21st Century Innovator

by Jörgen Eriksson on November 25, 2012

"I would like to die on Mars; just not on impact." – Elon Musk

In this blog post, I present one of the most enigmatic and interesting innovators of the new millennium, Elon Musk. The post is about his achievements and about the innovation he has created, why it has worked, in some cases not worked, and the lessons to make.

The challenge

Space-X taking offIn 2006, due to the need to replace the aging space shuttle system and increasing budget constraints, the North American Space Agency (NASA) began to change from being an agency that explores space into an agency that invests in space.

When its essential mission and strategy was changed, NASA did not know what to do: "It was a whole new way of doing business for us," says Alan Lindenmoyer, the head of NASA’s commercial crew and cargo program.

By the change of direction, NASA opened up for disruptive innovation within an industry that the agency had dominated since the 1960s.  The agency hired consultants to teach it how to act as a venture capitalist and develop partnerships with commercial space companies and it formed a strategic partnership with Red Planet Capital Inc. to to help the agency gain access to new and innovative technologies through the venture capital community.

in 2009, NASA was ready to launch its refocused strategy and established an initiative called the Commercial Crew and Cargo Program to begin working with private companies.

The goal of the program, according to NASA, was to achieve “safe, reliable, cost-effective access to low-Earth orbit and create a market environment in which commercial space transportation services are available to government and private- sector customers.” The program was initially funded with US$50 million from the American Recovery and Reinvestment Act of 2009, often called the Recovery Act or the stimulus bill.

Robotic arm from space stationSpace travel had until 2009 been a product of governments, but now private companies were invited to  become an important part of the American space program. The immediate need was for vehicles to haul cargo and crew to the international space station after the space shuttle program ended in 2011.

The challenge to develop replacement capacity was taken by multinational aviation enterprises like Raytheon, Boeing, Honeywell International and Lockheed Martin as well as wealthy and innovative entrepreneurs such a Richard Branson (through Virgin Galactic) and dozens of other private space-transport initiatives. One of the new contesters was Space Exploration Technologies Corp. (SpaceX).

Last month, SpaceX became the first private company to deliver cargo to the International space station. The spacecraft Dragon launched on the company’s Falcon 9 rocket from Cape Canaveral, Fla., on October 7 and docked with the space station three days later. Its payload was unloaded over several days, and Dragon splashed down safely in the Pacific Ocean on October 28. It delivered hardware, supplies and a freezer packed with scientific samples. It was the second time SpaceX had sent Dragon to the space station, the other being last May, but this was the first time cargo was delivered.

The resupply mission was a part of a US$1.6 billion contract with NASA. According to the contract SpaceX will fly at least 12 cargo supply missions to the ISS and carry crew as well.

With this resupply mission, SpaceX have succeeded in commercial space flight and beaten the huge enterprises that have been subcontractors to NASA for decades. On its home page, SpaceX presents itself by saying:

SpaceX designs, manufactures, and launches the world’s most advanced rockets and spacecraft. The company was founded in 2002 by Elon Musk to revolutionize space transportation, with the ultimate goal of enabling people to live on other planets. Today, SpaceX is advancing the boundaries of space technology through its Falcon launch vehicles and Dragon spacecraft.

This is an extraordinary and ambitious vision, and for the unknowing reader, it rises the question, who is Elon Musk?

The entrepreneur

Elon MuskSpaceX was founded in June 2002 by PayPal and Tesla Motors co-founder Elon Musk who invested US$100 million of his own money. Musk was a multi-millionaire by the time he reached the age of thirty-one, by his creation of the company that became PayPal, the popular money-transfer service for Web consumers.

Musk has become one of a new breed of what the New York Times called "thrillionaires," or a class of former high-tech entrepreneurs who are using their newfound wealth to help turn science-fiction dreams into reality.

He was born in 1971 in Pretoria, South Africa, to parents who later divorced. His father was an engineer and his mother, originally from Canada, was a nutritionist. Musk was fascinated by science fiction and computers in his adolescent years. When he was twelve, he wrote the code for his own video game and actually sold it to a company. He grew up in the last decade of Apartheid and in his late teens he immigrated to Canada, in order to avoid the required military service for white males in South Africa.

According to interviews, Musk had planned on a career in business, and he worked at a Canadian bank one summer as a college intern. This was his only real job before he became an Internet entrepreneur. Midway through his undergraduate education, he transferred to the University of Pennsylvania, where he earned a bachelor’s degree in economics and a second bachelor’s in physics a year later. From there, he won admission to the prestigious PhD program at Stanford University in California, where he planned to concentrate on energy physics. He moved to California just as the Internet boom was starting in 1995.

