Is There a Method to Musk’s Madness?


April 24, 2018

Most CEOs probably wouldn’t call their business investments the “dumbest” or report their company is alive only “by the skin of its teeth”, yet that is precisely what Elon Musk, the CEO of SpaceX and Tesla, said at the annual South by Southwest (SXSW) conference.

During a Q&A session following his talk at the 2018 global conference, Musk admitted, “At the beginning in 2002, I wouldn’t even let my own friends invest as I didn’t want to lose their money.”

Why did Musk continue investing in Tesla when he gave it a “less than 10% chance” of succeeding?

Why, when only $40 million remained of his initial $180 million in profits from the sale of PayPal to eBay, did Musk decide to split the investment between Tesla and SpaceX, possibly dooming both?

Elon Musk defies expectations right and left, while breaking (atmospheric) boundaries. Though some think luck is the driving force behind his success, Musk offers a few tips on what it takes to lift a start-up from the launchpad to the stars.


Innovate, Don’t Compete


Or, as Elon Musk says, “Don’t just follow the trend.” This, of course, is easier said than done. An innovator avoids saturated sectors with established competitors, opting to find emerging industries and solve problems before they become problems. Innovators provide products that consumers might not even know they need yet.

How does one innovate?


Identify Emerging Industries


First, you need to find an emerging industry where there are few competitors. Musk, for example, co-founded PayPal before anyone else began using the internet for financial transfers. SpaceX is the only private company to successfully send a spacecraft to the ISS. Tesla dominates the electric car market, ranking number one in consumer satisfaction for the last three years.

Finding emerging industries is what entrepreneurs do. No single right way to determine the next big industry exists. Today it might be plant-based burgers or telehealth services, tomorrow it might be virtual reality or canned wine. Elon Musk relies on mission-driven objectives to guide his industry investment.  

After launching his Tesla Roadster into space, Musk addressed what some saw as an ego-centric stunt. “We really wanted to get the public here to wonder, to get excited about the possibility of something new happening in space – of the space frontier getting pushed forward.”

Creating a sustainable future is the mission that drives Musk’s business decisions. Tesla and SpaceX both seek to put innovation in the hands of the people and engage the public in technological development. Tesla aims to put affordable electric cars on the market. SpaceX aims to develop interplanetary transportation routes, so humanity can expand beyond Earth. By focusing on a mission, Musk discovers new industries ripe for innovation.

Learning from the Tech Industry’s Greatest Leaders


Solve a New Problem


Next, you need to find a solution for a problem that no one knows exists in that market. Tesla is the perfect example. Back in 2002, Tesla initially only produced its Roadster model. This high performance electric sports car cost a measly $250,000. If you aren’t sure that fulfills a major market need, you and Musk would be on the same page.

“Are we really in need of another high performance sports car? Will it actually make a difference to global carbon emissions? Well, the answers are no and not much.”

In 2006, Musk explained his Tesla strategy on the company’s blog in an article teasing a “secret master plan”:

Build sports car

Use that money to build an affordable car

Use that money to build an even more affordable car

While doing above, also provide zero emission electric power generation option.

Don’t tell anyone.

The fancy Tesla Roadster wasn’t – and isn’t – the company’s objective. Musk realized the problems in the emerging industry of electric cars were accessibility and affordability. Sustainability and energy efficiency drive Musk’s initiatives, and Tesla provides a vehicle for shifting the economy towards solar electric power.

Musk identified and solved three problems:

  1. How do you build effective zero emission electric power vehicles?
  2. How do you finance production of affordable electric cars?
  3. How do you shift an economy from relying on hydrocarbons to solar electric power?

After you have identified a promising emerging industry and found a problem to solve, the next step is doing the work. This, according to Musk, is the hardest step.


Work Hard


“Work like hell. You have to put in 80 to 100-hour weeks every week.”

It isn’t enough to have good ideas or funding. Behind every successful business strategy is someone who puts in everything – their time, their money, their heart – to make it work.

