3 lessons from a $3B bankruptcy

Hey everybody,

I grew up in a family of entrepreneurs who discussed business over dinner. So I can’t turn it off — and when I read a business story in the news, I love to learn from them.

Today, I’m examining the fall of Sunnova, a $3 billion solar energy company that went bankrupt just last month.

Let’s do it.

If you don’t know their story, here’s a 30-second recap: 

Sunnova was a residential solar energy company that absolutely exploded based on a wave of cheap capital, government incentives, and investor hype. 

They scaled like crazy, IPO’d, landed a $3B loan guarantee from the feds, and grew to over 400K customers. 

But they weren’t profitable. So when interest rates went up in 2022, and California adjusted their green energy policies in 2023, their momentum died. They couldn’t raise more money, so they couldn’t pay their vendors, so the whole thing collapsed into bankruptcy just last month with over $10B in debt.

(If you want the whole story, check out this video I did on that video platform we all know and love, Youtube.) 

So what can we take away from this disaster?

I talk about tailwinds all the time. Basically, when the macro environment is in your favor, everything gets easier. A strong enough tailwind can make even a mediocre business successful. 

For Sunnova, cheap debt and government subsidies coincided with falling solar panel prices (due to Chinese supply) and a growing investor appetite for green energy. 

But here’s the thing: if your business is totally based on tailwinds, you have to stay paranoid. 

First, make sure what you’re building is lean, disciplined, and durable. Better to afford payroll next year than champagne lunches today.

Second, strive to diversify your model. What sort of changes are coming? Building resilience to macroeconomic or political changes can be a matter of life or death for your company. 

Back to our lessons from Sunnova:

The Sunnova story was compelling to investors. Green energy was hot, their customer base was huge and growing, and government subsidies felt promising.

And for a while, that was enough. Their story opened wallets from investors and gave them a substantial runway. But a story alone does not make a business. 

It’s normal for a business to start on a good story at first. However, ensure that you’re always building a path to cash flow.

It’s easy to think scale = success. But while Sunnova looked like a juggernaut, their surface-level momentum masked real structural issues.

Their cost structure was bloated. They were sloppy with vendor payments. They didn’t have the systems to operate well at their new scale. But because new capital kept flowing, they didn’t have to fix those problems.

Then when the market turned, everything broke at once.

My takeaway: if you’re scaling fast, it’s extra important to regularly audit your ops, your margins, and your cash. 

(By the way, you don’t have to build all those systems from scratch. Here’s my guide to the 9 systems every small business needs.)

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That’s it. Agree? Disagree? I’d love to hear your take. Hit reply and let me know.

Thanks for reading!

Michael

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