When Elon Musk was in college, he figured three things would affect the future of humanity: the internet, sustainable energy, and multi-planetary life. He wanted to be a part of each.
So how has he done so far?
zip2: Helped bring media companies online. Sold to Compaq for $307 million in 1999.
PayPal: Changed how money was exchanged. Sold to eBay for $1.5 billion in 2002.
SolarCity: Public company worth a little under $1.5 billion. Will grow by 60% and be cash flow positive in 2013.
Tesla Motors: Worth over $4 billion. Successfully launched two all-electric vehicles (with charging stations). More electric vehicles in development.
The amazing (or scary) part?
Elon Musk is only 43 years old and still has lots more planned.
He has said:
“You want to have a future where you’re expecting things to be better, not one where you’re expecting things to be worse.”
A lot of people say and think about creating a better future, but Musk is one of the few who is working every day to make it happen.
It hasn’t been easy. He’s gone through difficult times. Changing the world isn’t easy. The year 2008 was particularly rough for Musk. SpaceX had its third launch failure in a row, the Tesla financing round fell through due to the economy, Morgan Stanley backed out of a deal with SolarCity, Tesla was in a lawsuit with former employees, and he was going through a very public and ugly divorce. All three of his companies were close to death, and his personal life was in shambles.
Then, in mid-2009, Tesla’s co-founder, who had been released from his position as CEO, filed a lawsuit against Tesla. It was settled a few months later through an out of court settlement.
He managed to pull through that turbulent time. His divorce is over, and all three companies are alive. Two of the companies will be profitable soon (update: Tesla posted its first quarterly profit in September 2016), and the other has earned multiple contracts with NASA.
Musk has put a lot of his own wealth into his companies. He’s put over $100 million into SpaceX, a little under $100 million into Tesla, and an undisclosed amount into SolarCity, where he is Chairman.
And while Musk does have a business degree, it’s not entrepreneurship that is his passion. He’s an inventor and engineer first.
He wasn’t planning to be the CEO of two companies. It just happened. He says:
“I think of myself more [like] an engineer, who, in order to invent the things I want to invent and create them, that I have to do the company as well. So I’m more reluctantly the CEO. It’s not my preference, actually.”
Being a CEO may not be his preference, but he has done a good job, nevertheless. He’s been in business for a long time and has shared some advice for entrepreneurs. We’ll get into that later.
Before continuing, though, there’s one thing I’d like to point out: Calling Musk a “founder” of PayPal would be inaccurate. He founded X.com, which later merged with Confinity. Confinity was founded by Peter Thiel and Max Levchin. Out of this merger, came PayPal. They survived the late 90s dot com bubble by pooling their resources. PayPal went public in early 2002 and was sold to eBay later that year.
Musk is no longer involved in PayPal and has been critical of its lack of product iteration. Musk says that it could become the biggest consumer bank in the world; it just needs to take away the reasons people would withdraw money from PayPal. He also advocates reducing the fees, which would result in greater revenue because more people would use it. Doing this, fixing errors, and adding functionality could make the company “the financial services company that addresses everything a person needs,” according to Musk.
Elon Musk has literally had success (zap2) after success (PayPal) after success (SpaceX) after success (Tesla) after success (SolarCity). How many entrepreneurs can say they’ve had this much success?
One could even argue that selling a video game at the age of 12 for $500 (he taught himself how to program at 10) was a successful accomplishment.
As you read this post, keep a few things in mind:
– He’s only 43 years old.
– All three of his current companies are valued over $1 billion.
– Many think he makes Steve Jobs look “like a kid playing with an electronics kit at home.”
So, first, let’s get into a little background on each of his current companies, what he plans for the future, and then we’ll end with the tips he gives entrepreneurs.
The Roadster (no longer in production):
The Model S:
Musk never planned to be the CEO of Tesla. In fact, he never intended to launch an electric car company. He always had an interest in electric cars that dated back to college. So he went to California to develop energy storage mechanisms for electric vehicles. He happened to meet the people at AC Propulsion, who had an electric kit car called the tzero. He tried to convince them to commercialize the car. They said no. Musk said he was going to do it, and they connected him with a few people to help him found and build Tesla. The current Tesla Motors CTO was introduced to Musk through AC Propulsion.
