Elon Musk: Visionary or Strategist?
Have you ever wondered if Elon Musk has a plan, or is he just making things up as he goes along? When we look at his many companies, we can spot some common themes in how he operates. These patterns show us that Musk isn’t just winging it; he has a strategy.
Solving Big Problems: At the core of Musk’s strategy is his knack for tackling really big problems. He chooses challenges that are both huge and complicated. Whether it’s making electric cars with Tesla, planning trips to Mars through SpaceX, or merging brains with technology in projects like Neuralink, Musk takes on tasks that match his big dreams for the future.
Smart Way of Doing Things: Musk isn’t only about picking problems. He’s also clever in how he sets up his companies to solve them. He likes to keep things under his control, a bit like having your own tools when you’re fixing something. This helps him work faster and better, making his projects more successful.
Getting Resources: One more thing that sets Musk apart is his ability to gather lots of resources. He doesn’t rely only on regular money-raising methods. He invests a lot of his own money into his companies, and this shows that he’s serious about his goals. His passion and vision are so strong that they inspire others to invest, too.
When we look at Musk’s approach across his different companies, we don’t see chaos; we see a method in the madness. For people who want to start new and exciting businesses or for those who invest their money, these lessons are really valuable. You can use these ideas to make better choices in new areas like Web3 and the metaverse.
And when we think about Musk’s recent attempt to buy Twitter, we can understand it better in the context of his bigger plan. It’s not just a crazy idea; it’s a part of his vision for the future.
In the business world, Elon Musk might seem mysterious, but there’s a clear thread that ties all his projects together: a thread of daring, creativity, and a strong drive to make incredible things happen. The real question isn’t whether Musk has a strategy; it’s whether we can fully grasp how he’s making his unconventional but brilliantly planned moves.
Vision: Seeing the Big Picture
Great strategies often start with a clear and exciting vision of the future. Back in 1980, Bill Gates famously envisioned “a computer on every desk and in every home.” Musk’s companies have their own bold visions. Tesla wants to “speed up the world’s shift to clean energy,” and SpaceX aims to “make humans a multi-planetary species.” But to truly grasp Musk, we must understand his overarching vision that ties all his businesses together.
Problems, Not Answers
When we think of a vision, we usually imagine aiming for a particular solution. However, Musk takes a different approach. He’s more interested in specific types of problems. Specifically, he’s drawn to challenges that involve dealing with huge scale and solving complex puzzles.
Scaling Up: Musk selects problems that can only be solved by making massive investments. For example, Tesla builds gigantic “gigafactories” to make electric cars affordable for many people. The biggest one, Giga Texas, is the largest factory in the world by size.
Complex Challenges: He also tackles problems with lots of moving parts that need to fit together perfectly, like reusable rockets at SpaceX. These are incredibly tough problems, but if you solve them, you can have a strong advantage.
Problems as Solutions
Having a vision centered on these high-scale, high-complexity problems comes with benefits:
Predictable Progress: Even though these problems are tough, Musk believes that as he makes more and more, things will get easier. It’s like the idea that computer power keeps doubling every two years (Moore’s Law). Musk aims to cut the cost of batteries in half by making a lot more of them, relying on improved methods to make them cheaper.
Moore’s Law, coined by Gordon Moore in 1965, states that the number of transistors on a computer chip doubles roughly every two years. This prediction has driven the consistent improvement of computer performance, making devices smaller, faster, and more powerful over time.
Motivation: Pursuing these big challenges motivates people to achieve incredible things. But, most people find them too daunting to attempt. Musk, however, is willing to take them on, and his employees know they are reaching for big, seemingly impossible goals.
Problems as Obstacles
Yet, a vision based on tackling these enormous challenges also brings its own set of problems:
Predicting the Future: Most people aren’t great at predicting how long things will take, especially for complex projects. Musk is no exception. For instance, his satellite internet company, Starlink, fell short of his predictions for where it would be a decade later.
Running Out of Steam: When you’re on a long journey to solve a big problem, setbacks are common. Burnout and disappointment are real risks. Some Tesla employees have faced grueling work hours, and SpaceX recruits are warned that the job is incredibly tough.
The big question is whether Musk’s companies can keep up this kind of effort for many more years needed to achieve their goals.
Organization: Everything, By Yourself
Elon Musk’s approach to organizing his businesses is a crucial part of his strategy. He has a distinctive preference for two key elements: vertical integration and closed technology. These choices have far-reaching consequences, shaping how his companies operate and interact with the world.
