The entrepreneur, who founded and grew the largest start-up in the world to $10 billion in revenue and got fired, is someone you have probably never heard of. The guy who replaced him invented the idea of the modern corporation. If you want to understand the future of Tesla and Elon Musk’s role in it you should start with a bit of automotive history.
The founder of General Motors was William Durant. At the turn of the 20th century, Durant was one of the largest makers of horse-drawn carriages. After seeing his first car in 1904, he was convinced the future was going to be a new form of transportation powered by the internal combustion engine.
He created what was to be known as General Motors and while Durant was a great entrepreneur, the integration of the companies and suppliers was difficult and by the spring of 1920 the company had to go to the banks and get an $80 million loan (about a billion dollars in 2018) to finance operations. Durant’s bankers and board fired him from the company he had founded. He was replaced by Alfred P Sloan who remained president until 1956.
When Sloan arrived at GM he organised the company by division rather than function and transferred responsibility down from corporate into each of the operating divisions. Sloan kept the corporate staff small and focused on policymaking, corporate finance and planning.
GM created multiple brands of cars, each with its own identity targeted at a specific economic bracket of American customers. The company set the prices for each of these brands from lowest to highest (Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac). The idea was to keep customers coming back to General Motors over time to upgrade to a better brand as they became wealthier. Finally, GM created the notion of perpetual demand within brands by continually obsoleting their own products with new models rolled out every year. (Think of the iPhone and its yearly new models.)
Well, thanks for the history lesson, but why should I care?
If you’re following Tesla, Musk has used his compelling vision of a future transformed to capture the imagination of customers and, equally important, of Wall Street, raising the billions of dollars to make his vision a reality. Yet, as Durant’s story typifies, one of the challenges for visionary founders is that they often have a hard time staying focused on the present when the company needs to transition into relentless execution.
Tesla now has a pipeline of newly announced products, a new Roadster (a sportscar), a semi-truck, and a hinted crossover called the Model Y. All of them will require execution at scale, not just vision.
Unlike Durant, Musk has engineered his extended tenure, and this year he got his shareholders to give him a new $2.6bn compensation plan if he can grow the company’s market cap in $50bn increments to $650bn. Yet as Tesla struggles in the transition from a visionary pioneer to reliable producer of cars in high volume, one wonders if that $2.6bn would be better spent finding Tesla’s Alfred P Sloan.