How Elon Musk builds organizations that can achieve anything

By Stephen Ellison, Contributing Writer

muskbook-coverWhen it comes to Elon Musk, the serial entrepreneur behind SpaceX, SolarCity, and Tesla Motors, there are two camps – the believers and the skeptics. And both have had moments of feeling validated as Musk’s companies have gone from outright failure (exploding rockets, near bankruptcies) to glowing success (the highest rating Consumer Reports has ever given an automobile, for Tesla’s Model S). Lately, as each of the aforementioned companies has achieved breakthroughs in its industry, the believers have welcomed a multitude of converts.

Ashlee Vance started as a skeptic. He’s a business and technology journalist who wrote the recent book “Elon Musk: Tesla, SpaceX and the Quest for a Fantastic Future.” The book offers an insider’s look at Musk’s insanely ambitious nature, how he manages, and his ability to overcome obstacles to get things done at a trio of world-changing companies. While Musk initially didn’t want to participate in interviews for the book, eventually he decided to give Vance almost complete access.

Innovation Leader recently sat down with Vance — who, like Musk, was born in South Africa — at a Silicon Valley café to discuss his book and how some of Musk’s methods and strategies might be applicable for others.

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Innovation Leader: How can big companies with long-established business models apply Musk’s principles?

Elon Musk book coverAshlee Vance: One of his first principles is do not assume what has happened before you or whatever your competitors are doing is the right thing; think everything from the ground up; pick your ideal product and then try to build it. When someone says this isn’t the way we do it, it’s, “Why do you do it that way?” Or someone says it can’t be done, it’s, “Why can’t you do it?” He gets all the way down to if physics is the reason you can’t do something, he’ll accept that. Other than that, he says, “I want to make it the way it should be made.” And then, anyone could take lessons away from his work ethic. Yes, he’s clever, but you see a guy who out-hustles, out-strategizes, out-markets his competitors.

There’s a ton of lessons about instead of just making another app or entertainment thing, what happens when we apply those people and those skills to these other industries that aren’t used to it. Pretty cool things start to happen. He’s had the luxury of starting from scratch in one industry that was 100 years old and another that was 60. The aerospace guys have been more ready to try to compete. The automakers are still grossly underestimating what’s happening. It’s not like the electric car is that [advanced], but it’s really the software inside the car that’s light years ahead of Detroit. (Above, Musk introduces Tesla’s Model X SUV; click to watch the video.)

The aerospace guys are all of sudden afraid and have tried to respond. These companies are not built to respond to this challenge; they’re completely structured on government deals that are so bloated, and they’re not built to operate lean.

[Musk] has had to learn a lot of stuff too, because Tesla sucked at manufacturing at the beginning – it’s taken them like 12-14 years to learn how to do it.

Two brushes with bankruptcy

Innovation Leader: SpaceX and Tesla started almost simultaneously, didn’t they?

spacexVance: SpaceX was first in mid-2002, and Tesla was getting founded by Martin Eberhard and Marc Tarpenning, so Elon wasn’t there at the very beginning. But they came to him for money – it was all pretty close together. SpaceX was just getting the office set up. So he’s CEO of SpaceX and getting that off the ground, and then he’s chairman of Tesla, and he’s more or less the sole investor. …Elon was the only one who would put in any money. Eventually, Tesla had other funding rounds, but Elon led at least the first two, maybe the first three rounds.

Then in 2008, they both almost went bankrupt at the same time because of the financial crisis. Tesla was struggling to get the Roadster to work – it was too expensive and … they were running out of money. In December 2008, both companies were essentially running on fumes. Elon had lost all his money – he had made about $220 million from PayPal, and he went through that entire fortune, investing it in the companies – and they both survived. (At right, a launch of SpaceX’s Falcon rocket.)

Innovation Leader: How did he get through that?

Vance: Personally, he took out loans to pay his bills, and then at Tesla, they had employees who were paying other employees’ salaries. … And basically what happened was SpaceX had four rockets blow up, and they had enough money to do one more launch in September 2008, and that launch ends up being good enough. … Then there was a massive contract up for bid, and SpaceX was the underdog to get it, but they’d had that successful launch. Right before Christmas in 2012, NASA announced SpaceX had won this contract for about $1.5 billion – definitely enough for them to keep evolving.

