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Week 323 | Leading & Managing Section | 1
Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since September 2017 | Week 323 | November 17-23 2023
Elon Musk’s 10 laws of management
By Shawn Tully | Fortune Magazine | November 20, 2023
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For a corporate leader who arguably ranks as entrepreneur of the century, Elon Musk sure has a strange way of running his companies. Below, a distillation of Musk’s management ethos.
Promote the vision. Musk is expert at selling a futuristic vision where he revolutionizes the traditional profitability model for carmakers. Put simply, he’s messaging not to watch Tesla’s current, plateauing numbers too closely, because they’re irrelevant alongside the coming takeoff. The ability to spin such exciting narratives creates a leap of faith for Tesla investors, and the funds and superrich backing his ventures from X to SpaceX.
Keep promising groundbreaking innovations are almost here. It’s a Musk mantra that he’s constantly on the cusp of introducing revolutionary new products, often on a mass scale. It’s his way of convincing investors that he’ll continue changing the world, and keeping their eye on a gauzy horizon of never-before-seen profits. But he’s always pushing the arrival dates, then doubles down by pushing them back again.
Control every aspect of the manufacturing process. For Musk, business is principally about invention and engineering. His genius: Once he’s achieved an innovative design for a car or rocket, he’s expert at creating a super-low-cost, ultra-high-volume production machine.
Pump volumes at all costs. For years, Tesla’s great brand, its head start in the EV race, and Musk’s knack for orchestrating superefficient manufacturing gave Tesla sumptuous margins. But now, Musk is no longer putting profitability first. As he noted on Tesla’s second-quarter earnings call: “Short-term changes in margins and profitability are really minor in the long-term picture of autonomy, and will make these numbers look silly.” To gun sales, Tesla has been imposing round after round of price reductions.
Ignore conventional corporate financial metrics. Musk doesn’t talk about how he’ll grow the measures that create shareholder value, and that investors want to hear about. He never discusses how he’ll raise returns on equity or on invested capital, or set targets for those bedrock gauges. In fact, his approach to financial management can be downright irresponsible. In early 2021, he overruled his CFO at Tesla to purchase $1.5 billion in Bitcoin, most of which he dumped in 2022 at about breakeven, and SpaceX took a $373 million loss when exiting its position in the signature cryptocurrency early this year.
Spin ‘situational’ narratives to different constituencies. “We may fail, as many predicted,” Musk said recently about his adventures with X. He is constantly portraying X’s financial condition in the worst possible light. Why, you might ask? Simple: To purchase X, Musk borrowed a gigantic $13 billion from a consortium of seven banks. The big interest burden from the deal’s heavy leverage is crippling X and denying Musk the profits needed to build his envisioned “everything app.” But now the banks are stuck with below-market-rate loans they’ve been unable to sell off. But Musk also has a list of two dozen co-investors that he’d like to keep happy, a gilt-edged group that includes Prince Alwaleed bin Talal of Saudi Arabia and Marc Andreessen. So at the same time he’s bad-mouthing X’s short-term outlook, he’s singing its eventual promise.
Make Jack Welch look timid when it comes to turnover. Musk reckons that a workforce that isn’t constantly churning and ejecting all but the most competent and hardworking employees isn’t maximizing efficiency. Surprisingly, his approach resembles that of 1980s management hero, former GE chief Jack Welch, who made a policy of terminating the lowest-performing 10% of his workforce each year (a tactic that has since been somewhat discredited).
Dispense with public relations. Musk dissolved Tesla’s PR department in 2019, and as of today, it’s the only public corporation remotely its size operating without one. None of his other holdings has a comms staff either. In an interview at Morgan Stanley in March, Musk mocked the discipline, quipping, “Maybe we should have a VP of propaganda or a VP of witchcraft, that would be a great one!” Musk has made himself both the source of all news about X and one of the loudest voices on the site, recently drawing a huge amount of anger and advertiser fallout after he supported an antisemitic post on X.
Get paid based on short-term stock price, not long-term performance. At the close of 2017, the Tesla board awarded Musk a gigantic, 10-year stock options package called the “2018 CEO Performance Award.” It consisted of 12 tranches, each vesting in steps as the market cap rose from the starting point of around $50 billion to $650 billion. In addition, he had to hit rising benchmarks along the way for either sales or profits to clinch each grant.
Fund a big vision with a side venture that makes money. At SpaceX, Musk’s great goal is the quest to take his Starship to Mars. But his rocket business loses money. So Musk found a way to subsidize his passion by launching the Starlink satellite business that has created a space-based internet network of 4,400 satellites. Musk aims to expand the service eightfold to 30,000 satellites. Will he get there? Maybe, or maybe not. As long as he can keep followers enticed by his newest shiny object, it’s doubtful anyone will even remember he pledged to in the first place.
2 key takeaways from the article
- For a corporate leader who arguably ranks as entrepreneur of the century, Elon Musk sure has a strange way of running his companies. So bizarre are his frequent outbursts, instances of supporting antisemitism and fringe views, and general eschewing of corporate civility that if he’d been a regular CEO instead of an owner and dominant shareholder, he probably would have been axed long ago by an uptight board.
- A 10 distillation of Musk’s management ethos are: promote the vision, keep promising groundbreaking innovations are almost here; control every aspect of the manufacturing process; control every aspect of the manufacturing process; pump volumes at all costs; Ignore conventional corporate financial metrics; make Jack Welch look timid when it comes to turnover; dispense with public relations; get paid based on short-term stock price, not long-term performance; and fund a big vision with a side venture that makes money.
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Topics: Leadership, Strategy, Innovation