The Reverse Tesla Ban. What it Tells Us About Company Lifecycles

Now here is something interesting happening. The company that has been banned by regulators from selling their cars, now has banned a customer from purchasing a car from them. Yes, Elon Musk personally has cancelled the order of a customer. And this cancellation has made its way into mainstream media.

What has happened? As reported by FastCompany, a venture capitalist, who is an early customer of the soon-to-be-launched Model X felt mistreated by the company. In response to this mistreatment he has written a blog post with the attention grabbing title“Dear @ElonMusk: You should be ashamed of yourself”. In that post he criticized the company and Elon Musk for being “ insensitive” and with “poor judgement” when organizing a customer event. Together with around 3,000 other early customers, he attended a Model X launch event. At this event, the customers had to wait for 30 minutes outside the building and then for more than an hour inside the building. In his post he criticized this mistreatment, as well as other factors that disappointed his expectations in the event. But he not only criticized the event. The bad management of this event made him ask, “Should I wonder if there are other problems in managing Tesla as a company?”

In response to his post, Elon Musk personally cancelled his order of a Model X Tesla. The author then followed up with a second post, describing how he was banned by Tesla. Once his posts was picked up by mainstream media, Elon Musk tweeted:

So why are we discussing this? Is this another slow news day?

In analyzing companies, I follow the philosophy that any analysis should start from the perspective of a customer. Only the customer’s perspective will tell us to what extent and why a company’s products differentiate. The customer perspective also helps detect changes in a marketplace early. While the crunching of market research figures or past financial data builds the basic analysis toolkit, using a company’s product and immersing ourselves in the world of the customer truly can put us ahead of the crowd of investors.

So this philosophy leads us to answer the author’s question of whether a mismanaged event is an indication of “other problems in managing Tesla as a company”.

Does the event and the ban mean that Tesla will become the next United Airlines of customer service? Clearly not! However, on FastCompany and the original post, some commenters worried whether Tesla is trying to prevent negative reviews and whether this causes worries about the company’s customer service. And let’s face it. Who hasn’t experienced the bad aftertaste of being mistreated or disapointed as a customer? To some extent we may resonate with the author’s anger about bad customer service. And why is Elon Musk facing the risk of the negative PR that such a ban may cause?

First, if this event leads the author to conclude that there may be other problems in managing Tesla, then the logical conclusion would be that he does not want to drive a car from such a company. In fact, instead of writing the article, the logical step for the author would have been to withdraw the order himself. But instead he is “disappointed” about the cancellation. This makes it safe to assume that Elon Musk does not have to be too “ashamed” of himself. Actually, the company seems to be doing quite alright if even customers who feel mistreated still want its products.

But there is more to this. Possibly Tesla’ event management cannot compare to that of traditional car companies. Traditional car companies like Audi excel at conducting customer events and sponsoring major sports events. As a student, I was fortunate to have had a part time job that got me to the heart of Audi’s engagement in the LeMans racing series. This left me deeply impressed with the skill set of Audi’s event teams and its brand. It’s hard to imagine Tesla running such events at this point of time. In contrast, Tesla doesn’t even seem to offer print brochures of the Model X. Does that put Tesla at a disadvantage? No. Because Tesla is not in the event business, it is in the tech business.

Let me elaborate: yes, Tesla operates in the same industry as Audi. But then it operates in a different business:

  • Classic car companies operate in a mature industry, with well developed and rather undifferentiated products. How big is the difference between an Audi and a BMW in terms of technology? Let’s face it, what are your purchase criteria when you choose one over the other? In this stage of the lifecycle, companies largely compete based on the perception of their brand. Customer events are core to building the brand experience in this stage of the lifecycle.
  • Tesla on the other hand operates at the beginning of the lifecycle. It offers a new and differentiated product. Where is the other electric car company that excels at the safety ratings? The success factors that apply to Tesla’s business differ greatly from the success factors of legacy car manufacturing. And it’s no secret on what Tesla focuses. On building revolutionary cars.
IRRlabs-TechnologyLifecycle

So we have established that Tesla is not in the event business. As a result, an event that may have been managed badly does not tell us much about its success as a business. But then, was it a smart move to ban the author from purchasing a Tesla, or was it a PR failure?

This question leads us back to the lifecycle. In its earlier stage of the product lifecycle, Tesla targets other customer groups than legacy car companies. These early customers have different purchase criteria when compared to legacy car company customers. Customers of an Audi may be used to being pampered at customer events. Tesla’s early customers have not even seen the car in real life at the time they order. The attendance of 3,000 customers may overwhelm their event team. But here is the thing. Early adopters may not care for customer events. Their aim is to drive a car that is cutting edge.

Apple’s first first Mac was underpowered compared to traditional PC’s. However, its focus on the user interface transformed personal computing. Customers spend their nights in front of Apple stores in order to get the new iPhones. Compare this to the time the author had to wait. Early adopters are aware that new product will not be able to deliver on all requirements at the same time. They expect only the core of the product to impress. Which both Apple and Tesla managed to achieve.

In that sense, if the author concludes from a failed event that the company faces bigger problems, he just may not be the right early customer for Tesla. If he would buy a Tesla in the expectation of perfectly stage-managed customer events, he might feel mistreated on a regular basis.

Dealing with unhappy customers, who have the reach to make themselves publicly heard in the media (the author similarly criticized BMW) can require significant resources of a company. Tesla may decide to rather allocate resources to the task of building and launching better cars for the core customers whose expectations better match with the focus of Tesla. And at it’s core, this is what is commonly called branding. What unites strong brands is that they know that they cannot please everybody. Instead they focus on those areas where they can impress their core customers.

It’s certainly not common practice to ban a customer. And it’s hard to tell from the outside what motivates Elon Musk to ban a customer. May be the simple message was that there are no Tesla’s for Trolls. But it seems there may be a deeper strategic rationale of focusing on those customers whose expectations are aligned with what Tesla stands for.

For us, there is a lesson learned for analyzing companies. Yes, the satisfaction of customers is a strong indicator of how successful the company will be in the long term. But that doesn’t mean that every unhappy customer is a sign that a company faces problems. We need to consider

  • which customers the company targets
  • the purchase criteria of those customers
  • the change of those customers, as well as their purchase criteria along the lifecycle of the products.

Maybe one day, when our roads are crowded with undifferentiated electric, self-driving cars, then Telsa will have to rely on its event management skills to sell its cars. However, today that’s not the core of their business.