Elon Musk’s Most Powerful Secret

Turning Boulders Into Gravel

Give me a place to stand, and I shall move the world”

— Archimedes, 340 AD

Photo: Elon Musk in a red Tesla

One of the savviest investors in Silicon Valley, Zach Coelius, had this to say about Elon Musk in an interview:

The nature of entrepreneurs is “I’ve gotta go close this customer. I’ve gotta build this product. I’ve gotta launch this thing,” and they put their head down and go. Unfortunately, oftentimes they miscalculate the timing. Look at Elon Musk. He almost went bankrupt with both Tesla and SpaceX. It one of the greatest successes in modern history and the thing was dead so many times.

All founders soon realize there aren’t any easy days on the calendar. Running a startup is like jumping on a rocket ship flying at the fastest speed possible until it smears you against your wall of incompetence. It doesn’t matter how good you are. As great an entrepreneur as Elon Musk is, he nearly went bankrupt when he started Tesla. His wall of incompetence is a lot higher than most, but wherever your incompetence resides, that’s where the wall finds you.

Tesla’s first major outside investor sold his stake in Paypal when it went public. He skipped the big house, yacht, and fancy car (we’ll get to that in a moment). Then against the advice of nearly everyone, in 2004, he dumped $7.5 million of his winnings into a startup. The company had an engineer for a chief executive and was losing money like a sailor in a shantytown. Within two years, Elon Musk became CEO, and as the largest shareholder, the board meeting may have been a short one.

The problem of bringing an electric vehicle to market confounded giant auto companies like Toyota and GM. Now a start-up entrepreneur without automotive or experience in energy mobility or batteries, whose claim to fame was the founder of Zip2 (where I followed him as CEO) and Paypal, was just the man for the job. That must have been what he told himself, in any case.

Musk’s lack of experience may have contributed to his audacity. His plan was breathtaking, although some would describe it as delusional. He discarded the dealer network and announced the marketing plan was no marketing, “The stores are our advertising.” The chance that he may have been certifiably insane occurred to his investors more often than we realize.

It didn’t help when, in future years, he smoked pot on a podcast (why?) and violate strict SEC guidelines by tweeting his plan to take the company private, “funding assured” (again, why?), for which he paid a $20 million fine or ten million per word. The SEC considered tweeting, “Fine assured.” If you see a pattern, you’re right. But this is getting ahead of our story.

Habit: Granularity

The launch strategy rested on a simple thesis. I refer to it as granularity. More colorfully, turn an ugly boulder into pebbles and pick the prettiest to start. It helps get over the camel’s hump of a large conundrum that can drain us of energy and creativity. Think of it as eating the mashed potatoes before the peas.

Musk was saving boatloads of money by bringing Tesla to market without the benefit of advertising or a dealer sales staff. But it meant there was no way to drive revenue by leveraging a dealer network. The onerous cost of production on a massive scale was draining him. As the company’s principal source of funds, he was nearly bankrupt. There is a great story, which I will reveal in more detail in the sidebar, in which an investor tells Musk to get down on his knees and beg for more funds. He did.

What Musk really had to do was carve a pebble solution from a boulder of a problem. He hit upon an idea that made no sense to anyone but Elon. Instead of building a mass-market sedan as everyone in their right mind would suggest, he chose to begin with a low volume, hot looking sports coupe that would attract huge media attention. The car would literally sell itself. Who needed a dealer network global media did the marketing?

As of this writing, Tesla is worth roughly $700 billion, the most successful and valuable automobile company in the world. Not only did he revolutionize, but he also granularized. Not surprisingly, it was part of the original plan all along.

Here is the closing of Musk’s August 2, 2006 employee letter before the launch:

The Secret Tesla Motors Master Plan

  1. Build sports car
  2. Use that money to build an affordable car.
  3. Use that money to build an even more affordable car.
  4. While doing the above, also provide zero-emission electric power generation options.

— Elon Musk, Co-Founder & CEO of Tesla Motors August 2, 2006

PS Don’t tell anyone.

Takeaway

Let’s apply this thinking to real-world problems. You are in a dead-end job. You hate your boss. Unfortunately, he feels the same. Your stock portfolio cratered when you invested in retail as Covid-19 hit. You forgot to send in a few tax returns, and the IRS is waiting.

Take these problems in their totality, and they own you. The answer isn’t to hide but to dive in and find a ‘pebble’ solution. The other benefit of granularizing is that life is filled with pitfalls and bad breaks, and we don’t know when or where they will appear. But break these down into manageable solutions, and you will turn them into a contest or an adventure.

PS Don’t tell anyone.

Atlas Smiled

In New York’s Rockefeller Center off Fifth Avenue, you will find a symbol of confidence, the statue of Atlas that attests to the power of those who defy adversity. The statue was by Lee Lawrie and commissioned by the Rockefeller family. The sculpture stands in front of 30 Rockefeller Center just as it appears in the opener of the popular television show.

Atlas by Lee Lawrie (Rockefeller Center archives)

Many know Atlas from Ayn Rand’s epic novel, Atlas Shrugged. The Greek Titan was punished for helping humankind. His penalty was to carry the world on his shoulders for eternity. It was the punishment to the defiant Titan for challenging power. In our view, Atlas isn’t shrugging, he is smiling.

Like Atlas, our subjects have an inner compass that points in the right direction even when alarms go off. General Petraeus stood up to President Obama when the latter wanted to bring troop levels down too fast (the president did it anyway, and it led to ISIS formation, see his interview). When people defy the all-powerful they become confident.

Creating value is the most time-sensitive of all the principles. It sometimes falls to history to confirm value has actually been created. Queen Elizabeth II should ministration of residence, Buckingham Palace, was acquired by King George the third in 1761. It may not have been clear for decades that the residence was anything more than a white elephant. A more recent example of phenomenal value creation began two years ago when Dr. Ugur Sahin and his wife, Dr. Özlem Türeci, undertook breathtakingly novel research to develop its messenger RNA technology into a vaccine to cure the global pandemic. They had to temporarily abandon their focus on cancer treatments and put off any hopes of bringing a product to market. The result was BioNtech and Pfizer vaulted to the front of the vaccine race to defy a disease that killed several million people worldwide. The sacrifices had no clear payoff. We can be thankful they chose the path of outcome over income.

Making an impact is overrated; creating value is underrated. I have a friend from Arkansas who knew how to create value and he didn’t care about making an impact. Joe Ford ran a local phone company or so people thought, but it was a gold mine in disguise. When I mentioned a telephone competitor who said, “it’s not about making money this quarter I want to change the world,” Joe said, “that is the kind of competition I like.” In an era where virtue bragging is psychic income, the idea of going doing good deeds may be a head fake. The fellow who made the comment lost his job and the company went under. He didn’t just have a down quarter he had it down life. Joe sold his company to Verizon for billions. He now helps people in Rwanda rebuild the coffee business and grow the economy.

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