Advice from South Africa’s R90 Billion Entrepreneur
When South Africa’s most successful entrepreneur Elon Musk was in college, he figured three things would affect the future of humanity: the internet, sustainable energy, and multi-planetary life. He wanted to be a part of each.
So how has he done so far?
- zip2: Helped bring media companies online. Sold to Compaq for $307 million in 1999.
- PayPal: Changed how money was exchanged. Sold to eBay for $1.5 billion in 2002.
- SolarCity: Public company worth a little under $1.5 billion. Will grow by 60% and be cash flow positive in 2013.
- Tesla Motors: Worth over $4 billion. Successfully launched two all-electric vehicles (with charging stations). More electric vehicles in development.
SpaceX: Successfully launched a rocket. Recently earned a NASA contract.
Elon Musk has literally had success (zip2) after success (PayPal) after success (SpaceX) after success (Tesla) after success (SolarCity). How many entrepreneurs can say they’ve had this much success?
One could even argue that selling a video game at the age of 12 back in South Africa for $500 (he taught himself how to program at 10) was a successful accomplishment.
As you read this post, keep a few things in mind:
- He’s only 43 years old.
- All three of his current companies are valued well over $1 billion.
- Many think he makes Steve Jobs look “like a kid playing with an electronics kit at home.”
- His net worth is over $8.8 Billion (R90 Billion)
As you can see, Musk has a lot of cool (and profitable) projects. He still has more up his sleeve. Here are a few of his ideas that he’s made public:
- Supersonic electric jet with vertical takeoffs and landings.
- Double Decker Highway to ease traffic congestion and help people get to their destinations faster.
- Hyperloop that has the possibility of getting from San Francisco to Los Angeles in 30 minutes. To put that into perspective, it takes a plane about an hour and a half to fly from SFO to LAX. Check out the alpha design for the Hyperloop.
To a lot of people, these ideas may seem lofty and unreasonable. But judging by his past, are you really going to bet against him and say it can’t be done? This is the guy who wants to land a man on Mars and himself, die on Mars.
Advice on Raising Capital
Musk says that if you have a choice between a lower valuation with an investor you like versus a higher valuation with someone you don’t care for, take the lower valuation.
“It’s better to have a higher quality venture capitalist who you think would be great to work with than to get a higher valuation with someone where there’s even a question mark, really.”
In another interview, he says:
“I think the best way to attract venture capital is to try and come up with a demonstration of whatever product or service it is and ideally take that as far as you can. Just see if you can sell that to real customers and start generating some momentum. The further along you can get with that, the more likely you are to get funding.”
Seek Out and Listen to Negative Feedback
Musk says it’s best to listen to the negative feedback. While it’s painful, you’ll get a lot out of it. He says that entrepreneurs should ask their friends what they don’t like about a particular product. The statement:
“Don’t tell me what you like, tell me what you don’t like.”
Is what Musk advises entrepreneurs to make clear.
If you don’t do this, friends will just tell you what they like. And while the negative feedback may be wrong, you know it’s coming from a good place and that they’re well-intentioned.
Reason from First Principles, Not Analogy
Musk says that the way people think is too bound to previous experience. He advises that it’s best to build your reasoning from the ground up. He says:
“You look at the fundamentals and construct your reasoning from that and then see if you have a conclusion that works or doesn’t work. And it may or may not be different from what people have done in the past. It’s harder to think that way, though.”
He reiterates this during an interview with Charlie Rose:
“Boil things down to the most fundamental truths and say ‘okay, what are we sure is true’…and then reason up from there. That takes a lot more mental energy.”
As an example, Musk points to people who say that “battery packs are expensive and that’s the way they’ll always be.” People think this because that’s the way battery packs have been in the past. Musk says that if you apply that reasoning to anything new, then you will never be able to get to that new thing. For instance, people said that we didn’t need cars because we had horses and there was grass everywhere for the horses to eat. Cars can’t be done because people don’t buy gasoline.
For batteries, it has historically cost $600 per kilowatt hour. Reasoning by analogy would tell you it’s not going to be much better than that in the future. But the “first principles” way of thinking asks what the material constituents of the battery are (cobalt, nickel, aluminum, carbon, polymers for separation, and a steel can) and the cost if you bought them on the London Metal Exchange. If you did this, you’d find that they really total about $80 per kilowatt hour. You then need to put all these constituents together and combine them into the shape of a battery cell. By using this method, you’ll realize that thinking by analogy is shallow and that “first principles” leads to new innovations and cheaper batteries.
