← THE ED MYLETT SHOW
THE ED MYLETT SHOW
Restructure Your Business Like Elon Musk with Former Tesla President Jon McNeill
00:52:12
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- [00:00]
A
So many of you have asked how to see me speak live and for the first time ever, you can come see me speak live in person. All of my speeches have been private events but now I'm teaming up with LifeSurge speaking all over the country. LifeSurge is a one day faith based event where you'll walk in hungry for success and you'll leave ready to build your resources to leave an impact on others. We're talking faith fueled finance, growing your resources, crushing obstacles and then, yeah, using it all for something way bigger than yourself. I'm joining Life Surge in a few cities this year and I'd love to see you there. I'll be sharing the stage with legends such as two time football champion Tim Teachers, star of Duck Dynasty, Willie Robertson and leadership hero of mine John Maxwell, pastor and author Craig Groeschel and worship with artists like Natalie Grant. Tickets are on sale@lifesurge.com and just for my listeners, you can use the code ED30 for 30% off a ticket. There will be a link in the show notes so click through and take some time to join us. Cities are being added all the time, so if you don't see one near you now, check back. I hope to see you there. So, hey guys, I'm calling on all my friends here in the audience for a little bit of help. We're conducting an audience survey at Gum FM MyLab and we want to hear from you so we can make things here even a better experience for you and create content that you want. You know, we all know this, there's ads on our show, right? So we want to improve the experience. But in order to do that, we need to know a little bit more about you. So my friends in the audience, we want to improve that experience. So please help us. The survey is quick, easy and it's a free way to support the show if you'll take two minutes. You'll be helping us out so much by doing this. So go to GUM FM Mylet to fill out our audience survey. That's G U M F M mylet M Y L E T T.
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B
This
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A
is the Ed Milet Show. Okay, welcome back to the show everybody. So today is going to be tremendous. I just finished reading this book. I have to tell you all, it's probably read 2,000 books for the show. I put this in the top 1% of all the books I've read doing this show. The author, he's had a little bit of success in his life. He was the president of Tesla. You've heard of them before. CEO of Lyft. He sits on the board of General Motors and Lululemon. He's had a bunch of exits himself. This is a true. I'd call it like a masterclass in business with a theory and a philosophy that you'll be able to follow today. So it's heavy note taking as well. I'm really excited to have him here today. And then I didn't know he was a Boston dude as well, so it's great to have you here today, brother.
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B
Yeah.
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A
John McNeil, welcome to the show.
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B
Thanks. Thanks for having me.
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A
Yeah, I. I've told you, I've taken screenshots of the book and sending it to friends of mine. As someone who's built some businesses and exited, I think I know when I read something True. But I think I also know when I've read something I've not read before. And so the book, you guys, is the algorithm. Want to make sure I get that in early. And it's really like a five step algorithm that you talk about that I was asking around, like, is this his? Did he learn it from Elan? You know, kind of back and forth and so why don't we start with where this comes from? I know from reading the book. And then a brief overview of the five steps of the algorithm.
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B
Yeah. So where this comes from is a framework we developed while we were trying to grow Tesla from 2 billion in sales to 20 billion in sales in 30 months.
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A
Crazy.
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B
So 10x in 30 months? No playbooks for that? No. Like case studies you could go read.
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A
It's of kind.
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B
So we were really kind of inventing it as we went. And we started to see these patterns in attacking challenges. And so we baked that down into what we called the algorithm so that we could communicate it so people would know, like if we were working with the team, what we were up to. But we also wanted the teams to know they could use this tool too. It didn't require Elon, it didn't require me. And so I would say it was something that we cooked up and invented while we were on this journey. The whole company together, part of it.
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A
We'll go through the steps here in a second. More and more as technologies change. Now with the advent of AI, I think this is even more relevant. You correct me if I'm wrong, but part of this is about speed and efficiency.
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B
I would almost call it's a lot about speed and efficiency because you have to move so fast. In our case, we were growing from 4,000 people to 40,000 people. So you've got to have 40,000 humans making very rapid decisions way faster than we could make them. And so part of the goal here was to equip the front lines. And that's why the book is told through the stories of the people that are on the front lines. Because you can see normal, everyday people are doing this.