That same week, Elon completely bluffed all the Tesla investors. All the other car companies were going bankrupt – I mean the thought of an electric car company that was hemorrhaging cash was crazy. So he went to the investors and said we’re going under, and we’re not going to put any more money in. But there was one investor, Alan Salzman, he tries to take Tesla away from Elon, and he wants to sell it to Detroit for parts. So he’s blocking any funding rounds. Elon says, “Fine, I’m going to do another funding round, and I’m going to raise all the money myself. … I’m going to take out a loan from SpaceX, and I’m going to do it all myself.” Then nobody wanted to be left out of the deal all of a sudden – they all ended up chipping in except for the guy who tried to take the company under – that was the end of him. So [Musk] raises the money, and the NASA contract comes through, and they survive.

How Musk interviews and hires

Innovation Leader: How does Musk find talent?

teslainteriorVance: Tesla’s kind of funny because Silicon Valley had never done a car before, and we actually have all these gearheads around here who’ve never had an outlet for their passion. When he came along, he was actually able to get really good people at Stanford who had this car racing team. All these guys were chomping at the bit to go do something. Also, there were tons of brainy engineers around the Valley that wanted to do something like that. Then when Tesla looked like the real deal and [Google co-founder] Sergey [Brin] put money into it and then Elon, it was like, this could be the real thing. They were able to get a really good core team of guys from the Bay Area. (At left, the interior of Tesla’s Model S sedan.)

SpaceX was a much harder pitch in some ways. You have to go to guys at Boeing and Airbus and convince them to leave their cushy jobs, and they almost certainly won’t. For youngsters, it was a little bit easier because there hadn’t been anything exciting in aerospace in a long time. … Elon would call guys personally at colleges – he would scour the Ph.D. aerospace programs and call the guys in their dorm room and try to talk them into coming. The other thing he does is he’s kind of cheap; he doesn’t try to compete with Google or Facebook for MIT or Stanford engineering classes. He goes more to University of Illinois or Georgia Tech. He really didn’t give a shit about anyone’s grades. He’d look for someone who had done a project either in high school or college where they’d actually built something, been on a team and brought something from nothing to a conclusion.

If they were looking for senior people, [his talent acquisition specialist] Dolly Singh would scour research papers and conference proceedings and look for the top specialists in some area. They would go to trade shows and basically try to make these guys feel special. If there was somebody they wanted to hire, they would hand them these envelopes to show up – almost like a secret agent thing – at this place at 7 o’clock, and when they got there – it usually was a restaurant or bar – there would be about six or seven people that they handpicked.

Innovation Leader: How much is Musk directly involved in the recruiting process?

Vance: Elon personally interviewed at least the first thousand people hired at SpaceX, and still, to this day, he interviews every engineer. He puts them through a whole thing – you have to write an essay about why you want this job, and then Elon always gives people a riddle. So he gives them these tests to see how they solve problems. But the Elon job interview is this horrendous thing because he barely pays attention to you. He might be looking at his computer the whole time he’s interviewing you.

Keep the execs and the engineers close

Innovation Leader: How is he able to bypass internal bureaucracy?

Vance: He does run a very flat structure. You can contact anyone, including Elon, without a problem. The biggest thing with both companies is that they build everything in the same building – complete integration. SpaceX makes about 90 percent of their rockets themselves. Whereas Lockheed and Boeing contract among like 12,000 suppliers to build their rockets. There are cases where the other guys buy a radio for $100,000, and SpaceX builds their own for $5,000.

…The engineers have to physically sit on the manufacturing floor. At SpaceX, in the middle of the manufacturing floor, there’s this giant glass cubicle office building. The people have to walk through the floor to get to their offices; they have to look at everything that’s going on. At Tesla, it’s the same thing – on the manufacturing floor, there’s a whole cube thing, and Elon’s in there. All these people have no choice but to communicate with each other.

