01:06:44 · Eric Jorgenson
[01:06:44] S1: Exactly. So so you as a founder, like, you start a company, you are one arrow, and maybe, like, the the size of the arrow is how smart you are and how long the arrow is, how fast you're moving, and as you add people to your company, you're adding additional arrows, and maybe they're big or small arrows, maybe they're long or short. I'm not using the, like, mathematical language here, but it's just easier to visualize what's going on, and as you add people, you could have all different kinds of alignment and you could have different kinds of arrows, but the more aligned they are, the bigger they are, and the longer they are, that is the vector sum of the organization. And as you add them all up into, like, a big arrow, that's how much ground you're gonna cover. So you want the smartest people, you want them working hard, and you want them all aligned and working towards the same thing. And one of the things that he uses to achieve this is, like, one metric. He says that video games without a score are boring, as you're, like, building a team, you want one metric that every decision should be run across, run against. So at different eras, it's different... Or different teams, it's different numbers. Obviously, like, for autonomous driving, it was how many miles are driven on average between a human intervention. How many times do people feel they need to grab the wheel or step on the brakes to change what the autonomous software is doing? And so every meeting that he has with that team, the first slide is what is that number and how has it changed? What What is that number and how has it changed? So every decision that they're making, every design decision, every incremental hire, every effort, every dollar they spend is like, does it move that number that Elon wants us to move? And when you sequence those changes out, that's how you get to these, like, know, oh my god, people are driving across the country now without any interventions, you know, hundreds or thousands of miles.
01:08:19 · Ty Morse, Eric Jorgenson
[01:08:19] S0: That's actually an interesting thing to think about as well, being really, really thoughtful about which metrics you go after and what is the actual goal. I think not enough people spend enough time figuring out what is the objective, like the real objective that I am going after. And if you don't have that, you can have the highest agency, best people in the world, super smart, super energetic. But if they're like all working in these different directions, like this is the whole idea of you just hire a bunch of smart people and let them cook. I don't think that actually works in a real way. And so I, you know, thinking about how Elon figures out which, you know, he's going to tackle some new objective, some new thing, which metric to go after and, like, how to decide which one that is. [01:09:01] S1: Yeah. The the... Maybe the most famous one in retrospect is probably gonna be, you know, cost of [01:09:07] S0: Launch to orbit.
01:09:07 · Ty Morse, Eric Jorgenson
[01:09:07] S0: Launch to orbit. [01:09:08] S1: Cost of mass to orbit. Yeah. Like dollars per kilogram to orbit. And and that's, you know, that's been consistent across Falcon one, Falcon nine, Starship, like each program is designed and each design decision is made. Like, how do we minimize the cost or maximize the payload, to orbit Yeah. For And then then it becomes a volume. Right? So you've got... You can optimize that on an individual ship level. You can also optimize that on a system level, like how many of these things can we build? How quickly can we ship it? Where does the booster land? Where does the, know, the ship land? Like, how do we build a launch system that drives it all through as quickly as possible? And so that's a number that's been dominating decision making at SpaceX for a really long time, and it does go back to that cost, like, the efficiency, the efficacy with the North Star being like getting to Mars, building a civilization on Mars, and in the meantime, you know, it's achieved Starlink. In the meantime, it's dropped launch cost two orders of magnitude and also unlock this opportunity for data centers in space and many, many other things that are happening in the space economy that, you know, are just gonna continue. Right? But there's also the Tesla Model three scale up was 15,000 cars a week or were dead, [01:10:17] S0: I think was the number. It was, 5,000
01:10:17 · Ty Morse, Eric Jorgenson
[01:10:17] S0: I think was the number. It was, 5,000 [01:10:19] S1: a week. 5,000 a week? Okay. Yeah. 5,000 cars a week or were dead. And so that's on TVs all over the place. Like, that is... He must have said that a thousand times a day. Everybody on the team knew it. That's the bar we have to clear. And that was the result of, like, many, many calculations of, you know, what's our capital? What's our burn? How many sales that we made? Like, what's our return rate [01:10:38] S0: all that? Again, like, if conventional thinking won't fulfill the mission, then, you know, use unconventional thinking. At one point, he figures out that the max capacity at the Fremont factory is gonna be like 3,000 or 3,500 a week, and suddenly he goes, okay, what's the next thing? And they end up setting up the entire tent. [01:10:53] S1: Now he's building thousand. Yeah. [01:10:55] S0: And I I do I do find it very interesting that he immediately was like, yes, we will get fined. This is a thing that will happen. Doesn't matter. What matters is just getting... Making sure that we achieve the objective. [01:11:04] S1: Yeah. That was just his beating ticket, you know, but survival of Tesla was on the line. [01:11:09] S0: I I love Jeff Bezos' line where he says your margin is my opportunity. How does Elon operate with that philosophy?
01:11:09 · Ty Morse, Eric Jorgenson
[01:11:09] S0: I I love Jeff Bezos' line where he says your margin is my opportunity. How does Elon operate with that philosophy? [01:11:15] S1: Really, he's got a incisiveness about inefficiency that he sees in other industries. And this goes back to sort of at what level is your empathy. Like, he comes at a product from a first principles way and says, this is how effective or how cheap or how efficient a product could be, and it looks at all the different ways that an industry, maybe is acting inefficiently. [01:11:42] S0: And Same thing with the idiot index. [01:11:44] S1: Yeah. The the idiot index almost on an industry scale. Right? And so looking at aerospace, it's like, you know, these primes, which is basically act like an oligopoly who have this poor incentive system. The government's their main customer. They've got subcontractors on subcontractors on subcontractors on subcontractors. And he looks at that and says, yeah, we can do... We can make an order of magnitude improvement. Like, there's a lot of people making profit for not adding a lot of value, and we can take all of that. And, you know, his businesses don't tend to act to protect margin very often. I think he puts himself and his organizations in a place where continuing to innovate is always the main incentive. Like, you know, SpaceX as an example, they could just sit on and cash flow Falcon nine for twenty years, and it would be one of the best businesses of all time. But they were immediately plowing money back into Starship to kind of ride that next s curve up.
01:12:39 · Ty Morse, Eric Jorgenson
[01:12:39] S0: It's very interesting to me that if you think about the most extreme version of capitalism, it honestly kind of turns into a nonprofit. Like the very best businesses in the world are like a Costco, where in order to achieve the scale that they have, they're just giving away they are they're minimizing. I think they have a max margin of, like, 15% on any given product. And if you look across the entire organization, where does the profit actually come from? It's basically just their card memberships. So they make, like, a $120 per per person per year. And outside of that, they're effectively just running at a loss. [01:13:13] S1: Yeah. Bezos has a good, like, binary here, which is like there's two kinds of companies. Some exist to charge more and some exist to charge less, and we will be the latter. That's like Amazon, Walmart, Tesla, like, that is how those companies operate. Of course, you know, Louis Vuitton is the opposite. Right? Luxury brands are always like, how do we maximize margin and perceived value? And, like... But I would argue the customer value, the consumer surplus created by companies that pursue a low cost strategy are almost always higher in the long run, they become the biggest companies and the ones that generate the most equity value because they have the most customers and they do the most good in the world on the way.