Jon McNeill, former President of Tesla and co-founder of DVx Ventures, explains how Elon Musk's companies build around speed of decisions, cash and response. He describes skipping the chain of command, fixing a factory problem with a jig built overnight, and why bad news should travel fast.
McNeill also covers the five-step Algorithm he uses to simplify problems, how Tesla grew without a marketing budget, and the five-point test DVx uses to choose startup ideas. Listeners hear his views on decision-making, capital allocation, product meetings and hiring, presented as his own perspective.
In this episode Shane Parrish, Jon McNeill
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Elon said to me, "Hey, look, there's something in this job you ought to know about." It's something you probably haven't faced before: the marketing budget here is precisely 0, and you need to double the company every 6 to 8 months with no marketing budget.
What was your first meeting with Elon like?
First meeting was, uh, in person was at SpaceX, so it was for this, like, tech nerd. It was pretty awesome to walk into a rocket factory, get the tour, and then sit down with him. And he's got this big, huge titanium desk—or did at the time—and we sat and talked, and then walked around the factory for hours and just dove deep right away into a problem he was facing in manufacturing.
What do you think he was assessing you on?
He wanted to get a sense of, like, how I process problems. Because when I asked him what success looked like, he said, "Oh, what success looks like is if you and I have the same inputs, we come up with the same answer." I thought that's pretty interesting. And I started to tease him about that. I said, "Because you're always right?" And he said, he said, "Okay, fine. But I want to know just how you think through stuff." And so the best way for him to figure that out was, "Let's go walk a real problem."
And what was the problem that you—do you remember?
They were having a hard time manufacturing the Model X Falcon Wing doors, and they'd been working on this problem for weeks and not making any progress. And so we walked up and down the Model X line for the better part of 2 hours.
Trying to figure out what was—
Yeah, me just asking him questions. Like, "Okay, what—where does misalign—where does the chassis get built? How do you know it's aligned when it comes out? Where do the doors get hung on the chassis?" And we saw something right away that he hadn't seen, which was the people that were bolting the doors onto the chassis, the Falcon Wing doors, had to do it blind. They were reaching around the underside, and they had to, like, they had to drill these bolts in upside down, and they couldn't see them.
I was like, "Man, the chances of those things going in straight are pretty slow—pretty slim. Have you ever thought about a jig so that they could just follow a pattern?" And he was like, "No, I haven't thought about that. Let's try that." So they literally built the jig overnight.
Is that the thing with Elon that separates him from other people? It's like, a lot of people would be like, "Oh, we'll do that next week. We'll—"
Yeah. No, it's like instant. Like, the timing is as fast as you can. Because he believes that speed of all types—speed of decision-making, speed of cash through the business, speed of response time—creates competitive advantage. Because your cost—your competitors are probably moving slower.
How do you do that without burning people out?
It's not every sec—every minute, every day you're on to something that requires immediate response. Like, a lot of times you're trying to figure stuff out. Like, "How would we do this? How would we break down this problem? How would we grow this fast?" Whatever. And then once you figure it out, you're going to hit the speed button for sure. But, but it's not like you're constantly running at that rate.
Did you know at that point you wanted to work at Tesla?
It took some convincing. Because I hadn't—I hadn't worked for somebody else for a long time. I'd had 6 companies of my own. So, number 1, I just wasn't sure I was ready to work for somebody else, and I wasn't sure that I was going to be helpful because the company was so big already and had such big growth goals. So it really took some convincing on his part, and really my part, to figure out if that was—if that was the right next step for me. My first concern, which sort of proved out in our first few weeks of interaction, was that I would overstep my bounds.
Because I just wasn't used to having to check in with somebody. And it turned out that I did. In my first 2 weeks, I overstepped—overstepped my bounds, and it turned out not to be a fatal footfall. It was okay.
What happened?
I was trying to figure out if I could be helpful. And so I asked him, like, "What's your biggest problem right now?" And he said, "Demand." And so I said, "Well, how many cars have you promised the street for this quarter?" And the number was something like 12,000. And we were a month and a half into the quarter at this point. And I said, "Well, how far in are you?" And he said, "We've only sold 3,000." And I was like, "Oh, that's a big problem." I said, "Okay, let me—why don't I work on that problem for, like, a week, and I'll come back?"
And then I went out on a blitzkrieg. I went to 8 different stores, took a test drive—because I had heard that the test drive was the big thing in buying a Tesla. Like, you hit the accelerator, it's like a rocket ship, you never forget it, and you buy the car. So I went to 8 stores, did test drives, used 8 different email addresses so they wouldn't know who I was. And funny thing happened, I didn't get a call back. And after, like, a week, I hadn't been called back. So I called the head of sales ops and said, "Am I blacklisted in the system for some reason?
Like, why would nobody call me back after a test drive?" Because that is supposed to be when you're asking me for the sale. And he looked in the system and he said, "You're not blacklisted at all. You used a bunch of different email addresses, so we couldn't even track you, basically." I said, "Well, can you look up for me how many people have done a test drive in the last 30 days who haven't been called back?" And he's like, "Yeah, give me an hour." So he called me back and said, like, "10,000?" And I'm like, "Oh my God." Like, you can make your number for the quarter.
You just have to call people back and ask for the order. Why aren't people doing that? And he said, "Well, people are incented to do test drives, but we have no incent—we have no commissions here, so they're not incented to make the sale." And I said, "Yeah, the hardest thing in sales is asking for the sale. So you're not incenting people to do that. I understand the behavior. So why don't we do this: can you shut off anybody's new test drive leads until they call all their prior test drives back for the last 30 days?" He's like, "I can't." I said, "Okay, how long will it take?"
He's like, "Worldwide? Like, I can do it, like, right now. It'll take several hours to proliferate around the world, but I can do it right now." He called me the next day and he's like, "You wouldn't believe it, the orders are coming in left and right." It's—and I said, "Yeah, because you've just—your people are asking for the sale. This is how this works." And then I went, "Oh gosh, I don't work for Elon yet, and I just made a decision in his company." Like, I shut off all new leads. So I called Elon up and I said, "Hey, look, I'm really sorry. I haven't worked for anybody for a long time, and I was afraid of this, and I just stepped across the line."
And I told him what I did. I said, "Your problem in sales is that people aren't asking for the order." And so what I did was I shut off all new leads until they asked for the order. And it turns out the sales are coming in. I think you're going to make your quarter. I got to apologize to you, though. I don't work for you yet. This isn't my company. It's yours. I should have checked in." And I didn't. Just out of habit, I didn't check in. And I'm sorry. And there was this long silence on the other end of the phone. And then he finally came on and he said, "That was a great decision.
You're going to fit in here just fine."
So he didn't mind you overstepping at all?
Not in that case at all. Because it was speed of decision, which I got to know was what he was after. He wasn't after a hierarchy or checking in. He was after, as long as you're following first principles, just go as fast as you can.
Do you remember what was going through your mind during that pause?
Yeah, I thought—first of all, I didn't even know if he was on the phone still. Because it was—it seemed like forever. It was probably less than a minute. And literally, I was asked—ready to ask him, "Are you still there?" when he—when he jumped in. I got to know that that's how he processes. He kind of shuts down all other sensory stuff going on and just thinks. That's what he was doing, but I didn't know that on the other end of the phone.
That would kind of freak you out.
It freaked me out a little bit too. Yeah.
How did you go about building a winning culture there?
I think all culture comes from founders, and the culture was—was built. And the culture was a first principles culture. It was a culture of rapid communication, so you didn't have to—most organizations, you go up the hierarchy with your question or your suggestion, and it comes back down, and it looks like an EKG, the communication pattern in a company. Elon was like, "Let's make it look like a dead patient. Go straight across the organization. If you need an answer, go to the person that has that answer. Don't go through their boss or their boss's boss. Go directly to them, because that's going to help with speed of decision-making."
So that kind of culture was already set. What the business needed was a bunch of scaffolding. So I went about building a team and then building an approach so that we could have a mechanism to essentially double the company every 6 to 8 months. Like, super rapid growth. And in so doing, we kind of built a culture—we built on the culture that Tesla already had. But we—we really wanted to create a meritocracy where people that were contributing got big new assignments. And we called them battlefield promotions. Like, if you were—if you were performing on the battlefield, we could literally grab you and say, "Hey, look, how would you like to run this worldwide?"
And people would say, "I don't know how to do that." And we'd say, "Well, nobody's ever done it before. So good. Welcome to the club." And we'd give them huge responsibilities, big remits, big assignments, and more often than not, they would come through and become fantastic leaders.
What an incredible way to do that.
Yeah. Yeah, it was super fun. And it still is, because I still work with a number of those people today.
What did you learn about communicating with Elon that was different?
It has to be concise. And—and so we had this kind of fun—we had fun with our communication in the sense that we gave each other a challenge. I don't know who came up with it. And I think it was just his idea. He said, "Do you think we could—we could try to run the organization on 3 sentence emails?" First sentence is, "Here's my problem." Second sentence is, "Here's what I think the solution is."
Third sentence is, "Here's my next step, and if I need resources or permission, ask in that sentence." And so we—we started to experiment with this. And it was really the key to communicating with him, because he likes that sort of concise, get-to-the-point, "What's the—have you super thought about the problem? Have you really thought about the solution?" And he thought about the next steps. And that was kind of key to communicating with him. The second key that he said all the time was, "Don't sit on bad news. Give me bad news as fast as you know about it."
And he said this to everybody. Because bad news only gets worse with time. So, like, "Give me bad news fast." And the way that you could get on his—on his bad side was saving bad news. And I watched that over time. And so those were the 2 keys to communication. Like, be concise and be rapid with bad news.
How did you guys handle disagreements?
We talked through them. Sheryl Sandberg introduced us. And so both of us quiz Sheryl on, "How do you and Mark manage your relationship?" And she said, "Okay, we meet once a week, religiously, for at least an hour. We open with, 'Here's—here are things you've done that have pissed me off, frustrated me, disappointed me, whatever.' So you clear all the—you clear that stuff first.