Tesla’s original CEO was Martin Eberhard, but things didn’t work out. Musk was reluctant to become Eberhard’s successor because he was already the CEO of SpaceX. And being the CEO of an electric car startup, too, would be that much more difficult. In his words:
“My goal was never to be the CEO of Tesla…I had an interest in electric cars that goes back 20 years to when I was in college….since I was doing SpaceX, I knew that if I did try to start an electric car company and run it that it would be extremely painful to run two companies. I really tried my hardest not to be the CEO of Tesla. At any point, from day one I could have been the CEO because I had majority control of the company, but I really tried not to.
“At the end of 2008, I had to commit all of my reserve capital to Tesla (all of it that wasn’t allocated to SpaceX), and so I felt I had to steer the ship correctly….it was super not fun.”
Now, if you look at the price tag of a Roadster (over $100,000) and the Model S (over $50,000), you can see that they are out of the price range of most people. It won’t always be this way.
Tesla cars won’t always be targeted to the affluent. It’s not the strategy to become the electric car version of Ferrari. In an interview with Charlie Rose, Musk says:
“The strategy of Tesla from the beginning has always been to start with a low volume, high priced car, then go to a medium volume, mid-priced car, and then low priced, high volume.”
Tesla’s first two models have been completed. The Roadster is the low volume, high priced one. The Model S is the medium volume, mid-priced one. And there is a rumored low priced, high volume car, code named Blue Star.
Update: Tesla has announced their low price, high volume car, called the Model 3. It’ll be 20% smaller than the Model S, sell for about $35,000, and have a range of over 200 miles. It’s slated to debut in 2016 and be for sale in 2017.
By 2015 Tesla is slated to have charging stations that cover 98% of the US population and parts of Canada.
SpaceX, or Space Exploration Technologies, has the goal of putting a man on Mars. According to Musk:
“The goal of SpaceX is to develop the technologies necessary to make life multi-planetary, or at least make progress in that direction. I’m not saying we will develop all of those technologies, but we’re going to try and at least advance the cause of space exploration as much as possible.”
He has said:
“I started SpaceX with the expectation of failure.”
It’s odd that he was expecting SpaceX to fail, considering he put $100 million of his own money into the project. Clearly, Musk doesn’t do what he does for the money. It seems rather insignificant to him.
SpaceX’s first three launches failed. Musk says that if the fourth takeoff hadn’t worked, it would’ve been the end of SpaceX, as they didn’t have the resources to mount a fifth launch. You can find the causes of each failure on this Wikipedia page.
In May 2012, SpaceX became the first private company to send a cargo load to the International Space Station.
Musk’s cousins run SolarCity, which is now traded on the NASDAQ. Musk invested some of his own money, and is currently Chairman. The goal of SolarCity is “to make solar power as affordable and widespread as possible.”
Musk compares SolarCity to Dell. SolarCity, like Dell, buys the parts (they’re not a supplier) and then provides them to businesses. Dell doesn’t build the hard drive, CPU, motherboard, etc. SolarCity doesn’t build solar panels. It assembles and maintains them.
So how has SolarCity done in its 7 year existence? Pretty well. In 2011, Musk said:
“SolarCity is now the largest provider of solar powered systems in the country.”
As you can see, Musk has a lot of cool (and profitable) projects. He still has more up his sleeve. Here are a few of his ideas that he’s made public:
- Supersonic electric jet with vertical takeoffs and landings.
- Double Decker Highway to ease traffic congestion and help people get to their destinations faster.
- Hyperloop that has the possibility of getting from San Francisco to Los Angeles in 30 minutes. To put that into perspective, it takes a plane about an hour and a half to fly from SFO to LAX. Check out the alpha design for the Hyperloop. A separate team (Elon is not involved) is building this, check out their website to see the progress they’re making.
To a lot of people, these ideas may seem lofty and unreasonable. But judging by his past, are you really going to bet against him and say it can’t be done? This is the guy who wants to land a man on Mars and himself die on Mars.
So now we know his past and his current ambitious projects. Does he give advice to aspiring or current entrepreneurs?
Yes. Let’s get into that now.