Musk was just twenty-four when he started his first company, Zip2, which provided online content publishing software for news organizations, and he devoted all of his energies to see it succeed. He lived in the same rented office that served as his company’s headquarters, sleeping on a futon couch and showering at the local YMCA. In an early interview, he stated "Failure is an option here. If things are not failing, you are not innovating enough." Zip2 was sold to Compaq in 1999 for US$307 million in cash and US$34 million in stock options.

On his home page, Elon Musk presents his biography:

Elon Musk is an engineer and entrepreneur who builds and operates companies to solve environmental, social and economic challenges. He co-founded PayPal and currently drives strategy, development and design at two companies he created, Space Exploration Technologies (SpaceX) and Tesla Motors, and oversees a third company, SolarCity, which he co-founded. He led SpaceX’s efforts to be the first private company to successfully launch and dock a spacecraft with the international space station

During his entire life, Elon Musk has innovated and bent people to his will.  He is a hard worker and recommends working 80-100 hours a week, which he has done himself throughout his active career. Below we take a look at his key achievements.

PayPal – business model innovation

PaypalAfter Zip2 Musk went on to create PayPal, a global e-commerce business allowing payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods, such as checks and money orders.

PayPal is an acquirer, performing payment processing for online vendors, auction sites, and other commercial users, for which it charges a fee. It may also charge a fee for receiving money, proportional to the amount received. The fees depend on the currency used, the payment option used, the country of the sender, the country of the recipient, the amount sent and the recipient’s account type.

PayPal’s success was about innovating the business model for money transfer. In terms of users and volumes, it was the product of a three-phase strategy described by former eBay CEO Meg Whitman: “First, PayPal focused on expanding its service among eBay users in the U.S. Second, we began expanding PayPal to eBay’s international sites. And third, we started to build PayPal’s business off eBay”.

Paypal balanced business modelMost entrepreneurs know that in order for a brokerage business model to be successful, there needs to be a significant user base on both sides of the transaction. To build user base is a classic chicken-and-the-egg scenario; which comes first, the chicken or the egg? With PayPal, buyers were excited to use the service because it made it much easier to buy something on e-Bay.

Once buyers were on board, merchants and sellers began accepting PayPal because of the increased transaction volumes and the new payment options. With substantial user adoption on both sides of the transaction platform, PayPal began to prove the viability of its business model.

One of the keys to PayPal’s success has been its ability to keep the platform secure, also this a disruptive innovation. Seven years ago, we in Bearing were involved in setting up the luxury goods e-commerce store Trendora, based in Luxembourg and Italy and delivering globally. The store was an early market entrant but failed due to systematic payment fraud. The key problem was how to verify the buyer and avoid shipping toward falsified orders.

CaptchaAfter some well-publicized incidents in the early years of PayPal, the company devised a unique account verification policy, created the Captcha technology and implemented an optional security key, among other initiatives. The results have been amazing, as PayPal’s fraud rate of 0.41% remains well below the industry average of 1.5% despite being one of the most targeted sites on the web.

Overall, PayPal’s success in trailblazing the online payment industry is a result of its ability to effectively find and implement a scalable business model. Despite challenges and setbacks, the company’s founders endured and created a simple, innovative e-transaction system that now serves 300 million users.

Tesla – technology innovation

Tesla roadsterTesla Motors, Inc. (Tesla) is a Silicon Valley-based company that designs, manufactures and sells electric cars and electric vehicle powertrain components. The company was founded in 2003 by Elon Musk, who remains its Chairman of the board of directors, CEO and Product Architect.

Tesla Motors gained widespread attention by launching the Tesla Roadster in 2008, the first fully electric sports car. With its world-class acceleration, handling, and design, the Roadster ranks amongst the world’s most coveted sports cars. Its engineering has no equal.

Or at least, so say the marketing jargon. However what really makes the Tesla Roadster innovative? It has the usual basic transportation characteristics: four wheels, two seats, brakes, standard controls, steering wheel, pedals, lights, turn signals. However, its design intent resulted from a fundamental rethinking of the basic problem of moving a vehicle. That is, using a zero-emission propulsion system.

The decision to use stored electricity to power the car affects nearly all aspects of the design, providing both the opportunity and necessity for much new engineering. While electric cars have been around for 100 years, advancing technology has only recently made viable a competitive, volume-production electric car.