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A
It is. And one thing. And again, I'm teasing. The five. We're going to get into the five parts of the algorithm here in a minute. By the way, the reason I'm willing to do that is I want you all to know this. The book is so thick with information that just knowing the broad overview of the algorithm is not sufficient in learning what's in the book. So I think we're comfortable going into it. But I wanted to start out one thing that surprised me. When Elon hires you, right. This is a rule for business that I didn't think of. He says to you, you say in the book that he was looking for another entrepreneur to be kind of his right hand and a guy, slash, that was used to almost running out of cash most of the time.
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B
Yeah.
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A
That just surprised me. Normally I'd be thinking, I'm the entrepreneur, I want to hire an operator. But that's absolutely not what he was looking for in you.
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B
No. He tends to hire orthogonally, is what he calls it. Like people that have not been in the industry or role before. So the entire management team, really, nobody had been in the car business. And when we were getting to know each other, I kept saying to him, I don't think I'm your guy. I think you need a big company guy. I mean, your company's bigger than twice as big as my biggest company. And he said, no, no, no, that's exactly what I don't need. And I said, why? He said, I need. As you said, he said, I need a fellow entrepreneur because you know what it's like to carry the burden of payroll on your back and going to sleep at night, making sure that you can make payroll the next week. That's a pressure that big company people haven't faced. And he said, you need to know the entrepreneur's kind of life burden, which is, in his words, it's staring into the abyss while chewing glass. He's like, I need somebody that's been through that. And he said, the other thing that entrepreneurs know how to do is allocate capital.
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A
Yeah.
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B
Because you have. You don't have unlimited capital. You can't go to the market, typically as an entrepreneur. So he said, I run this place like a private company.
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A
Yeah.
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B
And so we don't carry much cash on the balance sheet. Every nickel has to matter.
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A
Well, not only do you not carry a lot of cash in the balance sheet, this blew my mind. This is Tesla, right?
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B
Right.
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A
And now as we fast forward, we're looking at, in his case, arguably probably the first trillionaire in the country. Certainly creeping.
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B
He's on his way.
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A
He's on his way. He's the odds on favorite if we're going to have one. Right. But the company actually had three months operating cash at any given time.
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B
Right.
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A
That's incredible to me. 3 months cash on a company on that scale and that scope that wanted to grow that quickly.
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B
Yeah. And again, this is his mindset as an entrepreneur. If you fill the balance sheet with a lot of cash, people get soft, in his words. So he said, you know, I want imminent death around the corner. And it was even tighter than that. And we had three months worth of cash. We had 70 days of payables. That's crazy. So we had 20 days of cash. That's crazy. There is no room for error in this equation.
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A
You know what it made me? I wasn't. This isn't in my notes. I wanted to ask you, but I want to ask your opinion about this. It's not in the book. We'll shift just for a second based on that and that experience and that philosophy. You know, the world we live in now. Everybody's raising money.
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B
Yeah.
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A
Everyone's giving away equity quickly. It's a raise, raise rate. Literally almost daily. Probably like you, I'm getting hit with some really raise for some thing. And I've always felt like sometimes these folks that are raising money prematurely are. They've got a false sense of reality in terms of success of the business in terms of cash, cash on paper, et cetera. Do you kind of think that culturally that's almost a perversion that's happened in the business marketplace?
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B
I think it's a real. Watch out. And I Talked to young CEOs about this, about this very topic. Like, if you load your balance sheet up, everybody in the company knows that. And so therefore, people aren't rubbing nickels together. They're not being efficient, they're being expedient. And when you're expedient, you're burning cash. And when you're burning cash as an entrepreneur, you're giving away your equity. That's absolutely so expensive.
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A
It is. This is so good. Okay, so based on all of that, now with that backdrop, talk to us about the algorithm.
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B
So the algorithm, we basically, we came up with these five steps that work, that are core to how we drive innovation and solve problems. So I'll just run through the five steps, then we can talk through some examples of these. But the first step is essentially question everything. Question every requirement that somebody's given you. Question the status quo. Question, question, question. So you can rip into what the essentials are that you need to. You need to deliver. Once you know that, then, then you develop a process from end to end that delivers that the most efficiently. Then you optimize the heck out of that just by doing it manually. And. And we'll get into some examples of that. And then you apply speed.