In another interview, Musk reiterates the importance of thinking from first principles. He says:
“Instead of reasoning from first principles, [people] will tend to…do things because others are doing them because there is a trend or they just see everyone going in that direction so they think that direction must be a good direction to go. Which is sometimes correct but then sometimes you’re going to run off a cliff or something. So it’s really better to look at things…from a first-principles standpoint.
“What are the [most] fundamental truths in an arena…and any conclusions [you logically come to] must be derived from those fundamental truths.”
Put another way, Elon Musk encourages entrepreneurs (and others) to think differently. Where many think by analogy, entrepreneurs (and everyone) need to think by first principles.
Work 80-100 Hours a Week
This one can be a little controversial.
For some, working 80-100 hours a week will lead to burnout. But others (like Musk) have been doing it for years and recommend it to others. He says:
“Work like hell. I mean you just have to put in 80 to 100 hour weeks every week. [This] improves the odds of success. If other people are putting in 40 hour work weeks and you’re putting in 100 hour work weeks, then even if you’re doing the same thing you know that….you will achieve in 4 months what it takes them a year to achieve.”
There are a few things to take into consideration when thinking about Musk working 80-100 hours a week:
- He has five young boys and a wife.
- He’s the CEO of two companies, one in Los Angeles and the other in San Francisco.
- His work days are not entirely spent behind a computer screen.
- He’s incredibly passionate about his work. My guess is his time passes very quickly.
Also, for most people, there is a point of diminishing returns. People can mentally hit a wall after consecutively working for so long. Musk says what keeps him going is caffeine and an unyielding desire to put a man on Mars.
But for entrepreneurs, putting in the extra work is necessary. Musk says that it’s important that aspiring entrepreneurs know how hard it is to run a business. He says:
“Starting a company is a very tough thing. There’s a friend of mine, Bill Lee, whose phrase is ‘starting a company is like staring into the abyss and eating glass.’ So you should certainly expect that it’s going to be very hard. It’s going to be harder than getting a job somewhere by a pretty good margin and the odds of you losing the money that you invested or your friends invested is pretty high. I mean, those are just the basic facts. So if you don’t mind things being really hard and high risk, then starting a company is a good idea. Otherwise, it’s probably unwise. It will certainly stress you out. So I think you have to be pretty driven to make it happen. Otherwise, you will just make yourself miserable.
“…and in creating companies, you just want to say ‘how do you create the best product or service possible?’ Companies that don’t make good products or services just shouldn’t exist. I think that’s just pretty logical.”
For all Tesla employees, working a minimum of 50 hours a week is expected. In an interview with Autoblog, he says:
“Right now we’re working six days a week. Some people are working seven days a week – I do – but for a lot of people, working seven days a week is not sustainable. The factory is operational seven days a week but most people we only ask to work six days a week right now and, obviously, we want to get that to a more reasonable number. I think people can sustain a 50-hour work week. I think that’s a good work week. If you’re joining Tesla, you’re joining a company to work hard. We’re not trying to sell you a bill of goods. If you can go work for another company and then maybe you can work a 40-hour work week. But if you work for Tesla, the minimum is really a 50-hour week and there are times when it’ll be 60- to 80-hour weeks. If somebody is hourly, they receive time-and-a-half, but if somebody is salary, then we do cash and stock bonuses for going above and beyond the call of duty. So we try to make it fair compensation, but the general understanding is that if you’re at Tesla, you’re choosing to be at the equivalent of Special Forces. There’s the regular Army, and that’s fine, but if you are working at Tesla, you’re choosing to step up your game. And that has pluses and minuses. It’s cool to be Special Forces, but it also means you’re working your ass off. It’s not for everyone.”
Clearly, he’s a big believer in putting in extra hours.
One could argue that Elon Musk is the most accomplished businessman of our time. He’s done a lot more in his first 40 years than even the most productive people do in their lifetimes. He’s a role model for entrepreneurs and anyone with a drive to change the world.
(Extracts from an Article by Zach Bulygo – a blogger for KISSmetrics)
By Brian Walsh