shane says. And that's true even in good economic times. Banks, meanwhile, often won't lend to start-up founders without a proven track record. When they do, they generally require the founders to guarantee the loan or credit line with their personal savings or home -- an incredibly risky proposition. (To learn how to mitigate risk by keeping your old job while starting a new venture, see "A Toe in the Water".)

2. Are you willing to sacrifice your lifestyle for potentially many years?

If you're used to steady paychecks, four weeks' paid vacation and employer-sponsored health benefits, you might be in for an unpleasant surprise.

Creating a successful start-up often entails putting in workweeks of 60 hours or more and funneling any revenue you can spare back into the business. Entrepreneurs frequently won't pay themselves a livable salary in the early years and will forgo real vacations until their business is financially sound. That can often take eight years or longer, says William Bygrave, a professor emeritus of entrepreneurship at Babson College in Wellesley, Mass.

Even if you can steal away, it's hard to find somebody who can fill in for you. Many entrepreneurs must tow along their cellphone and laptop, so they can be available to answer questions from clients or employees.

Jennifer Walzer learned those lessons the hard way. In 2002, after being laid off from a $100,000 consulting job when the company closed, she started Backup My Info! Inc., which sells online data-backup services to businesses.

For the first year, the New York-based company brought in just $29,000 in gross revenue. Ms. Walzer didn't pay herself a salary until the third year, and even then it was a slim $30,000. She could have taken more out, but she wanted to shovel as much money into the business as possible to keep it financially sound.

Having no income for two years meant that Ms. Walzer had to be extremely frugal; she virtually never ate out or went on vacations or clothes-shopping trips. Twenty-nine years old at the time, she says, "I got very jealous of my girlfriends who got home at 5 o'clock every night and could go out gallivanting and pretty much do whatever they pleased." She'd occasionally meet friends for coffee instead of drinks, since coffee was less expensive.

Now that her business generates about $2 million in annual revenue, the tables have turned. Ms. Walzer says she earns more from the business than she did as a consultant, and "I have friends who are struggling to keep their jobs because they have bosses."

3. Is your significant other on board?

Don't ignore the toll running a business will take on your loved ones. Failed ventures frequently break up marriages, and even successful ones can cause lots of stress, because entrepreneurs devote so much time and money to the business.

"I'm always surprised at the number of husbands who start a business and don't tell their wives," says Bo Fishback, vice president of entrepreneurship at the Ewing Marion Kauffman Foundation.

You can avoid the heartache by talking at length with your spouse and family about how the business will affect home life, including the time commitment, changes in daily schedules and chores, financial risks and sacrifices. They must also understand the huge financial gamble they're making with you.

4. Do you like all aspects of running a business?

You better. In the early stages of a business, founders are often expected to handle everything from billing customers to hiring employees to writing marketing materials. Some new entrepreneurs become annoyed that they're spending the majority of their time on administration when they'd rather be focused on the part of the job they enjoy, says Donna Ettenson, vice president of the Association of Small Business Development Centers in Burke, Va.

"All of a sudden, they have to think about all these things they never had to think about before," she says.

Jeromy Stallings, the 33-year-old founder of Ninthlink Inc., a San Diego interactive-marketing firm with 15 employees, always felt he had plenty of passion for entrepreneurship and self-motivation. But when starting his agency in 2003 and hiring his first couple of employees, he realized he wasn't prepared for the day-to-day challenges of managing other people.

Mr. Stallings had assumed his passion would rub off on employees and they would do their jobs as enthusiastically as he did. But some clients started calling him directly, complaining that his employees weren't returning phone calls or that projects were behind schedule.

"My clients were saying, 'We love your passion, we love your skill, we're just having a really hard time with your management style,' " he says.

So, Mr. Stallings turned to peers, mentors and guidebooks for help. He realized he needed to work more closely with employees and create a more structured project-management system. "I didn't really have a plan in place for how they spend their time," he says.

5. Are you comfortable making decisions on the fly with no playbook?

With a new business, you're calling all the shots -- and there are a lot of decisions to be made without any guidance. You might not be used to that if you've spent years working in corporate America, says Bill Wagner, author of "The Entrepreneur Next Door," a book that lays out the characteristics of successful entrepreneurs.

"For most entrepreneurial ventures, there's no structure," he says. "You're going into a business, and nobody has told you how to be successful."