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A
Yeah.
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B
Because you cannot have a process deliver quality with speed or without. You can't have speed without quality. So you get both. And then this is surprising, the last step, given that we're tech people, the last step is automate. Last.
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A
Yeah.
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B
Because if you automate up front, you're pouring concrete around your process. And if you discover improvements, it's really hard to improve it because now you got to go blast out the concrete of the software you developed. So. So those are the five steps of the algorithm.
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A
Let's talk about the application on them. And by the way, everybody, you got to get the book. Because the level of the stories that are in the book sort of illustrate the principles better than even probably what you and I will be able to do today. But one of the stories in the book, I've tried to do business in China a couple times.
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B
Yeah.
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A
And it's sort of known. And I don't. I'm probably overstating this. I got to be careful. But it's sort of known in the business world. It is the hardest place of the developed nations to try to go do business.
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B
It's really hard.
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A
And in your case, if you're going to go over there and build a factory, they're getting a piece of it. Right. And you have this great story in the book where Elon says to you, no, we're going to own everything in there. And you go over there and get this thing done. So to me, that follows. That falls under question everything. Like, is it true that that's the case?
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B
Yeah.
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A
Can you tell them that story?
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B
Yeah. So we're so in the US we produce 15 million new cars a year. And historically we've been the biggest in the world. China's twice US. They do 30 million new cars a year. So if you're running a car company that's Tight on cash. Eventually you want to get to China because it's huge market. But as we sat down with our China teams, they said, hey, you have to realize that every American company that goes to China has to have a joint venture. And the requirements of the joint venture are you split cash 50, 50 the profits. And so that meant we were going to get half of it than we thought we would. So the first step, the algorithms question everything. So we started to question our China team and said, is there a way that we could do this without a joint venture? And they said, no way, no way, no way. This has never happened. GM doesn't have that. Procter and Gamble doesn't have that. Coca Cola doesn't have. No, there's no way this is going to happen. And so Elon, every once in a while he gets this twinkle in his eye. And he and I kind of riff on stuff, and I could see he's getting this twinkle in his eyes. Turns to me, he's like, how would you be up for. Would you be up for the first joint venture in China that doesn't share any economics? I said, I don't know how to do that, but challenge accepted. So I went to China and sat down with our team and said, explain to me the Chinese system so that I could understand the base assumptions. And they said, okay, two things. One is that in America, the best students typically go off into business. They go to Wall street, they go to consulting, they go to tech. That's not the way it works in China. Half of the best students go into business. Half of the best students go into government. They're sort of split into two groups, and they as they're new graduates of the top schools, they get a neighborhood, and they're the party official in that neighborhood. And they have one goal. They get a base salary and they get a 2 to 3x their base salary and bonus for job growth. It's the only metric. Grow jobs in your neighborhood. Now you get a part of a city, do that in a part of a city. Now you become a mayor, do that as a mayor. Grow jobs. Now you're a party official in the province, and it goes all the way up to the top. So they have a system of government where everybody is operating off the same metric, and that is job creation. Okay? Super powerful and really simple. And they said, so industry and government are working hand in hand all the time to create jobs. Because the way you survive in a single party system is you got to keep everybody employed. So that's why this is Important. So that's thing one is creating jobs is a big deal. I said, okay, good, check the box. We're going to create a lot of jobs. Second thing they said you need to understand is every year they produce a five year economic plan of industries they want to enter and eventually dominate. And this was 2015 and they just published their five year plan. I said, what's in the five year plan? They said five things. I said, okay, what are they? They said, electric cars, batteries, Async chips, autonomous software. And I'm like, okay, we have, we got like four of the five. We are in a strong negotiating position here because every party official wants us because we can help them check their boxes. So we negotiated hard for a year, kept saying in these negotiations we want a JV with no economic sharing and eventually we got it. That's unreal because we question that first assumption. But then you got to like learn what's the, what's the, what's the chessboard look like? And how can you maneuver through this to get to your goal? It's not just you can will something into, into existence. You got to figure it out.