And then you get to, 'Oh, let's talk about the business strategy, whatever.'" So we sort of followed that. And he's not shy. Like, if he's upset about something, it's like right away. The phone's lighting up. Like, "What the hell is going on?" And I learned to be not shy too. And it helped. Because I was a conflict avoider before Tesla, and I'm definitely not a conflict avoider now.
Wait, go deeper on that.
I was more of a pleaser. Loved to have teams that were productive and happy, but—but I would wait, wait, wait on confrontation, especially if I was upset about something. And—and he didn't. And at the time, that was A-okay. Because actually, it's kind of the way a lot of organizations work outside of business. It's the way, you know, if you miss a note in an orchestra, the conductor is letting you know right away. If you miss a play on the field, your coach is letting you know right away. And I started to appreciate that that was a very effective and helpful way to keep a team learning rapidly.
And you're talking about mistakes as much as you're talking about victories.
A lot of people who—who don't avoid the conflict don't necessarily say that in the most receptive way to other people.
Right. Right, exactly.
What have you learned about sort of communicating those messages to people, as somebody who used to avoid it but now is trying to be more direct?
I had a mentor who said, "If you're going to—" this is kind of a coarse way of saying it, but he said, "If you're going to slap somebody, they need a kiss too." And so I just learned to say, "Hey, look, I love working with you. I think you're super capable, but you—you just failed in this moment, or you're failing to solve this problem, or you're failing to lead your team. And I want to help you with that, but we have to address this." It is super harsh, I think, to your point, when you just leave it as, "Hey, you're failing, and I'm so disappointed in you, and you may not have your job."
That's leaving somebody flapping. I'd rather say, "Hey, look, I respect you, and I want to work—I want to work you out of this, but you got to—we got to get out of this, whatever this tough—tough spot is."
And would—would you be specific with that person?
Oh, 100%. Yeah. Because clarity really matters, I think, both on the positive side and on the negative side. If you're giving somebody feedback, you got to be super clear about, "Here's what I'm pleased about. You did this super well. I watched you." Or, "You did this super not well. I watched you. How would you do this differently?" Or, "Let me give you some input on how I think you probably should do it differently."
We talked earlier about sort of how the salespeople at Tesla weren't following up because they had no incentive to follow up.
Yeah.
I'm curious what you've learned about getting incentives right that you didn't know 5 years ago or 10 years ago.
I think I learned a lot from reading Charlie Munger. And Charlie's—this wisdom from Charlie that if you want to know how a system works, follow the incentives. And—and in that case, there was a real incentive that was lacking. And once you put that incentive in place—now, the incentive doesn't have to be monetary. It can also be cultural. And so Elon felt really strongly in that situation that we not have commissions. Because he wanted stores to be as opposite of car dealers as possible.
And you know when you go into a car dealership, everybody's on commission, and you feel that as the customer. He did not want that feeling. So then I—the challenge was, "Okay, we as a team, I as a leader, have to figure out how are we going to get that behavior without a monetary reward?" And we stumbled across this thing. We put a leaderboard up on every store. And the leaderboard was number of sales that month. And we drew a line almost arbitrarily in the middle of that chart.
And people would do a lot to get above that line.
Even though nobody explained what the line was for.
Exactly. It was just a—well, it was called, you know, the performance threshold or something like that. But there was no money involved. There was no commission. It was just, "Oh, I get it. The currency here is I need to not only give test drives, I need to sell cars. So that means I need to ask for the order. If I ask for the order, I move up that list. I'm above the line. I'm in the safety zone," whatever that meant. And so it doesn't always need to be monetary, but you need to understand the incentives for sure. In that case, we created a non-monetary incentive.
How did Elon think about risk?
He thought—and I agree with this—he thought that the highest skill in business is allocating capital. Because as a capital allocator, you have to assess risk, assess it correctly so you're making a bet that ends up building your capital over time. And—and so I started to think about that like poker, oddly. In every hand of poker, you can sort of run the math and understand whether you've got a bigger chance at upside or downside in that hand.
And that then tells you how to bet. So I started to look for asymmetry on the upside or asymmetry on the downside. If there's asymmetry on the downside, we're not making that bet, unless we can address the downside and get rid of it. And if there's asymmetry on the upside, of course we're making that bet. And that helped give people a framework, a construct, that they could then easily process decisions. Because they knew my first question was going to be, "Explain to me, is there asymmetry to the upside or downside here? And show me where it is. And if it's asymmetry to the upside, let's go.
And let's allocate capital, and let's—let's run." But if we're unsure, then we have to ask the questions, like, "How would we create asymmetry to the upside so we could write this check, take this risk, et cetera?" And when Elon and I were getting to know each other, one of my hesitations was, I said, "I'm not a big company guy. I haven't had that experience. Why don't you hire a big company person to come in and run this company?" And he said, "Because they don't know how to assess risk. Entrepreneurs do. It's a skill you build over time as an entrepreneur. And I want a fellow entrepreneur because chances are we're going to assess risk really in a similar way, and then we're going to allocate capital in a really similar way."
It's interesting you talk about that, because, I mean, millions of people, including myself, put their hands in Elon every day when we turn on autopilot.
Right, exactly.
In our car.
Yeah.
And the updates come fast. And I'm like, I can imagine a more corpo-type CEO being like, "Man, we can only release 2 a year." Like, kind of like the Apple cadence, you know, of.
Totally.
"We have to test this and test it and, like, make sure that every version and every iteration, every possible combination." Whereas he's more like, "Nah, we tested it. It's good. Let's go."
Yeah, well, that gets run through a gazillion simulations before it gets released into the real world. So they can literally say, "Hey, Shane, you stopped autopilot just with some pressure on the steering wheel because you were uncomfortable. So we're going to take those images from your car, and we're going to try to figure out why you disengaged. And we're going to run that through a simulator over and over again. And we're going to try to put then a corrective action in place, train the system on that corrective action.
And as long as that corrective action is running through the simulation perfectly every time, yeah, we're going to put that in the next build and release it tomorrow."
But when you think about products that get released that instantly affect tens of millions.
Tens of thousands of people.
Of lives, right?
Right. Exactly.
Yeah.
Yeah. And his whole—that's just his speed mentality. Like, "Get it out. Start the learning loop. Start the feedback loop. Make sure the corrective action has worked. And keep tweaking, tweaking, tweaking. And if you wait 6 months to do a release or you're—you're going to stop the feedback loop. So why would you give up 6 months of learning to be sure when you're 99% certain today and you can get 6 months of learning? Like, we're just going to get so much better, so much faster," is the idea.
A lot of people wait for perfection. I guess that's sort of like the core of what we're talking about.
Yeah, exactly. And that idea is, don't wait for perfect. Like, definitely don't make bets that are stupid. Like, if you have a 10% certainty that that update's going to work, don't release it, of course, because it's going to—could potentially brick the cars and it's going to kill your reputation. So don't do things that are foolish. But if you're, like, 99% comfortable this is working, and in that case, like, in simulation, release it. Start the feedback loop. Make sure that it's getting in the hands of people.
And don't wait. And that rapidity of release is a—is a purposeful discipline within this—within the software and autonomy teams there. Like, probably like you, I get 2 or 3 updates a week with different stuff that they're adding, fixing, et cetera. Makes you feel great as a customer because you're like, "These people are so responsive." And when you read the release notes, you see, "Wow, like, a lot of this stuff is useful." And stuff that I'd have wanted to happen on this car. So it makes you feel great as a consumer that a product that is typically depreciating while you own it, because it's static, is actually getting better while you own it.
And that is very different than the way car makers think about their product.
I had never heard it phrased that way before. That makes a lot of sense.
Yeah, like, our whole deal was, like, could we add features that would appreciate the car versus depreciate the car? And every once in a while, we found things that would. Like, you could get more range out of the car, more speed out of the car, less wear and tear out of the car. Like, all kinds of stuff that you could—you could put into a release over time that would cause it to appreciate, not depreciate, which is completely counter to the way the industry thinks.
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I think the first step would be begin with the end, which is, what is the outcome that you want? Decision-making gets flubbed up because people aren't clear on what problem they're trying to solve or what they're trying to solve for. So I found that you have to be super clear on, "Okay, here—here's the end state that we want to achieve. Does everybody agree with that? Okay. If that's the case, now we can back up on this decision." So on the way in here, we were—I was talking with one of my partners. We were talking about an offer we've gotten for one of our companies.
And we said, "Okay, what does success look like here?" Well, it's a—it's a return hurdle. It's evaluation. And it's an outcome for this business. And we said, "Okay, with that in mind, now we can have super clear decisions because this offer doesn't meet a return hurdle, and this company's probably not the right place for this business to land. So super easy. Let's not waste our time." And that clarity helps with speed and, I think, quality of decision.
So first step is you design and define what success looks like. Then you work back from there and say, "Hey, step 2 is what would need to be true for that outcome? What would need to be created? What would need to be different about our product, our process, whatever?" And then third step is, what's the investment that it's going to take to make those things true? And when you quantify the investment, which is kind of hard sometimes—sometimes you're taking a swag, sometimes you can be more precise—but then you can answer the fourth question, which is, what's the impact on us doing this?
Like, if we achieve this end goal, and let's say we develop a new product, and that product is going to have $100 million in revenue, but it costs us $200 million to build the product, now we really have to be thoughtful about, are we going to get the return on this? Does it have the impact versus the effort? And so the last step of the decision process is literally creating that 2-by-2. What is the impact versus the effort of doing this? And then how does that stack up against the other stuff we have on our plate? Because we may have super high-impact, super low-effort stuff that we had to just do.
And we don't have endless amounts of calories to burn, so we now have to choose where we're going to allocate our capital and time. And that last effort versus impact chart, for me, helps me figure out where we allocate—where we allocate our capital and our time.
How do you think about opportunity cost?
