Hi friends,

I just finished reading Elon Musk’s biography. While Elon has drawn his fare share of both fans and critics, there are a number of invaluable lessons that one can take from the book about how Elon functions, which can be helpful to others whether or not they agree with everything about him. In this piece, I’ll discuss some of these lessons from Musk.
Elon Musk is Sending Engineers to Help the Thai Cave Rescue
Source: David Mcnew (Getty Images)
1. Leadership Through Intensity and High Standards

Elon Musk’s leadership style is definitely not the only way to run a company, but has helped his companies to groundbreaking achievements.

His approach, characterized by pushing employees and himself to the utmost limits, has been a cornerstone in the success stories of Tesla and SpaceX.

It’s probably best encapsulated, by one of Musks’ favourite words: hardcore, which he used to describe the culture he wanted when founding Zip2, and reused ever since, including most recently at Twitter. As he wrote to Tesla employees1:

As the Model S production line ramped up, he spelled out his creed in a quintessential email to employees, titled “Ultra hardcore.” It read, “Please prepare yourself for a level of intensity that is greater than anything most of you have experienced before. Revolutionizing industries is not for the faint of heart.”

Some may disagree with his approach, but no one can’t accuse him of not leading from the front. Musk encapsulated the “hardcore” approach better than anyone, often logging late nights, sleeping on factory floors, factory roofs, or inside offices.

From the very beginning of his career, Musk was a demanding manager, contemptuous of the concept of work-life balance. At Zip2 and every subsequent company, he drove himself relentlessly all day and through much of the night, without vacations, and he expected others to do the same. His only indulgence was allowing breaks for intense video-game binges.

“By April 2018, the Nevada factory was working better. The weather had warmed up a bit, so Musk decided he would sleep on the factory roof instead of driving to a motel”

The approach had its trade-offs, however, with over time many employees eventually burning out and quitting. Some came back however, missing the intensity and fun they had while there.
2. The “Algorithm” for Product Development

Based on the Musk’s experiences, particularly with scaling up production Tesla’s Nevada and Fremont factories, he developed "the algorithm” which was used in every production process. While designed with vertically integrated manufacturing in mind, a lot of it is applicable to any kind of company, including just digital ones.
We got a tour in Tesla's Gigafactory. It's big, loud and secretive
The Tesla Gigafactory in Nevada

The algorithm had 5 commandments, as below, directly from the book:

1. Question every requirement. Each should come with the name of the person who made it. You should never accept that a requirement came from a department, such as from “the legal department” or “the safety department.” You need to know the name of the real person who made that requirement. Then you should question it, no matter how smart that person is. Requirements from smart people are the most dangerous, because people are less likely to question them. Always do so, even if the requirement came from me. Then make the requirements less dumb.

2. Delete any part or process you can. You may have to add them back later. In fact, if you do not end up adding back at least 10% of them, then you didn’t delete enough.

3. Simplify and optimize. This should come after step two. A common mistake is to simplify and optimize a part or a process that should not exist.

4. Accelerate cycle time. Every process can be speeded up. But only do this after you have followed the first three steps. In the Tesla factory, I mistakenly spent a lot of time accelerating processes that I later realized should have been deleted.

5. Automate. That comes last. The big mistake in Nevada and at Fremont was that I began by trying to automate every step. We should have waited until all the requirements had been questioned, parts and processes deleted, and the bugs were shaken out.

The algorithm became almost a mantra at production meetings at Musk’s companies, with Musk noting: “I became a broken record on the algorithm. But I think it’s helpful to say it to an annoying degree.”
3. First Principles Thinking and the “Idiot Index”

Musk’s problem-solving approach, grounded in first principles thinking, strips down complex problems to their most fundamental truths and builds solutions up from there.

Musk applied this approach to SpaceX, questioning every aspect of rocket building from the cost of raw materials to production processes. When he was getting started, he initially tried to buy a few rockets from Russia, but balked when quoted prices of $18M per rocket and couldn’t make a deal.
SpaceX - Mission
SpaceX Kennedy Space Center (Florida)

It was in that situation that he developed the “Idiot Index”, which Musk’s companies used time and time again to make decisions about whether to buy a part of manufacture it themselves.

As he stewed about the absurd price the Russians wanted to charge, he employed some first-principles thinking, drilling down to the basic physics of the situation and building up from there. This led him to develop what he called an “idiot index,” which calculated how much more costly a finished product was than the cost of its basic materials. If a product had a high idiot index, its cost could be reduced significantly by devising more efficient manufacturing techniques.

After doing calculations to determine the Idiot Index of rockets which very very high, he decided to build them himself thus cementing the vision for SpaceX.

Rockets had an extremely high idiot index. Musk began calculating the cost of carbon fiber, metal, fuel, and other materials that went into them. The finished product, using the current manufacturing methods, cost at least fifty times more than that.

If humanity was going to get to Mars, the technology of rockets must radically improve. And relying on used rockets, especially old ones from Russia, was not going to push the technology forward.

So on the flight home, he pulled out his computer and started making spreadsheets that detailed all of the materials and costs for building a midsize rocket. Cantrell and Griffin, sitting in the row behind him, ordered drinks and laughed. “What the fuck do you think that idiot-savant is doing up there?” Griffin asked Cantrell.

Musk turned around and gave them an answer. “Hey, guys,” he said, showing them the spreadsheet, “I think we can build this rocket ourselves.”

4. Embracing Risk

Musk's career is a testament to embracing risk. From his early days at Zip2 to his ambitious ventures with SpaceX and Tesla, Musk has consistently taken on challenges that others deemed too risky or impractical. His philosophy, as seen in his approach to space exploration, is not about avoiding risk but about embracing it as a necessary component of groundbreaking work.