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A
Do you think that was easier because you were essentially a startup company as opposed to implementing this algorithm into General Motors or GE or someone listening this? Who's, they've, they've owned 25 dry cleaners in their family for 40 years, right?
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B
Yeah.
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A
And now I don't even know that they know what their legacy thinking has become. Right. Like how do you, how do you step back and say, question everybody. What are the things you should question? That was kind of the thing for me reading the book, like in some of the businesses I'm like, well, we've just always done it that way. You know, everything is we just always done it that way and it seems to work pretty well. I always want to wonder, are we, are we winning? In spite of the fact that we've always done it this way or because we've always done it this way?
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B
It can be both. But I think it is to your point, it's easier to do it in a startup than it is in 150 year old company like GM. But, but GM has done this as they've introduced their latest models. It used to take them two to three years to develop a car from idea to coming off the line. And so they decided to hand a young engineer named Josh Tovl, 37 years old, their first Hummer EV project. So this was going to be their Halo car that they're bringing to the market. Has every feature imaginable. And Josh had this goal. I'm going to take a 36 month process and make it an 18 month process. And to do that the President and CEO of the company said what do you need? And he said I need you to suspend the rules because there are a bunch of like way we've always done it, things around here that aren't productive at all. And, and so he was able and his team were able to suspend the rules and put a team of ninjas together that actually delivered the car in 14 months.
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A
That's crazy.
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B
And it's, it's so it can be done in 150 year old company too.
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It can be done.
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B
Yeah.
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A
Speaking of putting a car together, you know I read the book based on these questions, right. So I just, I poured into this thing. Can you tell them about the casting example in the book? Because to me this was a pivotal thing in the development of the company. Totally. And there's one way to do it and then maybe there isn't anymore. Right? This is a, this is a pivot point almost in the company's history. Dell PCs with Intel inside are built for the moments that matter. For the moments you plan and the ones you don't. Built for the busy days that turn into all night study sessions. The moment you're working from a cafe and realize every outlet's taken. The times you're deep into your flow and the absolute last thing you need is an auto update throwing off your momentum. That's why Dell builds tech that adapts to the way you actually work. Built with long lasting battery so you're not scrambling for the closest and outlet. And built in intelligence that makes updates around your schedule, not in the middle of it. They don't build tech for tech's sake, they build it for you. Find technology built for the way you work@dell.com Dell PCs built for you. So you know what everybody, I really appreciate the comments about, you know, I've gotten a lot leaner and built more muscle this year and it was really intentional. And I was thinking how can I get ahead, you know, on my fitness? Because I'm already pretty fit and worked out and it was how I'm eating and that's where factor came in. Factor doesn't ask you to meal prep or follow recipes. It just removes the entire problem. Two minutes, real food. Bam, done. And so once I started eating healthier and using Factor, not only did I get a lot leaner, but I built more muscle. And the truth is guys, I had More energy. So one other thing I like is got to tell you, you can rotate the meals every single week. There's like a hundred different meals. High protein, calorie, smart, Mediterranean. It's awesome. You should be using factor just like I am. Head to factor meals.com/my let50off and use code my let50OFF to get 50% off your first factor box. Plus free breakfast for a year offer only valid for new customers with code and qualifying auto renewing subscription purchase. Make healthier eating easy with factor.