Opportunity cost is within that last step because you can't do everything. So—so you've got to choose, "Okay, which if we have a finite set of time or a finite set of capital, like, we have to allocate with a finite mentality so some things aren't going to make the list." And that's opportunity cost. And—and so in Elon's world, he was like, "Well, let's raise more capital so that we don't have that constraint," because he's a prolific capital raiser. So he can unconstrain that chart in a really interesting way as a leader because he's providing more capital to allow you to do more.
And so that reality distortion field is kind of fun. And if as a leader, if you can increase the capital into the business, then you can actually hire more people and increase the time that you have to allocate too, so you can get more stuff done. But there's always an opportunity cost because there's never infinite resources. So you've got to figure out the stuff you're not going to do. And Sheryl Sandberg taught me that your no list ought to be a lot bigger than your yes list. And you ought to be decisive about what goes on that no list so there's no lack of clarity when you get down to that impact versus effort and which things you're saying yes to.
You've got to be really clear about the things you're saying no to. And that no list is your opportunity cost.
I'm curious about—we talked about making decisions fast in the workplace. What about making fast decisions in life?
I think broadly, a lot of people have a need to have perfect information so that they can feel good about a decision. And what I've found is you're rarely going to have perfect information, and a lot of your suppositions at the start are going to be wrong. So you might as well just get started. Don't wait for perfect information. Just get started. And you'll kind of figure it out as you go. That is uncomfortable for people—for some people—who definitely want to have more certainty before they start.
But I've found if you just get started, you're going to find—you're going to find the parameters that will lead you to more comfort around the final decision that you'll make.
Action creates information.
Action creates more information. Information creates more certainty. And you don't have—by definition, you don't have information at the start. So you have imperfect information. And that—there's a reason why you're feeling uncertain.
I was thinking about this the other day because if I wait and you don't, by the time I get started, you've already learned things that I couldn't even learn in advance of doing it.
Exactly. That's that feedback loop speed. And so, like, you start to learn, and you're building an advantage as long as you're moving, as long as you got started. But to your point, if you don't get started, now you're way behind on the learning curve. And a lot of learning curves accelerate. So you definitely want to get started so that you start to build the experience of even making mistakes ahead of your competition because they're going to make those mistakes too. If you make them and learn, you're going to be several steps ahead in the race and hard to catch.
How does your process differ from Elon's when it came to decision-making?
The way I describe his decision-making is he's very rational. And I would try to be rational too in my decision-making. But he's unconstrained. He's very unique in that he's unconstrained by—by constraints, really. And so I remember sitting with him in 2017, 2018, and they'd had a string, a long string of really unsuccessful launches.
SpaceX rockets were blowing up in the air. And unlike typical people who would have done a bunch of reflection on that and may have gotten bummed out and thought about the company can be out of cash before we are actually successful, he was totally focused on, "Here are the two things that have to be true for that not to happen again so that we can get a successful launch." And he's just very unique on to shut off the negative and focus on what has to be true and achieve that.
He's one of the most unique people I've ever met who's like—who has that ability to shut off failure, essentially.
And it just doesn't impact him at all.
No, he's really—like, Isaacson talks about this in his book. He's uniquely wired given all the challenges he's gone through. And yeah, I don't think he's—he's impacted by that at all. Typically, he has a very different way of looking at the world and doesn't care.
How did Elon run product meetings?
He started with—and I think this is something any CEO can learn from—he turned to me first because my primary responsibility was the marketplace, the market. And he would turn to me and say in front of the rest of the team—his engineers, manufacturing, et cetera—he'd say, "What does the market want?" And that's where the meeting started. So I think a first principle that a lot of CEOs can use or leaders can use is, if you're going to talk about product, talk first about what the customer wants because that grounds the—that grounds the whole discussion.
So an example of that, a dry example of that, is we released the Model X. It's selling okay but not great. And so in the weekly product session, Elon turns to me on a Monday and says, "What does the market want?" I said, "Like, I've heard this all around the world. Moms want a bench seat. We've put these two captain's chairs in the second row. They want a bench seat. They've got three car seats to line up, and we don't have a bench seat." So he immediately goes to the whiteboard and starts to draw how we would attach a bench seat to the existing Tesla chassis.
It turns out that is not an easy problem because it wasn't designed for that. And there aren't attachment points that are obvious. And sure enough, the head of engineering's right up next to him, and they're—and they're drawing. And they're starting to—they're starting to work through the engineering. And then the supply chain leader is looking at that, saying, "Given the direction they're going, I need to start to light up the supply chain to see if we could get these kinds of parts underway." And it's happening, like, in real time. But that's the way the product meetings worked. It was, "What does the customer want?
How do we solve this? And let's go right into solution mode. Let's not debate the obvious. Let's go right into solution mode." And you've got the leaders of the company who are at whiteboards designing solutions. And the junior engineers that are in the room are watching this, and they're saying, "Oh, the currency in this place is getting stuff done. So if I want to be successful here and look like that person, I need to act like that person. And so I need to get stuff done." So the whole speed mentality is kind of built into the DNA of the way the place runs all the way down to the product meetings.
I would have thought from the outside, looking in naively, obviously, that there's, like, presentations and, like.
Like, presentations are a no-no. Actually, like, slides are kind of a no-no. They have their place in, like, if you're doing financial analysis and stuff like that. But if you're doing product, we wanted to be hands-on. And so you couldn't present, like, slides of your software designs. You had to, like, show the software. We wanted to have it in front of us, and we wanted to be playing with it so we could give real feedback, which you can't do on slides because slides tend to mask the problems. You can't really see them. You can't—certainly can't interact with it.
So presentations were a big no-no. A lot of stuff was just hands-on.
I talked to somebody at GM in prep for this, and they mentioned that you had an impact on the product meetings there. But getting rid of slides, is that.
I hope so. Like, I—I don't know if I did, but—but it's—what I've found is it's super helpful not to be talking about the theoretical with slides, but to be talking about the actual product. And one of the last product walkthroughs that we did, it was in a lab with the new software-defined vehicle. And we could literally touch—we could see the wiring, see the connectors, see the software. And that, for me, that's great comfort. Like, that's how I was used to doing product presentations, where we could literally interact with the engineers who were designing each step of the system, and we could literally see it.
You could see how the wiring harness was going to work, weave its way through the car. You could see if the connector pods made sense, if you could see where the zones made sense because you could literally see it and touch it. It wasn't on an image on a slide. It was in a sim somewhere that may or may not reflect reality.
Do the leaders dog feed their own products at these companies? Like, does Mary take home the top new model and drive it herself and, like, go through all the challenges that customers go through?
It's a principle that is super important. And we used to—we used to drive a Tesla off the line every night so people wouldn't know which car we were going to grab. Couldn't dress it up. Like, literally, we'd come and say, "Okay, that one that's fifth from being finished, I'm going to stand here until it comes off the line, and I'm taking that one." Oftentimes, you'll see, like, people—people will know, "Okay, somebody's coming down, some executive's coming down. They're going to pick a car. Let's go pull a car. Let's polish the heck out of this thing, make sure there are no warts, no issues, no bugs, and we're going to give them the perfect product."
We said, "We don't want the perfect product. We want the product that customer's going to receive off the line. So I'm going to come down, I'm going to pick a car at random, and I'm going to immediately take that car, and I'm going to drive it home. And I'm going to take notes. And then I'm going to drive it back to the factory the next morning," typically super early in my case because the shift started at 6:00. "I'm going to then write down my return drive notes. And so by the time an engineer hits their desk at 8:00 a.m., in their inbox are notes from a number of executives saying, 'Here's my experience with this product.
Here's what was awesome. Here's what I couldn't stand. Can you please fix this?'" And it's daily. It's a daily feedback loop where we are saying, "Hey, we're consumers too. We want the product to get better." So those weekly or biweekly software releases you get, a lot of that's coming from eating dog food. And we would not only eat our dog food. Elon said, "I'll take the Twitter feedback, the X feedback." I said, "Great. I'll take the Reddit and the forums." And so I was—both of us were interacting on a daily basis.
Like, I would carve time out in between meetings. I'd be reading, like, Reddit feedback on us, and I'd be able to walk into a meeting and say, "Guys, Reddit is lighting up because something is goofed up with our last software release. Can we just—can we get on this?" And we would often joke around, "I don't think our competition's executives are this in tune." And it was helpful for us because we owned our own stores. We weren't selling through dealerships. We owned our own service centers. So we saw the data about what was getting fixed on a car immediately. And we had these feedback loops that would help us be responsive to the marketplace.
And that was the whole idea. Again, this whole theme of speed, speed, speed. And speed comes from feedback loops. And one of those feedback loops is using your own product.
How important is that front-line data? Like, when a customer goes into a car and they have feedback or comments on it, does that get collected along with repairs and damages and faulty parts?
100%. 100%. And all that's getting analyzed and then served up and saying, "Okay, here's the stuff we got to work on." And we knew that because we were users of the product. So oftentimes, we'd know it too.
How else do you figure out what customers want? Like, you mentioned that being a key to how the product meeting started. There's a lot of people who—I mean, you—Jobs didn't ask what people wanted in a phone.
No, he had design instincts. And I think there's this balance between being instinctual and also being informed. And so to be informed, like, a lot of us as leaders have different ways of doing that. My way of doing that is going out into the stores. I learned this from Sam Walton, actually. I read his autobiography. And one of the things that really struck me was how much time he spent in his stores asking his people, like, "What product is moving?
What product isn't moving? What do we need? What do we need to get rid of? What does the competition have?" And then he'd go shop the competition. And so my method was to go one day a week to the front line somewhere in the world. So I'd go to a store, I'd go to a service center, I'd go to a competitive dealership. And I'd just ask customers, like, "What do you like about this product? What don't you like about this product? What would cause you to finally come across the line and buy this product from us?"
And that was a form of input then that helped me round out the data that we were getting from, you know, pretty standard sources with standard ways of analyzing that data. It helped bring color to it. And I could say, like, "Yeah, I've talked to, like, 20 moms who want this bench seat, and I've seen the fire and the energy in their eyes. And if we deliver this, they're going to buy it. I can tell you." Like, so that's part being informed and part instinct. Like, I'm seeing the energy behind this personally. I think—I think this is going to go.
