Self-Proclaimed 'Free-Market Purists' Dismiss Elon Musk at Their Peril
Back before the launch of the iPhone, technology visionary Marc Andreessen was having dinner in Palo Alto with Steve Jobs. Jobs showed Andreessen a still not-for-sale iPhone, and the Netscape founder suggested that its touch keyboard might turn off consumers used to the button-style keyboards featured on the wildly popular Blackberry communication devices. About this, it should be remembered that the expectation back in 2007 was that the iPhone would be a niche product at best amid Blackberry’s ongoing market leadership.
As readers can probably imagine, Jobs dismissed Andreessen’s suggestion that customers wanted what Blackberry was selling. He had a better idea for consumers, and it turns out Jobs was right. Fast forward to the present and Apple is one of the most valuable companies in the world largely thanks to the iPhone, with a market capitalization that exceeds $1 trillion. Investors presently value once dominant Blackberry at $3 billion.
So while efforts on the part of corporations to understand their customers are as old as corporations are, and very pro customer as evidenced by what we want and need from retailers routinely being in stock, there are limits to the old saying “know your customer.” It is in many ways overrated.
For one, it’s arguably more important for a business or business CEO to know himself. He must believe deeply in where he’s going in terms of products. An obvious example here would once again be Jobs. Can anyone imagine him selling Microsoft or Dell products? Would he have been as charismatic on the stage selling what he plainly saw as sub-standard? ,
A case can similarly be made that the most successful CEOs will not be the ones who know their customers best, but who know their own employees best; particularly the employees in sales. Crucial when it comes to selling is belief level in the product being sold. Strong belief will unearth in the seller a powerful desire to learn the product, and in the process, greater skill when it comes to showing the potential buyer why it’s useful. Apple Stores are instructive here. It's apparent the people on the floor are there, and full of energy, because the engineers and designers in Cupertino made products for them.
After that, simply expressing a desire to “know your customer” is the path toward the stationary state, and eventual obsolescence. Think about it. Were customers demanding online shopping before Amazon, or transportation at the tap of a button before Uber, or DVDs by mail before Netflix? Pre-Netflix, the vastly overrated “know your customer” approach amounted to now-defunct Blockbuster Video, Hollywood Video, and Movie Gallery figuring out the best way to meet the needs of movie-lovers who would literally get in the car and go to a physical location to search for movies to watch; many of them frequently out of stock.
“Know your customer” is all about rushing the present into the future. It’s primitive stuff. In dynamic societies, the future is hard to predict precisely because so many brilliant minds are trying to teach consumers about what they want, as opposed to knowing what they want. Readers obsessed with “China’s” alleged “theft” of “our” intellectual property would be wise to keep this in mind. What’s valuable now is rarely a predictor of what’s going to be valuable in the future. But’s that’s a digression.
This write-up is meant to focus on Tesla CEO Elon Musk. In a recent Tweet about the automaker’s upcoming Cybertruck, Musk observed that “Nobody *expects* the Cybertruck.” Brilliant. So good!
It’s a reminder that the perpetual entrepreneur in Musk was wholly prepared for the criticism of what, by all appearances, will be a very different kind of truck. Musk is no imitator. Not even close. He’s an entrepreneur. Entrepreneurs do things that no one expects, and that most think kind of ridiculous. While nobody expected Musk’s vision for truck of the future, Musk plainly expected the criticism that came his way. Thank goodness for people like him.
As opposed to “knowing their customers,” entrepreneurs like Musk lead them. Will he be correct? It’s very hard to say. Odds are no, and presumably not for reasons as simple as the Cybertruck looking so different. Odds are Musk will be wrong simply because entrepreneurs generally are. Bill Gates has acknowledged that the vast majority of his experiments failed, so has Jeff Bezos, and so did Jobs drill all too many dry holes. These are people who chose and choose to lead, as opposed to maintaining the status quo.
Musk adds that “I do zero market research whatsoever.” Rather than trying to provide us the present in the present, Musk aims to rush the future into the present. It’s people like him who make the world go ‘round.
To which self-proclaimed free-market ‘purists’ will howl in response that “Elon Musk is a crony capitalist. Don’t you get it? Tesla only exists because government subsidies prop it up. You claim to be for free markets. What’s wrong with you? Musk is in bed with government, and fleecing the taxpayers with a $7,500 per car sweetheart deal. You’ve gone soft!”
About federal subsidies, it’s surely too bad they exist. There’s nothing about economic growth or business or electric cars in the Constitution, so in an ideal world these handouts quite simply wouldn't be. In a sane world the federal government would be very small, would spend and do so little that no businessman would see fit to spend any time lobbying in Washington. All true stuff. In modern times, Democrats and Republicans have turned the Founders’ vision on its head by arrogating to themselves so much power. That they’ve done so is shameful, but also “expected.” National politicians want life’s comforts too, and they’re only able to attain them insofar as the federal government is very active when it comes to spending, subsidies, regulation and tax carve-outs, and making life quite a bit more complicated overall. Call the latter a retirement plan for politicians. Their reverential treatment while in office, and their high pay once out of office is a consequence of the complication.
But don’t presume that things like $7,500 buyer credits for electric cars prop up the Musks of the world. As evidenced by the rich demographic that presently owns Teslas, it’s aggressively naïve to presume that a $7,500 credit informs their buying decisions. After which it should be pointed out that the credit only counts toward the first 200,000 or 300,000 Teslas sold. This matters a great deal to the debate about Musk when it’s remembered that stock prices are the market’s expectation of all the dollars a company will earn in the future.
Looked at in terms of Tesla, it has a $60 billion dollar valuation. This is something for all of you purists to think long and hard about. When you trash Musk you reveal how little you understand markets simply because the $60 billion valuation logically has exceedingly little to do with a tax credit on a few hundred thousand cars sold, and most everything to do with investor expectation that Tesla hasn’t scratched the surface of its ability to lead its customers to a different, and plainly very exciting transportation future.
At $60 billion, the market expectation is that Tesla and Musk won’t meet consumer needs as much they’ll shape them. Exciting indeed. How fun to see where all of this goes. Tesla is priced for an ability to transform the future by virtue of rushing an unexpected future into the present. Thank goodness for people like Elon Musk.