Closed value chain
One of the most noticeable features of Musk’s strategy is how he organizes his businesses. He has a clear preference for two things: vertical integration and closed technology.
Vertical Integration: This means that Musk’s companies are involved in almost every step of their business. For instance, SpaceX builds about 70% of its Falcon 9 rockets in-house. In contrast, traditional space companies like United Launch Alliance rely on many outside suppliers. Tesla even wants to get involved in lithium mining to secure its own battery materials.
Closed Technology: Musk’s companies often create their own technology that doesn’t work with other companies’ products. For instance, SpaceX’s Starlink satellites use a unique technology that doesn’t connect with regular satellite dishes. Tesla’s charging network in the U.S. only works with Tesla vehicles. In contrast, many other tech companies aim for more open systems that can work with different brands.
Total Control
Ecosystem: These choices have benefits. By controlling everything, a company can build a whole ecosystem from scratch. Musk did this by offering both electric vehicles and the charging stations they need. It’s like how General Electric once provided power generators and the products that used electricity.
Capturing Value: Companies that control the whole ecosystem can make extra money. Apple, for example, profits from its proprietary charging cables. Someone who already has Apple cables might stick with Apple devices. Tesla does this too with its charging adapters and stations.
The Risk of Going Solo
But there are risks too. By doing everything yourself, you might miss out on better deals or new ideas from other companies. Intel faced this when its in-house manufacturing lagged behind others, limiting its options. Musk’s companies could face similar issues if better technology comes from outside. Choosing a closed approach can also limit how other companies contribute to the ecosystem. For instance, The Boring Company’s tunnels may not work with existing trains, making them reliant on their own technology. If it doesn’t succeed, there’s no backup plan.
Resources: Funding Musk’s Vision
To tackle large-scale, complex challenges with a vertically integrated and closed organizational approach, you need a lot of patient capital, and Elon Musk certainly has access to it. Across his eight companies, he has raised over $34 billion in funding. Neuralink alone has raised more than triple the amount Amazon raised. This relationship between Musk and his investors is the linchpin of his strategy. It’s also the most challenging aspect to replicate. Many Wall Street experts find it hard to explain how it works, and most CEOs can only watch as Musk receives support from the markets that they could only dream of.
The Power of Persuasion
How does Musk secure such substantial backing? To understand his remarkable ability to convince investors — and where this persuasion sometimes falters — we can turn to Aristotle. Aristotle identified three modes of persuasion: ethos, pathos, and logos.
Ethos (Authority and Honesty): Musk’s personal investment history speaks volumes. He often has a lot at stake in his companies. For instance, when he started his second company, X.com (later PayPal), employees would proudly say, “He’s got $13 million in.” He invested most of the money he made from selling his first company. Musk’s initial investment into SpaceX was $100 million of the $175.8 million he earned from PayPal’s sale. He continued investing his entire personal wealth into SpaceX and Tesla until 2008 when he had to borrow from friends.
Pathos (Emotional Appeal): Musk has created an inspirational narrative with his businesses, described by his biographer as that of “a mad genius on the grandest quest anyone has ever concocted.” His ability to inspire emotions plays a pivotal role in marshaling resources. Today, Elon Musk’s tweets can mobilize millions of retail investors. One analyst noted that “Retail investors will follow Elon to the gates of hell and back.”
Logos (Logical Appeal): Here, Musk’s critics might find him less convincing. Many of his businesses don’t follow a clear logical path, often taking unpredictable routes to solutions or products. For example, SpaceX initially aimed to get people interested in space by growing the first plant on Mars. The idea was to modify a greenhouse and launch it to Mars using a Russian rocket. Few in the aerospace industry believed it was possible, yet engineers and investors fascinated by Musk’s vision joined the company.
Musk has outlined some of his logical reasoning in a series of “Master Plans,” but much of the precise logic behind how he’ll succeed remains unclear. However, this is not necessarily Musk’s fault. When venturing into new technologies, especially those that open new markets, no one can foresee all the possibilities or limitations of that technology. Musk’s investors are forward-looking and are primarily motivated by their trust in Musk’s leadership, their emotions toward him, and their aspirations for the future. Fortunately for Musk, these are the kind of investors you want when tackling the complex problems his companies aim to solve.
Twitter and Musk’s Strategy
Elon Musk’s recent attempt to acquire Twitter has raised questions about the compatibility of his strategic approach with running a platform like Twitter.