Tesla in MonacoA large part of Tesla’s early success comes from Elon Musk´s observation that the automotive industry had outsourced a great deal of component development to independent suppliers. Components like body parts, suspension, brakes, steering gear, wheels, transmissions, seats and interiors make up automotive intellectual property, and by the established auto manufacturers supply chain outsourcing, that IP was available to a new auto design.

By buying the traditional components from suppliers, Tesla Motors could focus on the design and engineering work required for the novel parts of an electric car, which centered on the battery, motor and the power electronics.

The design parameters of the Tesla Roadster were the starting point. The car was intended to have performance competitive with high-end sports cars. This primarily meant acceleration, since top speed over 180 km/h is not very common, and handling generally does not involve the power train. With a target time for 0-100 km/h of under four seconds, the car could be competitive with nearly any expensive high-end sports car.

However fame and attention is not always correlated with commercial success. In 2011 Honda Motor sold 200,000 hybrids vehicles and Toyota Motor sold 629,000. In nine years, Tesla has built a total of 2,450 vehicles. The auto industry may have had a rough time of late, but Tesla has had buckets of delays, quality issues, and near-death financial crises.

SolarCity – business model for green energy

SolarCitySolarCity is an American provider of energy services to homeowners and businesses and it also builds charging stations for electric vehicles. It was founded by Elon Musk in 2006 and has received numerous awards from business and clean energy groups. The business is on the tenth place in Fast Company´s list of the Worlds 50 most innovative companies.

The heart of SolarCity’s innovation is its business model, which includes a full spectrum of energy services for homeowners, businesses and non-profit/government organizations, including solar design, financing, installation, and monitoring and energy efficiency evaluations and upgrades.

In 2011, SolarCity expanded from California to the East Coast and added 12,000 new installation projects, all without a cent of government funding. The success is based on full service. Rather than just making panels, SolarCity designs, installs, funds, and maintains every system it install. That’s how to ease new customers into an unfamiliar technology.

SpaceX – innovation in supply chain and government contracting

Last but not least in our list of Elon Musk´s achievements in innovation is SpaceX. The technology it has produced is remarkable, however by a closer look the company’s success is not about innovation in technology. It is about innovation in government contracting.

Musk with Space-XTechnically, what SpaceX has done is little different from what NASA has been doing for almost half a century. They built a liquid fuelled ground launched expendable rocket that delivered cargo to the Space Station and returned a capsule. This is no mean feat, but it is not new at all.

What is innovative is that Elon Musk convinced NASA to contract for a service and also pay for the development of the capability to conduct that service.

The innovation is that NASA is now paying a private company a fee to deliver stuff to the Space Station. Bear in mind, that even when the Space Shuttle was flying, NASA had little to do with building and maintaining the Shuttle. NASA has not physically built a rocket in ages. They fund contractors to build rockets.

NASA trains astronauts and NASA has maintained senior-level management control of the contractors. The great leap forward in the SpaceX launch is that the bureaucracy has taken a step backwards from the process of putting a payload in space. That is a good thing and difficult to achieve. Government rarely lets go of anything it controls.

"Elon came along and said, ‘If you give us the money, we can do things for a tenth of what you do, but you have to leave us alone,’" says Scott Horowitz, a former space-shuttle astronaut who was in charge of NASA’s exploration programs from 2005 to 2007.

So far, there is little advance in the method of getting the payload to space. SpaceX built a new liquid fuelled launch vehicle not particularly different from past American, Russian, French, Chinese or other rockets. Other companies are pursuing more innovative approaches. For example Virgin Galactic’s spacecraft are launched from a large airplane, giving the spacecraft more initial speed and altitude than if it was launched from the ground.

The lessons

"It’s an elusive concept. There’s a certain sharpness, an ability to absorb new facts. To walk into a situation, have something explained to you and immediately say, "Well, what about this?" To ask an insightful question. To absorb it in real time. A capacity to remember. To relate to domains that may not seem connected at first. A certain creativity that allows people to be effective." 
– Bill Gates on the definition of “smart”.

Elon Musk reflectionWhat then, are the lessons to make from Elon Musk´s experience of brilliant serial innovations? Rather than providing an analysis, I chose to let the man speak for himself. First, a couple of interview quotes:

Interviewer: What are the traits do you think you personally have, that propels you to be a successful entrepreneur?

