Ex-Tesla President reveals EVERYTHING Elon does to win

Part of the secret to Elon's secret sauce is he sets these order of magnitude improvement goals. So 10x, 100x. He came to me and said, "Hey, look, we got to figure out how to sell cars online." Because nobody was buying $120,000 things sight unseen online. And so he turns to me. He says, "This is your goal. Improve digital sales by 20x." So now it's like, "Oh crap, I got to think way differently about this."

All right. So, the setup to the scene is we're introduced by a mutual friend and he is intense, and the niceties were about two sentences and then he said, "Hey, I got this problem in manufacturing. Have you ever seen it before?" And then we were right into it and two hours flew by because I had had that experience in manufacturing. I'd seen that problem. We started to break it down together and then we started to move deeper and deeper and deeper into the problem and we looked up in two hours he was like, "Oh man, I got to get out of this. I got to go. I'm going to go down to the factory floor and do what we just talked about."

Oh yeah, that's exactly what he was up to. So his hiring method is he wants to determine whether or not you can do world class work and his method is to interrogate a particular problem and go super deep on it. And it's better if he tries to skew it to a problem that he knows, right? So that he can't be bullshitted. Exactly. And he can take you super deep because he's in it and he just likes to know, almost like a video game, how many layers can this player get through before they're stumped. And so that's exactly what was going on. We were getting to know each other but 90% of it was he was evaluating.

You do whatever you want to do. I'm glad you raised this because this is a hack I don't get to in the book, but it's the thing that a lot of entrepreneurs think about, which is as your company scales, how do you protect the culture, right? And he and JB Straubel, the co-founder of Tesla, came up with this method to imprint the culture on every hire and to test for culture. And that was they would be the last interviews. That's a hack that I've taken forward now from that Elon experience and now I do that too. But the way that translated was that he would say, like he said to me, "Hey, look, we now as fast as this thing is growing, we're going to split this up and you and I are going to interview everybody that's hired at a manager level and above." So, we didn't interview everybody, but growing from 4 to 40,000 employees, there were a lot of interviews we were doing. In fact, 60% of my calendar was interviews.

Yeah. But it was super important because you totally win and lose on talent. So like that's another hack for entrepreneurs to think about is how much of your calendar is devoted to the number one driver of your success which is talent, right? But he told, to the point of your question, he said, hey, we have to determine whether or not these people can demonstrate evidence that they can be world class, and to do that we've got to dive deep into these problems. So he basically articulated what he had done with me as we were getting to know each other and going through that interview process. And then we sort of divide and conquered like we literally were the last interview. And oftentimes I would include in my senior hires, I would include JB and Elon because they were both such great talent selectors. JB especially has this unbelievable knack for talent selection.

So, one trap to try to identify is did this person actually do the work or are they claiming the work of their team? In other words, a lot of us have been on teams of eight or 10 or 20 that have done unbelievable work. We've been on those teams, but it wasn't our work. We weren't leading the team. We weren't leading the curiosity or the discovery or whatever. And so that's the trap that you're trying to dive into so deeply in the problem that you start to determine did this person actually do the work or not. And it's tricky because there are companies that are fully matrixed. So take like Nike. Nike is a fully matrixed organization. You pull a marketer out of Nike. That marketer has never had full P&L responsibility, full creative responsibility, full distribution responsibility. They have a very niche job. And it's really hard to determine did this person do the work or not. And so you go way deep on trying to figure that out knowing that it's a risky hire to hire from a matrix like that because you really can't put your finger on who really does the breakthrough work. That's one. The second is I would present a much like Elon did with me. I'd flip the tables and present a current problem of mine and then I want to see their level of curiosity, their level of analytics, their level of problem solving, their ability to ask really great questions to get some data from me and get me engaged, right? And so it's basically go into a problem of theirs, then flip the table and go into a problem of yours. And that's the knack of Tesla. It was like let's turn complex into simple. And so if you've been a leader there, you can identify these leaders because they have the ability within a minute or two to take a really complex question and boil it down into principle.

I 100% agree with that. Like our head of retail came to me and he said, "Hey, I'm hiring a lot of Apple people from Apple stores." And I said, "Time out. You can work in an Apple store and you are an order taker, right? Go down the hall to the people at the Microsoft store who have to sell a slate two doors down from a MacBook Air. Those people know how to sell." Like the fact that they're not starving is unbelievable. So go hire them.

So the context is Elon and I are having these discussions. We're getting to know each other. And eventually he pops the question. He said, "Why don't you join?" My first reaction is I'm not sure I'm your guy. Like your company's twice as big as my biggest company already. Don't you need a big company guy? And he says, "No, no, that's the opposite of what I need. I need a fellow entrepreneur who knows what it's like."

Yeah, totally. He's like, "I need a fellow entrepreneur who knows what it's like to chew glass and look into the abyss." His famous quote. And you know how to allocate capital and no big company person's going to know that. So I said, "Why don't you let me go poke around the business? What is your biggest challenge right now?" And he said, "Oh, biggest challenge is top line. Like we've promised this street we're going to sell 12,000 cars this quarter and it's a month and a half in and we've sold three."