Mr. Wagner has surveyed more than 10,000 entrepreneurs to find out what traits distinguish successful start-up founders from less-successful ones. Among other things, most entrepreneurs he interviewed said they liked making decisions. He doesn't rule out the idea that less-decisive people could become better at the leadership role. It's just that they will have to work a lot harder at it.

6. What's your track record of executing your ideas?

One of the biggest differences between successful entrepreneurs and everyone else is their ability to implement their ideas, says Prof. Bygrave of Babson College. You might have a wonderful concept, but that doesn't mean you possess that special mix of drive, persuasiveness, leadership skills and keen intuition to actually turn the idea into a lucrative business.

So, examine your past objectively to see whether you have assumed leadership roles or initiated solo projects -- anything that might suggest you're good at executing ideas. "Were you senior class president? Did you play varsity sports?" Prof. Bygrave suggests asking.

You might even find clues back in your childhood, he adds: "A lot of successful entrepreneurs were starting businesses when they were still kids."

7. How persuasive and well-spoken are you?

Nearly every step of the way, entrepreneurship relies on selling. You'll have to sell your idea to lenders or investors. You must sell your mission and vision to your employees. And you'll ultimately have to sell your product or service to your customers. You'll need strong communication and interpersonal skills so you can get people to believe in your vision as much as you do.

If you don't think you're very convincing or have difficulty communicating your ideas, you might want to reconsider starting your own company -- or think about getting some help.

In 2007, Brad Price left a $135,000-a-year job as an associate at a Baltimore law firm to purchase a PuroClean Emergency Restoration Services franchise, which cleans up property damage such as mold and flooded basements. A former Naval officer, Mr. Price felt he was very self-motivated and a good leader. But he was less comfortable cold-calling and striking deals -- something he'd never had to do in previous jobs.

"There's a big difference in waiting for the phone to ring and getting an assignment and having to make the phone ring," says the 33-year-old Mr. Price.

Mr. Price says he now has his wife handle the marketing and networking. "My wife is very good at that, 'Hey, next time a call comes in, how about you give it to us?' " he says.

8. Do you have a concept you're passionate about?

Every morning you want to jump out of bed eager to get to work. If you're not that exuberant about how you'll be spending your time -- or the business concept itself -- running a business is going to be a rough ride.

Ms. Ettenson of the Association of Small Business Development Centers has coached many prospective entrepreneurs about their chosen business. She always asks why they're doing it. If they suggest it's mostly for the prospect of making a lot of money or because they're tired of working for someone else, she steers them toward something more in line with their interests or avoiding self-employment altogether.

"If you hate doing paperwork, the last thing you want to do is become a bookkeeper," Ms. Ettenson says. "If you'd rather be outside taking people into the wilderness, then that's the type of business you should be in."

But it's also usually wise to find a business in an industry you are very familiar with; it will be much harder to succeed if you know little about the field. Mr. Fishback at Kauffman says he has steered a doctor and other professionals away from starting restaurants because they often don't grasp how difficult and risky restaurant ownership is. And they'd be competing against restaurateurs with years of experience.

9. Are you a self-starter?

Entrepreneurs face lots of discouragement. Potential buyers don't return calls, business sours or you face repeated rejection. It takes willpower and an almost unwavering optimism to overcome these constant obstacles.

John Gartner, an assistant clinical-psychiatry professor at Johns Hopkins University and author of the book "The Hypomaniac Edge," theorizes that many well-known entrepreneurs have a temperament called hypomania. They're highly creative, energetic, impatient and very persistent -- traits that help them persevere even when others lose faith.

"One of the things about having this kind of confidence is they're kind of risk-blind because they don't think they could fail," Prof. Gartner says. And, he adds, "if they fail, they're not down for that long, and after a while they're energized by a whole new idea."

You don't have to be as driven as, say, Steve Jobs to succeed. But somebody who gets deterred easily, or too upset when things go wrong, won't last.

10. Do you have a business partner?

If you don't have all the traits you need to run the show, it's not necessarily a hopeless endeavor. Finding a business partner who compensates for your shortcomings -- and has equal enthusiasm for the business concept -- can help mitigate the risks and even boost the odds of success.

David Gage, co-founder of BMC Associates, an Arlington, Va., business-mediation practice, points to a Marquette University study of 2,000 businesses. The researchers found that partner-run businesses are far more likely to become high-growth ventures than those started by solo entrepreneurs.