Changing Landscape: Over the last decade, the technological landscape has evolved significantly. Moderating speech on social media platforms has become a critical problem, even an existential one for such companies. In essence, speech moderation has transformed into a complex strategic problem that captures Musk’s interest.
Experience Curve Effects: Unlike some of Musk’s other ventures, there’s limited evidence that the experience curve effects apply in the realm of speech moderation. Notably, YouTube was founded 17 years ago, Reddit 16 years ago, and Facebook now employs more content reviewers than there are people working for SpaceX. These platforms have dedicated substantial resources to tackle content moderation. Following Musk’s announcement regarding Twitter, there was a remarkable surge of more than 250% in interest in Twitter job openings. However, it’s essential to note that Musk doesn’t have a track record of significant organizational change. Moreover, he didn’t establish Twitter, and the company’s work culture differs substantially from his other enterprises. This raises questions about whether Musk’s ownership would serve as motivation or potentially demoralization.
Reorganization Challenges: Another consideration is whether a reorganization akin to Musk’s other companies, involving internalizing processes and proprietary systems, would effectively work at Twitter. Most companies opt to insource AI moderation tools due to scalability, while outsourcing human content moderation, as it can be grueling and doesn’t necessarily demand technical skills. Musk’s penchant for vertically integrating mission-critical non-technical tasks at his companies, like welding at SpaceX, has led to improvements in both the task itself and adjacent processes. However, the extent to which Musk’s closed system approach could capture added value at Twitter remains less clear.
Resource Mobilization: Elon Musk’s substantial personal investment in Twitter, accounting for about 10% of his net worth, reinforces his alignment with investors and his commitment to the platform’s long-term future (ethos). On the flip side, Musk’s appeal to emotion (pathos) has been somewhat polarizing, often aligning people along ideological lines. Despite offering only vague plans and asserting that buying Twitter wasn’t primarily about making money (logos), investors appear to place their trust in his track record and authority.
Uncertain Outcomes: The outcome of Musk’s strategies at Twitter remains uncertain, as he attempts to abandon the deal amidst legal disputes. This situation serves as a reminder that following charismatic leaders with grand visions can sometimes result in financial losses.
Musk’s Distinctive Strategy: Regardless of the eventual outcome of the Twitter saga, Elon Musk has already achieved remarkable feats through his bold and consistent strategic approach. He has accomplished things that many considered impossible.
Conclusion
Elon Musk’s journey through the world of business and innovation is nothing short of remarkable. From founding companies like Tesla, SpaceX, and Neuralink to his audacious attempts at reshaping industries, Musk’s impact on technology, sustainability, and space exploration is undeniable. Yet, amidst his trailblazing ventures, the question often arises: Does Elon Musk have a strategy, or is he merely winging it?
As we’ve delved into Musk’s multifaceted enterprises, certain patterns have emerged, shedding light on the strategic underpinnings of his ventures. Musk’s strategy revolves around a bold and clear vision that tackles problems of scale and complexity. He seeks out challenges that demand massive investments and unwavering commitment, believing that achieving critical scale and overcoming complexity can yield sustainable competitive advantages.
Musk’s organizational design is characterized by vertical integration and closed technology systems. This approach allows him to drive new ecosystems, capture added value, and maintain total control over the development and production processes. However, it also poses risks, such as missing out on market benefits and impairing network effects.
To pursue his high-scale, high-complexity problems, Musk relies on a crucial factor: access to massive amounts of patient capital. His relationship with investors, characterized by ethos (his personal stakes) and pathos (emotional appeal), enables his strategies, even in the face of unclear logic (logos).
Musk’s recent foray into acquiring Twitter adds another layer to his strategic narrative. While the fit may seem unconventional, the evolving landscape of speech moderation presents a complex challenge that aligns with Musk’s penchant for tackling intricate problems. However, the jury is still out on whether his strategies will bear fruit in this realm.
In conclusion, Elon Musk embodies a unique blend of visionary thinking, organizational innovation, and resource mobilization. While some aspects of his approach may seem unorthodox or enigmatic, Musk has consistently defied expectations and achieved the seemingly impossible. His journey serves as a testament to the blurry line between genius and insanity, a line often only discernible in hindsight. What is clear is that Elon Musk’s audacious strategy has already reshaped industries and will likely continue to push the boundaries of what’s possible in the world of innovation and technology.