I'm like, "Oh crap, that's a big problem." I said, "I tell you what, I'm traveling a ton the next week. I'll call you in a week." So, I went out as I was traveling to Tesla stores and I test drove cars.

Totally. I'd read the Sam Walton biography. And the biggest thing I pulled out of that book was the management hack of secret shopping because you get to sense like frontline employees knew exactly what's wrong with the company. They will tell you what the customers are complaining about. They'll tell you what the organization sucks at. And so that was my first instinct like go to the front lines. So I go to eight stores, I test drive, use different email addresses so they don't know who I am. And the test drive is supposed to be the fulcrum of the sales funnel. Like you hit the accelerator and you can't stop thinking about buying a Tesla, right? I didn't get a single call back. And Elon had introduced me to the head of sales ops. So I called the guy. I said, "Can you tell me why I'm not getting called back?" And he said, "I looked at the system. You're not flagged. I have no idea." I said, "Okay, tell me how many people have gotten a test drive in the last 30 days that haven't been called back." So he cranks through the CRM and he comes back and says 9,000. And I'm like, "9,000? You're going to make your quarter if you just call these people."

I said, "Okay, look, this problem has to get solved now." So I'm kind of in CEO mode and like this problem has to get solved now. Can you cut off any new leads to salespeople until they call all their previous test drives back? He's like, "Yeah, I can block that in the system." I said, "Okay, do it." He's like, "Great. It'll be done in two hours globally."

Correct. There was an incentive problem, but there was also a profile problem. We were hiring people that didn't know how to ask for the sale. And that was the root cause. So, when you forced them to, then stuff started moving. So, I talked to the guy the next day. He's like, I already have the results out of Asia and Europe and like sales are flying. And I said, no surprise. Like, all you have to do is call people back if you want to close a sale. And then it dawned on me, "Oh crap, I made this decision like I was the CEO. I don't even work for Tesla yet."

And so I said to the guy like, "I got to call Elon and tell him what we did." And I said, "I'll take the blame. You're not going to take the blame. I'll take the blame." And so I called Elon. I said, "Man, I got to beg your forgiveness. I haven't not been a CEO for 20 years. I've had six companies. I haven't had a boss." And when I see a problem, I want it gone like immediately. And so, here's the problem I saw on your top line challenge. Here's what's happening in your stores. Here's the change we made yesterday. And by the way, I think with this change, you're going to make a quarter."

Long silence, like uncomfortable silence. This is before I knew about the signature Elon. Long silence. And...

30 seconds. It had to be at least 60. And to the point where I was just about ready to ask him, "Are you still there?" And what I have now come to learn is like that's his processing mode. He shuts down all other sensory inputs and he just lets the compute run.

That is the think harder button. So he comes back on. He says, you know what, I think you're going to fit in here just fine. You've proven to yourself and to me you can be useful. So why don't you just join?

Yeah.

Yeah. Like I think your biggest job as an entrepreneur or as a leader is to stack rank the problems that are constraining your business. Stack rank them and then pull the biggest problem off the top of the pile every day and work it. And the first principle that I learned from a guy who was a mentor of mine, he taught me, he used to haul me down to the... like I had a software business. He would haul me down to the customer support teams and he'd say just sit here on a chair and listen to these calls. And his first principle that he kept saying to me was, I'm going to introduce you to the most powerful analytics you have as a leader. Your two eyes and your two ears. Use them because you will get insights so much faster than the data can get to you to give you insights. And it was true. And so when I started at Tesla, we were having a super big problem producing Model X's and getting the Falcon wing doors to fit. And Elon and I had shared this favorite book, The Goal, which is all about manufacturing process. And he grabbed me one day. He said, "Okay, The Goal Guy. Come on. We're going down the line." And he said, "Help me solve this problem. I've been sleeping in the factory trying to work on this." And I said, "Okay, we're going to walk up the factory line to where all the inventory is stacked up on these doors because that's the clue where the problem exists. If throughput can't get through there, it's all stacking up. That's where the problem exists. So, we're just going to stand here." So, we walked to that point. Sure enough, bunch of doors stacked up. And I said the same thing my mentor said. I said, "You're going to now use and I'm going to now use the greatest analytical instrument in the world, our eyes. And we're just going to sit here for an hour, and this is going to drive you crazy, but we're just going to watch these people work." And so we stood there and watched them work. And you could all of a sudden see, oh, these people can't see where the bolt goes because it's blind. And so they're threading a bolt blind, and they're missing the angle. And therefore, the door is going on crooked. What do they need? They need a jig. After 10 minutes, you could see this. And so he got antsy, I got antsy, and we're like, "Okay, just have the maintenance guys build a jig, bring it out here, and let's start to experiment about whether they can get the bolt done correctly." But that was an example of just go out there, don't depend on data, don't depend on anybody else's opinion. Just go see it with your own eyes. And that will lead most likely to an insight that you can then teach people like, "Here's what I was looking at. Here's what I saw. So, if you're the leader of this little team, next time you look for this and you can solve this problem, you don't have to wait for me to come down here and sleep on the factory floor as the president or CEO."

