Elon Musk is an amazing entrepreneur. In last weeks article we looked at how he’s tackled capital-intensive industries successfully and how his understanding of finance has been core to his success, right from how he finances his ventures to how he offers attractive financing to his customers so they can buy his products.
What are the other lessons we can learn from Musk?
- He started early and taught himself the skills he needed: Musk taught himself to program computers at age 10 and sold a game that he developed to others when he was only 12 years old. I see this pattern all over the place – the successful entrepreneurs I know today all started around the age of 12, if not earlier. Entrepreneurs who start early typically are doing so because they are finding a creative way to solve a problem they face. Solving problems is the key skill of an entrepreneur – it’s the nature of the problem and the size of the opportunity that defines the potential and the measure of success.
- Musk moved to the place where the potential to do great things was greatest: He left South Africa for the United States and Canada at 17. This wasn’t so much as to avoid conscription (the Apartheid South African government enforced a two-year period of military service for all white male school leavers at the time), but because he believed that America was the place where great things happen. He would never have achieved what he did from within South Africa.
- Musk is smart. He achieved two undergrad degrees, one in business and one in physics. Then he went on to start his PhD in Applied Physics at Stanford. This intellect and scientific background is essential in working with top scientists, as he’s ended up doing. He can directly relate to the incredibly smart people he needs to hire, and they respect his intellectual ability. Less smart people would have far more problems trying to lead a team of internet computer scientists or rocket scientist and would never achieve the same.
- He takes the gap: he left his PhD studies to dive into the Internet game, eventually founding Zip2. Zip2 helped big publishing companies get their content onto the Internet, which was a major challenge for them at the time. Zip2 was sold to a division of Compaq for $347M in 1999. Musk got $22M out of this deal.
- He works with family: Zip2 was started with his brother and later he started SolarCity (see below) with his cousin.
- He sells at the right time: 1999 was the peak of the Internet boom. If he’d sold 6 months later he probably would have got less than 10% of the price.
- He backs himself: he founded X.com with $10M of his own money and no VC backing. Bear in mind it was very easy to get VC backing in 1999, especially if you’d already proven your success as he had. More on this below.
- He moves to buy what he can’t build: X.com was started as an online bank but then bought another company, Confinity (which allowed people to send payments from device to device), and rebranded itself as PayPal.
- He surrounds himself with exceptional people: It’s well known that PayPal had a rare core of talent, even for Silicon Valley. Some 14 years later this team are still referred to as the PayPal mafia because of the way they have successfully started so many firms since. Some of the names here include Max Levchin, Peter Thiel, David O Sacks, Roelof Botha, Keith Rabois, etc.
- He builds real business value: eBay bought PayPal for $1.5Bn in 2002. Musk made $165M from the deal. What’s significant about this is that 2002 was a bad year for tech businesses – post the dotcom crash and valuations were down. PayPal got such a price because they had real users, real transactions and were growing fast. The processed a significant proportion of eBay’s sales at the time and eBay viewed them as a strategic purchase. The lesson: Musk built a real business at a time when others flipped ideas. He sold in a down market for a significant price.
- Musk keeps on moving: Rather than retire or take a year off, Musk started on the next major project that appealed to him: making man inter-planetary. Space-X was started in 2002.
- He really backs himself: Space-X was founded with $100M of his own money.
- He can’t do it all: He gave the idea for Solar City to his cousin, who started it and is CEO. Solar City and Tesla collaborate on battery technology and providing a network of vehicle charging stations.
- He tackles big problems with other smart people who are tackling that problem: Tesla motors were founded when two teams (one of which included Musk) working on commercialising a T-Zero prototype electric car joined forces.
- He backs himself (again): Musk provided the initial $7.5M capital for Tesla motors and has invested over $70M of his own money to the company to date.
- He addresses big existential problems: clean energy (Solar City), green transport (Tesla motors) and space-travel (Space X). The core theme is around the survival of the human race.
- He has no work/life balance and this has come at a personal cost for himself and his family: He has 5 children through two failed marriages, works 7 days a week, travels extensively and doesn’t take leave.
- He’s data driven: he’s tackling big problems and betting on himself because he’s done the sums and has the data to prove that things can work. He understands root cause of problems, looks way past what is obvious, and records everything. He uses this data extensively and proactively e.g. to tackle negative reviews of the Tesla (forcing an apology from the New York times).
- He solves the affordability problem for customers: Want to buy an electric car? Here’s a structured deal with a put-option where the ownership costs are lower than what you pay now. Want solar power for your house? He’ll sell it to you for less than you pay now. Want to re-supply the International Space Station? He’ll take all the risk and deliver your goods for a fraction of what you can do it for.
- He understands why smart people are critical: “Rocket engineering is not like ditch digging. With ditch digging you can get 100 people and dig a ditch and you will dig it a 100x faster than with one. With rockets you have to solve a problem of a particular level of difficulty; one person who can solve the problem is worth an infinite number of people who can’t.”
- Musk tolerates failure, but not critical failure: He encourages experimentation and failure in all his companies, but will abort a launch in SpaceX with seconds to go, then spend months reviewing things before attempting again. There is a very big difference in failure during learning vs. a rocket and its cargo blowing up.
- He doesn’t spend until there’s a customer: “In the absence of having NASA as a customer the amount of money that we’ll spend on manned space craft is relatively small”.
I’ll leave you with one of his quotes: “I think its very important to have a feedback loop where you constantly think about what you’ve done how you could be doing things better”.