How Does Elon Do It?
How compounding growth explains massive disparities in output.
Have you ever wondered how someone like Elon is able to do so much? How is he the CEO of two truly disruptive companies, SpaceX and Tesla, while also taking time to contribute to or launch other companies like Neuralink, The Boring Company and Hyperloop? I believe the answer is because of a surprising aspect of growth: growth compounds, increasing exponentially not linearly. This compounding growth effect explains why some leaders, founders and creators are able to generate drastically greater amounts of value than the average person.
As John Doehr said, “measure what matters.” If your goal is growth, you need metrics to track. For me, the metric for growth is someone’s potential output — how much value they have the potential to generate. This doesn’t have to be solely in the business context; it can be how many people someone can inspire or how much joy someone can spread. I believe there are four primary drivers of growth, or factors that can increase your potential output: Abilities, Knowledge, Work Ethic & Network.
The first two are obvious. Your Abilities: your intelligence, your reading comprehension, your writing skills, etc. all have a clear effect on your output. Similarly, your Knowledge: what you’ve learned, your reference points, heuristics, pattern recognition etc. Work Ethic is straightforward but in my experience greatly undervalued. Finally, and what I personally undervalued until recently, your Network — the people that you mutually know and trust.
Where things get interesting is discovering that your Abilities, Knowledge and Network compound — they grow exponentially not linearly. Someone, maybe Einstein, said “compound interest is the most powerful force in the universe.” Our brains don’t intuitively grasp exponential growth. It doesn’t seem like a $1,000 investment earning 7% a year would double every 10 years but it does. Likewise, I believe that the more you grow, the faster you can grow. The more Knowledge you gather, the more context you have to learn new information and synthesize it faster. In other words, learning the 100th data point about a topic is much easier than learning the first 10 because you have many more reference points to connect the information to. Likewise, with your Abilities, if you can improve your reading speed 7% a year for 10 years, you’ll be able to ingest double the Knowledge. The marginal effort of learning something goes down as Knowledge and Abilities increase.
For your Network, I see many aspects of compounding growth. First, the total value of your network goes up each time you add someone you trust. You can now connect that person to everyone else in your network. Metcalfe’s Law describes this effect and it’s the same reason why social networks and marketplaces become so powerful as they scale up. In this context, it refers to the potential value of all the connections within your network — helping people find employees, experts, funding, new friends, etc. Secondly, when you connect with someone new, you get access to their network. Adding one person can unlock hundreds of new connections for you. Finally, the more credible people in your network, the more credible you are and the easier it is to add more people to it. The marginal effort to convince someone you are trustworthy and connection-worthy goes down. Until recently, I greatly underestimated the power of a network. It’s the closest thing to a “growth hack” because it solves one of the biggest problems in business and life: trust.
Naval Ravikant, startup founder, investor and philosopher, helped me realize this with his advice of playing “long term games with long term people.” You want to work in an industry and with a group of people that are going to be around for a long time so you can benefit from the massive long-term benefits of building a trusted network. Two illustrative examples of these benefits are two of the hardest things for any business: hiring people and raising money. They’re extreme examples of the trust problem. If you can’t find someone in your network, or referred through your network, counter-parties have to go through an arduous diligence process to figure out if they can trust each other. It’s extremely time consuming and often ineffective. But if you’ve worked with them before or a coworker can vouch for them, you easily get a 10x better outcome — a much shorter diligence process and a much greater chance of success. Hiring and fundraising are just two of the countless inefficient trust-based problems that your network can solve.
Going back to the Elon example that I started with: if you agree that someone’s potential output can grow exponentially, that means it’s possible for someone to have 10x, 20x or even 100x the output of an average person. This explains how someone like Elon can, in his spare time, take an idea like using tunnels to solve urban traffic and within a few months hire a team, raise capital and start digging tunnels. He has the Ability and Knowledge to think of a first principles solution and the Network to quickly find the right team and get funding. My suggestion is to think of your growth like your 401k account — start investing early and keep contributing to it every month!
p.s. I specifically left capital out of this framework. I understand that it is an effective form of leverage and also benefits from compounding growth but I believe it’s a lagging indicator — capital follows growth. Unless you’re starting out with substantial capital, the surest way to increase it is by increasing your productivity via the methods described above.
Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in seed-stage companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation and computing
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