Advice on Raising Capital
Musk says that if you have a choice between a lower valuation with an investor you like versus a higher valuation with someone you don’t care for, take the lower valuation.
“It’s better to have a higher quality venture capitalist who you think would be great to work with than to get a higher valuation with someone where there’s even a question mark, really.”
In another interview, he says:
“I think the best way to attract venture capital is to try and come up with a demonstration of whatever product or service it is and ideally take that as far as you can. Just see if you can sell that to real customers and start generating some momentum. The further along you can get with that, the more likely you are to get funding.”
Seek Out and Listen to Negative Feedback
Musk says it’s best to listen to the negative feedback. While it’s painful, you’ll get a lot out of it. He says that entrepreneurs should ask their friends what they don’t like about a particular product. The statement:
“Don’t tell me what you like, tell me what you don’t like.”
Is what Musk advises entrepreneurs to make clear.
If you don’t do this, friends will just tell you what they like. And while the negative feedback may be wrong, you know it’s coming from a good place and that they’re well-intentioned.
Reason from First Principles, Not Analogy
Musk says that the way people think is too bound to previous experience. He advises that it’s best to build your reasoning from the ground up. He says:
“You look at the fundamentals and construct your reasoning from that and then see if you have a conclusion that works or doesn’t work. And it may or may not be different from what people have done in the past. It’s harder to think that way, though.”
He reiterates this during an interview with Charlie Rose:
“Boil things down to the most fundamental truths and say ‘okay, what are we sure is true’…and then reason up from there. That takes a lot more mental energy.”
As an example, Musk points to people who say that “battery packs are expensive and that’s the way they’ll always be.” People think this because that’s the way battery packs have been in the past. Musk says that if you apply that reasoning to anything new, then you will never be able to get to that new thing. For instance, people said that we didn’t need cars because we had horses and there was grass everywhere for the horses to eat. Cars can’t be done because people don’t buy gasoline.
For batteries, it has historically cost $600 per kilowatt hour. Reasoning by analogy would tell you it’s not going to be much better than that in the future. But the “first principles” way of thinking asks what the material constituents of the battery are (cobalt, nickel, aluminum, carbon, polymers for separation, and a steel can) and the cost if you bought them on the London Metal Exchange. If you did this, you’d find that they really total about $80 per kilowatt hour. You then need to put all these constituents together and combine them into the shape of a battery cell. By using this method, you’ll realize that thinking by analogy is shallow and that “first principles” leads to new innovations and cheaper batteries.
In another interview, Musk reiterates the importance of thinking from first principles. He says:
“Instead of reasoning from first principles, [people] will tend to…do things because others are doing them because there is a trend or they just see everyone going in that direction so they think that direction must be a good direction to go. Which is sometimes correct but then sometimes you’re going to run off a cliff or something. So it’s really better to look at things…from a first-principles standpoint.
“What are the [most] fundamental truths in an arena…and any conclusions [you logically come to] must be derived from those fundamental truths.”
Put another way, Elon Musk encourages entrepreneurs (and others) to think differently. Where many think by analogy, entrepreneurs (and everyone) need to think by first principles.
Work 80-100 Hours a Week
This one can be a little controversial.
For some, working 80-100 hours a week will lead to burnout. But others (like Musk) have been doing it for years and recommend it to others. He says:
“Work like hell. I mean you just have to put in 80 to 100 hour weeks every week. [This] improves the odds of success. If other people are putting in 40 hour work weeks and you’re putting in 100 hour work weeks, then even if you’re doing the same thing you know that….you will achieve in 4 months what it takes them a year to achieve.”
There are a few things to take into consideration when thinking about Musk working 80-100 hours a week:
- He has five young boys and a wife.
- He’s the CEO of two companies, one in Los Angeles and the other in San Francisco.
- His work days are not entirely spent behind a computer screen.
- He’s incredibly passionate about his work. My guess is his time passes very quickly.
Also, for most people, there is a point of diminishing returns. People can mentally hit a wall after consecutively working for so long. Musk says what keeps him going is caffeine and an unyielding desire to put a man on Mars.
