Elon Musk’s Genius: Understanding the Cost of a Screw and the Value of a Photo

Last night, Elon Musk inspired the audience at D. It is hard to overstate the scope and breadth of his ambitions or the impact of his start ups PayPal, Tesla, and SpaceX on payments, automobiles and space.

Behind the desire to listen to great men like Musk speak about their perspectives is a hope to receive some insight, some pearl of wisdom. Last night, I came away with two of those both about startups.

First, when the inevitable question came along along asking Musk to compare his grand plans with the innovations and ambitions in photo sharing applications, Musk replied in the following way:

He said that there are many ways of creating value. Photo sharing apps create a small amount of value for a huge number of people. Aggregating that small value across billions can create big companies.

Second, when asked about the origins of SpaceX, his first major step to starting the business was to understand the cost structure of existing rocket companies. He and his team calculated the cost of all the materials required to build a rocket. They found that the titanium and carbon fiber and fuel represented only about 2% of the total cost of launching a rocket. In his words, the industry must be doing something silly to drive costs to their current order of magnitude. In other words, there was an opportunity to innovate by cost reduction.

There is one thread common to both of these examples: Musk understands the details, the small things - the cost of titanium screws and the marginal value of a shared photo, and how they relate to the overall picture.

His ability to think in systems, understanding how ecosystems react and respond to regulation and subsidies in the case of Tesla and oil and gas companies, and how PayPal fit into the world of payments and how the costs of screws and fuel fit into the overall cost of the rocket is what I admire about Elon Musk.

Published 2013-05-30 in

I am partner at Redpoint. I write daily, data-driven blog posts about key questions facing startups. I co-authored the book, Winning with Data. Join more than 20,000 others receiving these blog posts by email.

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