And then you have immediate data to course-correct if it's.
Exactly, if it's not. Yeah.
What are the key tenets of a great product when you think about a great product like a Tesla or other products? What do you think they have in common?
I think they're simple in their design, which gives them a chance at being elegant. And so if you think about, like, when the iPhone came out, it was such a step forward in design. We all had flip phones with keyboards and.
Or the BlackBerry.
Yeah, yeah. And all of a sudden, this beautiful thing came out because a designer, Steve Jobs, said it should have no buttons and it should be beautiful in the palm of your hand. That's a very simple construct from which Johnny Ive and the team created beauty. And I would say that it works similarly at Tesla in the sense that Elon kind of constructs in his mind, "Here's the simplicity of what I want this vehicle to do."
Then he goes to his version of Johnny Ives, which is Franz, the head of design. And Franz can bring that to life in a very beautiful way. And so you have this pretty simple car, the Model Y, that is the number-one-selling car in the world. It outsells Camrys. It outsells RAV4s. And it's utterly simple in its design. Its interior has no bells and whistles, really. It doesn't even have a dash that you look at. It's got one screen that sits in between the passenger and the driver.
But that kind of simple beauty allows you to execute, I think, a great product. And the definition of a great product in Steve Jobs' mind, and Elon's adopted this too, is that you don't need a salesforce. It sells itself. And we found that when we went to hire salespeople for our stores, if we hired people out of Apple stores, they really didn't know how to sell because they knew how to take an order. People were clamoring for those devices, and they didn't have to sell them at all. The people that you wanted in the stores were people that were at the Microsoft stores because they had to sell a Surface tablet next to an iPad.
And if they could sell a Surface tablet, they probably knew how to sell. And I think great product does, at the end, sell itself. Like, it flies off the shelves because there's pull out of the market versus push.
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There's a story about Elon and Steve Jobs meeting.
Yeah.
Do you remember that one?
I do. Because Elon tells that they met several times, and Steve kind of blew him off a ton. And then one night, Elon had him cornered, I think, at a sushi place in Menlo Park, and said, "Basically, just give me your design philosophy." And Steve said, "That's easy. If the product is perfect, it will sell itself. So you have to work on perfect product." And that stuck with Elon. And a few months ago, I got to sit down just for breakfast with Steve Jobs' head of his chief of staff at that point.
And he described for me, like, how product design worked. Because I said, "James, I want to know, like, how did you really design product?" He said, "We started with utter simplicity and requirements, but they had to be right." And I said, "So give me an example of that." He said, "Okay, get in the Wayback Machine. MP3 players were coming out. People could have portable music on a disk drive for the first time in their hands. And we wanted to come out with a product." And so Steve and I got in a room, and this is the way product design happened. We spent a week in the room.
We didn't come out until we were absolutely certain we had nailed the primary two or three requirements for the product. And I said, "Okay, what were they for the iPod?" He said, "We came out and said two things had to be true." And we announced this to the engineering teams that were working on it. Number one, it had to hold 1,000 songs. Nothing could do that at that time. And you had to find the song you wanted in four seconds or less. And those are the two things that had to be true about the product. And lastly, it had to be beautiful.
And so the engineers heard these two requirements and were like, "First of all, we don't know how to do that. There's no disk drive the size of your thumb that's going to hold 1,000 songs. And there's no OS that gets you to a search on a device that big with no chip, essentially, that gets you a search algorithm that will work that fast." And so they had to invent both of them. So they ended up inventing a new form of solid-state drive that was as big as your thumb that could hold 1,000 songs. And they ended up inventing a chip that had the clock speed to index those songs and search.
And then the UX team invented—do you remember the wheel where you could search with the wheel? Like, and so you would immediately get to the first three letters of the song, and boom, the odds of you finding that song within four seconds skyrocketed. James described to me, as they were working through the engineering on the product, the engineers would come and say, "Hey, look, Samsung has an FM radio on their MP3 player. Should we have an FM radio?" And Steve would look up with a little bit of anger and say, "Is that 1,000 songs or four seconds?"
"No." "Okay, then it doesn't go in the product. These are the two things that go in the product. Solve these two things, we have a winning product." Because it's what the customer wants, and we can describe it to the marketplace super simply. And so I think those are the principles that Elon pulled from—a lot of Silicon Valley has pulled from Jobs, but Elon definitely pulled those from Jobs. And it goes right into the design ethos at Tesla.
I want to come back to marketing for a second. Tesla doesn't do any paid advertising that I noticed anyway.
I think they do now, but they didn't while I was there. And it was one of the challenges in the job. Elon said to me, "Hey, look, there's something this job you got to know about. It's something you probably haven't faced before." I said, "Okay, what is it?" And he said, "The marketing budget here is precisely zero. And you need to double the company every six to eight months with no marketing budget." I'm like, "You're right. I haven't seen that before. How do you do that?" And he's like, "I'll show you." And he was great at—he still is today. He's great at capturing headlines. And those headlines get preserved. They're searchable.
And then they're repurposable on social. And that today is still the marketing model at Tesla.
Have you learned anything from that that you take away now?
Oh, 100%. Like, I'm very suspect of large marketing budgets now because I've seen one of the world's largest companies get built with almost no marketing budget.
How do you go about marketing that way without being Elon Musk then? Like, what are the other things that Tesla was doing that.
Like, Elon wasn't Elon back in 2014, 2015 when we started doing this. He didn't have 100 million followers on X. And we had to build up his audience, which we did purposely. So we built it up first through space because there's a lot of space fanboys on X, on Twitter at the time, built up his fanbase. And then we started to build more car content in. And he was super involved in this. He would coach us on, like, "This is the only kind of stuff I'm going to release because I got to watch my brand and be aware of my brand and Tesla's brand here.
So we got to be really careful."
Wait, he would coach you on that?
Oh, 100%. Like, he's got a very good brand.
I see some random tweets.
I know. Well, like, if you think about, though, with Tesla back in that time, if you go back and look at those tweets, it was only product marketing. If we came up with a new product feature, all-wheel drive, boom, that was getting released. If we came out with a new car feature, ludicrous, boom, that was getting released. And we were being very thoughtful and almost with scarcity having him blast these things out. And we would use the press around this.
And then we would repurpose all the press we got. And that was enough to create a buzz around the globe that this stuff, this car was really different, this company was really different. And all we needed to do was have you come check out the product online or in-store. That's then when we could pull you through the funnel.
I think you scaled Tesla about 10X while you were there in terms of sales. I'm curious what goes into the physical infrastructure with that velocity of scaling.
My experience was in software, and it was much easier to plug in servers while you were growing. But to 10X a car company, you've got to do the obvious things that you would know. You've got to build factories. You've got to build supply chain. You've got to build delivery. You've got to build distribution, sales. And all that stuff is physical things that have to be built. So sometimes we would creatively reinvent those things. So rather than, like, building service centers, we discovered that 80% of what you could repair in a service center on a car could be done in a customer's driveway.
So we invented mobile service so that we didn't have to build service centers anymore or as many. And so the creativity of the team helped us bend some of these assumptions. But yeah, we had to build physical stuff. There's no getting around building a factory. If you're going to make cars, you got to make a factory to make the cars.
But I used to think that would be sort of like the critical path. But Elon has shown that you can build factories in times that we would not think even possible.
Partly because the factories are utterly simplified compared to competition. So like, if you take a car factory, it's almost a mile long, and it's a long rectangle. And if you sat on the 50-yard line in the middle of the factory and you looked right, you see a sea of robots welding the skeleton of the car called a chassis. And if you look left, you see a sea of humans hanging parts on that skeleton. That's called general assembly. And so Elon gave the challenge to the management team, "We have to cut 50% of that out.
And we have to do this because we got to be competitive with the Chinese. They're ultra cost advantaged right now, etc." So Doug Field, who was the head of engineering, came up with this method to replace half of the factory. And that was rather than welding the skeleton of the car, he invented, literally and his teams, invented a way to cast that. So to pour liquid aluminum into a mold that was impossible to produce before they did this, they would take 1,600-degree aluminum and mold it and allow it to cool into the form of the chassis of the skeleton of the car.
So the reason that Tesla can build these factories so rapidly is because Doug and his team figured out how to eliminate half the factory. So now, yeah, you can build these things a lot faster because now I don't have to have hundreds of robots get synced up, deliver this perfectly welded 300-piece skeleton. Now I've got two parts that come together, and I don't need that half of the factory anymore. So that means you can build factories faster. So we were just the whole team was figuring out how do you optimize and invent to make this a reality where we could 10X a company in 30 months.
And it just required incredible creativity on the part of the people that were making that happen and inventing these new ways of doing things. So Doug invents castings. We don't need half the factory footprint. Crem Busta and his team invent mobile service. We don't need that footprint. And we just were able to unleash growth through being really creative about changing the model.
Is it true the casting problem was fixed, like, with a Hot Wheels car?
Well, that was Doug's original the way he communicated what was possible. He's like, "I have the answer." And he rolled a Hot Wheels car across the table. And he's like, "Here's the answer. Here's how we're going to get rid of half the cost and half the factory." And we're like, "That's a matchbox car." Like, of course, you can mold something as big as your thumb, but the physics of molding something the size of half of a car, the pressures that it takes to hold that aluminum in place, and the mold materials that it takes so that that thing doesn't explode were impossible at the time.
Nobody had figured out how to do it before they figured out how to do it because it was literally the physics were impossible. People didn't know how to do it. So you could say that was physically impossible and be accurate, but they figured it out. And it's created an eight-year competitive advantage for Tesla because just now, car manufacturers are getting into casting. And that is the whole kind of characterization of speed. Like, when you invent at that speed, you're creating these multiple-year, maybe decade-long advantages versus your competition by going after these hard technical problems.
I think you were in the car when Neuralink started.
