This a great book to learn about Elon’s upbringing, his rise to stardom and his crazy life at SpaceX and Tesla.
Owning the manufacturing process. Throughout the book, Vance references the enormous benefits that Tesla and SpaceX receive for developing their technology in-house. The first is a reduced overall cost basis; Musk will routinely demand complex hardware parts be built for way less than the market rate. In one instance, an engineer spent nine months completely recreating an actuator that was already commercially available from several vendors in order to keep prices down. When the engineer emailed Musk to tell him he had completed the months-long project, Musk simply replied: “Ok.” Owning the manufacturing process means higher upfront costs but significantly reduced long-term costs.
Significant IP creation. A good example of this is Tesla’s Powerwall batteries. Tesla CTO JB Straubel invented the famous rechargeable lithium-ion batteries that power Tesla’s vehicles, but he also realized that Tesla’s proprietary packaging and cooling systems could work in industrial batteries. In 2015, Tesla launched the Powerwall which has now become the backbone of several energy storage facilities throughout the world. Owning the manufacturing process opened ancillary business opportunities for Tesla.
Hardware is hard. As former Musk co-worker, Apple iPod creator, and Nest founder, Tony Fadell, has said “Hardware is Hard, That’s Why They Call it Hardware” Musk’s initial projections were years off for both Tesla and SpaceX. As Musk admitted in 2007, after SpaceX’s first failed launch: “I thought it would be hard, and it's harder than I thought.” Musk’s companies have raised billions of dollars to be able to create the rockets and electric cars that are now industry standards for excellence at cost. While hardware is hard, it could have the greatest potential payoffs by cornering a market and improving processes several times better than near competitors. Let’s think about the iPhone or major tech companies moving toward designing their own chips: Apple, Google, Amazon, Facebook, and Alibaba. These companies have enormous amounts of capital to experiment in hardware and the potential payoff of market domination is theoretically worth that investment and more. Startups, on the other hand, face incredible pressure. Last year drone company Airware burned through $118M in funding before going out of business. It’s hard enough to redesign hardware that has been around for years like cars, chips, or rockets, but adding on a nascent, undeveloped market makes hardware incredibly difficult and risky. It takes a truly special entrepreneur, with VC access to build a brand new hardware startup.
Ownership & Control. Elon was famously ousted as CEO of Zip2 and relegated to CTO after a his board of directors insisted his leadership style was too aggressive. Musk met the same fate with X.com/PayPal where he was notified after landing in Hawaii for his honeymoon that several members of the team had delivered letters of no confidence to the board, asking Peter Thiel to be named CEO instead. After PayPal was sold to Ebay, Musk used his $180M post-tax earnings to fund and maintain large ownership percentages of Tesla, SpaceX and Solar City. Ownership and board control are incredibly important issues for founders. When Snap Inc. went public in 2017, co-founders Evan Spiegel and Bobby Murphy owned 48.4% and 47.4% of the voting power in the Company, respectively. While this extreme might present a board governance issue (especially since Snap’s stock is down 78% since IPO), Musk’s travails point out the importance of ownership and control when running a Company.
The absolute necessity of fundraising. There are numerous references to times when it seemed all hope was lost and either Tesla or SpaceX would go under. In 2009, Musk loaned money from SpaceX to Tesla to continue payroll through Christmas. In 2012, among mounting criticism of the Tesla roadster and delays in production, Musk struck a handshake deal with Larry Page for Tesla to be acquired by Google for around $6 billion. Fundraising is a difficult part of any entrepreneur’s journey but keeping the lights on and knowing the cash viability of the business are incredibly important for success.
Positive cashflow dynamics. Tesla and SpaceX benefit from positive cash flow dynamics: SpaceX signs billion dollar contracts with the government and Tesla users pay $2,500 to sign up to get for the waiting list. In both situations, Musk’s companies get the cash upfront, prior to delivering the product or service. This is particularly important for SpaceX and Tesla because the process of engineering brand new rockets and cars is expensive. By getting the cash upfront, they can quickly invest that money into creating their products and use it to run the day to day operations of the business.