The 1 Thing Elon Musk Got Right With Tesla and Almost Every Other Entrepreneur Gets Wrong
Look for a “hair on fire” use case
PHOTO CREDIT: Getty Images
Elon Musk is often hailed as a visionary, and rightly so. Tesla, not to mention his other ventures, has the mark of a business that can truly change the world. When he co-founded the company in 2003, electric cars seemed like a pipe dream. Today, however, just about every major carmaker is investing in the technology.
The Tesla narrative has become so well accepted that we rarely stop to think how easily it could have all gone wrong. In 2007, Shai Agassi founded Better Place with an even more expansive vision for electric cars. Yet as Brian Blum explains in his new book, Totaled, that vision led to a series of missteps that resulted in a billion dollar bankruptcy.
There are, of course, a number of reasons for a failure that colossal, including Agassi's mercurial personality, but most of Better Place's problems can be attributed to a single initial mistake. If you want to truly change the world build for the few, not the many. Find a customer that wants or needs your product so badly they almost literally have their hair on fire.
Identifying "The Hair On Fire" Use Case
The story of Better Place began with a lot of fanfare and a world changing mission. Backed by hundreds of millions of dollars in venture capital and supported by famous politicians and other celebrities, Agassi sought to bring electric cars to everyday people. To solve the problem of the car's short range -- about 80 miles -- he proposed an expansive network of charging stations.
Yet while Agassi and Better Place sought to build a family car, Musk and Tesla created a $100,000 status symbol for Silicon Valley millionaires. Because these customers could afford multiple cars, range wasn't as much of a concern, but in any case the high price tag made a larger battery more feasible. The original Tesla Roadster had a range of 244 miles.
The Silicon Valley set were customers with their hair on fire. They wanted to be seen as stylish and eco-friendly, so were willing to put up with the inevitable limitations of electric cars. They didn't have to depend on them for their commute or to pick the kids up at soccer practice. As long as the car was cool enough, they would buy it.
In Crossing The Chasm, author Geoffrey Moore explained that to shift from early adopters to mainstream customers, you need to adapt your product to fill different needs, but the reverse is also true. In order to gain traction in the marketplace, you need to identify those initial customers willing to buy a product that most won't.
Transforming Customers Into Co-Creators
By focusing on an affluent and eclectic customer, Tesla also leveraged an advantage that electric cars have over gasoline powered vehicles -- they accelerate faster. So building a high performance automobile with an electric motor was a very achievable ambition. It was on the basis of performance that Tesla built a small, but rabidly enthusiastic fan base.
Building for the few and not the many also has another benefit. When you are serving customers with their hair on fire, they are willing to work with you to get over the inevitable rough spots. Effectively, instead of trying to market to customers, you recruit co-creators and, by helping you to build a better product, those customers take ownership of your brand mission.
Better Place had no such luxury. It aimed to sell to people who actually needed their cars, so the company had to go to great lengths in order to make them reliable. In particular, the charging stations proved to be a money pit. The time, money and effort needed to create an expansive network in a short amount of time was simply too much.
In effect, by focusing on mainstream customers instead of recruiting co-creators, Better Place painted itself into a corner. Tesla, on the other hand, was able to transform the inevitable hiccups into learning experiences and, as it improved its product, won even more customer loyalty.
Making Room To Iterate And Pivot
Every business idea is wrong. Sometimes it's off by a little and sometimes it's off by a lot, but it's always wrong. The trick to making a new business work is to find the flaws in your idea and fix them before you run out of money.
Agassi made that much harder by going after mainstream customers from the start. Because he committed to an expansive charging network from the outset, there was an exceedingly small window to fix snafus as they came up. And problems arose in every dimension you can imagine, from design and engineering to identifying and acquiring locations.
Interestingly, Google made a similar mistake with Google Glass. As a consumer product, it ran into to myriad problems that were hard to foresee. Yet today, Glass is making a comeback as an industrial product. For hipsters, an augmented reality product is far from a necessity, but a business that needs to improve productivity can be a true "hair on fire" use case.
Of course Google, which rakes in billions in profits every year, can take the hit. A startup can't. That's why you need to always leave yourself room to iterate and pivot. When a customer desperately wants or needs a product, they will give you that room. Mainstream customers usually won't.
The Minimum Viable Business
Lean startup aficionados stress the importance of a minimum viable product. This is not a prototype, but rather just a way of testing a business hypothesis. For example, when Nick Swinmurn had the idea for Zappos, he tested it by putting pictures of shoes online. When a pair was ordered, he went and bought it retail and shipped it out. He lost money on every pair.
That's a terrible way to run a business, but a great -- and incredibly cheap -- way to to test a business idea. Once he knew that people were willing to buy shoes online, he began to build all the elements of a fully functioning business. Ten years later, Zappos was acquired by Amazon for $1.2 billion.
The divergent paths of Tesla and Better place show why it's also important to think about a minimum viable business. Clearly, a small amount of Silicon Valley entrepreneurs can't support an entire car company, but Tesla didn't need them to. In the early days they merely needed enough customers to help them test the idea in order to get to the next stage.
Better Place, on the other hand, tried to create a massive operation from the start and it killed the company. There were simply too many variables to account for and too little wiggle room to manage the inevitable hiccups as they arose. So one problem cascaded into another until the fiasco became utterly unmanageable.
You never start where you will end up and it's a mistake to try. You first need to test your ideas on a smaller scale and implement fixes before the flaws become fatal. The best way to do that is to find customers with their hair on fire.