The Enphase Energy CEO has a long name. But his advice for success is short and sweet.
XBadrinarayanan Kothandaraman, 48, led a powerful turnaround at solar products maker Enphase Energy (ENPH). And he advocates applying two traits he acquired growing up: thrift and simplicity. He says both apply to even the most complex business problems.
Kothandaraman — he goes simply by Badri — learned these lessons in his native India. Despite his middle-class upbringing, the family had to stretch every rupee. "The value of money is very high for me, and it remains like that," he said. "Even today, frugality is a way of life."
Live Modestly Like The Enphase CEO
Living modestly drives all aspects of Kothandaraman's life. He scored scholarships to attend prestigious universities in his native India and in California. He long preferred driving a Toyota Prius to pricier wheels and also mostly flies coach.
His penchant for having grown up living on the cheap is paying off at Enphase. The company joined the benchmark S&P 500 index in January. And under Kothandaraman, the company is on pace to make an adjusted $316.5 million, or $2.26 a share, this year, says S&P Global Market Intelligence. Enphase lost more than $50 million in 2016 before he got there.
Revenue is on pace to hit $1.37 billion this year, up more than 300% from 2016. And its share gains is even more impressive. It's up from less than a dollar a share to more than 250 now.
The Fremont, Calif.-based company sees its core competence as solar products built around innovative power electronics. But, it's best known for the microinverter. That device, attached to individual solar panels, converts direct current captured from the sun to alternating current that can be used in homes.
That's in contrast to most home rooftop solar systems. Many rival systems use a single inverter to perform the same function for all the panels. That system, Enphase contends, is vulnerable to failure if a single panel fails, tanking the output of the entire array. Enphase says having a microinverter on each panel ensures problems can be isolated. And that means the juice keeps flowing.
From applying its microinverter technology to panels, it's now spreading out to make inroads in the market for energy storage — big batteries that can power homes or businesses long after the sun has set.
Kothandaraman: Do What You Love
Kothandaraman says the promise of the microinverter lured him to Enphase in April, 2017, as chief operating officer. The company fit with his background in materials science, process technology and chip design.
"What attracted me was 300 components in such an elegant form," a single-low cost unit that would withstand the harshest weather and was designed to last 25 years on a roof, he said. 'The icing on the cake was it's an Internet-of-Things connected product. I can track every one of those microinverters from the internet."
The company says its products can be found on about 1.5 million homes. With the world's focus on global warming and the need to reduce greenhouse gases, Enphase expects to continue growing by leaps and bounds.
Set Big Goals
No doubt about it, Enphase had a great product, Kothandaraman concluded when he first joined Enphase. The problem, though, was the company was burning cash. As a startup, Enphase had not been paying as much attention to its costs as he felt it should.
Kothandaraman's answer was to set a big goal and stick by it. After taking over as CEO and president the following September, he pledged to analysts he would achieve a 30% gross margin by the end of 2018. How? Cutting operating expenses and boosting operating income. Hitting that goal meant the company needed to keep 30 cents of every dollar of revenue, after paying direct costs. Gross margins were a paltry 18% in 2016, before he got there.
Though a bold move at the time, Kothandaraman oozed confidence. A self-described "analytical guy," he said, "I saw the problem in front of me and the solution is pretty simple: Stop doing stupid things."
One obvious example: As a startup, Enphase hadn't been competitively bidding for components in its microinverters. Kothandaraman opened the door to new suppliers. Instead of a single supplier, he wanted to make sure the company could tap two or three.
Cut Big Problems Down To Size
As another way to reduce costs, Kothandaraman drew on his knack for simplifying big problems. He divided the 300 components in every microinverter into five categories — mechanical, chips, transformers, transistors and waterproofing material — then created teams for each to address, to try to slash costs without hindering quality.
He moved Enphase's engineering staff of more than 150 workers to India, again dramatically cutting costs. Made waves? Sure. But Kothandaraman says the U.S.-based workforce had no illusions about what had to be done.
"They were smart guys. They knew things had to change. And some of the people who wouldn't change were gone," he said.
Be Blunt — But Also Consistent
Kothandaraman certainly doesn't mind being seen as the tough guy. Whether it's employees, investors or customers, he says he will tell it like it is. He vows to speak openly, be transparent and won't say different things to different groups.
He said he demands engineering excellence, nothing less, and "if employees aren't ready to innovate, they don't belong here at the company." They shouldn't expect pats on the back from him. Kothandaraman says it's not his style.
"I am tough, no question about it," especially in meetings, he said. "But the employees know when they have a one-on-one with me and they explain about some of their problems to me, I will be empathetic."
As an engineer, he says he's seldom satisfied, preferring to keep pushing his team. As a business executive, however, he says he revels in the company's success.
Find Quality Partners And Back Them Up
It wasn't long before the moves started to pay off.
By 2019, Enphase saw a solid turnaround. "Our phones started ringing off the hook and customers started coming back. Our backlog was very, very strong," he said.
The Covid-19 pandemic didn't wreck the business. 2020 was another strong year for sales. And gross margins? They're now north of 40% — way past what Kothandaraman vowed.
And that created a new problem. Kothandaraman says he had to create a stronger supplier base to ensure Enphase would not be caught short of key components. That included investing in a transistor maker to keep its products flowing.
Enphase CEO: Listen To Your Customers
At the same time, Kothandaraman realized that Enphase's success hinged on how well its systems are embraced by solar systems installers. Installers are the key link between the company and homeowners.
Their thoughts matter. If installers are happy with the product, can install it easily and don't find any quality glitches, Enphase can command a slight premium price compared to competitors who haven't put as much of a premium on being trouble-free.
They want to be able to install a solar system and quickly move on to the next customer. As small business owners, "they don't have time to screw around," Kothandaraman said.
So he listens to installers — a lot. He makes a point of regularly bringing a group of about 10 installers at a time weekly into his boardroom or on the phone. "They will tell you what they don't like about the product," Kothandaraman said. "There's no hiding."
Test, Test, Test
The company also tries to head off problems by having executives test new products themselves on their own homes to work out the bugs. That's important as the company has branched out in offering a more robust assortment of solar products. Enphase now sells batteries that can allow homeowners to tap stored solar energy after sunset.
Kothandaraman proudly shows off a tablet computer monitoring the solar output of his three homes in the U.S. It showed one home producing more power from solar than it was consuming. He may be frugal, but now that he's a CEO, Kothandaraman has multiple houses. And he says he "graduated" from the Prius to the Lexus he drives now.
See The World In Black And White
To Kothandaraman, though, basic management skills are what brought him success. Just as there were two basic tasks when it came to turning around the company — reduce costs and fix pricing — there's no need to look for more exotic answers.
"It's pretty simple for me. I see things in black and white. There is no shade of gray," he said.
Enphase CEO Kothandaraman's Keys:
- Transformed solar-power company Enphase from a money-losing firm to a fast-growth S&P 500 member as CEO and president starting in 2017.
- Overcame: Stifling high-cost structure that crimped Enphase's profitability and future.
- Lesson: "I saw the problem in front of me and the solution is pretty simple: Stop doing stupid things."
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