Yeah, when that seed or kind of germ of an idea started, for sure.
What happened?
Elon and I were traveling together to China. We just landed in Hong Kong. We're in the back of a Model S, and we're both, like, catching up on our inbox on our phones. And he looks at me, looks over at me, and says, "How fast can you type with your thumbs?" And I said, "I have no idea. I've never timed it." He's like, "Well, the average human's like 18 words a minute." He said, "How fast can you type on a keyboard?" I said, "Like, I think it's like 60 or 70 words a minute when I was in high school. I'm probably as good as I was then, maybe better.
So let's call it 60." He said, "Exactly." So you are more than three times faster on the keyboard than you are on your phone. So this device has slowed the input into the machine. And I said, "Yeah, it has by 3X." And he's like, "Yeah, that's a big deal because you can't get speed of answers and decision-making if you're going three times slower." I said, "Yeah, you're right." He's like, "What if you could think into the machine?" And I was like, "Well, that would blow this constraint away because now we don't have keyboards and thumbs to go through.
Now you're, like, thinking in real time into the machine." He's like, "Exactly. That would pull the front-end constraint off of the compute for humans. That's a big deal." So he didn't sit on these ideas. He's very unique in this way. And he said to his chief of staff, Sam Taylor, who was in the front seat, he said, "Sam, can you track down the top neurocomputer science interface researchers in the world?
Get their papers. I want to read the papers while we're here in China and on the flight back. And I want to meet with these people next week because I want to start to work on brain-computer interface." And just like that fast. So by the next week, he's meeting with some of the top minds in the world on this topic, and he doesn't let go until he starts Neuralink.
I mean, multiple insights there. I love the speed to actually taking action. And now we have chat with, like, AI where you're sort of, like, voice mode, which is much faster than typing.
Yeah, like, one of the hottest companies is WhisperFlow right now, where you just talk to your computer and you kind of give up the keyboard and you can code and you can design. And yeah, it's amazing.
Your book is called The Algorithm. What is The Algorithm?
It's a formula that we use or really a framework, I would say, that we used to create these breakthroughs and to create innovations. And it was a framework that we developed by doing postmortems and on a series of big mistakes that we'd made and asking ourselves, "How do we not make this mistake again?" And we came up with, over time, this five-step algorithm that would help us not repeat mistakes. And the counterfactual was it would drive innovation.
So it turned out to be a really powerful framework that's in use today. Like, in the SpaceX IPO, in the first few slides, there's a slide called The Algorithm where they say, "Hey, like, if you're going to invest in this company, you need to know how this company runs." And we run on this framework of The Algorithm, and it's what led to the advancements from Raptor 1 to Raptor 2 to Raptor 3, the engine. And very much Tesla's built that way too.
Can you maybe double-click on that and walk me through the five?
It's all a journey in simplification. And so you kind of get that with the five steps. For the first step of simplification, you want to remove all requirements that aren't real or dumb. And so you question every requirement. And so that means things like, if you have a 12-page loan doc, you question why you need every paragraph in that loan doc and why you can't get it down to one paragraph. So you eliminate as many requirements as you can is the first step. Now you've got a simpler set of requirements, and then you design a new process to deliver those.
And you delete as many steps in the process as you can. And the hack that I would use with my teams is I would say, "Map the process out," like, literally put sticky notes on a wall for each step of the process, and then go circle the ones the customers pay you for. And it turns out in almost any business process, a super minority of those the customers pay you for. They don't pay you for documents. They don't pay you for communications. They don't pay you for HR benefits, all kinds of stuff. They don't pay you for that. And so you got to figure out, "Okay, how would I deliver this in a way that is totally maximized around what the customer's paying for?"
That's step two. Step three is now you have a brand new process that has been very simplified. Now you need to start to run it and optimize it and polish it manually. And step four is you apply the great kind of revealer to that process, which is speed. When you speed up a process, it shows all of its warts. It shows where it breaks. It shows its failure points. It shows quality points. And so you've got it. Speed allows you to, like, see all the failure points, and you can then scrub those out of the process.
And then once you've got a process that's working at speed optimally, then you automate. And so the last step of The Algorithm is you automate last. And we had made mistakes like automating first. We'd made mistakes like just not questioning requirements and ended up in, like, multiple-month loops on problems that wouldn't go away. And so this whole framework allows you to not only solve problems but innovate because you're eliminating requirements that your competitors think exist, but they might not need to exist.
Outside of manufacturing, can you give me, like, a recent example of how you've used that to solve a problem?
Yeah. So like, I this is a crazy example. This in financial products. So I was being interviewed on CNBC about two years ago about supercycles, about how lucky we are to be alive right now. There's so many supercycles happening that make it a great time to be an investor. So if we were alive 100 years ago, we had got the Industrial Revolution. That's all we got. But we're alive today, and we get AI, electrification, robotics, space, biotech, all this stuff happening at the same time.
So it's a great time to be an investor. And the interview stops, and Joe Kernan and Andrew Ross Sorkin turn to me and say, "How do we invest?" And I said, "Well, I'm sure there are thematic ETFs on each of these supercycles. I'll tell you what. I'll look at a few. I'll text you back some ideas." So I get in the car to come across town from Times Square down to our office in the meatpacking, and I start to look at different exchange-traded funds, ETFs. So it turns out there are more ETFs than stocks traded. It's how people trade and invest these days.
And so I open up the largest electrification ETF. And the top five holdings are Amazon, Google, Microsoft, Nvidia, and Apple. And I looked at those. I'm like, "Those have nothing to do with electrification. There's none of that in the grid. There's none of that in an electric car. We can't put a $20,000 Nvidia chip in a car. We couldn't afford to sell the car." And that's like the Mag 7. So why would somebody pay for an electrification supercycle ETF and get the Mag 7 and not get exposed to the people who are actually building the grid?
Well, first of all, I called Andrew and Joe, said, "Don't invest in these products because they're terrible. But I have another idea." And so I started with the first step of The Algorithm, which is question requirements. And the whole ETF business is built up around the first ETF, which was Vanguard. We had the S&P 500 ETF, and they did the S&P 500 based on market cap weighting. So big companies get bigger weights in that index, and small companies get smaller weights. And since that time, almost all ETFs have been built on a market-cap-weighted basis.
My idea was, "That doesn't work for emerging industries because you might have one big company like Nvidia in the AI supercycle who's worth $4 trillion. You may have one little company that's providing all of the fiber to these AI data centers who gets no exposure in that ETF because of a market-cap-weighting approach." So I started to call everybody I knew in the ETF industry and that I could get introduced to and said, "Why do you build these ETFs with market-cap weights?
Isn't there another way?" And they all said, "No, no. This is the way it's done. It's been done this way since Vanguard. And so everybody does it this way. It's the only way you can do it." I'm like, "I don't really agree with that. I think, like, if I wanted to give investors exposure to profits, I'd take the build sheet of an AI data center. I'd figure out who provides the fiber, who provides the power electronics, who provides the networking software, who provides the high-bandwidth memory. And I would weight the ETF on their contribution to, like, the AI data center or their contribution to the grid or their contribution to the satellite.
And so just take the build sheet. In manufacturing terms, we call that the bill of material. So we started to build ETFs based on the bill of material. It turns out in an AI data center, there are 60 stocks that provide all the stuff that go into an AI data center, 30 international, 30 domestic. Turns out about the same number that provide the grid infrastructure, about a similar number provide the defense infrastructure, space, etc. So we built a series of ETFs that were the first not built on a market-cap-weighted basis but built on this bill-of-materials-weighted basis.
And it turns out it's pretty superior because you're exposing the investor to these profits. So we have the number-one-performing AI infrastructure ETF that is traded on the market. We have the number-one electrification. We've just released robotics and space. So that's a really recent non-manufacturing example of how you can start with questioning requirements and end up with a very different product idea and invent something that hasn't been invented before. It turns out it's pretty superior. So like, for investors, we've like, I feel great because somebody that invested a dollar a year ago is up 158% because this is a superior way of exposing profit pools to investors.
What goes through your mind when you're trying to simplify something?
I start with the first step of The Algorithm, which is, "Why does this appear the way it appears? What are the requirements or base assumptions that have gone into this product? Why couldn't it look different?" And I start to pull the string from there. I often don't start with a vision of what it could be. I start with, "How would I just take apart what currently exists?" And in that process, you start this is something I learned from my grandfather. He had this auto repair shop, and he would often say to me, "If you don't know how to fix something, you will probably know how to fix it if you take it apart."
So that's typically the way I approach a problem is I start to take it apart, like my grandpa taught me to do. And then once I'm now into it and see what the critical parts are, then you can start to say, "Does this really need to exist? Could this work differently?" And you just start to pull the string on what could work.
What percentage of the time do you think when you dive into requirements that maybe they once were needed, but they're not needed, but nobody even knows why they're there anymore?
You know what I mean? As you talk about this, like, we used to compare it to a garden. You plant a garden, and in business, like, nobody goes out to weed these gardens. And so weeds just grow. It's the garden being a process. And so weeds just grow up, and nobody's back there with the weed whacker whacking them out. And every once in a while, an executive will say, "Well, this is totally broken. Let's go back there with the weed whacker and whack it out." But that happens, like, once every five years, ten years. And so he wanted to, and he wanted to build a culture where we had the weed whacker out a lot.
Like, we were looking at current process and questioning why we're doing it. And so, like, he an example of that is he came to me one day and he said, "What CRM do we use?" And I said, "Salesforce." He said, "Well, it's a tax on growth. Every time we add a seat in this company, we pay a subscription. That's a tax on growth. Do we really need Salesforce?" And that was a typical, like, question, the kind of question I would get from him on a weekly basis where he's, like, looking at a garden that hadn't been weeded in a long time and saying, "I'm just going to take a weed whacker in there and start asking questions."
And like, "Do we really need this? Could we rebuild this ourselves? Could we approach this in a different way?" And that is definitely part of the uniqueness of the culture of Tesla and SpaceX, for sure.