The key, Mr. Gage says, is finding a partner who prefers handling different aspects of the business, so you're complementing each other -- and not constantly at each other's throats.

Someone who likes to take risks and be in the spotlight, for instance, might choose a cautious partner who prefers to work in the back room. "If they're willing to work with that person, and not just look at them as a wet blanket, then it can be great," Mr. Gage says.

But taking on a partner isn't a light decision. Many partnerships split due to conflicts over everything from attitudes about money to miscommunication and contrasting work ethics. Mr. Gage recommends that potential partners spend several days hashing out the specifics of the business and how the arrangement will work to see if they're compatible.

Why Sustainability is Still Going Strong

This is a must read FT article for everyone who wishes to become a great general manager in the post-depression era....

In the wake of the deepening economic crisis, many commentators are warning of the demise of corporate sustainability, the practice of balancing profit with the social and environmental impact of doing business. Companies obsessed with their own short-term survival, they suggest, cannot possibly support long-term, “feel-good” initiatives to protect the environment or invest in community development.

We see things differently. The downturn will produce more integrated, strategic and value-creating sustainability efforts in many companies. While traditional corporate responsibility and philanthropic initiatives may suffer, core elements of the sustainability agenda will survive or even thrive in a re-ordered economy.

One aspect of sustainability that is alive and kicking, perhaps more so because of the economic crisis, is concern with corporate governance. Public perception and trust of large corporations have been seriously damaged. The downturn will keep pressure on companies and executives to rebuild that trust and they must show a renewed commitment to do business in ways that go far beyond adherence to legal requirements, incorporating decision-making and reporting procedures that respect all stakeholders. Companies that fail to show such commitment will find themselves at risk when the economic conditions improve.

Concern with corporate governance is a fairly recent addition to a broader array of sustainability issues. Companies have been balancing economic, social and environmental objectives for much longer. In the 1970s, the earliest corporate sustainability efforts were developed to respond to new regulations in the US and Europe, and focused primarily on regulatory compliance and risk management. Environmental and social departments were designed as buffers, managing legal and regulatory obligations so the rest of the organisation could focus on making a profit. Many of the more successful companies have developed philanthropic programmes that direct a portion of corporate profits towards worthy causes, often through a corporate foundation created to support projects in communities where the company operates.

But this philanthropic approach is bound to suffer in the current downturn. For example, the three big US automakers have historically subsidised a broad array of social and economic initiatives, especially in the Detroit area. However, in the light of the automakers’ dismal economic prospects, local charities and non-profits expect corporate contributions to drop as much as 30 per cent in 2009.

Eco-efficiency

As companies have built sustainability capabilities and systems, generally under the broad title of “eco-efficiency”, it has become clear that sustainability management can contribute substantially to the bottom line by driving more efficient use of resources and reducing waste. For example, 3M’s “3P” programme, which started in 1975 to identify specific efficiency projects, has led to about $1bn in cumulative savings.

In the current business environment, however, there are obvious reasons why companies might want to reduce their levels of investment in eco-efficiency. First, the economic crisis has dampened demand for many resources and, thus, reduced the costs of energy, raw materials and other natural resources. This has made the business case for investing in energy efficiency more difficult to make. Second, eco-efficiency efforts vary widely in the amount of upfront capital required. While most companies have significant opportunities to reduce resource use through better operational practices, opportunities that are more significant typically require greater investment. For cash-strapped companies, it may become difficult to justify immediate outlays in anticipation of savings in the long term.

So, the outlook for eco-efficiency is decidedly mixed, continuing in most companies, but focusing on lower-key and lower-cost measures.

Consumers, retailers and supply chains

Consumers continue to demand green products, and in some cases demand is growing. According to a study by the Fresh Ideas Group, a public relations firm, consumers in 2009 will be more conscious of product impacts but also more value-conscious. The best positioned products will produce immediate savings, such as efficient lighting, or yield multiple benefits, such as local food that is perceived to be both greener and healthier. Big-ticket items, such as hybrid cars, or products with hefty premiums for an environmental benefit, such as organic bedsheets, may be more difficult to shift off shelves.

Retailers with strong and growing sustainability ambitions should flourish. Perhaps the most visible example is Wal-Mart, the world’s biggest retailer, which has announced several goals in the past few years, including zero waste, 100 per cent renewable energy use, “sustainable products” and, most recently, new standards for the environmental and social performance of its suppliers. For the supplier, this could be a burden but it could also be seen as an opportunity.

