Bold (18 page)

So why not try to reverse the degradation? Sure, space was the domain of big governments, but banking had been the domain of legacy financial institutions. So in 2002, Musk founded SpaceX, which first developed the Falcon 1 launcher, then the much more powerful Falcon 9 rocket, and the reusable Dragon capsule.
⁶
In May 2012, the SpaceX Dragon vehicle docked with the ISS, making history as the first commercial company to launch and dock a vehicle with the International Space Station.
⁷
While that greenhouse still hasn't made it to Mars, Musk recently announced that within the next fifteen years he believes he'll be able to send humans on a red planet round-trip mission for about $500,000 per person.
⁸

And this is one of the first things one learns from Musk's example—he is relentless in his pursuit of the bold and, the bigger point, totally unfazed by scale. When he couldn't get a job, he started a company. When Internet commerce stalled, he reinvented banking. When he couldn't find decent launch services for his Martian greenhouse, he went into the rocket business. And as a kicker, because he never lost interest in the problem of energy, he started both an electric car and a solar energy company. It is also worth pointing out that Tesla is the first successful car company started in America in five decades and that SolarCity has become one of the nation's largest residential solar providers.
⁹
All told, in slightly less than a dozen years, Musk's appetite for bold has created an empire worth about $30 billion.
¹⁰

So what's his secret? Musk has a few, but none are more important to him than passion and purpose. “I didn't go into the rocket business, the car business, or the solar business thinking this is a great opportunity. I just thought, in order to make a difference, something needed to be done. I wanted to have an impact. I wanted to create something substantially better than what came before.”

Musk, like every entrepreneur in this chapter, is driven by passion and purpose. Why? Passion and purpose scale—always have, always will. Every movement, every revolution, is proof of this fact. Plus, doing anything big and bold is difficult, and at two in the morning for the fifth night in a row, when you need to keep going, you're only
going to fuel yourself from deep within. You're not going to push ahead when it's someone else's mission. It needs to be yours.

But having passion and purpose is merely the first step. “The usual life cycle of starting a company begins with a lot of optimism and enthusiasm,” says Musk. “This lasts for about six months, and then reality sets in. That's when you learn a lot of your assumptions were false, and that the finish line is much farther away than you thought. It's during this period that most companies die rather than scale up.”

This is also where Musk urges direct and blunt feedback from close friends. “It's not going to be easy, but it's really important to solicit negative feedback from friends. In particular, feedback that helps you recognize as fast as possible what you're doing wrong and adjust course. That's usually what people don't do. They don't adjust course fast enough and adapt to the reality of the situation.”

To adapt to the reality of scale, meanwhile, Musk employs a number of other strategies. We'll start with first principles, which is a lesson he borrowed from physics. “Physics training is a good framework for reasoning,” explains Musk. “It forces you to boil things down to their most fundamental truths and then connect those truths in a way that lets you understand reality. This gives you a way to attack the counterintuitive, a way of figuring out things that aren't obvious. When you're trying to create a new product or service, I think it's critical to use this framework for reasoning. It takes a lot of mental energy, but it's still the right way to do it.”

In describing how this all plays out, in a 2012 interview with Kevin Rose's
Foundation
,
¹¹
Musk talked about how first principles gave him a huge edge when developing new batteries, a key component for both Tesla and SolarCity. “So, first principles . . . What are the material constituents of the batteries? What is the spot market value of the material constituents? It has carbon, nickel, aluminum, and some polymers for separation, and a steel can. [But] if we bought that on a London metal exchange, what would each of these things cost? Oh geez . . . It's $80 per kilowatt-hour. Clearly, you need to think of clever ways to take those materials and combine them into the shape of a battery cell, but
[by relying on first principles] you can have batteries that are much cheaper than anyone realizes.”

It should be pointed out that first principle thinking works so well because it gives us a proven strategy for editing out complexity, while also allowing entrepreneurs to sidestep the tide of popular opinion. “[People] will do things because others are doing them,” Musk explains, “because there is a trend, because they see everyone moving in one direction and decide that's the best direction to go. Sometimes this is correct, but sometimes this will take you right off a cliff. Thinking in first principles protects you from these errors.”

When it comes to scale, these aren't the only errors one must guard against. Daniel Kahneman and Amos Tversky won the Nobel Prize for their work on human irrationality. One great example of this is what happens when two of the most common cognitive biases—loss aversion and narrow framing—begin to overlap. Loss aversion is the idea that humans are more sensitive to losses—even small losses—than gains, while narrow framing is our tendency to treat every risk we encounter as an isolated incident. In combination, what this means is when we go to assess risk, we tend not to look at the entire picture. In an interview with
Big Think
, Kahneman explained it like this:
¹²

People tend to frame things very narrowly. They take a narrow view of decision making. They look at the problem at hand and they deal with it as if it were the only problem. Very frequently, it's a better idea to look at problems as they will recur throughout your life and then you look at the policy that you're to adopt for a class of problems—difficult to do; would be a better thing. People frame things narrowly in the sense, for example, that they will save and borrow at the same time instead of somehow treating their whole portfolio of assets as one thing. If people were able to take a broader view, they would, in general, make better decisions.

Musk, like all the billionaires in this section, fights back. He consistently strives to broaden his view by thinking in probabilities.
“Outcomes are usually not deterministic,” he says, “they're probabilistic. But we don't think that way. The popular definition of insanity—doing the same thing over and over and expecting a different result—that's only true in a highly deterministic situation. If you have a probabilistic situation, which most situations are, then if you do the same thing twice, it can be quite reasonable to expect a different result.”

