There's a weird narrative about Elon Musk and Tesla floating around the mainstream business press. It goes something like this:
- Tesla is failing due Model 3 production delays.
- The Model 3 will not be profitable when shipped in volume.
- The problem is Musk, who is a visionary not a manager.
Consider: in the space of two short weeks, Musk has announced he's making changes, immediately fired hundreds--perhaps thousands--of subcontractors, announced he's flattening management, and has pushed out two highly-visible executives.
As the mainstream sees it, an experienced, mature CEO would never make such drastic and dramatic changes so quickly. A great CEO would roll out a long-term plan, brief investors, and execute that plan slowly, while measuring all the way.
Because Musk isn't following the traditional playbook, says the mainstream, Musk is an impractical visionary who should probably be replaced by a more seasoned executive. Musk is, in short, a lousy CEO.
And that's 100 percent true and 100 percent great, because "seasoned" CEOs have an abysmal record when it comes to making changes inside large companies. Here's how seasoned executives have executed corporate change for the past 50 years:
- The CEO, board of directors, and executive council discuss among themselves what needs to be done to make the company more effective.
- An extended political battle ensues as each executive fights to either save current turf or take over somebody else's turf.
- The employees inevitably get wind of these discussions in the form of rumors which distract employees from productive work.
- Top management vehemently denies that the rumors are true, thereby confirming (to anybody with a lick of sense) that the rumors are indeed true.
- The most talented line employees immediately rewrite their resumes and immediately find jobs elsewhere.
- Top management finally announces the restructuring/reorganization/layoffs thereby proving they were lying about the rumors being untrue.
- Middle management replicates the discussion that took place within top management to decide who goes and who stays (with attendant turf implications).
- Having already been damaged by rumors, lying, and the departure of the best people, morale plummets and productive work grinds to a halt.
- The CEO announces perks and bonuses for key personnel (i.e. the top managers) to keep them in place. Morale drops further.
- The CEO simultaneously offers a buy-out package for voluntary layoffs, immediately causing the departure of the few talented employees left.
- The company takes months or even years to grind through a series of layoffs and restructures.
- The company, demoralized, bankrupt and bereft of talent, is killed and eaten by private equity vultures.
I have seen this debacle play itself out dozens of times, an experience which has led me to believe that large companies CEOs are the most overpaid people on the face of the earth.
Large company CEOs--and mainstream press and analysts who lionize them--are also quite stupid because the root of these all-too-common debacles is the belief that it's possible and even desirable to change a large organization gradually.
In fact, gradual change is boneheaded because major corporate changes are like major surgery. The longer the patient is on the table, the more likely the patient will die the death of a thousand cuts.
And that's exactly what Musk is NOT doing.
As an innovator, Musk starts with a complex, expensive prototype and uses the experience of that process to rapidly create a simpler, less expensive product.
As a manager, Musk is doing the same thing.
He created a Tesla organization that's complex and expensive to run. Now he's using the experience of that process to rapidly create a simpler, less expensive company.
By avoiding the dumb, time-consuming mistakes that a "good" CEO might make, Musk's lousy CEO skills will probably change Tesla fast enough to reduce the company's SG&A to the point where the company will make a net profit on each Model 3.