But for entrepreneurs, putting in the extra work is necessary. Musk says that it’s important that aspiring entrepreneurs know how hard it is to run a business. He says:
“Starting a company is a very tough thing. There’s a friend of mine, Bill Lee, whose phrase is ‘starting a company is like staring into the abyss and eating glass.’ So you should certainly expect that it’s going to be very hard. It’s going to be harder than getting a job somewhere by a pretty good margin and the odds of you losing the money that you invested or your friends invested is pretty high. I mean, those are just the basic facts. So if you don’t mind things being really hard and high risk, then starting a company is a good idea. Otherwise, it’s probably unwise. It will certainly stress you out. So I think you have to be pretty driven to make it happen. Otherwise, you will just make yourself miserable.
“…and in creating companies, you just want to say ‘how do you create the best product or service possible?’ Companies that don’t make good products or services just shouldn’t exist. I think that’s just pretty logical.”
For all Tesla employees, working a minimum of 50 hours a week is expected. In an interview with Autoblog, he says:
“Right now we’re working six days a week. Some people are working seven days a week – I do – but for a lot of people, working seven days a week is not sustainable. The factory is operational seven days a week but most people we only ask to work six days a week right now and, obviously, we want to get that to a more reasonable number. I think people can sustain a 50-hour work week. I think that’s a good work week. If you’re joining Tesla, you’re joining a company to work hard. We’re not trying to sell you a bill of goods. If you can go work for another company and then maybe you can work a 40-hour work week. But if you work for Tesla, the minimum is really a 50-hour week and there are times when it’ll be 60- to 80-hour weeks. If somebody is hourly, they receive time-and-a-half, but if somebody is salary, then we do cash and stock bonuses for going above and beyond the call of duty. So we try to make it fair compensation, but the general understanding is that if you’re at Tesla, you’re choosing to be at the equivalent of Special Forces. There’s the regular Army, and that’s fine, but if you are working at Tesla, you’re choosing to step up your game. And that has pluses and minuses. It’s cool to be Special Forces, but it also means you’re working your ass off. It’s not for everyone.”
Clearly, he’s a big believer in putting in extra hours. But he doesn’t sacrifice sleep too much, saying he likes to get 6-6.5 hours a night, otherwise he feels “grumpy.” And always asleep by 1AM.
Other Elon Musk Nuggets
- On hiring, Musk looks for two things – a positive attitude and being easy to work with. People must like working with the applicant. They have a no a-hole policy at Musk’s companies. In interviewing candidates, he’ll ask “Did they face very difficult problems and overcome them?” If they’re being honest, they’ll understand the problem well enough to answer any detailed question.
- Have a feedback loop and know how to always improve. He says:
“I think it’s very important to have a feedback loop. Like where you’re constantly thinking about what you’ve done and how you could be doing it better. I think that’s probably the single best bit of advice, is just constantly be thinking about how you could do things better and questioning yourself.”
- At the 2013 South by Southwest Conference, Musk said:
“The biggest mistake in general that I’ve made and I’m trying to correct for that is to put too much of a weighting on somebody’s talent and not enough on their personality. I’ve made that mistake several times. In fact I’d say ‘I’m not going to make that mistake again’ and then I would make it again. I think it actually matters whether somebody has a good heart. It really does, and I’ve made the mistake of thinking that sometimes it’s just about the brain.”
- Focus on every detail. At one point (and possibly he still does this), he looked at every Model S that came off production. In some cases, he’s found the slightest errors, like a headlamp that was off by three millimeters. He explains:
“There is a visual inspection of the inside and outside, looking at fits and interior finish and often sitting inside and making sure that everything is put together correctly. Obviously, the software is always going to be the same, so I’m not trying to see if there’s any variation there. And then, as I said, I pick cars at random to drive and make sure that the driving feel is correct and the sound system is working as it should and if there’s an issue, I’ll trace it back to the exact place on the line where that occurred. For example, yesterday I found that the installation of the headlamp was not quite correct and there was a slight asymmetry between the right and the left. I think most people wouldn’t see it, but it seemed pretty obvious to me. So I was like, this doesn’t seem right, this is off by like three millimeters. So I literally walked over to the lead tech on that portion of the line to find out why is this three millimeters wrong and it turned out he was still operating with the part dimensions of the old part, but we had made a new part that didn’t require shimming and nobody had given him the new instructions that it no longer needed shimming to get to the right position. And that was the origin of the problem. On Saturday, I will talk to the whole assembly, metal stamping and plastics team to make sure that everybody understands that they are all empowered to be perfectionists on the line and that they should not let a car move from their station if they see anything that is slightly wrong. They must reverse the line and send it back to the prior station.”
