Learning Fast and Slow

What a Zero-to-One Startup can Learn from Tesla’s Model 3 Production Hell

I’m helping build a zero-to-one fin-tech startup. We must create our vision, organization, industry knowledge, business processes, technology platforms, and products — from scratch. We’re under pressure to deliver fast. In order to deliver fast, we are first forming a culture of learning. A learning organization prioritizes advancing from a state of ambiguity to clarity. This is not just as a means to find product-market fit. It is cultural bedrock for our long-term success. We highlight, incentivize, and reward those who help the organization grow its knowledge to the point it can deliver great products at scale. We have all heard the saying “pain is weakness leaving the body.” This is inaccurate but memorable. My correction to this quote is that learning is weakness leaving the body.

“The difficulty and value of manufacturing is under appreciated. It’s relatively easy to make a prototype but extremely difficult to mass manufacture a vehicle reliably at scale. …For cars it’s maybe 100 times harder to design the manufacturing system than the car itself.”

- Elon Musk on navigating “production hell”

Reframing “Are We Moving Fast Enough?”

For organizations that are navigating uncharted complexity, whether building a new system or searching for product-market fit, hitting long-run velocity is an existential requirement. Without proving you can attract customers and grow, investors will abandon you. But a premature focus on speed of delivery diverts focus and the organization’s cognitive potential from their real constraints.

A new software product company is a bit like Tesla in Q4 of 2017 (bear with me here!). They both have to prove to their investors that they are more than just a great idea. There is a sense of urgency to demonstrate that they can build a great product at the scale demanded by the market.

Tesla’s 2018 Model 3 Production Hell

In early 2018, Elon Musk was facing a crisis getting Model 3 production ramped up to some big target numbers. Elon had hyped the market and had to deliver on the hype. They began deliveries of the Model 3 and shipped only 260 cars the first quarter. Getting to an order of magnitude improvement by shipping 2400 cars the next quarter was still far short of the mark. Elon knew he had to ship another order of magnitude more cars to prove Tesla could scale. Their market capitalization then was around $55B.

What did he focus on to get there?

I imagined Elon standing overlooking the vast factory floor in Fremont California as parts and cars crawled and stalled through the system. Was he asking his teams to move faster? I wondered what their challenges might be and how they were measuring progress. What was the goal of this phase of their existence? What was most important to them?

Tesla’s Market Cap, $55B, prior to Model 3 production ramp

Learning to Build the Machine

Companies had been building cars for over a century before Tesla started. But Tesla wasn’t building a cookie cutter production line lifted from Detroit or Tokyo, they were charting new territory. Elon’s priority was learning. They had to learn how to build the machine that built the product. Each time they had a problem, they had to learn their way through it.

In order to move fast over the long run, Tesla first had to learn how to learn fast.

The Payoff to Learning is Moving Fast

By first focusing their learning on how to scale, they could then move fast. Tesla’s production volume grew by another order of magnitude within a year. They are likely to hit a third order of magnitude improvement in 2021. Imagine a factory that produced 260 cars in late 2017 producing 200,000 cars three years later. With that, their market cap has grown 12x.

The payoff: $50B to $700B market capitalization

Becoming a Learning Organization

“The only sustainable competitive advantage is an organization’s ability to learn faster than the competition.” — Peter Senge

Reframing Velocity in a Zero-to-One Company

Learning must be the bedrock under your core principles. To deliver your first generation of products, embrace learning and incentivize responding fast to what the team learns.

Tips to Build a Learning Organization

1. People want to learn and grow their skills. Trust in this natural tendency of teams and people to strive to improve their understanding of the world. Encourage this and build it into how your teams work.
2. Celebrate learning. Clarifying ambiguity in product definition is as vital a step as the product delivery that follows. Learning is a prerequisite to delivery.
3. Learning is about changing your worldview. This means shaking off assumptions and being open to be wrong. Encourage sharing stories. When did something you learn change your mind?
4. When people get rushed delivering products, they often hold tighter to existing thinking and build to those assumptions. They become more resistant to learning because the “pain of weakness leaving the body” often means reworking the product. Build responsiveness to learning into the way your teams work.