Tesco, the UK retailer, has also raised the bar for its suppliers, most notably requiring certain products to provide labelling information about the product’s carbon footprint.

Big retailers such as Wal-Mart and Tesco play important roles in educating consumers about the importance of sustainability and providing more affordable options in the marketplace. While we are still early in this process, there are encouraging signs that the retailer sustainability effect is real and is here to stay.

Sustainability as strategy

Changing economic and regulatory environments will lead more companies to adopt corporate strategies that include sustainability as a core issue. In their simplest form, such strategies will focus on helping a company’s customers to cope with their own sustainability issues.

General Electric’s Ecomagination programme is a good example. By developing and marketing products ranging from compact fluorescent light bulbs for homeowners to more efficient gas turbines for power-generating utilities, GE profits by providing ways for its customers to reduce their own operational costs.

The current economic crisis adds tension – customers with less cash to spend may reduce demand for such products. However, this appears to be primarily a financing issue. The companies that succeed may well be those that can help their customers finance purchases so the timing of cash outlays and operational savings are brought closer together.

Establishing sustainability as a core element of strategy is a much deeper problem. Companies will have to broaden their understanding of the system within which they operate, which includes a broad range of impinging factors, trends, forces and interactions. Developing this understanding will involve more than a conventional economic analysis.

In The Necessary Revolution: How Individuals and Organisations Are Working Together to Create a Sustainable World, Peter Senge of the Sloan School of Management, MIT reveals that companies will need a deep systems-based understanding of how the global economy, environment, society and geopolitics interact and affect the organisation. His work predates the current economic crisis, but it only strengthens his argument. Retailers and manufacturers must consider the possibility of severe upstream disruptions in supply and distributions chains, and at the same time grasp how economic and political conditions across the world will affect them. Add in volatility in energy and natural resources markets and potential disruptions in resource supply, and the importance of large-scale system-based comprehension becomes crucial for companies to succeed or, in some cases, simply survive.

Companies that are able to adapt will see that problems previously considered to be outside their sphere of influence actually fall within their purview. A good example is how Coca-Cola has dealt with water sustainability challenges. As water resources have become increasingly stressed and scarce in many parts of the world, Coca-Cola has begun to experience more conflicts with communities and other water users, most notably in India. Beginning in 2002, the company launched a thorough evaluation of its water use and associated risks, and developed a water sustainability programme that goes well beyond the traditional narrow focus on legal compliance and efficiency alone. As this work has evolved, Coca-Cola has increased its involvement in community efforts to ensure access to clean drinking water, watershed protection projects, especially in water-stressed regions, and efforts to mobilise the international community to anticipate and deal with ever more severe water crises worldwide. Coca-Cola’s approach is not philanthropic, but rather based on a realistic assessment of what is required to continue to operate a beverage company in an increasingly water-stressed world.

Conclusion

Ultimately, sustainability in the 21st century will require companies to “go deep, go wide, go local”.

“Going deep” means institutionalising sustainability into the company’s DNA to the extent that it becomes part and parcel of strategy. “Going wide” implies a full understanding of how sustainability impinges on every aspect of the organisation’s value chain. Finally, “going local” paradoxically goes hand-in-hand with globalisation, forcing companies to examine their global operations in order to identify and ameliorate specific local issues that affect the company’s operations, customers, competitive position, brand image, political standing or any aspect of its ability to do business.

Adopting a phrase from John Ehrenfeld’s Sustainability by Design, we see sustainability as flourishing within limits. Companies that are able to grasp the system within which they operate and the limits and requirements the system imposes will be the ones to flourish in the future business environment.

China's new king of solar

Suntech is one of many solar firms trying to make it big in the race to achieve "grid-parity" cost of electricity. However they are facing a tough battle in today's difficult economy where credit is scarce and oil is below $37. You will find the following Fortune article representative of how a young promising innovative industry will suffer in the foreseeable future....

(Fortune Magazine) -- On a chilly Saturday afternoon in mid-January, Shi Zhengrong, casually dressed and smiling as if he didn't have a care in the world, walked into the stunning new building that is now the headquarters of Suntech Power Holdings, the company he founded and built from scratch just eight years ago.