Elon: "Accurate self analysis. It’s difficult to do so, since you’re too close to yourself by definition. People do not think critically enough. People assume too many things to be true without sufficient basis in that belief, it’s very important that people closely analyze what is supposed to be true, and build it up, analyze things by the first principles, not by analogy or convention, which is actually what most people do, that makes it difficult to gain insight as to how things can be bettered.

In any argument or train of thinking, you want to make sure the underlying premises are valid and applicable, and how the conclusion reached is necessarily driven by the underlying premises and the interconnection between those premises. It’s the foundation of rational thought.

People tend to over-weigh risks on a personal level. It’s one thing if you’ve got a mortgage to pay and kids to support, so that if you were to deviate from your job, well, how are you going to feed your family and pay the rent? That’s understandable, but let’s say you’re young and you’re just coming out of college, what are your risks? You’re not going to starve, certainly not in any kind of modern economy. It’s so easy to earn enough money just to live somewhere and eat food. Very easy to do. So I don’t know what they’re afraid of. Mostly afraid of failure, I think, but people should be less risk averse, when there’s not much at risk."

About innovation:

Elon: "Focus on something that has high value to someone else, be really rigorous in making that assessment, because natural human tendency is wishful thinking, so the challenge to entrepreneurs is telling what’s the difference between really believing in your ideals and sticking to them as opposed to pursuing some unrealistic dream that doesn’t actually have merit, be very rigorous in your self analysis, certainly being extremely tenacious, and just work like hell. Put in 80-100 hours every week. All these things improves the odds of success"

Perhaps we could try to emulate some of his self-improvement methods. Elon once said:

"I think it’s very important to have a feedback loop, where you’re constantly thinking about what you’ve done and how you could be doing it better. I think that’s the single best piece of advice: constantly think about how you could be doing things better and questioning yourself.”

He has also said, about the qualities of an Entrepreneur:

Elon: "Really liking what you do, whatever area that you get into, given that even if you’re the best of the best, there’s always a chance of failure. I think it’s important that you really like whatever you’re doing, if you don’t like it, life is too short. Also, if you like what you’re doing, you think about it even when you’re not working, it’s something that your mind is drawn to, if you don’t like it, you just can’t really make it work, I think."

Below is a ten minute interview with The Economist from November 2012.

ELON MUSK, founder of SpaceX and Tesla Motors, discusses rockets, electric cars and the blueprint for an ultra-high-speed mode of transport

Iron ManTo end the post with trivia, it may enjoy the reader to know that Elon Musk inspired the Hollywood director Jon Favreau in his creation of the character Iron Man, as portrayed by Robert Downey Jr. in three recent motion pictures. As Favreau says: “He has that Bill Gates energy where his foot bounces and he’s wiggling just because he’s so smart.”

A billionaire playboy, industrialist and ingenious engineer, the fictitious Iron Man Tony Stark suffers a severe chest injury during a kidnapping in which his captors attempt to force him to build a weapon of mass destruction. He instead creates a powered suit of armor to save his life and escape captivity. He later uses the suit to protect the world as Iron Man.

About Jörgen Eriksson :

Jörgen Eriksson is the founder of Bearing and is the Chairman of the firm since it was created. He has successfully expanded Bearing into covering projects on four continents. He is also Adjunct Professor of Innovation Management at the International University of Monaco and at Universitat Politècnica de Catalunya in Barcelona and he is an active member of the Founders Alliance organisation.

Working with consulting engagements across Bearings practices, he has over the past fifteen years participated in and supervised a large number of client projects, from innovation system development and place development and branding, to merger and acquisition assignments and leading edge research and business development activities for key clients.

His new book, Branding for Hooligans, will be published in 2015. It is about how innovation and branding are key survival factors in our modern times of hyper competitive markets.

Prior to Bearing, he was Director of Europe, Middle East, and Africa for Trema Treasury Management, a technology and consulting services provider, supplying financial software solutions for the global financial industry, Clients included The European Central Bank, Citibank, SEB, South African reserve Bank, Deutsche Bank, Abu Dhabi Investment Authority (ADIA), as well as many other large financial institutions and Fortune 500 companies.

Early in his career Eriksson was educated at the Stockholm School of Economics, where he studied economics, financial economics and philosophy. He then worked in Scandinavian investment banks and also for the Swedish Institute of National Defense Research.

You can contact Jörgen on e-mail jorgen.eriksson@bearing-consulting.com, connect on LinkedIn on http://fr.linkedin.com/pub/jörgen-eriksson/0/38/8a0/ and follow him on twitter on joreri508.

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