How did you know it was time to leave Tesla?
My family. They had a bit of an intervention with me. To his credit, Elon gave Walter permission to write about his mental health struggles in Isaacson's book on Elon. And I was right in the thick of that. And I'm okay in terms of my skill set of handling technical problems and handling manufacturing problems and distribution problems and brand problems, but I'm super ill-equipped to help somebody with mental health issues.
Like, I just don't have the skill set. And so in trying to help him through that period, which is pretty rough, I was becoming more and more stressed out because I wasn't able to help my friend and wasn't effective, I felt like, at all. And my family, I didn't realize how that was manifesting itself. So my family sat me down over the Christmas holidays and said, "Hey, look, we don't we want to hold a mirror up to you. We don't like who you're becoming."
Oh, like, you're moody. You're.
I'm moody. I'm mean. I'm grumpy. And I thought I was, like, masking all that stuff. I was compartmentalizing it and containing it. Turned out I wasn't, and it was leaking out. And so that's when I knew it was time to go because I literally sat down with Elon a few weeks later and said, "Look, I can't help you with these problems. Like, you need somebody who can." And I can't. But, like, this it's having an impact on me, and it's time for me to now go. And it was a tough conversation to have.
But he really did need a catalyst to get help, and I needed to get myself out of an unhealthy, pretty unhealthy situation. Kind of the only situation I'd been like that in the work or professional in my professional life.
Was that hard for you? Did it feel like.
100%.
A failure for you?
It didn't feel like a failure. It felt like I was giving up something. I literally loved that company and loved that job. And that was the hardest part for me was I loved the people. I loved the job, but the situation was kind of killing me, and I couldn't that's what caused me to have to make the hard decision to leave, as hard as it was. It didn't feel like a failure. It felt like I was leaving something that really meant a lot to me. And it turned out it did because I loved being in that environment. I loved working with people who we would say were doing the best work of our lives together.
And luckily, a lot of those same teammates are I get to work with today. So those relationships continued, which was great. I didn't see that at the time, but I'm super glad that they have.
What is it about some people like Elon and Steve Jobs that allows everybody around them or a lot of people around them at least to say that they do the best work of their lives today?
I think it's the challenges that they get. Like, it's Doug Field, who I described earlier, used to have this mantra that history is changed by unreasonable men. And I would tease him because he worked for Jobs before he worked for Elon. I was like, "Man, you must be a glutton for punishment." He's like, "No, history is changed by unreasonable men. You want to work for these people that just have an unreasonable view of the world because they bring out the best in the people around them." And he's like, "I like working for people that bring out the best in me."
And both of these both of these guys have. And so I think that comes to, like, just the challenge that they give people. And so, like, if you're really great at your craft, I think you want to be coached by, led by somebody who is going to bring big challenges to you. So you end up saying, "Geez, I didn't know that I had that within me. I didn't know I could do that." And then you feel super, super good about the leader that you're following, and it's giving you those challenges.
I remember when the Isaacson book came out about Steve Jobs, everybody where I was working sort of read that and then started to be assholes, effectively.
Exactly.
Thinking that was the key to success.
Yeah.
Did you witness any of that?
Yeah. I think over time, as you mature as a leader, you realize you got to lead with your own authentic style, not somebody else's. And when you start mimicking somebody's style, like the people mimicking Jobs, it doesn't really work well because people see it's inauthentic, and it doesn't really work for who you are. And even though I was working for a big personality like Elon, I couldn't, like, mimic that. I had to I wasn't going to be authentic. People weren't going to follow me. I had to lean into who I was as a leader. And I think that's super important.
And when people start to fake that, it just doesn't go well. And to that point, like, I asked Walter one night we were at one of the stops on his book tour, and I got to interview him, which was awesome. And I said, "Do you have to be an asshole to be successful? Like, Jobs, you read this book, and it's pretty clear the guy was a big a-hole. You've written about a number of these people, Einstein and others, who are kind of a-holes." And he said, "No, you just have to like, you have to master your own style."
He said, "Do you think Satya Nadella is an asshole?" I said, "No, he's not." He said, "Do you think he's effective?" I said, "Yeah, I think he is." He's like, "Are you an asshole?" I said, "Hopefully not." He's like, "You're pretty effective at what you do." I said, "People tell me I am." And he said, "It's not that you have to be an asshole. It's that you have to be authentic to who you are."
You have an exercise that you do called Fire Yourself. What is that? Walk me through it.
It's actually not mine. I got to give credit where credit's due. This came from Calvin McDonald, who was the CEO of Lululemon at the time. And he asked himself he would go away in the first quarter of every year to really kind of prepare and gird himself up for the year to come. And one of the questions he would ask himself when he went away by himself is, "If I was hit by a bus tomorrow or if I was fired, what are the immediately obvious things that my successor would do?"
Like, they would come in and assess the situation and say, "Oh, this was obvious. Got to do this, this, and this, like, right away." And so he would list out those things. Like, "What would my successor do?" And then he would ask himself, like, "Why aren't you doing this?" And oftentimes, it was because other things seemed more important. He was fearful that it could be a big risk. It might not work, whatever.
He was fearful of making a change because he would be replacing people, maybe disappointing people, whatever. But he did this Fire Yourself exercise so he could come back within the first month of the year and say, "You know what? Here are three things we got to do because these are obvious. And if I was hit by a bus, there are three things that you guys would do without me. So, like, let's just get them done." And it was a real refresh for him and for his leadership team to kind of keep the ball moving downfield.
And I'm super healthy. So, yeah, I borrowed that from Calvin.
You're on the board at Lulu. You mentioned Lulu.
Yeah.
You guys just hired a new CEO.
Yeah.
Walk me through when what went into hiring that CEO. I would imagine that there's a difference having you on the board, an ops person versus financial people versus.
Yeah. And so we all bring a perspective. And Heidi O'Neill's the new CEO. We knew that we needed somebody who had an eye for product because product is core to every company, but it's certainly core to an apparel company, who had an eye for talent, who had an eye for scaling, and in the uniqueness of Lulu, had an experience with a vertically integrated organization.
What I mean by that is Lulu not only designs its product and manufactures its product, it sells its product in its own stores. Like, it doesn't sell through a wholesale relationship through Dick's Sporting Goods or Nordstrom or anybody else. So it's somebody that has come out of a world where you have stores which are deeply operational. Stores are almost a mini factory. How many people come in on a daily basis? What do they see? How do they interact with the product?
And do they buy? And there's a whole operational science to how you get a store to work really well. So we needed a leader that understood stores and understood the product machine behind the stores. And Heidi had both of those. So but as we sit down to select a leader, we put the parameters around, "Here's what would make the core skills of this leader to be successful." And then we're interviewing candidates each from our perspective. For me, as a sitting executive who scales, we've got, as you mentioned, finance people.
We've got tech people. We've got product and marketing people all around the board who are assessing the candidate from a bunch of different angles. But essentially, we're agreeing, "Hey, here are the four things that need to be true about this person and why we're hiring this person and why we're going to have faith that this person is the right person for the next chapter of this business."
What's your instant tell when you're interviewing somebody for sort of talent, world-class talent?
It is their detailed understanding of what they're describing.
Go deeper on that.
Because the thing you want to make sure that you're understanding is, did they do or do they do the work? If they have a deep understanding, they're going to be able to do that work here and lead that way here. But if they're claiming responsibility for somebody else's work, it becomes evident really quickly when you start to dive into, "Tell me how you did that. Tell me how you broke this problem down. Tell me what the solution was. Tell me what your role in that solution was." And that's the first clue that you're talking to somebody who is actually a practitioner versus maybe a paper pusher.
And I'm definitely looking for the practitioners.
You spent a lot of time at Tesla interviewing people. You were one of the final interviews for.
40% of my time was interviewing because in any business, especially in a high-growth business, talent wins. And so you got to be really devoted to talent selection. And this works, again, outside of business. It works in the arts. It works in sports. The best executives of teams are really great talent selectors, and they put great talent on the floor or on the pitch or the field at the same time. And that in a growth business, I feel like, is one of the primary responsibilities of the leader is talent selection, setting the bar, and then also attracting the talent that meets that bar to come into the org and make a difference.
So a lot of times when people do that and there's a final interview and somebody's gone through four or five interviews before then, it's kind of a rubber stamp or a culture check or I don't get that vibe with you. What was that interview like?
The final interview is they, to your point, they've been through multiple interviews to prove they're world-class. And so I probably if in some in a lot of cases, I want to do a double-click on that and understand that for myself. Like, why did the team believe this person is world-class? I want to understand that. So I spend the first half of the interview really diving deep into, "Are they world-class? Do they have this experience? Do they do the work? Do they have this detail orientation that's going to help them be an effective leader?"
Then if they check that box, then we flip to the second half of the interview, which is, "Okay, now I have to do cultural imprinting." And what I mean by that is, like, every entrepreneur struggles with, "Hey, as we grow, how do we preserve our culture?" And one of the hacks that I learned from Elon was that, oh, you do this final interview where you're cultural imprinting on everybody, and you're explaining to them, "Here's how the culture works. Here's the currency of success here. And here's the attributes of people who are successful.
And here's what we expect from you in this role." And that cultural imprinting is the reason for the last interview because your one chance as a leader to interact with this person who you may not see all that often after they're hired, depending on their position, but you at least want them to have the secret decoder ring to success and to describe, "Here's what success looks like here. So if you behave this way, if you deliver this way, you're going to be successful here, and we're going to see each other again for sure. And this is the behavior that I'm going to expect from you and that your whoever what team you're working on or that leader is going to expect from you."
That is the purpose of the final interview, is to do that cultural imprinting. And so when we were growing from 4,000 to 40,000 people, we were doing a lot of final interviews of managers and above doing that cultural imprinting.
If I started working for you tomorrow as one of your direct reports and I asked you, "How do we build trust?" What would be your answer to that?