Back then, in 2001, he had received $6 million in startup money from the government of Wuxi in China's Jiangsu province - the site of the multimillion-dollar headquarters. The local Communist Party officials who backed Shi have learned yet another lesson in the benefits of capitalism. By bankrolling this son of Jiangsu, the government quickly got its money back, with plenty of interest, when Suntech (STP) went public in late 2005, raising $400 million on the New York Stock Exchange. But beyond that, it created what could be the new epicenter of an industry about to catch fire.

Few could have known it at the time, but luring Shi back from Australia, where he had gone as a graduate student in 1988, was an event that changed the course of an industry's history - and not just any industry, but one that may be among the most critical of the 21st century: solar energy.

Not only did Shi create one of the world's fastest-growing companies - surging from nothing to more than $1.3 billion in revenue, profits of $171 million, and 4,300 employees in the blink of an eye - but by basing all of Suntech's manufacturing in China, he also started to shift the balance of power in the solar industry. It has never been the same since.

Like so many businessmen of his generation, Shi sprinted through the economic open-door policy begun by the late Deng Xiaoping in December 1978. By the time he was 32, he had already lived a life that his parents could not imagine. He had been among the first wave of bright young students to take advantage of the opening of China.

After becoming proficient in English, Shi - born in the smallest county in China, a small island in the Yangtze River, and the son of dirt-poor peasant farmers - was selected to pursue graduate studies abroad. He thought he was bound for the U.S. and tried to learn all he could about the country: "The culture, the geography - I even tried to learn an American accent," he says now.

But at the last minute, in May 1988, his academic advisor at the Shanghai Institute of Optics surprised him. All the slots for the U.S. had been filled; Shi would go to Australia instead, to the University of New South Wales in Sydney, and pursue a Ph.D. in electrical engineering. Says Shi: "I didn't even know where Australia was."

That unanticipated twist changed everything for Shi. "Who knows what might have happened if I had gone to the U.S.? I might still be walking the street," he jokes. At the university he met Martin Green, a preeminent scientist in the field of solar energy. Green was impressed with Shi's candlepower and work ethic. He had completed his Ph.D. in just 2 1/2 years - the fastest in his field in the history of the university - and proved himself to be "one of the brighter graduate students I've had, without question," Green says.

The professor had developed the world's highest-efficiency silicon solar cells, and in 1995 he and a colleague formed a company, Pacific Solar. Green invited Shi to join the venture, and once he arrived, the team developed the technology that dramatically reduced the cost to produce solar energy by significantly reducing the amount of silicon needed in solar cells.

Opportunity in China

Curious and restless - the Australian startup was up and running after five years and "I needed a new goal" - Shi met some officials from Wuxi, a city 70 miles west of Shanghai. The Chinese government would give him $6 million if he would return and start a solar energy company. "The Wuxi investment committee said to me, 'We want sons like you to come back and be bosses here."'

Shi accepted. Like a handful of other Chinese entrepreneurs (such as Peng Xiaofeng of LDK Solar (LDK)), he understood that China offered the opportunity to drive down production costs of solar panels and modules. A decade ago the industry was dominated by Sharp, Siemens, and BP Solar - huge companies with relatively high-cost production bases. In those days, he recalls, people asked him skeptically, How can you possibly compete with BP Solar (BP) or Siemens (SI)? "I wouldn't say anything [in response]," he says, "but I was always thinking to myself, 'Well, why couldn't I?"'

No reason, it turned out. He believed he could sell solar panels at a cost of $3 per watt, well below the standard industry price then of $4.50 per watt or higher. It wasn't just China's cheap labor that had attracted him, but the relatively inexpensive land and material costs available as well. In 2003, just a year after Suntech started production at a factory Shi himself had designed, he sold panels at $2.80 per watt. "And we still had 20% profit margins," Shi says.

The rise wasn't always smooth, and Shi was required to have more than technical skills to make Suntech succeed. Sharp elbows helped too. When the company showed it could be profitable early on, board members appointed by the government suddenly became very interested. Shi and the government-appointed chairman clashed in late 2003 over how rapidly to expand the business and on the amount Shi was spending on the equipment needed to do so. "For some reason he didn't seem to trust me," says Shi.

Shi went to the other board members and persuaded them in 2004 to ease the chairman out. "That's when I realized that [having a] controlling position in the company was critical. I didn't want this kind of complexity again." So he "borrowed a lot of money," got a capital injection from Goldman Sachs, and bought out the rest of the state-sponsored shareholders in 2005 for $100 million. "From that point onward I felt free," he says.

