What Does Elon Musk Have in Common with King Gillette?
What if Silicon Valley venture capitalists’ understanding of Elon Musk failed to recognize the real genius behind his Tesla Motors and SolarCity ventures? Wall Street, tech analysts and venture capitalists continually mischaracterize these ventures as automotive and solar companies.
All three are victims of their own elevator-speech mentality, the quirk of requiring startup entrepreneurs to hone down a descriptive soundbite about the nature of their businesses to their very essence. In the case of both Tesla and SolarCity, those soundbites seem categorically incorrect, on further reflection.
King Gillette (1855-1932), master of the shave, beat Musk to the punch. He famously noted that it was entirely proper to give away razors at a loss as long as he could sell consumers razor blades over the life of the razor. Musk has forged the equivalent with a twist: Teslas command art-auction premiums on the auto lot, but Musk is rapidly building the charging infrastructure that will eventually dominate his electric car company’s bottom line.
Now, if you look at SolarCity, you’ll find a lease-revenue generator masquerading as a solar installation company. Again, the bottom line is recurring revenue — commodity sales — not construction.
How big a difference does it make? Wall Street is wary of new startups, thanks to John DeLorean and his stainless steel Edsel. Far more car companies have gone out of business in the last 100 years than have grown to stable enterprises. Solar electric companies have a similar record, driven in part by intense foreign competition for manufacture of ever-cheaper silicon-based panels.
That suggests that the capitalizations and valuations given Tesla and SolarCity fail to fully reflect the great growth potential of their recurring revenue from vehicle-charging fees, lease revenue, green-electricity sell-back fees to utilities, and interest charges. All within a government-subsidized environment that rewards consumers for zero-emission cars and electrical power infrastructure. That makes state and federal tax, utility and transportation authorities zero-cost marketing partners to Musk’s businesses.
Like the cell-tower craze of the 1980s, watch competitors flood into the car charger space; Musk was just there years before they got a foothold. Similarly, solar-leasing companies are now a dime-a-dozen.
To the degree that one-upping a 19th century business titan’s game plan is part of Musk’s core strategy, entrepreneurs and venture capitalists struggling to monetize their ventures can learn valuable lessons from both Gillette and Musk.
I count not one, but two, three or four strong revenue streams flowing out of all of Musk’s deceptively disparate ventures. Under the hood, they all run on commodity recurring revenue and are, therefore, more like iTunes than DeLorean Motors.