Elon Musk's Thoughts on How He Started Tesla and Space-X Summary

Sep 13, 2013 -

Salman Khan of Khan Academy held an engaging and interesting conversation with Elon Musk

How did he end up choosing to start companies in the industries he did?

Per Elon, starting multiple businesses wasn't the childhood dream. It just sort of happened as a result of his thought process. First he looked at what areas would most affect the future of humanity. These three areas included the internet, sustainable energy, and space exploration. Then, he thought in terms of what area or areas he would like to have a career in.

At the time, electric cars was most reasonable and he had already begun to look at energy storage for cars. Then the internet came along and he started focusing on that. At Zip2, he eventually created a yellow pages for the internet, which was later sold. Like with all businesses, he looks at the possible outcomes and if success is one of the possible outcomes he considers it a good "bet". 

Part of the marketing strategy with Paypal was referral based. Customers who referred customers would receive $20 dollars and then as the network grew the referral bonus went down to $10 and then when the the network was large enough, the costs no longer made sense. The company had spent about 60M-70M on this project.

The ideal model would be to have one customer generate two customers or ideally three customers. This is similar to bacteria growing in a petri dish. 

How did Space-X Start? How did Elon decide one day to just start a space company?

Elon thought about where the space industry was going. The world had sent people to the moon and landed robots on Mars. The next logical step would be to send people to Mars. He went to the NASA website and was disappointed to find that NASA did not have plans to send people to Mars or expand beyond Earth. Did they need a bigger budget or was it just not of interest to people?

Then he thought if it was possible to build a spacecraft within a reasonable "budget", which he had set at half of what he made from selling Paypal. A lot of his friends thought he was crazy. The premise for their argument was that they thought he was going to lose the money he invested. He said, " I didn't really mind if I lost the money." If this money would result in a bigger budget and eventually people would be able to go to Mars that would be a good outcome.

Elon started looking at rockets, but they were much too expensive to purchase from the U.S ($60M). He figured he needed at least two missions and buying those from the U.S. would've blown his budget. So he went to the Russians and looked at buying ICBM (Intercontinental ballistic missiles), which were $10M.

After that Elon started to read about space exploration and researched how hard it would be to build a rocket. The total raw material itself, which consisted of aluminum, copper, etc., costs 2% of what the market value of the rocket. Therefore, the majority of the costs came from the labor or how the raw materials would be arranged. After doing more research and finding out that he wasn't being naive about reducing the cost of building a rocket, he decided to purse Space-X.

The first rocket was called Falcon 1 and costs about cost about $6M  to make compared to the market value of $25M dollars. His goal is to make the rockets reusable, which would make them 1/100 of the current price. This meant that the rocket would be able to land back on the launch pad.

Like with many companies, the first step is still to bring in revenues to keep the company running. For Space-X, revenues would come from launching commercial satellites, GPS satellites, space station transport services, and other "earth based" services. All the while, the company would focus on improving the technology to ultimately take people to Mars.

Where does Elon think the car industry and Tesla will be in 5-10 years?

Sustainable transportation. Cost and environmental factors will eventually push other alternative sources of energy into the market's favor. The goal for Tesla is for it to act as a catalyst to accelerate the normal forces that come with using gasoline as a transportation fuel (monetary and environmental).

The goal is not to become a big brand and compete with Honda, Toyota or any of the other big players. It is to keep making more and more electric cars and drive the price point down until industry is largely electric. Elon sees electric vehicles becoming the majority in 10-13 years from now. Whether or not Tesla succeeds, only time will tell.

What is it like starting a company? 

There are definitely periods of fun and periods when it is just awful. As the founder of a company, you have the "distillation of all the worse problems". Basically you spend your time fixing problems that other people can't take care of because there is no point in spending time on things that are right.

You must have a high pain threshold because you are constantly facing extermination of the company. After all, 99% of all start-ups fail. You must work on problems the company needs you to work on and not what you want to work on. Finally, this goes on for a long time. 

You have a vision of where the company will generally go and a path you think it will take. The path will be a zig-zag and you will have to deviate to some degree from your path. 

Profit motive is a good one if the rules are set up correctly. Profit is not inherently bad. It just means people are paying you more than you are spending to create it.

Game-ify the learning the experience. Also explain the why of things to other people. That in itself is a huge motivation, when they understand the purpose.

What about the Hyperloop? How did that idea come into fruition?

When Elon heard about the California high speed rail, he thought that it was a waste of taxpayers' money. Basically, California was planning on building the most expensive and slowest rail system in the world. It would cost $100B and take two hours to go from LA to San Francisco versus an airplane that would take 45 minutes or so.

He thought to himself, "isn't there a better way to do this?" Ideally, what would you want? Something that is twice as fast, cost half as much, immune to weather, can't crash, and self-powered with solar panels. What would do that? What is the fastest way to do that? There is a practical solution and even if it doesn't work out the way it is planned, it could still be something people look forward to as a tourist attraction.

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