- [17:49]
B
So, Elon, his method of leadership is to set crazy goals and then have people around him that will accept the challenge of the crazy goal and try to figure it out. So we were in a management team meeting one day and he said, guys like to compete with the Chinese. This was after we'd started our Chinese factory and we could see how efficient the Chinese auto industry was. He's like, to compete with the Chinese, we had to take like 50% of the costs out. And so he turns to me and Doug Field, who was the head of engineering at the time. Now Doug runs EVs at Ford. He turns to us and says, guys, can you figure out a way to take 50% of the cost out? So Doug and I go for a walk, and we go for a walk in the factory. And the factory is about 2 kilometers long, so it's 1.3 miles, basically 1.2 miles. And a car factory is kind of divided into two. First half of the factory is a bunch of robots putting the skeleton of the car together. And the second half of the factory is people hanging parts on that skeleton. And in the first half, it looks like an orchestration of hundreds of robots, because it is. And there are hundreds of parts that are getting welded together to create the skeleton car. And Doug and I are in the middle of the factory between the two halves, and we're looking at this end of the factory that's all robots and building the skeleton. And Doug says, I think I have an idea to get rid of 50% of this. And I said, what is it? He said, I got to go home and do some studying and reading about it, but I think I have an idea. See you tomorrow morning. So he comes in the next day and he says, here's the idea. And he rolls a matchbox car across the table at me. I'm like, doug, what's this toy car? It's as big as my thumb. He said, yeah, this thing isn't welded. It's casted, meaning they pour metal into a mold to Create the car. And I said, well, Doug, the reason they can do that is because the pressure you have to have to keep molten metal in place is super duper high. You can do that for something as big as your thumb scale. You can't do that on car parts. They're too big. Like, you blow this factory up literally trying to pressurize that molten metal. He's like, I think we could figure this out. Are you willing to go on, like, an exploratory journey with me to figure this out? I'm like, 100%. What do you want to do? He said, do you have anything in the factory that is excess aluminum that we could melt? And I said, yeah, we've got a bunch of, like, scratch and dent wheels that we pull off cars because they're scratched and dented. And we put them out back, and a recycler comes by every week and picks them up. He's like, awesome. Tell the recycler not to pick them up anymore. I'm going to put, like, a smelter back there. And with a few engineers, we're going to start dumping these wheels into the smelter, and we're going to melt metal, and we're going to put them into molds. And so we literally start to do that. Like, we're literally chucking wheels into this smelter. It's melting the aluminum, and then we're pouring it into a mold as big as our hand and pressurizing it and getting that to work. And then we're pouring it into something that's maybe a couple of feet wide. And we go step by step by step until we get to the point where we've got a machine that's super powerful and sophisticated that can take half of the car's skeleton and mold it.
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A
Unreal.
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B
And this is called castings. And so if you were in the Fremont, California factory, you'd see that half the place is robots and it's building these skeletons. If you go to the Austin factory where they're building the model. Yeah. There is no half of that factory. Factory's half the size because they're just building castings. And all you do is stick these two things together and you got a car. And so we figured this out, and it meant that cars were a lot easier to manufacture. One of the toughest things in car manufacturing is get everything to align.
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A
Sure.
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B
And that's because when you have a skeleton that's got several hundred parts, it's really hard to do that when you've got A skeleton has two parts. Super duper easy to do that. So it made the manufacturing quality go up. And there are all these benefits from that. But, like, it's eight years later now. We invented this eight years ago. The car industry's trying to do this. And you cannot buy a casting machine anywhere now because Toyota's trying to figure this out, Ford's trying to figure this out, GM's trying to figure this out. Castings are the thing, but it can't.
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A
Why can't you buy the machine?
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B
Because there's such demand and there's so few of them.
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A
Okay.
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B
Yeah. Because car companies now are like, gosh, these guys really, totally have changed the engine.
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A
Isn't it unbelievable when you're listening to this, everybody, that a company like Tesla, like a pivot point like that. I got an idea. Let me think about it. Overnight, he rolls a little Matchbox car at you. And that completely transformed the ability to build these cars at scale and with the efficiencies in them.
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B
Totally. Doug. Doug's like one of the things I loved about being on these teams is, like, people were like, pretty analytical, but really creative, too. And Doug's one of those. He's absolutely a creative genius. And so for him to come up with that, he completely changed an industry with that one thing. But it also came from a leader saying, I'm not setting a goal for 10% or 5% or 20%, I want you guys to whack 50% of the cost out of this thing.
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A
Yeah, yeah. It's amazing that. We'll get to that in a second. But what's amazing to me is all of these companies essentially had legacy thinking the entire time. All of them had the means, the capital, the engineers all sitting there that could have done what you guys ended up doing. But because they don't question everything, because they're not thinking about efficiency, because they're not running the algorithm. That's what I mean by the blind spot in your business, everybody that you. Even if you're a real estate agent, it's just, what is it that everybody's always done that doesn't need to be done anymore?
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B
Totally.
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A
It's so. It's. It's mind blowing to me. The other part I want to ask you. So he throws this thing out 50%. Let's cut the cost. First off, he set a tone, I assume, in the company where bad ideas were okay as well.