We need to communicate with clarity. And so I would say, like, one of the currencies here is getting things done. And so our talk-do ratios are kind of inverted. But when we do talk, we're concise, we're clear, we're factual. If we have an agenda, we just put that out because it's super frustrating if somebody has an agenda and they're sort of cleverly trying to hide that agenda. I would just rather you be frank and clear. So that's the kind of discussion we would have.
I was having a discussion with a member of our team yesterday. They were kind of beating around the bush on an issue that really mattered to them. And I said, "Hey, just what's your ask? Just tell me what your ask is because then we can have a real discussion." But right now, I feel like we're kind of dancing around an issue that I really don't understand. Can you give me clarity? And so often I'll say to somebody, like, "If we're going to work together, the best gift you can give me is clarity. If I'm messing up, just be really clear about it. If you see an opportunity, be really clear about it. Just give clarity," which means, again, you got to stop, simplify to be concise, and be really super clear about what it is that you want out of that conversation.
Can you walk me through a time you failed at something that mattered a lot to you?
Oh, jeez. Yeah. Trying to, like, sort through the many examples I could give you. There was a startup. This was my second company. And I'd formed this company with people that I'd worked with in my prior job, including my boss. And the guy was he's a great guy. He's 10 years older than me, very strong personality. And I had written the business plan for this business. And I had a vision for growing this company organically.
And he had a vision for growing the company through M&A, and so growing it inorganically. And we started the company, and we didn't reconcile that difference in strategy and approach. And part of it was because I was just young. I was 26 at the time, 27. And I really hadn't learned how to communicate and resolve difficult issues.
And so I'd lay that on me. But we let that conflict just sort of grow unchecked for the first two, three years of the business. And luckily, we were each having success, me on the organic side, him on the M&A side, and the company was growing. So from the outside, it didn't look like a huge success, and it was a very successful outcome. But the people in the company were caught in between these two battling visions of the company, and they knew it all the time.
The tension was on all the time. And we never really reconciled that for them. When we sold the business, I remember, like, it was a great outcome for investors. And I remember talking to a few of the key people that were on the team, and they're like, "I'm just so relieved that this is over." And instead of celebrating, like, we were all having a win hitting the finish line together, people were like, "You guys were terrible as leaders because you never reconciled two very opposing views, and you just let that tension blossom within the org."
And the result was some people chose sides. Some people were battling all the time. You guys were battling. And I really regret that. Like, it was something that I'd never wanted to be a part of again. And, yeah, obviously, you don't get a redo on that company, but I've tried to, like, I've tried to break that pattern in companies because I felt like that was a real leadership failure on my part that I knew was there. I can't blame it on being inexperienced and young because I knew it was there.
And I probably could have better figured out the tools to reconcile that and confront it, but we didn't.
What are the top three business books that you give away to other people, and what's one lesson you take from each of them?
The top three books that I've recommended most consistently are a book called The Goal, which is by Eli Goldratt, who's an MIT professor. If you want to learn about operations principles, like leading operations, that book, like, totally changed my life. Second book is If You Want to Live a Life Worth Living. Steve Covey's old book, The Seven Habits of Highly Effective People, really impacted me.
And then the third book that I've read over the past couple of years is Unreasonable Hospitality by Will Gudera. I think it applies to every business. It almost applies to every life, every aspect of life. If you make the person across from you feel hospitality and dignity through that hospitality, it's powerful. Like, if you make customers feel that way, you're going to sell a lot of product. And so I hand people this book on running a restaurant, and people are like, "What I'm in business, why are you handing me this book?" I'm like, "You'll get it once you read it."
So those are the three that I probably that have affected me significantly that I pass along to others.
Can you double-click on the concept of vertical and horizontal mentors?
Yeah. I think when people ask me, like, "What's the great hack of a career?" the first thing that comes to mind for me is mentors because mentors are such an accelerator, unfair advantage. In my experience, there's two kinds of mentors. There's a vertical mentor, which means somebody has been down the path ahead of you. They're maybe a generation ahead of you. They're an older leader. They've seen the movie before. And so when you come to them and say, "Hey, I'm, like, dealing with this. Have you seen this?" they're like, "Oh, yeah.
I've seen that movie. Let me help coach you through this." Then there's horizontal mentors, which I found to be equally valuable. And those are peers that are going through the same stuff you are, the same challenges. It's best if they're in a similar situation. So I would build, over time, groups that were in similar businesses, similar size, similar growth rates so that we had a common set of problems. And with those mentors, it's different.
Like, none of us have seen the movie before. But when you look kind of at a side angle through to somebody else's business challenge, you often are teaching yourself. And so we would get together on a quarterly basis for a day and a half or two days, lay out the biggest problem we were facing, total Chatham House rules, nobody it's total confidentiality. And I found that those five or six people could totally help me work see a problem differently because they were looking at it through a side angle where I was looking at it head-on.
And so the combination of horizontal mentors like that and vertical mentors are super important. So you need to have both in your life constantly if you can. And it's a total hack.
What makes for a good vertical mentor?
I think the ones that come to mind so I've had three excellent vertical mentors. A guy named Scott Porter was my first boss. A guy named Fred Massoni, who ran one of the largest manufacturing businesses in the world. And Scott Cook, who was the founder of Intuit. All three of those individuals are unbelievable teachers. And Fred, the second one I mentioned, would tell me over and over again, like, "When you become a really good leader, one of the signs of that is you've become a very good teacher because you're multiplying your skill set, your insight, your method, whatever that is."
And Fred was a great teacher to me. And Scott is an unbelievable teacher to me. And I think that's the difference in that kind of mentoring is they're just super patient teachers.
Scott's into it, right?
Yeah.
What has he taught you?
I really want to constantly, I want to get better at product development. And so I came to a session with Scott. We would often either meet at his house or we'd do bike rides together. And one morning, I asked him on a bike ride, I said, "Can you explain how you run product development, product management to me?" He's like, "Yeah, I'll do that when we get to my house." So we eventually get to his house. And he describes this tool set to me that he uses. It's called Follow Me Home.
And there's two parts of the tool. But one that he uses is that he brings actual users of the product into a conference room where those users sit at the table. And on the walls of the conference room, external to the table, the management team sits, and they watch him do this exercise. So basically, he goes to the whiteboard and says, "What are the three things that you think we need to fix about this product?"
And so people, each one of them lists their three things. And then the second half of the whiteboard, he's like, "What are the three things that drive you crazy that you wish our product had, but it doesn't have today?" So three corrections, three builds. And then he says to them, they got this full list, and he says, "Okay, you get five votes. You can stack them all in one thing. You can spread them out, but go to the whiteboard and vote." And he said, "A miracle happens every time you do this exercise. Everybody votes for the same things.
It becomes ultra clear. You emerge with the three things you need to do because all the votes are on not on the 60 things, but on the three things." And he says, "The miracle is the management team is in there, and they get the emotion and energy of the customer who's frustrated or wants this or whatever. And the product roadmap becomes absolutely clear." And I was like, "Scott, that is brilliant." And I was transitioning from Tesla to Lyft at the time.
And so I remember sitting down with a key leader at Lyft, Woody Hartman, who has been the COO at Lime since then, and said, "Can you do this with drivers? Can we run one of these exercises? Can we get drivers in the room and figure out what needs to be true about our product?" And so I remember Woody and his team ran this exercise, the Scott's Follow Me Home exercise, with our driver team. And they came with these brilliant insights that led the product roadmap for Lyft for about a year.
And I remember Woody coming out of the session, he's like, "This was so simple. I can't believe it." And I was like, "Yeah, you just got to thank Scott Cook. Like, he taught me this literally in 20 minutes one morning, and it's ultra effective." So it's the example of, like, one of the things you can get from a vertical mentor, and I got that from Scott. And it's completely helped me be a much more effective product leader.
That's an incredible idea. Thanks for sharing that.
Totally. Yeah. Super simple.
Yeah.
Yeah.
You were at Lyft; you were the COO during an 18-month period. I'm curious what lessons you took away from that experience.
I think a lot. It was a really unique, special moment in time in that we had a competitor, Uber, who was 80% of the market share, and Lyft who was 20. And I had arrived right in time for a delete Uber. So the CEO of Uber had totally offended the customer base, and people were looking for an alternative. And so we were luckily positioned as a nice brand and the trusted brand.
And so we were able to double market share with some really good execution on the team. This wasn't obvious how to do it, but we figured out how to do it. We doubled market share and doubled revenue, and then we're able to take the company public. So I think the lessons from that Lyft era for me are product positioning super important, and especially product positioning counter to the other alternatives in the market in a positive way, super important.
Second lesson of rideshare specifically, but then can be applied more generally, is Lyft and Uber began early on to compete on price. And any business that competes on price ultimately is called a commodity. There's no difference between a copper pipe, really, from producer A, B, or C. They compete on price. And no brand positioning in the world is going to save you from that. And so once you're competing in a commodity market, now you have no basis from which to collect rents, and so your profit margins collapse.
Well, not only that, they both had stickers on cars. They basically told customers the products are interchangeable.
Exactly. And the apps are interchangeable. They told the drivers the apps are interchangeable. The markings on the car, you're right, with the stickers told the customer that it was interchangeable. And so all that mattered was price. And so one of my lessons from the rideshare industry is be very, very, very, very resistant to competing on price. When you start to compete on price and promotion, you're changing the whole nature of the product and the brand.
If you could go back and make one decision differently that you were there that would have massively altered the future.
I really tried to pound on the table to convince the founders, like, "We have to if we create a brand position here, the superior will be able to command superior economics." But by that time, they were multiple years already into the price competition mode. And getting them to see that wasn't just wasn't possible. But if I could, if I had magic dust, I'd change the dynamics of the competition in the market so that you could have a business that made money.
At that point, neither company was making money on a gross margin basis because they were underpricing the product to compete. That's just insanity.
What do you like as a board member?
Because I've grown up my entire career has been as CEO. I'm a very CEO-oriented board member where I want to be helpful and useful and be a sounding board to that CEO. And so I'd say to them, like, "If you need to call me into action, you can call me into action. Like, you want to meet with your engineering teams and be a part of the feedback loop on your product? I want to eat the dog food." Of course, I carry the fiduciary responsibility that a board member carries to the shareholder.
