I continue my discussion with HP regarding management teams, and then begin to explore other challenges like incredibly long sales cycles of ERI’s business, which makes forecasting and cashflow management very complex. In fact, with 18-36 month sales cycles, it makes me wonder to what extent our VCs who are rushing to Cleantech would have the patience to shepherd their investments. One thing is very clear to me in this discussion, that the current cleantech investment boom will result in numerous carcasses littered all over the venture portfolios.
SM: HP, your new CEO was from California? Is that why you made the switch to California? HP: Yes, it’s that simple. We took a number of the core guys with us and set up the shop in San Leandro where we are today.
SM: Did the other owners also move? HP: You mean the investment partners? No, I was the lead guy. So I was the one who said, ok I will run with this. From 2000 to 2004, I spent 3-4 months of any given year in California. That really put a strain on my family. I have four young kids and a wonderful wife, and I realized this isn’t how I want to live. So they came over here to live with me from 2004-06. They just moved back to Norway again last year.
SM: Your role at that point was executive chairman? HP: Yes.
SM: So that was your first management team change. You hired a new CEO and you took the executive chairman role and you had another few years of progress. Yes? HP: Yes. Then we realized we were about to outgrow everyone again. We had to make some new changes. There were a whole lot of issues at the time. We were at this delicate balance with a 95% finished product. At the same time the urgency to take it out to the market to try to make a business out of it was quite pressing.
We realized we had to change management again and we did that. We have been running now with that same management team since 2002. And that has been very successful, but, I have been an integral part of this team.
SM: What are some of the challenges of building a business like this? It sounds like the types of projects you are involved with have very long sales cycles. HP: Yes, you know that is typical in Industrial. You are dealing with water and a lot of people don’t care about the technical solution to this as long as you get the water and you don’t really find players within the industry who enjoy being guinea pigs. So when we started, on large contracts, we had sales cycles that ran from 18 months to two- three years.
Also lesson learned we had the PX 40 at that time. The number 40 explains or refers to the throughput of water per minute; a pressure exchanger that had a throughput level of 40 gallons per minute. We thought that this unit could really make a difference. As we started listening more and more to the market and getting input from the customers, we realized that the PX 40 could never be the type of device that we thought possible initially. So we then had to embark upon a completely new scaling of the rotor. So our working horse today is the PX 220 which is five times as large as the PX 40.