From tech giants that started off from a garage to the world’s largest submarine sandwich chain, here are 10 businesses that proved that you don’t need a huge investment to start a multi-million dollar business. There’s a widespread belief that you need a huge amount of investment to start [...]
From taking risks to working hard, learn all about Elon Musk’s approach to business.
Last week, Tesla and SpaceX CEO Elon Musk made headlines after he overthrew Jeff Bezos, the Founder and CEO of Amazon, to become the world’s richest person.
Since March 2020, Tesla’s share price has soared by nearly 720%. Along with this, a substantive pay package helped the entrepreneur hit a net worth of $189.7 billion on Friday, taking him to the number one spot, according to Forbes’ estimates.
As per the Bloomberg’s Billionaire Index, Musk is now worth $209 billion, while Bezos, who has held the title since 2017, stands at $186 billion.
What makes Musk’s achievement intriguing is the speed at which he has achieved it. At the start of 2020, Musk, who holds a stake of about 20% in Tesla, was the 35th richest person in the world. By early November, he had overtaken Facebook CEO Mark Zuckerberg to become the world’s third-richest person, and then Microsoft Co-founder Bill Gates to take the number two spot.
While Musk has been at the centre of many controversies and Twitter spats, the billionaire continues to be one of the most important innovators of our time. As the founder of four billion-dollar companies – PayPal, Solar City, SpaceX, and Tesla – what is Musk’s approach to doing business?
Money isn’t what drives him
In a 2014 BBC interview, Musk stated that money isn’t what drives him, adding that he has nothing against the pursuit of wealth “if it’s done in sort of an ethical and good manner.”
Speaking to the National Governors Association in 2017, Musk had said that what drives him is that he wants to be able to “think about the future and feel good about that.”
He reiterated the same when last week he pinned an old tweet on top of his Twitter timeline after becoming the world’s richest person.
“About half my money is intended to help problems on Earth & half to help establish a self-sustaining city on Mars to ensure continuation of life (of all species) in case Earth gets hit by a meteor like the dinosaurs or WW3 happens & we destroy ourselves,” the tweet read.
First principles thinking
Musk is a vocal champion of the first principles philosophy – a decision-making strategy used by great thinkers like Aristotle to examine the underlying constraints behind a problem.
In his 2013 TED talk, Musk stated that in this strategy, you “boil things down to their fundamental truths and reason up from there, as opposed to reasoning by analogy.” Simply put, this strategy looks at bringing out the best product by objective reasoning, and without looking at what everyone else is doing.
In an interview, Musk used the cost of batteries as an example to explain this strategy.
“People would say, ‘Historically it’s cost $600 per kilowatt-hour, and so it’s not going to be much better than that in the future.’ And you say, ‘No, what are the batteries made of?’ First principles means you say, ‘Okay, what are the material constituents of the batteries? What is the spot market value of the material constituents?’” he said.
The materials include cobalt, nickel, aluminum, carbon, some polymers for separation and a seal can. “If we bought that on the London Metal Exchange, what would each of those things cost?” Musk explained. Through this approach, the cost would drop to around $80 per kilowatt-hour, which is much less than the original cost.
“You just have to think of clever ways to take those materials and combine them into the shape of a battery cell, and you can have batteries that are much, much cheaper than anyone realizes,” he added.
The same principle was used by SpaceX to drastically bring down the costs of launching a rocket. Between 1970 and 2000, space shuttles, when in operation, could launch a payload of 27,500 kilograms for $54,500 per kilogram. Meanwhile, SpaceX Falcon 9, the rocket used to access the ISS, did it for just $2,720 per kilogram.
According to Musk, this “scientific method” follows a set process. It asks questions, gathers as much evidence as possible, develops axioms based on the evidence, draws a conclusion, attempts to disprove the conclusion, seeks help from others to invalidate the conclusion, and if nobody can invalidate it, it’s probably right.
In short, product development per Musk’s strategy focuses on verifying beyond any reasonable doubt that a given solution is the right one for the problem. Startups commonly make the mistake of developing an incorrect or incomplete solution for a given problem, or attempt to address a problem that doesn’t even exist. Musk’s method avoids this issue by rigorously working to invalidate the idea, until the only possible conclusion is that the idea will work.
