ALL-IN · EXTRACTED

All-In ft. Elon Musk — Building Companies & Surviving Bankruptcy

8 tactics for building companies and not dying, from a guy who kept two of them alive on the edge of bankruptcy.

"We were on the ragged edge of bankruptcy so many times it was ridiculous." — Elon Musk
Elon Musk, on the episode

You expect Twitter-deal drama and rocket talk. The reusable part sits underneath: how he prices a deal, when he raises money, and what he does when the supply chain or the market refuses to move at his pace.

Tactic 01

Treat Stated Metrics As Warranties

The whole Twitter standoff came down to the bot count. His point was simple. He made the offer relying on the company's public filings, and if those filings are off by an order of magnitude, the deal is not the deal anymore. As he put it, "you can't pay the same price for something that is much worse than they claimed." His analogy was buying a house sold as having under 5% termites that turns out to be 90% termites.

The play

Treat a seller's headline numbers as warranties. If diligence shows they are off by an order of magnitude, the price moves or you walk.

Tactic 02

Own The Seat That Decides Survival

Early Tesla, he wanted to work on technology and product and let someone else run the company. He calls that "fundamentally a moral error," because the CEO seat is the one that determines whether the company lives. He ended up having to take it anyway.

The play

If it is your vision and your company, take the CEO seat. Outsourcing the role that decides survival is the mistake.

Tactic 03

Raise When You Can, Not When You Need To

At PayPal they raised $100 million in March 2000, a month before the market went into free fall and even good companies could not raise. At Tesla in 2008 the rescue round closed at 6pm on Christmas Eve, and payroll would have bounced two days later. The window slams shut fast.

The play

Raise money while it is easy and available, not when you are out of options. The terms you can get this month may not exist next month.

Tactic 04

Don't Run Close To The Edge On Capital

Both companies nearly died in 2008. In his words, if they had simply paid suppliers on time they would have gone bankrupt immediately. The lesson he draws is to keep reserves for irrational times and "not running things too close to the edge from a capital standpoint."

The play

Hold enough cash to survive a downturn, and get to positive cash flow as fast as you can.

Tactic 05

Vertically Integrate Where The Supply Chain Is Your Bottleneck

Tesla makes its own battery packs, power electronics, and drive units. Not for ideology. He says "the pace that we needed to move was just much faster than the supply chain could move." Integration was about speed, not principle.

The play

Make the part yourself only where the existing supply chain caps your speed. Everywhere else, buy.

Tactic 06

Go To First Principles When Told It's Never Been Done

He wanted to cast the entire front and rear of the car as single pieces. He got the idea from how toys are made. Of six major casting-machine suppliers, five said no and one said maybe, and he took the maybe as a yes. The result took the body from roughly 120 joined pieces to one, and the new body shop is about 60% smaller.

The play

When told something is impossible, reduce it to physics and find the one supplier willing to try.

Tactic 07

Invite Your Harshest Competent Critic

The engineer Sandy Munroe tore apart the Model 3 body design in public. Painful, but as Elon says, "he was correct." Tesla redesigned around the criticism.

The play

Hand your work to the most credible critic you can find, and fix what they get right.

Tactic 08

Recruit Like You're Building A Team To Win The League

On talent he is blunt: if you want to win the league, "you want the best players on your team," and adding a few aces from anywhere is how you win. He applies the same logic to recruiting globally.

The play

Treat hiring like recruiting star players. A few aces decide whether you win.

Your action plan

the plays, one checklist.

01
Treat Stated Metrics As Warranties
Treat a seller's metrics as warranties and reprice if diligence breaks them.
02
Own The Seat That Decides Survival
Take the CEO seat on your own vision.
03
Raise When You Can, Not When You Need To
Raise money while it is easy, not when you are desperate.
04
Don't Run Close To The Edge On Capital
Keep reserves and chase positive cash flow.
05
Vertically Integrate Where The Supply Chain Is Your Bottleneck
Integrate only where the supply chain is your speed limit.
06
Go To First Principles When Told It's Never Been Done
Reduce the impossible to physics and find one willing supplier.
07
Invite Your Harshest Competent Critic
Hand your work to your harshest competent critic and fix what is right.
08
Recruit Like You're Building A Team To Win The League
Recruit aces like a team trying to win the league.