The quest to crystallize qualities pertinent to renowned entrepreneurs resulted in an extensive body of popular and even scientific literature listing a number of requirements that potentially increase the likelihood of business to succeed. Yet, launching a new business is always risky, while different factors and approaches, including lean start-up, only regulate chances (Blank, 2013). Even though a significant number of variables that diminish the chances for prosperity exist, some contributing factors can be discerned. An exemplary case in this regard would be Elon Musk’s approach in managing the operations of Tesla Motors and SpaceX. Tesla Motors and SpaceX excel among entrepreneurial firms, notably by not doing “business as usual” (Chen and Perez, 2018). Such factors as the tendency for vertical integration, a distinct distribution scheme, building and exploiting innovation capital, the creation of an “attacker’s advantage,” and hiring top talent contribute to Musk’s successful entrepreneurship.
One of the principal factors determining Musk’s success is the tendency for vertical integration. Vertical integration allows entrepreneurs to avoid inconveniences associated with suppliers capable of disrupting the production chain and diminishing economic performance. Consequently, Musk applied this business strategy not only to Tesla Motors but also to SpaceX, demonstrating its fruitfulness. The latter company also created its supply chain – from engines to electronics. Although eliminating the dependency on third parties might not be feasible for many business types, Musk demonstrates the immense benefits of its reduction.
Musk’s approach to distribution yields him greater control over the process. Thus, Tesla Motors does not rely on car dealerships to market and sell its products (Chen and Perez, 2018). The company has adopted an inherently different method of spreading its electronic vehicles throughout the marketplace. In contrast to other car manufacturers, Tesla Motors uses online platforms and retail outlets owned by the organization to directly distribute its cars (Chen and Perez, 2018). Tesla Motors’ online stores offer an opportunity to buy a car straightforwardly online, which is an organizational peculiarity. Moreover, the company built a worldwide network of car galleries, eliminating the role of the middle man. The choice of selling spots is not aimless, as “the retail outlets are usually located in dense traffic, enhanced with technology which has high integration of IT to better present Tesla vehicle” (Chen and Perez, 2018, p. 61). Generally, reducing third parties’ role by employing direct sales retail business method allows for reduced costs and enhanced process control.
In addition to vertical integration, the success of Musk, particularly in the automotive industry, can be attributed to the use of an “attacker’s advantage.” It is argued that a start-up “should enter the product market, looking for an “attackers’ advantage” by establishing technological leadership, entering niche markets and by investing in complementary assets which reinforce a novel value proposition” (Thomas and Maine, 2019, p. 655). Tesla Motors entered highly competitive business with multiple large players having fully established productions. Yet, the main advantage of a new business might be that its strategy is not set-in-stone, creating an “attacker’s advantage”. For instance, Tesla Motors selected modern distribution channels, considerably invested in electric cars recharging infrastructure, and incorporated sales concepts from the consumer electronics sector (Thomas and Maine, 2019). Tesla Motors’ new value proposition put its competitors in a less advantageous position, particularly regarding architectural innovation (Thomas and Maine, 2019). Hence, the ability to create an “attacker’s advantage” is a significant factor that impacted Musk’s business success.
The dexterity in building on innovation and accumulating innovation capital helped Musk and Tesla Motors reach the current financial performance levels. This entrepreneurial company has its headquarters in Palo Alto, which is a part of Silicon Valley – at the heart of technological innovation (Chen and Perez, 2018). Although innovation is unpredictable, it does not mean it cannot be managed (Ries, 2011). While the majority of the car industry continues to take a “business-as-usual” approach in electric car production, Tesla Motors excels at offering and exploiting change (Chen and Perez, 2018). Innovation is an essential tool in an entrepreneurs’ toolbox: it allows them to perceive and use change to improve or alter businesses and services (Entrepreneurship and creativity, 2020). It is essential to notice that innovation is more frequently incremental than proceeding from a single achievement, which is the case for Tesla Motors (Entrepreneurship and creativity, 2020). The company seemingly built on gradual improvements and modifications, one of the primary advantages being superior range in their electric vehicles (Chen and Perez, 2018). Not necessarily as a breakthrough but as a process of subtle improvement, innovation is crucial for competitive advantage.
In addition to the listed earlier factors that distinguish successful entrepreneurs, a team’s instrumental role should be added. Although a brilliant team is not the determinant and the sole reason for success, it is a significant contributing factor (Ries, 2011). Musk seemingly understands that a well-put team is necessary for a business to become lucrative. High-caliber professionals constitute personnel at both Tesla Motors and SpaceX. For instance, to design and manufacture Tesla Model S, the company recruited a group of car engineering and manufacturing specialists with previous experience in leading car manufacturing companies such as BMW, Jaguar, Audi, et cetera (Perkins and Murmann, 2018). In addition, IT professionals with backgrounds in pioneering Silicon Valley firms were hired to complement the organizational structure (Perkins and Murmann, 2018). The distribution of employees by function in Tesla Motors shows that it has a greater than the typical proportion of people in the R&D and Design and Engineering departments (Perkins and Murmann). This demanding approach to recruitment and personnel selection also contributes to Musk’s successful entrepreneurship.
Although the outlined factors helped Musk’s case, they might not constitute a universal recipe for business success. For instance, “attacker’s advantage” should be deployed in specific circumstances not available for each start-up. “Attacker’s advantage” is only possible when a new superior technology is brought to a market, and the magnitude of the innovation is tangible for the potential consumers (Thomas and Maine, 2019). Furthermore, the currently wide-spread mindset of “innovate or die” embodied in Musk’s business approach might be overvalued. This business philosophy cannot replace fundamentals such as ensuring that processes are customer-oriented and smaller, far less innovative ideas are considered. Innovative companies with poor financial performance are many, Lucent Technologies owned by Bell Laboratories being a prominent example (Atkinson, 2020). Although the listed factors were influential for Musk, their applicability and universality are not set in stone.
In conclusion, the entrepreneurial fruitfulness of Tesla Motors and SpaceX can be, to a degree, assigned to the companies’ business tactics implemented by their founder. Notably, vertical integration, a direct sales approach, creating and exploiting innovation capital, an “attacker’s advantage,” and recruiting top talent seemingly rendered the two companies in question as profitable as they are today. In addition to making electric cars more compelling for the general population, these Musk’s tactics allowed for optimizing the supply chain, limiting third parties’ role in it. Musk’s unique business model, including the enumerated elements, is among the main reasons for high Tesla Motors and SpaceX stock prices.
Reference List
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Atkinson, R., 2020. Who lost Lucent?: the decline of America’s telecom equipment industry. American Affairs, 4(3), pp. 99–135.
Blank, S., 2013. Why the lean start-up changes everything. Harvard Business Review, 91(5), pp. 63-72.
Chen, Y. and Perez, Y., 2018. Business model design: lessons learned from Tesla Motors. Towards a Sustainable Economy, pp.53-69.
Perkins, G. and Murmann, J., 2018. What does the success of Tesla mean for the future dynamics in the global automobile sector?. Management and Organization Review, 14(3), pp.471-480.
Ries, E., 2011. The lean startup. New York: Crown Business.
Thomas, V. and Maine, E., 2019. Market entry strategies for electric vehicle start-ups in the automotive industry – lessons from Tesla Motors. Journal of Cleaner Production, 235, pp.653-663.