Elon Musk's "stepping stone" approach to explosive innovation
When discussing successes like the ones Elon has been involved in, it's obvious you have to get more than one things right. This article is not about his ridiculous ability to execute the most intricate plans, his incredible breadth of understanding everything from finance to physics and engineering, or the unfathomable emotional stamina required to pull through the simultaneous near-meltdown of two companies. Observing Elon's course, it's the perfect balance between mad ambition and austere pragmatism that strikes me as a frequently overlooked feature.
When Elon started out as an entrepreneur, he didn't attack the world's problems directly. He started out with zip2, bringing print publications online. A great mission, but not a world-changer. He struggled, failed a lot, but got that company to a good outcome that got him his first money. For his next venture, he used the cash he'd earned to jump-start X.com, an online bank. When things brought him head-on with the PayPal team, he opted to merge and take on the CEO job rather than compete into the ground. Through a lot of chaos PayPal ended up in a good enough spot to be acquired for USD 1.5B, leaving Musk with about USD 180m. Another successful go-round, another level up.
What Elon is most known for is his next act: starting two blindingly ambitious companies (three if you count SolarCity), leading them simultaneously, and pulling them through the financial collapse of 2008, to an unprecedented combined success. SpaceX plans to make a sustainable human colony on Mars, making life multi-planetary, and Tesla plans to make electric cars the norm, making a dent in our carbon emmission. Up to this point, Elon works iteratively: choose a venture, succeed, cash out, reinvest in the next venture. Examining the path of SpaceX and Tesla however, Elon is demonstrating a few new tricks.
This is my quick and dirty diagram of Elon's ventures to date:
What is striking is how similar the paths of both Tesla and SpaceX are, when the product names are stripped out. Both companies cut their teeth with a non-long-term viable demonstrator model (shown in purple in the diagram). For Tesla this was the Roadster, for SpaceX it was the Falcon 1. The path to getting both of these successful was littered with failures, disappointment, and strife. In the case of Tesla, there was a fired CEO and lawsuit, cost and time overruns, and general chaos. In the case of SpaceX, what more can be said other than "three exploded rockets". Unbelievably, they both came to a good result, with praise from most every observer. When you take on the impossible, it turns out people can be quite forgiving of spectacular failures.
Once the initial project was successful, they both used the know-how earned to produce their first real moneymaker (light green). For Tesla, this was the Model S, for SpaceX it was Falcon 9. These products had enough legs to allow the companies to build real businesses.
Many CEOs would take this early success and iterate to a very profitable business. Not Musk. He used this revenue stream to build further infrastructure (orange), making the products even more desirable. Tesla built its own dealerships, a supercharger network that spans the world, and the world's largest battery factory, the Gigafactory which is supposed to be only the first of many to come. SpaceX didn't need as much in terms of consumer services due to its target market, but it did focus on building out the human-rated Dragon V2 capsule, its own Spaceport in Texas and brought production for many parts in-house, strengthening single points of failure and compounding its economies of scale.
In addition to digging in and widening their lead from any competition, both companies got into additional demand-generating businesses (yellow). Tesla started the Tesla Energy product line, providing batteries for home and commercial use, therefore increasing demand for the outputs of the Gigafactory. SpaceX has started working with Google on a global satellite internet play, which is said to require 4,000 satellites to complete. Needless to say, they will fill up quite a few SpaceX rockets.
The truly phenomenal piece of strategic genius is the one we're getting to. Both companies, in parallel to building their first money makers AND deepening their hold on their market, have been using their assets to develop a technology breakthrough that makes their products orders of magnitude better and renders any competition moot (pink). For SpaceX this has been reusable rockets, the holy grail of rocketry. Few readers of this article are not aware that SpaceX did what was considFered impossible and landed a real rocket back on its launch site after deploying 11 satellites to orbit. The impact on the cost of launching something to space is hard to overstate. 95% of the cost of a launch is in discarding the rocket in the ocean. If a rocket can be re-used 10-20 times, getting to space has gotten 10 times cheaper, with maybe even 100x being within
reach. For Tesla, this has been the Autopilot feature. While Google has been working on a self-driving car for quite a few years, Tesla is now rapidly catching up by using its fleet of cars already sold as data collectors, and the behaviour of their drivers as training data. With expert use of over-the-air updates, Tesla can keep improving its algorithms in the wild, and at scale. It is now possible that long before Google can produce a car, Tesla will have mastered self-driving. The impact of self-driving technology is hard to overstate, but it is a massive multiplier for the value of a company like Tesla that has come from nowhere to almost having the best sales experience (own dealerships), the best hardware (Model S/X), the best software (Autopilot), and the best supply line (Gigafactory) of any car company in the world. It is hard to imagine how any car company will be able to compete on all these fronts once Tesla's technology matures. What's particularly interesting with these "secret weapon" technologies, is that they have not been developed in some cut-off R&D department, at least not for long. As soon as practically possible, they have been brought into the main line of operations, and developed in tandem with the core product. It's hard to understate how different this is to the traditional approach, and the impact it has is visible in the breakthroughs already made.
While all this is happenning, almost as a footnote, both companies have also perfected the next generation of their moneymakers (darker green): Tesla produced the Model X, and SpaceX will debut the Falcon Heavy in 2016.
Both companies can now use their well-developed assets to produce their masterpieces (blue). For Tesla this is the Model 3, an electric car that will cost about USD 35k, changing what "car" means for people who can't spend USD 70k-140k on a car. Elon has even inadvertently hinted ad a future where Tesla self-driving cars offer an Uber-like service. For SpaceX the masterpiece is the Mars Colonial Transporter, a rocket 10 meters in diameter, up from the Falcon 9's 3.7m. Its name may give you a hint of the ambition behind it.
The striking feature that is consistently present in all these ventures is that of incremental progress. Elon would not be able to build PayPal without zip2's success, and he would not have been able to build SpaceX, Tesla, and SolarCity without PayPal. Also, SpaceX and Tesla's missions have both been so ambitious that directly attacking them would be certain suicide. Elon in both cases identified incremental (though still massive) goals that were both commercially viable, while also being solid stepping stones to completing the ultimate mission. Once a stepping stone is in place, many new options open up, and both these companies have consistently picked up the best ones, building further grounding for the next step and so on. You may not plan to literally solve all the world's problems, but we can all learn a few lessons from Elon: Aim high, but focus on the "how".
If we learn one thing from Elon's way of picking his next moves, it's that there is near-limitless opportunity for success when blinding ambition meets ruthless pragmatism.