What went wrong for NorthVolt?

By Dr Nasira Bradley

FT’s Richard Milne’s verdict seems to be that NorthVolt got the funding right, but the execution wrong – is that right?

While there is a lot to be said for Richards’ insight, I believe the root of failure lies deeper – at a flawed strategy, which in turn messes up the execution. 

In the initial stages of a new business when the winning strategy is unclear, the focus has to be on ‘profit first, growth later’ – this focus brings clarity on execution and allows one to discard failed strategies quickly with lower losses, pivoting nimbly onward to the next strategy. 

Only when the business has demonstrated profitability and a viable strategy has emerged, should then the leadership and the investors focus on ‘growth first, profits later’.

NorthVolt’s filing for bankruptcy is disappointing on so many fronts, as it had got so much right. The Founders seemed to have the right mix of background, they hired senior managers with the correct mix of expertise in production and battery backgrounds and they even selected their first factory next to hydropower in a Skellefteå, Sweden just shy of the arctic circle. 

However, where I disagree with Richard is that they got the funding right. Indeed they got too much funding – they got $15bn in funding, without ever demonstrating profitability!

Instead, had the investors and their Board held back further funding for expansion, emphasizing profitability first –then Northvolt would have prioritized getting the production right of their first factory, thus demonstrating profits as well as establishing their credentials with the likes of BMW through fulfilling their orders.

Bizarrely, instead the investors just continued to flush them with more and more funding and NorthVolt started working in parallel  on setting up three other factories let alone a lithium recycling plant, when their first factory was not yet fully functional nor able to  fulfil contractual orders – BMW waited 2 years before then turning to Samsung.

Sadly, NorthVolt is not the first nor the last Business to make this mistake – this a much repeated cycle in Business history: 93% of new businesses that succeeded eventually abandoned their initial strategy! The less money that is wasted before the business pivots and pivots again, finally refining its strategy to demonstrate profitability, the more the chance that they will get it right and once they have the winning strategy , that’s when further expansion should be funded. Not before!

Clayton’s mantra for new Businesses is truly timeless: Initial ‘impatient for profit, patient for growth’, followed by ‘patient for profit, impatient for growth’.