And that's my primary thought. Like, if I'm building into the CEO and being helpful, we're going to build enterprise value that's going to be reflected in the stock price. And so that's how I reconcile those two things together.
Not a lot of board members do mystery shopping. Why do you do that? What do you get out of that?
Because I get what's really happening.
What do you ask people when you go into a Lululemon?
See, I've now refined it down to one question. Like, if you had the keys to the place, you were the CEO for a day, and you could only do one thing, what would you do? And you don't get, like, 500 different answers when you ask that question. You typically get a pretty tight set of issues because people have to be thoughtful about it. They're the CEO. They can only do one thing. But it doesn't take them long to come up with, "Oh, I would do this. I would do this. I would do this." And that's the question I ask. And then I bring that back to the CEO.
I say, "Okay, look, I was in your stores the past couple of weeks. I asked the question. Here's what came back. This may or may not be valid, but hopefully, it's an input you can use."
At DVX, you've created a method for starting companies, like, almost like a framework for it. What is that? What does it look like?
This has been developed over time. We want five things to be true about an idea before we really start to take it seriously. Number one is there's a big addressable market. There's a big TAM. And we confirm that with a bunch of customer interviews. So it's not like we're pulling numbers out of studies or thin air. We're literally calling customers and saying, "If something like this existed, would you buy it, and what would you pay for it?" So that's thing one. There's an addressable market. Thing two is there's a gross margin that is north of 50% in the business.
We, as a team, have spent time in high-margin software businesses and low-margin businesses like rideshare and car manufacturing. And we love those businesses, but it's a hard way to make a living. So we'd much rather have software-type margins. So the second thing has to be true is software-type margins. Third thing that has to be true is the reason this opportunity exists is because there's a really hard technical problem that hasn't been solved. And if we solve it, it could create a moat.
So if that's true, then we're on to thing four, which is, what's the competitive dynamic in the space? And this is where we're a bit contrarian. We don't want to go where everybody else is going. So we don't want to be like the 26th legal AI platform competing it out with 26 that are already in there, that are already battling for the product positioning in the space. We'd much rather be the first entrant into supply chain optimization software or cybersecurity for small business, which turns out not many people in that industry.
And the last thing that has to be true is there are liquidity propensity in the space. There are some markets where people just there's no liquidity in the space. People don't want to own these companies. And so if all five of those things are true, that helps us filter ideas. And so then we've got a research team that proves those out, and then we will take that idea off the shelf. We become the first CEO. We develop the product. And the first test is, can you get somebody to pay you for this? And that's our measure of product-market fit.
So if we start to get contracted ARR heading towards a million dollars, we say, "Ooh, there might be something here." And there's good signal in that because you have no sales force. It's not like you've got no marketing dollars. You're putting a product out, and people are agreeing to pay for it. If we have that, then we go look for a team, and that's the next step. And we will look for a second or third-time entrepreneur who's had success in the domain. So they know the grittiness of taking a company from zero to its first 5 million in sales, which I think might be one of the hardest things in business.
And they've been through that. They know how hard it is. They've seen their way through, and they often bring not only market insight, but talent. Because the thing that we look for in those leaders is, do they have a following? Because good leaders tend to have a following. And then we'll bring a leader in, and they typically bend the curve of the company. And then we're off to the races. But that's the basic formula of who DVX is. We invent these companies. We've got a method, and we've launched 17 of these companies with these methods, and we're about ready to launch the next three.
How do you think about time management?
It really comes down to, like, this is what Steve Covey taught me in the seven habits. And it's really all about how you structure your day. And so I think about time management is around the things that are most important. So I kind of have blocks. And there are literally blocks in my calendar. If I pulled out my Google calendar, it would show, here's an exercise block, here's a family block, here's a work block, a few work blocks. And I manage my time around those work blocks.
Part of the method to the madness with those blocks is work blocks where I can totally concentrate. I shut down everything else, and I just work that one thing. And it tends to be higher quality because I'm not switching back and forth, and I've got a longer period of time, so I'm not time pressured to make progress. I've got two or three hours to really wrestle with something and get it off my plate. And I use just different techniques within that. Like one lean manufacturing technique rule is you touch it once.
So that means if I open an email, I'm answering that email. I've touched it. I don't want to touch it once. I don't want to put it back as unread and then touch it again later. So I try to be super efficient with my time with little hacks like that. Like, touch things once, process it, get it out, and then concentrate your time on the stuff that really matters.
What are some of the other lessons you learned from Elon that didn't make it into the book?
I think a lot of entrepreneurs have taken inspiration from him to work on big stuff that matters. And we used to joke about some of the best minds of our generation were focused on getting people to click on ads. And that made me want to do something bigger because I was like, "Yeah, that doesn't satisfy me. I want to do something bigger that's more helpful and useful." And so I think his tackling big challenges like space, like robotics, like artificial intelligence, etc., he just doesn't shy away from these big challenges.
He's very commercial in the sense that he finds a way to create wealth and to make real businesses out of these things. But he doesn't shy away from the big, big problems, which is I think why Larry Page said, "Hey, rather than giving all my wealth to a philanthropy, I want to give it to Elon because he's actually going to create jobs. He's going to create tens of thousands of jobs, if not hundreds of thousands of jobs." And that really has direct impact on people's lives.
And so I think that's one thing that I take away from him was the challenge to work on big stuff, stuff that matters.
But it's not only big ideas that are pulling you forward. It's like big challenges internally.
Big challenges. Exactly. So you look for the challenge. You look for where people have shied away because the challenge is big. And it's typically like at DVX, my firm, when we start looking at a business opportunity or company opportunity, because we invent these companies from scratch, we look for a big technical challenge that exists. And that's why the opportunity is still there because it hasn't been solved. And a lot of people have shied away from it. So we're crazy enough to say, "Ooh, that means we probably ought to look there." Because if we solve that problem, we've got the beginnings of a moat, a competitive moat that makes it very difficult to follow us.
And moats tend to make really valuable businesses. So let's start with, if there's a real challenge there, let's not shy away. Let's go dive into that challenge. Let's run towards it.
Has the source of your motivation changed over time?
Yeah. Yeah, it definitely has.
What was it before, and what is it now?
So when I started to build companies, I just came from a pretty poor economic background. And so I wanted to make money. And so initially, I thought, "I just want to build something that's very valuable." And then when the first company had its first outcome, I remember walking into the office, and the first person that greeted me was the receptionist, and she was in tears because she had stock.
And she said, "We just bought a house." Then I walked into the office, and another guy grabbed me and put me in a bear hug, and he's like, "You just paid for my kid's college education by this stock." And I'm like, "No, you did it because we all did this together." My motivation switched after that. I was like, "The reason we're building companies is to create jobs. And when you create jobs, there's all these externalities and second order effects that you don't see as a leader." But walking through that office that day was way more satisfying to me, indescribably more satisfying than looking at my bank balance.
And over time, that satisfaction has become the currency that fuels me. It's like, "Let's go create long-term companies that are creating great jobs for people that are impacting the world in a really positive way." Because I want to go back to these companies in 10 or 15 years, and they're still thriving. They're still employing people because that's what matters. It really mattered to be able to buy groceries in the family that I was growing up in. It really mattered to be able to buy a pair of shoes. And it's raw sense. That's what I really enjoy doing is creating jobs.
We always end these interviews with the exact same question, which is, what is success for you?
Success for me is kids that want to be around me. That's my key beacon of success. Wife that wants to be around me, life partner. And then I have time to create companies, which I really enjoy, and just do the things non-professionally that I really enjoy, which typically is just be outside. I love to just be in wilderness. And so if those boxes are checked, I feel successful.
Jon McNeill is the former President of Tesla and the co-founder and CEO of DVx Ventures.
Elon Musk believes speed creates a competitive advantage, whether it’s speed of decision, speed of cash, or speed of response. But what does that look like day to day, and how do you build a company around it?
Jon spent years inside Elon’s companies, and he explains how they work. We talk about what happens when you skip the chain of command, why bad news can’t wait, and why Elon wanted problems explained in three sentences.
We also get into the five-step algorithm Jon uses to simplify problems, why Elon treats a company like a garden full of weeds, and how Tesla grew with zero marketing budget.
Enjoy!
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Chapters:
(00:00) Introduction
(00:11) How to Impress Elon Musk
(03:48) What Happens When You Overstep Elon
(04:41) The Sales Problem that Kept Teslas on the Lot
(07:58) Building Tesla's Culture of Speed
(08:55) The Power of Battlefield Promotions
(09:32) Three-Sentence Emails and Fast Bad News
(10:59) Sheryl Sandberg's Weekly Clear-the-Air Meeting
(13:58) Motivating Sellers Without Commissions
(15:54) Elon's Approach to Risk and Capital Allocation
(17:44) Why Tesla Ships Autopilot Updates Weekly
(22:51) A Cheat Sheet for Better Decision-Making
(26:41) Don't Wait for Perfect Information
(28:28) Elon's Ability to Shut Off Failure
(29:55) How Elon Started Every Product Meeting
(38:36) The Framework Behind All Great Products
(42:30) Why Steve Jobs Blew Off Elon
(45:48) Building Tesla with Zero Marketing Budget
(52:00) How a Hot Wheels Car Solved an Engineering Problem
(53:19) Neuralink Origin Story
(55:49) The Algorithm: Simplify Before You Automate
(01:06:21) The Reason for Leaving Tesla
(01:11:54) The "Fire Yourself" Leadership Exercise
(01:15:47) How to Identify World Class Talent in Interviews
(01:23:49) The Top 3 Business Books
(01:28:01) Scott Cook's Customer Voting Exercise
(01:31:09) Lyft, Uber, and the Price Competition Trap
(01:36:00) DVx Venture’s Five-Point Test For Companies
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Follow Jon McNeill: https://x.com/jonmcneill
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