Climate change by then had become a global cause célèbre, and governments around the world began boosting subsidies for renewable energy. Suntech's stock hit an all-time high of $85 in late 2007. Its biggest markets for the solar panels and modules it makes are in Europe; Germany is the largest.

Shi believes the U.S. market for solar under President Obama will take off starting in 2010, when subsidies for solar energy are likely to increase as part of a stimulus plan to revive the overall economy. But the year until then, Shi himself acknowledges, will be unlike anything Suntech has confronted to date.

The deepening global economic crisis has changed the dynamics of Shi's industry abruptly. Rapid growth is now yesterday's story; significant overcapacity is today's. The global financial crisis has hurt the ability of solar customers in Europe and elsewhere to get project financing - the critical component in building more solar capacity. Only recently, Shi says, has there been a sign of thawing in the financial markets that might let some planned projects go forward in Europe.

The global slump has also crushed the prices of natural gas and coal, which compete with solar to generate electricity. As a result, Suntech's stock - like all those in the sector - has also been crushed. It closed on Jan. 21 at just $9.31 per share, wiping out some $4 billion of Shi's net worth.

Dealing with overcapacity

The rapid success of Chinese solar companies such as Suntech has spawned lots of imitators. And that's why the market is now plagued by overcapacity. A new report from research company iSuppli says 11.1 gigawatts of panels will be produced in 2009, up 62% from 7.7 gigawatts in 2008. However, iSuppli says just 4.2 gigawatts are expected to be installed in 2009, up from 3.8 gigawatts in 2008.

Shi has responded by significantly scaling back planned capacity increases in 2009. Suntech had originally hoped to raise production from its current one gigawatt to 1.4 gigawatts by the end of 2009, and two gigawatts by the end of next year. Now, Shi says, expansion plans are on hold until the financial crisis passes and the market improves.

That's part of the reason that Suntech fired 800 employees at the end of 2008 - the first layoffs in the company's short lifetime. Shi believes that the scale Suntech has already achieved will enable the company to withstand what will be an industrywide shakeout - with smaller producers of cells and panels falling by the wayside.

This is, obviously, the greatest turbulence Shi has felt in what has been a charmed career as a CEO. Yet, he says, the most important thing the company can do is focus on what it did before the crisis began wreaking havoc on the global economy. And that is to relentlessly pursue what is the Holy Grail for the solar industry, what insiders call "grid parity."

What is grid parity? It means getting the cost of producing solar energy down to the point where there is no difference between it and competing fossil fuels like natural gas or coal. For Suntech that means about 14 cents per kilowatt-hour. Currently, Suntech's cost is about 35 cents, yet Shi says that by 2012 his production line will reach his target.

How, exactly? For one thing, the scale that the solar industry has reached gives it new pricing power over suppliers. Explains Shi: "We were a parasitic industry relative to the semiconductor industry, which was the main user of silicon." Now that's no longer true: The solar industry uses more silicon than the chipmakers. Also, the world economic slump has driven silicon prices down sharply.

But far more important, analysts say, is increasing conversion efficiency - the amount of electricity derived from the silicon used. The rule of thumb is that every 1% increase in efficiency results in a 6% cost reduction. And in the past year, Suntech has cut costs by about 20%. In time, he says confidently, "solar will be cheaper than coal or gas."

Not all industry analysts are as sanguine. "Obviously the efficiency gains get harder the more efficient you get," says Pavel Molchanov, an alternative-energy analyst at Raymond James & Co. "Shi has made impressive gains so far, but grid parity by 2012 is pretty ambitious - though plausible."

Shi is undeterred. Despite the current slump, he sees both politics and economics going his way. He believes that by 2010 there will be demand from "utility-sized projects in the U.S. - gigawatt-sized projects" - which will again drive scale-induced production cost savings for Suntech. This is, in part, because he believes President Obama's desire to stimulate demand for clean energy is very real. If anything, he says, the economic crisis may eventually drive more spending on alternative-energy projects than there otherwise might have been in the U.S. and in Europe.