No matter how hard they're trying to work, it's usually a process constraint. But that does happen. And so the problem can fool you. Because people do start to have the white coat problem where the boss is standing there and now they're hustling. Now they're trying to impress the boss, but most of the time you can see it. Like if you stand there long enough, they're going to forget you're there, right?

So, I was with a group of bank executives a few weeks ago, and I asked them to raise their hand if they used their bank's app in the last week, their consumer app, and no hands go up. And I said to them, I could have guessed that because I'm a consumer of two of your banks, and your apps are terrible, right? And if you used them, you couldn't live for another day with how terrible this was. So, you'd be calling whoever could fix it to fix it ASAP. And a little bit to your point, like I learned this technique from Scott Cook, the founder of Intuit, and he has got this process he calls follow me home. And what it means is you look over the shoulder of real customers who are using your product. So sometimes you can't use it and there's a lot of cases of that, but you want to see how an actual user thinks about using your product. And when you look over their shoulder you see all of the friction you're putting into that product. Like how difficult it is really to find what you're looking for, to make the right clicks, do whatever. And he has his senior executives do this on a really frequent basis so that they're getting the feedback loop through the eyes of the customer. And oftentimes those customers will turn around and say, "Would you just fix this or could you just do this for me?" And they get new product ideas too where they would get to like an accountant doing the end of the month payroll close and one of them in this exercise turned to a senior manager and said, "It'd be a whole lot easier if the payroll was just done by QuickBooks." And boom, that idea was like right back into the senior management team discussion instantly like, "Hey, I just heard this from a customer, should we get in the payroll business?" Now that's a huge business for Intuit, but it came out of these like just follow the customer home and watch them click and then have them tell you not only what's wrong with the product, but what's missing in the product.

Totally. I'm on a board with a guy named Chip Berg. Chip started his career at P&G. He ended up being the CEO of Levi's, but he was famous at P&G for watching moms in kitchens like you said. And he and his team invented the Swiffer because they were like, the mop sucks. Like you get water all over the place. You got to dump it in the sink. It's totally janky. And so they invented the Swiffer based on how they watched moms suffer with regular mops.

Yeah. So, a little bit like you, I've been a variety-driven entrepreneur. I think it's a little bit because I've got business ADD. Like I could spend an entire career in a single industry without driving myself crazy. So I do look at these one-size-fits-all as a clue of, ooh, there could be an opportunity here. So an example of that is we took a look at the cyber security industry and we started with this question of like, hey, 30% of computers moved to the cloud, 70% hasn't. When does the next 30% move? What opportunities is that going to create? Etc. This is in my venture firm and we found something surprising that 30% of compute wasn't moving to the cloud. It was small medium-sized businesses like law firms, accountancies, etc. have no compelling reason to go to the cloud and they have a headwind of data risk. They have very sensitive data. They don't want to move that to the cloud. And so then we started to ask ourselves like, is there a one-size-fits-all here scenario? And it turned out there was. We just happened to ask the question, how many cyber security platforms have been created for the cloud in the last 5 years? And the answer is like 300. And then we said, how many have been created for the SMB in the last 5 years? And the answer was zero. All right, this is a one-size-fits-all market. Cyber is sized to the cloud, which I totally get. As a computer scientist, I get that it's easier to write to Amazon, Azure, and Google, and it's super difficult to write to an infinite number of tech stacks in SMB. So, that one-size-fits-all is creating an opportunity. And then we asked one more question because then we felt like we knew the answer to this question. Where are the ransomware attacks happening? And no doubt, it's in the SMB side because they haven't had tech in 5 years. And so we set out to build a company that is essentially a super modern cyber platform for widely variable tech stacks. And introduce that and it's got a ton of market traction and it's like one of the fastest growing companies in cyber right now. But it came from that first insight of like, ooh, we just tripped across a one-size-fits-all. The market has been 100% cloud and there's this small medium thing hanging out here that isn't large or extra large. How about we split the market and go after where the competition isn't?

You're looking at the line items on the expense sheet and it was like...

It was Lyft and Lululemon.

Right. Right. And that's a perfect example of that. Like I think noticing is a trait a lot of entrepreneurs have because we do see like friction and say to ourselves like why does this friction exist in life and how do we get rid of it, right? And I have people ask me like do you fly private and I've got a weird answer. I said no I don't but for a weird reason I don't fly private, I fly commercial because I want to experience friction of everyday life that's going to give me my next business idea or two or three. And I think entrepreneurs are kind of wired to look for friction as a clue that there could be an opportunity. But they definitely, we all have I think a heightened spidey sense for that where that friction is.