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B
Yeah, yeah.
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A
And that's something in most companies, too. People are afraid to kind of. Because if you just kind of fall in line. You're probably gonna get a paycheck that month, I assume. One of the good things. I'm sure there are other things that weren't good, but one of the things about working with him is he fostered an environment, is it fair to say, where ideas were welcomed that questioned tradition?
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B
Totally. Like, we would fail constantly. And if you look at his other business, SpaceX, I don't know, I mean, dozens of rockets they sent up into the sky that exploded.
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A
Right.
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B
Like the total mission fails and there's hundreds of millions of dollars blowing up in the sky, literally. And it wasn't like people got fired. It was, what can we learn from that? Because we knew we were on this learning cycle and humans aren't perfect this side of heaven. You're going to screw up. So we wanted to learn from the failures, and we kind of had this mantra, which is, learn from the failure. Don't repeat it. And if people were repeating failures, that's a problem. But if they're learning from it and incrementally getting better, that's what we wanted because the goals were so high that we knew you couldn't achieve them on the first whack.
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A
Was it an environment there? You said in the book that he has blind spots as well, and this interview is not good.
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B
Yeah, we all do.
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A
We all do. Was it hard? I don't mean that. I have friends that are pretty close, so. Did you sometimes feel like you were the adult in the room?
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B
I was trying to be the steady hand in the room, for sure.
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A
Yeah. That's like what I mean. Yeah.
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B
Yeah. Just to. And. And oftentimes take the other side of the argument. Like, if. If he wanted to produce a car, which he did when we. When we launched the Model 3 in 2018, he was. He wanted to take the steering wheel and the pedals out because he thought we were that close to autonomy. And so I had to pull him aside and say, let me take the other side of this argument. If we don't get autonomy done now, we've got a bunch of cars without steering wheels and pedals, and we're going to cause our own extinction event.
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A
Whoa.
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B
Do you want to be the source of the extinction event? He's like, no, I don't. I said, yeah, I don't either. So how about we hold off on this? Because even if we do get autonomy, I'm not sure the government's ready to put cars on the road. So I said, there's two strikes against us. I don't want to cause the extinction event here. I know you don't either. And he would come back and say, thank God we had that discussion.
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A
Okay. Yeah, you. One personal thing you share in the book. And then we'll get back to the business stuff. But I've met you. I mean, you walk in a room, you know, you acknowledge everybody. You got tremendous people skills, you got great energy. But it sounds to me as if over time there, at least your wife says to you, at some point you were. You're losing who you are. I'm misquoting her here. You can clean it up for me. But I don't recognize this guy, or I'm losing you.
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B
Yeah.
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A
The downside of working with someone who, you know alons had mental health issues that he's been very honest about. The downside of working in an environment like that long term is. Is what. And what did it do to you? Why did you. Ultimately, this is the end of the road for me.
- [26:26]
B
I found myself. And Walter Isaacson writes about this in his book. Walter was writing his book on Elon, and he called me and said, hey, I want to talk to you about Elon's mental health challenges. And I said, I'm not sure I want to talk about those. He said, well, Elon actually gave me your number. He wants you to talk about those because he wants people to know that if they're struggling, there are other people that are struggling too, and he's one of them, and you can be successful even if you have mental health issues. But I said, walter, like, this stuff is so personal. Can you just. Why don't you give me a few hours? I'm gonna call Elon and make sure he's okay with this. So I called Elon. I said, look, he wants to talk about this. Are you okay with me going there? And he said, yeah, because I want people to know if they suffer from bipolar, that they can get through this too and have a successful life. So I got back together with. With Walter. Walter said, tell me about the implications of dealing with somebody with bipolar. And I said, well, the implication for me was, I'm pretty good at running businesses, but I have no skill set in helping somebody through severe depression and bipolar. And I found myself dealing with that more and more. And I was trying as best as I could to help him, but I didn't have the skill set. And eventually my wife saw the symptom of that, which was she said, you are stressed out and upset all the time. And I didn't recognize that, but she had enough perspective to Recognize it? She said, why do you think that is? And I said, I think I know why it is. I'm trying to solve a problem for which I have zero skills. This is like me getting thrown into a Major league baseball game and I'm on the mound, and I have no idea how to throw a ball 90 miles an hour, much, much less make it move. And I said, I feel like I'm failing at this. And she said, you need to. You need to decide whether this is the role for you. So I actually went and sat down with Elon and said, I love you and I love this job, but this job has become more about helping you with your mental health issues than it is running Tesla. And I'm not equipped.