Shi acknowledges that for now his industry is not propelled by economics alone. Climate change is a scientific consensus, he says, and governments the world over recognize the need to move to what Shi calls the "post-carbon future." But even if they didn't, he insists that the day beckons when his industry will grow, thanks to hardheaded private-sector economic decisions, not government subsidies. By the end of 2012, he predicts, the need for subsidies will begin to evaporate. "I've always been a goal-driven person," he says, "and by then - by around 2012 - we'll have achieved grid parity. That's what this company will achieve."

Coming from someone else, that prediction might sound overly optimistic, to put it mildly. Coming from a guy who went from zero to more than $1 billion in revenue in just over half a decade, however, it sounds pretty close to rational. Remember, people said that Shi Zhengrong couldn't compete against giants like Sharp and BP Solar. Is it wise to doubt him now?  

 

The Global Agenda for 2009: The View from Davos

There are insightful summaries of all Davos 2009 sessions on the following link: http://www.weforum.org/en/knowledge/Events/2009/AnnualMeeting/index.htm?ssUserText=&fragment12_NextRow=1

In my opinion, our way out of this financial mess largely rests upon the US housing market; The US consumers will not start spending unless they see home equity go up and businesses quit laying people off left and rigt….

The Global Agenda for 2009: The View from Davos

Business and governmental leaders face a destructive social backlash that could foment political instability, revive protectionism and reverse the trend towards globalization if they fail to develop effective solutions to the current economic crisis, participants at this year’s closing plenary session warned. Leaders of the G20 countries, who will meet in London in April, must quickly deliver on their commitment to develop a coordinated policy response to the most serious global recession since the 1930s.

“This is the time to see courageous leadership on the part of the G20,” said Maria Ramos, Group Chief Executive, Transnet, South Africa, and Co-Chair of this year’s Annual Meeting. “The time for words is over; this is the time for implementation and action. If we come back in six months or a year and are still talking about the same things, we will have failed. And the social unrest we will have to deal with will be absolutely dramatic.”

Participants painted a sobering picture of a rapidly darkening economic landscape, in which the pain of rising unemployment, home foreclosures, bankruptcies and poverty are only beginning to be felt. “When the economic malaise really begins to affect families and people don’t have jobs, that will have huge political repercussions,” warnedMoisés Naím, Editor-in-Chief, Foreign Policy Magazine, USA. Naím predicted that, while 2008 will be remembered as the year of financial crashes, 2009 will go down in history as the year of “political crashes”, with governments falling in many countries.

Participants cited numerous signs of a policy response that is in danger of going badly off course, including efforts in the developed countries to direct fiscal stimulus funds to national producers through domestic content requirements and other protectionist measures, the withdrawal of state-supported lenders from emerging financial markets and a reluctance to recapitalize the IMF and other multilateral lending institutions on the scale required by the crisis. These developments pose a particular threat to the developing countries, said Ricardo Hausmann, Director, Center for International Development, John F. Kennedy School of Government, Harvard, USA. “If we are going to have a global response to the crisis, we need to give all the countries of the world the capacity for fiscal expansion,” he said.

Participants gave the G20 governments mixed reviews for their actions to date. Jeroen van der Veer, Chief Executive, Royal Dutch Shell, Netherlands, another Co-Chair of this year’s Annual Meeting, praised governments for moving quickly to shore up battered financial institutions and curb market panic, arguing that political leaders have actually seen their standing with the public increase, rather than decline, as a result of the crisis. Others debated this assessment, however, arguing that the response so far has been slow, fragmented and non-systemic.

There was less disagreement on the public status of business leaders, particularly those in the financial industry. One participant cited recent revelations of the huge bonuses paid by Wall Street firms last year, even as the financial markets imploded. The loss of private sector influence increases the risk that governments will ultimately overreact to the crisis, one participant warned. Van der Veer, however, disagreed, arguing that while the crisis has revealed the flaws of laissez-faire ideology, few would wish to see a return to communism, or to the stagflation of the late 1960s and the 1970s. This, he said, has created a rare opportunity to “forge a new consensus and build a better system.”

In terms of remedies for the current crisis, participants urged governments and firms to do whatever is in their power to preserve employment and avoid mass layoffs, which would further ravage consumer and business confidence. Voluntary salary reduction and job sharing schemes could help achieve this while still giving firms latitude to cope with sharply declining revenues. Investors and analysts should also be publicly pressured not to penalize company shares for maintaining employment levels, one participant suggested, while acknowledging that such a campaign might sound “implausible”. Participants also discussed various proposals for encouraging investment in alternative energy and other green technologies.