- Work on something that will have high value to someone else and be rigorous in that assessment. He explains:
“Natural human tendency is wishful thinking. A challenge for entrepreneurs is to say ‘well what’s the difference between really believing in your ideals and sticking to them versus pursuing some unrealistic dream that doesn’t actually have merit?’…can you tell the difference between those two things? So you need to be sort of rigorous in your self-analysis.”
- Tenacity is key for entrepreneurs. He states:
“Persistence is very important. You should not give up unless you are forced to give up.” He later says: “You have to be cautious in always saying one should always persist and never give up because there actually are times when you should give up, because you’re doing something in error. But if you’re convinced that what you’re doing is correct then you should never give up.”
“I think it’s really a mindset. You have to decide. We’re going to try to do things differently. Well, provided that they’re better. You shouldn’t do things differently just because they’re different. They need to be different or better. But I think you have to sort of decide. Let’s think beyond the normal stuff and have an environment where that sort of thinking in encouraged and rewarded and where it’s okay to fail as well. Because when you try new things, you try this idea, that idea….well a large number of them are not gonna work, and that has to be okay. If every time somebody comes up with an idea it has to be successful, you’re not gonna get people coming up with ideas.”
“Get to a useful prototype with the least amount of money is probably a good idea….if people see actual hardware and it’s working, that is much more convincing [than PowerPoint, a website, etc].”
- Allow for a certain amount of chaos.
“If you’re trying to impose too much structure or if you don’t allow failure. A lot of companies, typically as they get bigger tend to have a risk/reward asymmetry, failure is severely punished [and] success is moderately awarded. That’s not a good idea if you want to be innovative because by its very nature innovation will result in many attempts that don’t work.”
- Ask job applicants how they’ve solved a problem. The depth at which they can describe the details reveals how close they were to creating the actual solution.
“When you struggle with a problem, that’s when you understand it….when I interview someone to work at one of the companies [I ask them to] tell me the problems they’ve worked on and how they solved them. If someone was really the person that solved it they’d be able to answer multiple levels. They’ll be able to go down to the brass tax. And if they weren’t [then] they’ll get stuck. Then you can say ‘oh this person was not really the person who solved it because anyone who struggled hard with a problem never forgets it.”
- Musk recommends entrepreneurs stay “in close range” of their product in the first few years. He says:
“At the beginning, I hired a CEO to run Tesla, but it became apparent that he simply couldn’t get the job done. Taking over was the only option I had. Now I have a great team, and most of my time is spent in engineering and design. That’s my forte.”
- Dolly Singh, former Head of Talent Acquisition at SpaceX, writes about what it’s like working with Elon Musk.
- How are his three companies doing now? Musk says that they’re not facing imminent death anymore (meaning staring into the abyss), but admits “there’s always some amount of glass that’s gotta be chewed” (referencing the Bill Lee quote).
There’s a lot to learn from this big thinking, soft-spoken engineer and CEO. He doesn’t seek attention (he spoke for only four minutes at the Tesla Model S customer delivery event) but will actively defend his products and mission. (People working to change the world will have their critics.) He’s not kind to people who make misleading claims about him or any of his companies.
One could argue that Elon Musk is the most accomplished businessman of our time. He’s done a lot more in his first 40 years than even the most productive people do in their lifetimes. He’s a role model for entrepreneurs and anyone with a drive to change the world.
You can follow him on Twitter here.
Our friends at Hubspot have created worksheets with exercises for readers to work through and develop their mental frameworks and try to go through similar thought processes as Elon. Who knows, maybe you’ll be building the next great electric car.
Anything you’d like to add about Musk or just want to chat about him? Put it in the comments! I look forward to a good discussion.
Image Credit: Photo of Elon Musk by http://www.flickr.com/photos/jurvetson/