Focus on product development
Musk believes in focusing on “signal over noise” and spends most of his time on product development. “Don’t waste time on stuff that doesn’t actually make things better,” he says.
“I think a lot of people think I must spend a lot of time with media or on businessy things,” Musk said in an interview with Y Combinator President Sam Altman. “But actually almost all my time, like 80% of it, is spent on engineering and design. Engineering and design, so it’s developing next-generation product. That’s 80% of it.”
Prioritize learning and work hard
While Musk has undergraduate degrees in physics and economics from the University of Pennsylvania, his education wasn’t enough to run a spacecraft company. So, he taught himself rocket science by reading textbooks and talking to industry experts, according to Jim Cantrell, Musk’s industry mentor when the company launched in 2002 and SpaceX’s first VP of Business Development.
Musk absorbed books to the point of memorizing them, and similarly learned from other people’s expertise as well. “It was as if he would suck the experience out of them. He truly listens to people,” Cantrell told Business Insider.
He also reputedly works extremely hard, and has often slept on the floor of the Tesla factory when Tesla’s Model 3 production was running behind. While he has had to work over 120 hours a week in the past, this has since been reduced to 80-90 hours a week.
“I always move my desk to wherever – well, I don’t really have a desk, actually. I move myself to wherever the biggest problem is in Tesla,” Musk said. “I really believe that one should lead from the front lines and that’s why I’m here.”
Take risks and let the fear drive you
Musk says that it is natural to feel fear and often, he feels fear “quite strongly.” However, when something is important, “you believe in it enough that you do it in spite of fear.”
He also says that to some degree, fatalism can be helpful: “If you accept the probabilities, that diminishes the fear.”
For instance, when he started SpaceX, he thought that the chance of success would be less than 10%, and accepted the probability that he may lose everything. However, there was also the possibility of some progress.
“If we could just move the ball forward, even if we died, maybe some other company could pick up the baton and keep moving it forward, so we’d still do some good,” he told Altman.
Musk was also big on taking risks. “My proceeds from Paypal [were] $180M. I put $100M in SpaceX, $70M in Tesla and $10M in Solar City. I had to borrow money for rent,” Musk said.
Things were not easy with either SpaceX or Tesla. After SpaceX’s first three launches failed, the company almost died in 2008.
“That was definitely the worst year of my life,” Musk told CBS.
Tesla, which he backed in 2004, also came very close to bankruptcy due to a string of issues. When the financial crisis struck, Musk had a stark choice to make.
“I could either keep the money, then the companies are definitely going to die, or invest what I have left and maybe there is a chance,” he told BBC. However, he kept investing and the rest is history.
Dream big and don’t hold back
From colonizing Mars to integrating artificial intelligence devices in the human skull and building super-fast trains in vacuum tunnels, Musk’s visions are nothing short of eccentric.
For instance, when SpaceX was founded, Musk’s objective was not to achieve the best risk-adjusted return, he told Altman. Musk had realized that if rocket technology didn’t improve, we’d be stuck on Earth forever. At the time, big aerospace companies were only interested in making their old technology slightly better every year, and not in any radical innovation.
“People sometimes think technology just automatically gets better every year but actually it doesn’t. It only gets better if smart people work like crazy to make it better. That’s how any technology actually gets better,” he said.
In 2002, after he sold PayPal to eBay, he was deciding between new ventures involving either space or electric cars, and felt that the former would attract fewer entrepreneurs.
“I thought, ‘nobody is going to be crazy enough to do space, so I’d better do space,’” he said during a SXSW Interactive panel in 2018.
Though a “crazy” number of people tried to talk him out of going into the rocket business, he got SpaceX off the ground. Last year, SpaceX launched 26 missions, averaging one launch every 14 days. The same year, the startup also successfully launched astronauts to the International Space Station (ISS) twice.
“I think it’s important to have a future that is inspiring and appealing,” Musk said in a 2017 TED talk. “I just think there have to be reasons that you get up in the morning and you want to live. Like, why do you want to live? What’s the point? What inspires you? What do you love about the future?”
“And if we’re not out there, if the future does not include being out there among the stars and being a multiplanet species, I find that it’s incredibly depressing if that’s not the future that we’re going to have,” he added.
Header image courtesy of Wikimedia Commons