Tesla: Defying the Rules for Startups and Innovation

    Stijn Martens
    Stijn Martens

    Elon Musk and his unique world view is the subject of business journals [1] and learned professors [2] alike. While we are given continually given sage advice on how to create a sustainable startup by business schools and consulting houses, his actions fly in the face of everything we are told. It is to be expected that a man who wants to populate Mars would think differently from most of us. What is fascinating is how he does not just dream, he executes. Leaving SpaceX aside, let us examine Tesla and the lessons it can teach us.

    Lesson 1: Start lean and small?

    The “Lean Startup” and its principles are taught by universities across the world. What Mr Musk did is completely counterintuitive. He took on an entrenched fossil-fuel industry with a failed product, not by competing on price or features, but by visualising his target market. Rather than coming out with an economical run-around, he built a luxurious car that would appeal to customers with high disposable income. True, there were other electric and hybrid vehicles in development, but they were targeted at the middle-income consumer. The Tesla S instantly became the new object of desire. What is more, this was achieved in the stagnant and uninventive US car industry.

    Lesson 2: Create a supportive culture

    It has been documented that no-one works harder than Elon. He is on the factory floor, moving his desk to the latest pain or pressure point, even rolling out his sleeping bag at work. Such passion and drive has to translate to the people around him. He sets “ludicrous” goals for himself and Tesla, challenging everyone to raise the bar a few notches. He also empowers employees to make decisions and to “think like a boss”.

    Where other companies have mission statements, visions and values neatly displayed on walls, Elon and his employees live them. When your boss is immersed and active in every facet of the business, the enthusiasm is infectious.

    Lesson 3: Overpromise, but still deliver

    Many commentators have observed that Elon often overpromises innovations and product releases, in direct contradiction of the phrase “under-promise and over-deliver” (the latest figures of pre-booked Model 3 vehicles indicates that 2018 production is sold out). It is true that Tesla is often behind schedule, but it is important to note that the delivery takes place, and what is important, to the required level of quality. Traditional project and programme management still focuses on meeting time and budget deadlines. The first victim that is compromised in meeting deadlines is quality. One year after a project, no-one remembers that you were late, but they will complain every day about the quality defects that they now have to live with.

    Lesson 4: Focus on the future

    As Tesla’s vehicles are powered by batteries, it makes sense that they would move into manufacturing them. Not content merely to manufacture such batteries, this has expanded into domestic power packs. What is more, the “Powerwall” is expected to be fuelled by solar energy. As early as 2004, Elon encouraged his cousins, the Rives, to start Solar City, a company dedicated to the making and installation of solar energy. To complement this, they are building a “Gigafactory” in Buffalo which will be operational this year. This was obviously part of an audacious plan, envisioned a decade ago, which is now coming together. Another ambitious scheme is the push towards driverless cars, which has become a very hot technology in recent years. The introduction of the Autopilot software into Tesla’s Model S cars is both a safety feature and a preliminary step towards driverless cars.

    Lesson 5: Be transparent and maintain high visibility

    In May 2016, a driver using autopilot died in a rare Tesla accidents. It was claimed by Musk that this was communicated immediately to the Traffic Safety Agency (NHTSA), but the report was only made public a month later by that body. This was the most publicised fatal accident in the US in 2016, and created a lot of debate about autonomous cars. There was another accident a few months ago. In neither of these accidents was Tesla (nor their Autopilot) found to be at fault [3]. While Musk was very vocal about defending both the car and the software, the communication was kept open and not hidden (unlike mishaps with the Ford Escape and its spontaneous combustion problems). Elon Musk participates actively in social media, especially Twitter, which he uses to announce new releases and occasionally comment on particular issues.

    Lesson 6: It’s all about the customer

    Earlier this year, a customer tweeted to Elon Musk about a new kind of selfish driver: we are accustomed to road hogs – now we have charger hogs. French businessman Loic Le Meur stopped in at a charging station to recharge his Tesla and found all the spots were occupied by cars that were fully charged and now parked while their owners went to buy food, visit the gym and attend to other business, even though they have an app that lets them know when their car is ready. He tweeted the situation to Elon. [4]

    Elon Musk responded within minutes, showing his understanding of the power of social media and the need for customer responsiveness. There was a solution which was to be implemented within the week. True, a remedy to the problem had been under development for some months previously, but the story hit the news for its good customer experience.

    Lesson 7: Build a novel business model

    Tesla has a business model that is far removed from the traditional motor industry, which has attempted to block Tesla sales in some US states.

    • There are no dealers – Tesla sells directly. This clearly threatens all manufacturers and dealers
    • Motor dealers make heavy use of discounts. Tesla does not discount vehicles (with a 2-year waiting list, who needs to?).
    • Tesla also takes advance orders, which require the customer to pay a (refundable) deposit. This helps to bankroll the future production of the vehicles. There are about 500 000 customers who have secured their orders for the Model 3.
    • Because the car is an electrical vehicle and has very few moving parts, it is less likely to fail. As there is no dealer network, Tesla assumes responsibility for spares and maintenance.
    • Tesla does not advertise, much like Zara, the fashion retailer, although they do make use of product placement.

    Clearly this business model sets it apart from its competitors, even when they are also producing hybrid and electric vehicles.

    How Tesla impacts business as we know it

    While there are companies who understand what Tesla is doing and have accepted the challenge, such as Uber and Google in the driverless car race [5], many industries have a lot of catching up to do.

    • The traditional motor industry model – as discussed above – is going to have to make some radical changes.
    • Insurance companies premiums are based on the purchase price on Teslas, and seem to have disregarded the vehicle’s safety, immunity to theft, and low maintenance costs. Perhaps as EVs become more popular, this will change.
    • Consumers who purchase the Powerwall in conjunction with solar panels will have the ability to sell energy back to the grid. However, most energy distributors and utilities cannot cater for purchasing energy from small power providers (i.e. the consumer). They need to implement a “smartgrid” to achieve this.

    What we can take away from Tesla

    • The first and biggest lesson is that the impossible can be made possible. The concepts of Tesla, Spacex and even Solar City were all highly speculative, and yet despite the odds Elon Musk has made them successful. This was done by careful planning and the implementation of a vision of a different and better world.
    • There is a strong innovative culture within Tesla, which is reinforced by the actions and passion of its CEO, who provides a clear leadership role for others to emulate.
    • The real success of Tesla does not lie in technology, but in customer experience. This is why they do not need to advertise. If you consistently delight the customer, they will find you.

    These concepts are not unique to Tesla. Any of the companies that began in this millennium, or towards the end of the last one, such as Google and Amazon, are changing the way we live. This cannot be done by using old business models and outdated thinking about how a business should operate and compete in the 21st century.

     

    Sources:

    [1]Harvard Business Review (Aug 2016): https://hbr.org/2016/07/why-elon-musks-new-strategy-makes-sense

    [2] Andrew Maynard, Arizona State University (July 2016): https://theconversation.com/itll-take-more-than-tech-for-elon-musk-to-pull-off-audacious-new-tesla-master-plan-62884

    [3] https://www.nytimes.com/2017/01/19/business/tesla-model-s-autopilot-fatal-crash.html

    [4] https://medium.com/@loic/elon-musk-turns-a-tweet-into-reality-in-6-days-6189c1795a41#.n88og1w7r

    [5] http://www.forbes.com/sites/chunkamui/2016/08/22/uber-slingshots-google/#43e0d8f76748

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