Despite Musk’s claims, we know that working hard isn’t enough. Studies show that working more does not necessarily correlate with greater success. The key is how you work. Effective, purposeful work leads to success.

According to Musk, the 1930s adage almost holds: Work smarter, not harder.

Though not everyone agrees, Musk finds success by cultivating both mentalities. Work smart and work hard.

“If other people are putting in 40-hour workweeks and you’re putting in 100-hour workweeks, then even if you’re doing the same thing … you will achieve in four months what it takes them a year to achieve.”

Of course, Musk isn’t doing the same thing as those other people he references. He makes productivity work for him by prioritizing critical tasks, creating a communicative workplace, and scheduling his time.

To better understand the business strategy Musk employs in his entrepreneurship enterprises, let’s examine the Tesla business plan.


The Tesla Strategy: Direct Sales, Accessibility, and the Human Drive


Elon Musk took over as CEO of Tesla in 2008, though he led the Board of Directors as Chairman and provided much of the company’s funding beginning in 2003, especially during its tumultuous beginnings when bankruptcy seemed to lurk around every corner.

Even when Tesla appeared doomed, Musk found the drive to continue by believing, “If something is important enough, even if the odds are against you, you should still do it.”

How did Musk manage to take Tesla from the brink of failure in 2008 to an IPO profit of $226 million in June 2010?


Selling it Straight to the Consumer


Purchasing a car isn’t always a pleasant process. Whether it’s the slimy second-hand car dealer trope or the dreaded financing negotiations, consumers do not report positive interactions with car dealerships. Tesla, however, maintains the number one ranking in consumer satisfaction over the last three years. Many experts attribute this to Tesla’s use of direct sales.

Unlike many car manufacturers, Tesla operates its own showrooms in many of the world’s premier urban centers. These showrooms focus not only on increasing the speed of production and sales, but also on the customer experience. Service centers operate inside the showrooms, providing customers with easy access to charging terminals. Tesla technicians, called Tesla Rangers, can wirelessly access data on the Model S, fixing some problems without physically touching the vehicle. By leveraging these showrooms and online sales platforms, Tesla directly connects with consumers. These relationships build the Tesla brand, increasing satisfaction and demand.


Defining and Overcoming Obstacles


When creating an innovative brand, companies like Tesla identify the reasons consumers won’t adopt their product. Cost? Access? Need?

When Tesla formed in 2003, electric cars weren’t a new idea. The innovation came with identifying the obstacles to adoption. Why would the average consumer NOT buy an electric vehicle?

Under CEO Elon Musk, Tesla focused on two main obstacles: distance range and access to charging stations. Consumers worry their vehicle will run out of power before they find an elusive charging station, and that they cannot use their automobiles to go on long car trips or emergency drives. If electric cars were affordable and widely available, the average consumer still would not buy one because of these factors.

This is a two-part process, though. Identify the obstacle and overcome it. Tesla overcomes these obstacles by developing a wide network of charging stations where Tesla customers can charge their vehicles for 30 minutes for free. These stations alleviate many customer concerns about vehicle range and charging access.


The Human Drive


Elon Musk attributes much of his success to his customers, who in turn believe that the reason Tesla is a better, stronger company comes from its mission. Unlike other car manufacturers (and businesses in general), Tesla’s goals aren’t to make bundles of money or sell high-end electric sports cars to the wealthy. Tesla’s mission, in its own words, is to:

Accelerate the world’s transition to sustainable energy


Tesla envisions a better world, where zero emission vehicles are the norm, where all people have the right to health and clean air, and where the world of tomorrow is manufactured today.

As CEO, Elon Musk leads the company towards an even grander, more human objective. At the SXSW conference, Musk brought the audience to its feet when he explained why that Tesla Roadster is drifting in space over your head right now:


“There are lots of problems that need to get solved. Lots of things that are miserable and kind of get you down. But life cannot just be about solving one miserable problem after another…there needs to be things that inspire you, that make you glad to wake up in the morning and be part of humanity. That’s why we did this.”

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