Three Business Lessons To Learn From Elon Musk

Elon Musk is a South African-born Canadian-American entrepreneur, who has greatly enhanced the internet economy, space travel and energy industry by devising innovative ways of providing value to others. But before he became a billionaire with a current net worth $20.4 billion, his only assets were his brain and his vision to change the world. These assets are the secrets behind his success today, so in this article, I will be highlighting three business lessons that I have learnt from studying the mind of Elon Musk.

1. Solve problems rather than chase money

One of the most important business lessons to learn from Musk’s entrepreneurial journey is that the world rewards those who solve problems. The most productive and profitable businesses focus on their products and services rather than simply chase profitability.

Musk once said – “Going from PayPal, I thought: ‘Well, what are some of the other problems that are likely to affect the future of humanity?’ Not from the perspective, ‘What’s the best way to make money?”. His next business venture as a result of this line of thinking was Tesla Motors.

Tesla Motors is successful today for a number of reasons but fundamentally, it is due to the fact that electric cars solve the problem of limited fossil fuel supplies; Musk capitalized on the desire to have more sustainable and less fuel intensive transportation. By paying attention to what the market wanted, as opposed to simply focusing on profit, Musk found an untapped business opportunity. If you solve a problem that people have first, profitability will come second. The graph below is proof of how successful this mindset can be.

1. Use “first principles thinking” to innovate

   Elon Musk is one of the most innovative minds of our era, and the reason behind this is his ability to use “First principles thinking” to solve problems. First principles thinking simply means stripping things down to their fundamental principles (or core elements) and reasoning up from those principles to create something new. For instance, expensive batteries have always been a limiting factor to electric car companies like Tesla Motors. However, using first principles thinking, Musk was able to find an innovative solution to this problem.

In an interview with Kevin Rose, Musk said – “Someone could say that battery packs are really expensive and that’s just the way they will always be…‘historically, it has cost $600 per kilowatt hour and it’s not going to be much better than that in the future.’

But with first principles, you say ‘Well, what are the material constituents of the batteries? What is the stock market value of the material constituents?’ It’s got cobalt, nickel, aluminium, carbon, some polymers for separation and a seal can.

Break that down on a material basis and say, ‘If we bought that on the London Metal Exchange what would each of those things cost?’ It’s like $80 per kilowatt hour. So clearly you just need to think of clever ways to take those materials, combine them into the shape of a battery cell and you can have batteries that are much, much cheaper than anyone realizes.”

This is a clear example of how first principles thinking works – instead of accepting the general consensus that batteries are expensive, he stripped the battery down to its core elements (the cobalt, nickel, aluminum, etc.) and reasoned up from there to create “the best and cheapest battery cell”. In recent reports, Musk claims to have beaten his competition on two of the most important factors for batteries – cost and energy density (packing the most energy into the smallest valume).

Musk has since ‘reasoned up’ a bit more by building a Gigafactory that can produce enough batteries to power over 1 million electric cars per year at full capacity. With this bold initiative, he aims to capitalize on economies of scale to further reduce battery prices to as low as $100 per kilowatt hour by 2020, beating industry projections by about five years.

Musk has used the first principles thinking in every industry he has touched: E-cash (PayPal), energy services (SolarCity), electric cars (Tesla) and rocket technology (SpaceX); it’s no surprise that he’s been able to provide innovative solutions in each and every one of these industries.

So how can you apply the first principle thinking in your business?

The first step to applying first principle thinking is to break your business down to its fundamental principle by identifying your core value proposition i.e. the core element required to provide value to your customers. For Tesla, the core of their electric cars is their cheaper and more powerful batteries. For Google, the core is its superior search engine algorithm. You would need to clearly outline yours.

Once you have highlighted the fundamental principle of your business, you can then think of a way of reasoning up from that principle to provide value to your customers in a uniquely efficient and effective manner. There are a variety of ways this reasoning can be done and they will require in-depth thought into the nature of your industry and your customers. For a more detailed explanation of the application of first principles thinking, subscribe to our newsletter to get exclusive access to this material.

First principles thinking is different from the prevalent business trend of assessing the things that are currently being done by one’s competitors and trying to make improvements on them. Although, the more common approach of making improvements on existing business models can lead to good business, one is more likely to face serious competition from those that have a better grasp of how to use those models. Using first principles thinking usually leads to unique business ideas that makes your business innovative and more battle hardened against competition.

1. Persevere when things get hard

Musk’s entrepreneurial journey hasn’t exactly been a stroll in the park, he has had to face and overcome numerous obstacles to get where he is today. He was pushed out from CEO to CTO by investors at Zip2, a company he started with his brother and in 2002, he was again pushed out from CEO of PayPal (another company he started) while on his honeymoon.

He then went on to found Tesla motors in 2003 but the launch of ‘Roadstar’, Tesla’s first electric car, was delayed and the company faced severe financial issues, coming very close to shutting down. Musk had to put his entire life’s savings into Tesla in order to keep it afloat.

Musk also faced a number of challenges with SpaceX as the company’s first three rocket launches failed and skepticism began to creep into many of its investors. SpaceX only had enough money for one more launch as it was on the verge of bankruptcy; however, Musk persevered, the fourth launch was a huge success and as a result, SpaceX received a contract from NASA for $1.6 billion.

“Persistence is very important. You should not give up unless you are forced to give up.” – Elon Musk

Well, this brings us to the end of this short insight into the mind of Elon Musk. The three lessons I’ve highlighted in this article are geared to help you firstly, start your business on the right foot, secondly, conduct your business and critical thinking in an innovative manner and thirdly, persevere when things inevitably get tough. Hopefully these lessons will serve you well and help you adopt a mindset that translates into business success.