By Brian Dumaine, senior editor-at-large
FORTUNE — The press is calling the resignation of Shai Agassi, CEO of electric car company Better Place, a surprise but it really isn’t. Truth is, the company hit the same wall that the vast majority of startups do.
Visionary entrepreneurs don’t necessarily have the skills to build a big corporation, especially in an industry as complex as autos. Agassi was previously a software wiz who sold his firm to SAP (SAP) and joined the German software maker as a top executive, raised $750 million from venture firms and banks to build stations that allow electric cars to drive in and swap a battery low on charge for a fresh one. It is a solution, he believes, to the fear electric car owners have of running out of juice — a.k.a. the dreaded “range anxiety,”
He was a maverick embarked on a high-risk endeavor, trying to accomplish something the big automakers still say isn’t possible, or even desirable. Who wants to design and maintain a car whose most important and costly element — the battery — gets yanked in and out everyday? Yet that never stopped the irrepressible Agassi who once told me: “If an engineer says something is impossible, it means he doesn’t know how to do it.
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The point is that Agassi did what entrepreneurs are supposed to do — turn an idea into a company. The Palo Alto-based Better Place now has 500 customers and 24 swapping stations in Israel plus 250 customers and 12 stations in Denmark. (Both locations, because of their weather extremes, are two of the harder places on earth to test battery swapping scheme.) The next step is the hard blocking and tackling needed to make the company scale globally, something entrepreneurs aren’t particular good at because it’s less about vision than hard, routine, back-breaking work.
History is replete with such examples of entrepreneurs flaming out at this stage in a company’s life cycle. Coda, an electric car startup, needed to replace its CEO, a former Goldman banker, with a seasoned executive from GM (GM). Fisker, the maker of high-end hybrids, also needed to bring in a major auto executive to replace the founder as CEO and more recently brought in the manger who ran Chevy’s Volt program to replace that CEO.
Agassi should get a huge amount of credit for taking a radical notion and getting to the proof of concept stage. This doesn’t mean, however, that Better Place will succeed as a business. The challenges it faces are daunting. So far France’s Renault SA, is the only automaker to manufacture a car model—the Fluence ZE — with a switchable battery. The fact that other automakers haven’t yet partnered with Better Place will make the job of creating a mass market car all the more difficult. (Other green car manufacturers have sought alliances with bigger firms to stay afloat, something Better Place won’t be able to do if major companies are not convinced by their model.)
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In the meantime Better Place has said it lost nearly $131 million in the first half of this year and expects losses to continue. So far the company has burned through $490 million in cash. That’s because Better Place is an infrastructure play and needs to keep expanding its expensive, switching station network. In other words, it is in a race to generate revenue before its cash runs out. Delays earlier this year in testing the switching stations played a role in Agassi’s departure. Then there’s the new CEO, Evan Thornley, who had been running Better Place’s business in Australia. The trouble is Thornely’s not a car guy. Before joining Better Place five years ago, he was an Australian legislator who founded the Internet advertising company LookSmart in 1995.
Agassi, who will remain on the Better Place board and is still a major investor, deserves great credit for getting such a radical idea to this stage. His creation’s fate now lies in the hands of others.
