The A123 Story: How a Battery Company Jumpstarted its Business

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American Superconductor. “The VCs look for that. They look for getting experienced guys to leap as a gauge on reality.” Not long after that, A123 hired its first additional staff person, a freshly minted MS from Chiang’s group. The company set up shop in the Photonics Business Accelerator at Boston University. The name A123, Riley explained, was derived from the formula (which begins with A123) used to calculate the forces governing the actions of the nanoparticles in the self-organizing battery. There was just one catch at the time, though, Riley said: “We couldn’t tell anybody what the name meant, because it was proprietary.”

As the pace picked up, Riley said they did some 500 phone interviews to select the first 15 employees. They were looking for technical skills, but they also wanted multidisciplinary people who could help with a variety of tasks. Critically, added Riley, they wanted people with a team orientation.

They hired a CEO—Dave Vieau—in April of 2002, barely three months after the financing closed. Vieau came off of nine years at American Power Conversion, where he rose to become the No. 2 person. He was great at growing a successful company, and he had strong leadership skills, said Riley. (As an aside, a few months ago I was at a private dinner with Deshpande, the chair of A123’s board. He described another key trait in Vieau, which I mentioned at the start seems to hold for the three founders as well—he is in it for the long haul, and cares more about building a big, successful company than making a fast exit.)

Things were really humming at this point, said Riley. “There’s nothing better than being on a small team…and making a run at changing the world.” But toward the end of 2002, the runners developed a cramp, so to speak. It was a big cramp, too, because it was turning out the self-assembling technology didn’t really work very well. The company had some good results, but poor reproducibility, and the batteries it created lasted only a fraction of the time that conventional batteries last “before they faded in performance unacceptably,” he said.

This is where the aforementioned nanophosphate cathode material really comes into play. All along, thanks to the DOE grant, A123 had managed to do a small bit of work on this front—“part of a guy who was scoping out the nanophosphate, under that funding,” Riley said later. Meanwhile, new studies at MIT showed that the material produced surprisingly high power density results in early tests. In fact, Riley told me, an academic paper published around this time about the work stunned the battery community, leading other firms to begin to take an interest in the material. Riley said the results, and the rising interest of other firms, put A123 at a crossroads. “In startups you always want to focus on one thing,” he said on Thursday night. “But now we had two things.”

So what to do? The company got lots of investor advice to stay with the original focus. Still, the new material was highly promising and seemed like it might lead to a product sooner, even if it wasn’t as revolutionary as a self-organizing battery. To try to do both would likely slow down everything. But management decided to form a small team to evaluate the nanophosphate material and validate its manufacturability. Not long afterwards, with the material looking ever-more promising, they decided to put the original self-organizing battery system on the shelf and shift the firm’s focus to the nanophosphate. “We did the student body left decision,” Riley told the crowd. “In a startup you probably get to do that once.”

It was a bold move and it worked. The material proved intrinsically stable and safe. Batteries made with it proved to have 10 times the lifespan of conventional batteries, with twice the power. And, Riley said, because they adhered to conventional battery design, they could be produced with largely conventional manufacturing techniques.

This was the direction the company took off in. Armed with the new approach, A123 focused on bringing in new customers from the aerospace and automotive sectors. In 2005, it signed its exclusive partnership with Black & Decker—first to provide batteries for the DeWALT power tools brand, and later for Black & Decker tools as well—beating out the firm’s incumbent Japanese supplier. “That launched us into the industry,” Riley told the Stata crowd. (Riley says that the company has not given up on its original concept. “We still maintain the position that self-organization may be a great technology, it’s just not ready now,” he says.)

I won’t say the rest is history—but from here the story is better known. The company has closed new rounds of financing. It has made three acquisitions, and opened a series of plants in China. It signed the Volt deal, which targets a 2010 launch. Riley told the Stata audience that Toyota had just announced that it would launch a competitor to the Volt, also in 2010. “So now the race is really on,” he relayed. And, no doubt, more announcements are the way.

At this point, we were running out of time and conference organizers—including Xconomist Bill Aulet, who introduced Riley in the first place—were anxious to get to the food and beer. Riley wrapped up quickly with some more key lessons from his experience:

— hire seasoned technical and business people early
— create a sense of urgency or competition to do business with you, providing momentum for major deals
— find a way to get real (an example here was the first exclusive deal with Black & Decker that allowed A123 to establish a basic level of economies of scale and made it a player in the industry)
— Establish a one-team culture
— Be as open with the board of directors as possible: identify key problems so that they can help you solve them.
— Have fun

“On top of all that,” Riley added, “you get to save the world.”

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Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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