Elon Musk clearly loves danger. Not only did the SpaceX founder call founding a rocket company one of the "dumbest and hardest ways to make money," but he also, while at PayPal, offered a credit card to every single human who asked (it did not go well). And that's not even mentioning his recent decision to taunt the SEC on national TV.
Lori, this is ridiculous. Creating a rocket company has to be one of the dumbest and hardest ways to "make money". If it was about money, I'd just do another Internet company.-- Elon Musk (@elonmusk) March 21, 2018
Yet Musk also claims to "feel fear quite strongly," and his bets, however risky, have generally paid off. He may gamble big, but overall he wins. How does he manage this feat of recklessness paired with odds-beating outcomes? The answer, according to a fascinating Quartz article, is his approach to risk.
Start from the numbers, not the status quo
To get at Musk's thinking about risk, it helps to look at a concrete example, and in his Quartz article Michael J. Coren shares a doozy from Ashlee Vance's biography Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future. It tells the story of the moment the idea for SpaceX was born on a flight back from Moscow, where Musk and some fellow engineers had just been rebuffed in an attempt to buy Russian rockets:
Musk wheeled around and flashed a spreadsheet he'd created. "Hey, guys," he said, "I think we can build this rocket ourselves."
"We're thinking, Yeah, you and whose f***ing army," [SpaceX founding team member Jim] Cantrell said. "But, Elon says, 'No, I'm serious. I have this spreadsheet.'" Musk passed his laptop over to [future NASA administrator] Mike Griffin and Cantrell, and they were dumbfounded. The document detailed the costs of the materials needed to build, assemble, and launch a rocket. According to Musk's calculations, he could undercut existing launch companies by building a modest-sized rocket that would cater to a part of the market that specialized in carrying smaller satellites and research payloads to space. The spreadsheet also laid out the hypothetical performance characteristics of the rocket in fairly impressive detail.
Turns out Musk had been studying the fundamentals of the industry for months to tally up those numbers, and from that basic math SpaceX was born. This story illustrates Musk's phenomenal ability to learn, but it's also a perfect illustration of his approach to risk. Usually there's math involved (Coren shares similar stories about the reasoning underlying The Boring Company and Tesla), but the principle is simple and consistent.
When Musk wants to decide if something is possible, he sets about "calculating what physics dictates is possible, not extrapolating from the status quo," writes Coren.
Another way to think about "first principles thinking"
Veteran Musk watchers often describe what sets him apart as first principles thinking. "He doesn't do something because others say it's a good idea or that's how it was done before. Instead he reasons from first principles," Wait But Why blogger Tim Urban wrote in one such epic exploration of Musk's mindset.
But while "reasoning from first principles" might be an accurate description of Musk's approach, it's also a little vague. What does that look like in practice? And how can an admirer of Musk actually adopt this approach? The SpaceX story gets to the nuts and bolts of how Musk thinks about problems and calculates risk.
He doesn't ask what others have done before or their rates of success or failure. He doesn't look at the status quo and try to find incremental improvements. Instead, he looks at the fundamental problem he's trying to solve with fresh eyes and does the math on how cheaply and quickly someone should be able to solve it.
The answer is often that the so-called impossible is actually possible after all. Then, of course, he works heroically hard to pull it off.