This difference is key. Thinking in probabilities—this business has a 60 percent chance of success—rather than deterministically—if I do A and B, then C will definitely happen—doesn't just guard against oversimplification; it further protects against the brain's inherent laziness. The brain is an energy hog (it's 2 percent of our mass yet uses 25 percent of our energy), so it's always trying to conserve. As it's way more energy efficient to think in black and white, we often do. But outcomes exist across a range. “The future is not certain,” continues Musk. “It's really a set of branching probability streams.”

How Musk chooses which streams to explore depends on the relationship between those probabilities and the importance of his objective. “Even if the probability for success is fairly low, if the objective is really important, it's still worth doing. Conversely, if the objective is less important, then the probability needs to be much greater. How I decide which projects to take on depends on probability multiplied by the importance of the objective.”

SpaceX and Tesla are great examples. When Musk started both companies, he thought their probability of success was less than 50 percent—probably a fair bit less than 50 percent—“but,” he says, “I also thought these were things that needed to get done. So even if the money was lost, it was still worth trying.”

Passion, probabilities, and first principles aren't just watchwords for Musk. He also backs up his words with deeds: “Between 2007 and 2009, I was in a world of hurt. Everything was going wrong. In 2008, we had the third sequential failure of the Falcon 1 rocket, Tesla couldn't raise financing because of the financial market meltdown, and Morgan Stanley couldn't honor the deal they had with SolarCity, since they were running out of money as well. There was a time when
it looked like all three companies could fail. Then, on top of all of that, I was going through a divorce. That sucked. I spent my last dollar saving Tesla in 2008, and I actually went negative. I had to borrow money to pay rent.”

Things turned around for Musk in late 2008. The fourth launch of Falcon 1 worked, the financial markets rebounded, SpaceX won a $1.6 billion NASA contract. And is there a lesson here as well? “The lesson I would pass on to others,” he says, “the one rule I would have for entrepreneurs is, Don't leave any dollars in reserve, you can always feed yourself, but don't leave money on the table. I spent it all.”

And to what result?

As TED founder Chris Anderson recently wrote in
Fortune
magazine:
¹³
“When you look at the incredible range of [Musk's] endeavors and search for recent comparisons in the business world, only one emerges: Steve Jobs. Most business innovations involve only incremental improvement. And of those entrepreneurs lucky enough to succeed with bigger ideas, the large majority then stick to their industry sector for expansion and consolidation. Jobs and Musk are in a category all their own: serial disrupters.”

Just about everything Sir Richard Branson does is bold—that's his brand—so of course I wanted to interview him for this book.
¹⁴
That interview took place on a sunny September morning in 2013. We had a late breakfast at the Sunset Marquis, one of those hip Los Angeles hotels filled with celebrity sightings, then headed to the Van Nuys Airport, where I took Richard on his first zero-g flight—only one of the many adventures this global icon has racked up.

Those adventures have been captured in several biographies and countless interviews, but a few basics are worth recounting. Born on July 18, 1950, in Surrey, England, Branson struggled with dyslexia, nearly failed out of school, then dropped out at sixteen to start a
youth-culture magazine called
Student
. Run by students, for students, the publication was designed, as Richard says, “to give a voice to people like me who wanted to protest against the Vietnam War and the establishment.”

A rebel from the get-go and completely undaunted by scale, Branson expanded the magazine nationally and then went looking for his next opportunity. It didn't take him long to find it. As he was living in a London commune, surrounded by the British music scene, he couldn't help but notice that record stores were seriously overpriced. So he started a mail-order record company called Virgin.

The company performed modestly, but gave him enough capital to build a record shop and a recording studio. Expansion came next. Virgin signed a bevy of big acts—the Sex Pistols, Culture Club, the Rolling Stones (just to name a few)—and went on an epic ten-year run that ended with Virgin Music being one of the biggest record companies in the world. At which point, of course, Branson saw his next opportunity.

Running a music company required a considerable amount of flying, and Branson had long been frustrated by the terrible quality of the airlines. “Why, I kept wondering, couldn't we create an airline that when you walk on you feel, ‘Wow, this is great.' ”

Much to the dismay of his Virgin Music colleagues, that frustration launched Virgin Atlantic. “When we started,” he says, “we had one used 747 and one very successful record company. Everybody at the record company was horrified by what I was doing.”

And what he was doing was not easy. Branson's battle with British Airways has become the stuff of legend. At one point, in order to save his airline and avoid bankruptcy, he was forced to sell off his majority stake in Virgin Music, netting him the $800 million he needed to keep himself and his airline afloat.
¹⁵

Despite such obstacles, Richard would build on his music business and his airline business, going on to start, invest in, and create over five hundred different companies. He founded a global empire, diversifying into everything from mobile telecommunications to trains
to undersea exploration, wine distribution, fitness centers, health care clinics and, in Virgin Galactic, commercial space flight. According to the
Forbes
2012 list of billionaires, Branson's personal worth is roughly $4.6 billion.
¹⁶
All in all, not bad for the guy who brought us
Tubular Bells.

And if you're wondering how Branson got from
Student
to
Tubular Bells
to commercial space flight? “We're an unusual company,” he says. “We're a ‘way-of-life' brand—but if we weren't a way-of-life brand, we wouldn't be here today. Our first business was music stores. Music stores are dead today. But because we're about a way of life, we experimented and moved into airlines, mobile phones, and a lot of other areas. As a result, we were forced to sell our music stores—and we're alive today because of it. But if you look back at the headlines, almost every time we moved from one sector into another, the press would always say: ‘Is this one step too far? Will Branson's balloon burst this time?' ”