Business Unusual

Could the future of Tesla be a repeat of General Motors' past?

Elon Musk has a knack for saying crazy things and then making them happen. He can see the future or, rather, he can see what will happen if we don’t change things.

At a recent earnings meeting for Tesla, a couple of analysts asked him about problems with cash flows and what was being done to ramp up production. Rather than answer the questions, he called them boring and boneheaded. They were fair questions although ones that Musk feels he had already addressed. He probably preferred to take questions about his vision to transform transport and energy.

The stock slumped even though he forecasted a return to profit later in the year. He tweeted a defence later to explain why he did what he did and, while not wrong, it was not the best thing to do.

A century-old lesson

Steve Blank is an entrepreneur and academic who believes there was another visionary that was similar to Musk for breathing life into a new industry and turned a bunch of struggling startups into a corporate giant. You may not have heard of him though because he was fired by his own company - twice.

It is not Steve Jobs although you could make an argument that he would fit the bill too. It was the founder of General Motors, William Crapo Durant.

Before we look at Durant, here is the reason Blank thinks the history lesson may be fitting for Musk. He argues that new companies need visionaries who don’t take no for an answer and refuse to focus on anything but the positive. He says founders like that are more likely to take the lead and set the pace. They will grow and be very innovative. He then argues they will fail.

No guarantee, but once the revolutionary idea becomes accepted and the tough problems are solved, visionaries get bored or begin to divide their time and spread themselves too thin.

He has a point. People who are great at growing something may not be the best to sustain something. So now let’s look at what happened to Bill Durant.

William Crapo Durant

He was no tech genius or inventor, but he could tell a story and sell you anything. While looking for something to pursue, he happened to take a ride in a horse carriage with great suspension in 1886. He got a loan from a bank and bought the right to use it.

Most would then have set about building a factory and sorting out the teething problems with the manufacturing process. Instead, he took the only model he had to a fair and promoted it well enough to get orders for 600 of them. He didn't know how long it would take to make them, but 600 orders provided a level of motivation to really focus the mind.

It was soon one of the largest in the country. So how did a horse carriage magnate start a car company? It was not because those around him thought they were any good; instead, the view was they were something the rich bought their spoilt adult children.

But he was convinced to save the Buick company from going out of business and did become more enthusiastic about the new form of transport once he had been for a ride or two. He first convinced the current shareholders to invest more money, and just two days after taking control on 1 November 1904 created a parade day using all the company’s cars he could, it was only eight, and he had them drive around town. Eight cars in a row in 1904 was enough to make the newspapers and so got people talking.

In 1904 the company had produced less than 50 cars. Durant took one of the models to New York motor show in 1905 and got over 1000 orders. His skill it seems was to pick something about the product and really sell that. So while everyone at the motor show was selling cars, he was selling something unique to his.

The Buick had a smaller, more powerful engine - the creator was not so good at talking about it, but Durant was.

He was also not only interested in one car; rather than trying to get Buick as the only car you need, he bought more car companies. Some were good like Cadillac, Oldsmobile and the predecessor to Pontiac but others were not so good. He called the new company General Motors (GM). All those bets put a drain on resources and in 1911, just seven years after taking over Buick, he was ousted.

Fired

He was 50 years old and might have decided to take it easy after having kick-started a revolution.

Instead, he founded a new car company to create a more economical model and built it with the man that still carries the car's name today - Chevrolet. It was a success. So successful that Durant bought enough GM stock to take control of the company once again.

He added Chevrolet to the fold, and he managed to get it done just five years after being removed.

A fairytale ride in any history book. Back in control, Durant continued making bets, from new tech like leaded petrol engines to buying a refrigeration company subsidiary from Electrolux that he named Frigidaire and acquiring a manager called Alfred P Sloan.

But for all the good bets, he made some bad ones too; on the stock market and at the casino. By 1920 he was kicked out again with Sloan taking over as President from 1923.

Still, he took significant positions on the New York Stock Exchange and may have been worth over $1 billion, but lost it when the Great Depression hit in 1929.

General Motors invited him to join them for the celebration of their 25th million car in 1940. By this time he was bankrupt and had started a bowling alley. He died in 1947 aged 86.

A warning to the rebels and the visionaries

His name does appear in Flint, Michigan where it all began, but the name you are more likely to see all over America associated with General Motors is Alfred P Sloan.

The long-term skill was not just seeing the big opportunity; it was also that you needed to be able to manage it.

This is what Steve Blank hopes Elon Musk will take into account. There have been calls for him to step aside in running Tesla although instead he has accepted a ten year deal with no salary but would receive $2.6 billion if he manages to double the share price in that time. That will be an annual salary of $260 million a year if he succeeds.

If he works to get the best organisers and managers while still talking up the products and not insulting analysts, he may well get that record pay-out.

For many founders, though, the story is more like Durant’s with them not realising when to hand over the reigns when the nature of the company changes.


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