With traditional aerospace companies, they will have their software guys in L.A. because that’s where the talent is, and then they’ll build the rockets in like Georgia or Alabama, where labor is cheaper. Elon is manufacturing stuff in Silicon Valley and L.A. at a time when we’re being told that’s impossible. He believes all this stuff has to be integrated – to kind of move fast and do things cheaper. … It’s funny because all these industries started out this way. He’s kind of a throwback. He’s doing what Henry Ford used to do. (Below is a concept image of what Tesla’s Nevada battery production facility, the Gigafactory, will look like when complete; construction began in 2014.)

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Focusing on the ‘critical path’

Innovation Leader: And when problems arise, they’re easier to fix?

Vance: With Elon, there’s no bullshit. If there’s a problem, what they call it is the “critical path.” The critical path is the one thing at any given time that is the most pressing problem. At Tesla, that is what Elon puts the majority of his time and effort into. If you’re the engineer whose thing is causing the critical path, you’ve got Elon riding you. But what he does is he asks you point blank, “How many people and how much money and what do you need to fix it?” Whatever you ask for, he gets it for you, and then, of course, he’s there making sure you get it done.

Another thing is that he wraps all of his companies up in this larger-than-life mission. SpaceX’s mission is to create a colony on Mars; Tesla’s is to try to put a dent in global warming by not only making the electric car an option but the standard. I think there’s not a lot of companies around here, even though they try to have all these feel-good kind of things, I think they’re a bit shallow. But with him, the employees buy into it, and I think it really inspires them.

It’s pretty funny, Elon will call suppliers on the weekend, and you know it’s not just some average guy; it’s Elon Musk calling you asking where’s this part. On a Saturday. It sort of delivers a message to suppliers that if he’s there working, he expects them to be working.

‘Your idea is dumb, and here are all the reasons’

Innovation Leader: What can innovation executives learn from Musk as a leader?

Vance Starting with X.com and PayPal [two online payment companies that eventually merged in 2000], what you get to see is an entrepreneur and an innovator kind of developing his schtick, because at both companies, he’s the biggest shareholder and the CEO, and he gets thrown out of both companies. …He was a bit of a loner growing up, and he was not an outgoing guy, and he was sort of a know-it-all. So you see this guy who’s trying to tame his personality a little bit. He wants to be a leader, and he’s learning how to assert himself without pissing everybody off and without demoralizing people. He was the kind of guy who would be in a meeting and he’d say “Your idea is dumb, and here are all the reasons it’s dumb” in front of everybody in the meeting. And people would just come out crushed. He started to realize that was counterproductive to getting the most out of people, and he had to kind of temper that behavior.

[The book explains] what Elon does that’s different from other CEOs. You see his take on design, on marketing, on raising money and you definitely see how he handles a crisis pretty much better than anyone on Earth. You get a flavor for all the different things he does – he really does contribute to all the products.

Innovation Leader: How does Musk manage his time?

Vance: He works a lot. He keeps super detailed track of all the flights he takes and how much time he spends traveling. He has super detailed notes on his meetings and how long they are – he runs spreadsheets for those kinds of things. His assistant is sort of gathering the info, but Elon pores over it. … He works 6-7 days a week, splits his time between L.A. and Silicon Valley – so it’s like half and half between SpaceX and Tesla. We would have these interviews, and he was obviously exhausted; it was catching up with him. He tended to be more irritable when he was exhausted, you could see it in his face. I think he sleeps about 4-5 hours a night.

Innovation Leader: What kind of insight did you get from Musk’s friends and family on what drives him?

Vance: I went back and found all the kids he went to school with. You see this bright guy who’s kind of nerdy, and he’s always talking about saving the world. When I dug back into his history, I found he was a total loner; he was not well liked, he had no close friends and if he wasn’t being totally ignored, he was being bullied really badly. And he had a really rough home life. His dad was pretty hard on him – to the point that his dad [today] is not allowed to see [Elon’s] children.

He was a huge science fiction buff and a crazy reader. He read like two or three books a day. He was just this guy who grew up thinking the world was kind of screwed up, and there were these idealistic, futuristic things he was into, and I think at a very early age he decided he was going to take a crack at solving some of these things. I think he’s definitely out to prove to people that he’s kind of special – kind of like your classic Steve Jobs, Larry Ellison sort of thing.

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