Arguably, he was a bit too obsessed with risk, as Peter Thiel and Roelof Botha noted:

His heritage and breeding, along with the hardwiring of his brain, made him at times callous and impulsive. It also led to an exceedingly high tolerance for risk. He could calculate it coldly and also embrace it feverishly. “Elon wants risk for its own sake,” says Peter Thiel, who became his partner in the early days of PayPal. “He seems to enjoy it, indeed at times be addicted to it.”

“Entrepreneurs are actually not risk takers,” says Roelof Botha. “They’re risk mitigators. They don’t thrive on risk, they never seek to amplify it, instead they try to figure out the controllable variables and minimize their risk.” But not Musk. “He was into amplifying risk and burning the boats so we could never retreat from it.” To Botha, Musk’s McLaren crash was like a metaphor: floor it and see how fast it goes.”

But that has obviously worked out for him, as Thiel also notes:

“Look at the two companies he went on to build, SpaceX and Tesla,” says Thiel. “Silicon Valley wisdom would be that these were both incredibly crazy bets. But if two crazy companies work that everyone thought couldn’t possibly work, then you say to yourself, ‘I think Elon understands something about risk that everybody else doesn’t.’ ”

However, taking all out risks isn’t a good lesson applicable to most, so what might be some boundaries on the risk-taking?
Know when risk can be used to your advantage

Musk recognized that the typical government contractors with their cost plus pricing had gotten complacent and bloated. He wanted SpaceX to take on the risk, but be able to get rewarded for that risk. He counter positioned their model to the existing contractors and built the company around that.

On his trip to Washington, Musk testified before a Senate committee and pushed a different approach. The problem with a cost-plus system, he argued, was that it stymied innovation. If the project went over budget, the contractor would get paid more. There was little incentive for the cozy club of cost-plus contractors to take risks, be creative, work fast, or cut costs. “Boeing and Lockheed just want their cost-plus gravy trains,” he says. “You just can’t get to Mars with that system. They have an incentive never to finish. If you never finish a cost-plus contract, then you suckle on the tit of the government forever.”

SpaceX pioneered an alternative in which private companies bid on performing a specific task or mission, such as launching government payloads into orbit. The company risked its own capital, and it would be paid only if and when it delivered on certain milestones. This outcomes-based, fixed-price contracting allowed the private company to control, within broad parameters, how its rockets were designed and built. There was a lot of money to be made if it built a cost-efficient rocket that succeeded, and a lot of money to be lost if it failed

Embrace the risk and failure that comes with attempting novel things

Tied to taking risk, Musk knew that failure was the most common outcome in many cases. So he didn’t let him or his team view failure as the end, but often just a lesson along the journey of what was possible. He encouraged them to take risks and if they failed, iterate from there, as below.

After the failure of its first launch, SpaceX became more cautious. The team began testing carefully and recording the details of each of the hundreds of components in the rocket. For once, Musk did not push everyone to move at warp speed and sweep away caution.

Nevertheless, he did not try to eliminate all possible risks. That would make SpaceX rockets as costly and late as those built by the government’s bloated cost-plus contractors. So he demanded a chart showing every component, the cost of its raw materials, the cost that SpaceX was paying suppliers for it, and the name of the engineer responsible for getting that cost down. At meetings he would sometimes show that he knew these numbers better than the engineers doing the presentation, which was not a pleasant experience. Review meetings could be brutal. But costs came down.

All of this meant taking calculated risks. For example, Musk had been the one who approved the use of cheap and light aluminum for the B-nut that corroded and doomed the first Falcon 1 flight.

5. Mission-Driven Approach

One of the most compelling aspects of Musk’s success is his mission-driven approach. Musk doesn’t just build companies; he builds missions that aim to solve some of humanity's most pressing challenges – from sustainable energy with Tesla to making life multiplanetary with SpaceX.

Perhaps the importance Musk places on his involvement humanities progress can be off-putting to some, but Musk was able to combine very important missions that would help the world with a practical commercial approach of solving them.

For example, when his friends tried to talk him out of starting SpaceX, Musk noted:

“The likeliest outcome is that I will lose all my money. But what’s the alternative? That there be no progress in space exploration? We’ve got to give this a shot, or we’re stuck on Earth forever...I wanted to hold out hope that humans could be a space-faring civilization and be out there among the stars … And there was no chance of that unless a new company was started to create revolutionary rockets.”

Musk knew he needed the company to be able to sustain itself, so he also intended for it to use rockets to launch commercial and government satellites.

With Tesla, Musk wrote up a master plan which declared the mission but a practical way to get there:

The overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy…. Critical to making that happen is an electric car without compromises, which is why the Tesla Roadster is designed to beat a gasoline sports car like a Porsche or Ferrari in a head-to-head showdown…. Some may question whether this actually does any good for the world. Are we really in need of another high-performance sports car? Will it actually make a difference to global carbon emissions? Well, the answers are no and not much. However, that misses the point, unless you understand the secret master plan alluded to above. Almost any new technology initially has high unit cost before it can be optimized, and this is no less true for electric cars. The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model.

Tesla’s plan to eliminate fossil fuels

Isaacson summed it up:

With the conviction of a prophet, he would speak about the need to nurture the flame of human consciousness, fathom the universe, and save our planet. At first I thought this was mainly role-playing, the team-boosting pep talks and podcast fantasies of a man-child who had read The Hitchhiker’s Guide to the Galaxy once too often. But the more I encountered it, the more I came to believe that his sense of mission was part of what drove him. While other entrepreneurs struggled to develop a worldview, he developed a cosmic view.

This mission-driven approach not only helped drive his ambition and get him through tough periods (by allowing him to focus on the bigger “Why”) but also helped him attract an army of talented followers and believers.