- [28:30]
A
Wow.
- [28:30]
B
Yeah.
- [28:31]
A
That had to be one of the hardest decisions.
- [28:32]
B
Totally hard. Totally hard. Yeah.
- [28:35]
A
You. What is it like? What's the other side of it? Sell us the dream or the nightmare? I was. I've had friends of mine that I've asked, I've had. I've been fortunate that I've been involved. Compared to you, it's ridiculous. But I've had some small exits and success in my life and. And. But I've had other friends where we've gathered and talked about that journey and had people ask us, you know, if you had to do it all over again, I think the guy was running Nvidia said this or something. If you had to do it all over again, what advice would you give me? And he says, I probably wouldn't do it all over again. And I'm wondering, what is it like? Take us into what's it like emotionally, physically, the good and the bad of being. Watching the dream happen for a company coming in when it's an idea, right? And then taking it to a place that's. What is that like? Like, all these entrepreneurs have a dream. You've been involved with Lyft. You've been involved with Lululemon, still you've been involved with Tesla. I mean, yeah, your resume is bananas, right? But even in the Tesla case, what is this process like in your life when you go through it and you see it happen?
- [29:38]
B
I think maybe the core skill entrepreneurs have is problem solving. And problem solving, you get to use the right side of your brain. Left side of your brain. Left side of your brain is like you're analyzing the problem. Right side of your brain is you're. You're creating solutions, and you become this, like, ninja problem solver. And out of those solutions, then stuff gets created. And so that, for me, was the Satisfying part was we're knocking down these problems, and now we've got the ability to build a car for half the cost. And if we can do that, a lot more people are going to be able to afford to buy the car. So now this dream is starting to become reality. The second piece of the satisfaction for me, though, was teaching people how to do this and then watching them do it and then seeing that they had. They were able to do much more than they thought they could do. They just had never been in the situation where they were challenged and equipped with the tools to do it.
- [30:32]
A
You say challenge, is it being pushed?
- [30:34]
B
I would say, I'll give you an example. There's an example in the book of this woman, Nikki. And Nikki ran delivery at the factory, so people would fly to the factory to get their cars delivered right off the line. Pretty cool experience. And she was doing this a couple dozen times a day and had a team doing it. And then at the end of the quarter, hundreds of cars would come off the line and they'd do it several hundred times a day. And I watched how effective a leader she was. And we had this challenge worldwide where we didn't know how to deliver these cars very well and efficiently. And so I gave Nikki a battlefield promotion. I said, nikki, you're going to be charged of this globally. And she looked at me for a second and looked like she had a look of terror on her face. She's like, I'm not sure. And I said, no, I think you can do this. We're going to help you. We're going to surround you, we're going to teach you how to do these things, teach you the algorithm and tools. And about six months later, she had mastered that. Then we had a problem in the factory that was so vexing that even Elon and I and everybody else that was wrestling with, we couldn't fix it. So I said, nikki, you're going to get now your second battlefield promotion. You're coming to the factory with me. We're moving our desks down there. We're going to solve this together, but you're going to lead it. And so that is not necessarily a push, it's more of a pull. It's pulling somebody onto the playing field and saying, I believe in you. I'm right behind you. I'm going to support you, but you can do this. And she proved time and time again that she could step up and do that.
- [32:01]
A
It's interesting. I came here today wanting to learn myself, but challenge my own thinking. And if you would have asked me one of the great qualities of an entrepreneur. The first thing I would have said would be like, vision. Yeah, the ability to stretch.
- [32:17]
B
That's true.
- [32:17]
A
But you said solving problems. That's the first thing that came to your mind. Do you think that that's the difference between a president and a founder, or do you think that that's just. Why was that your answer, do you think? Because that was clearly your first answer.
- [32:29]
B
Well, for a living now I start companies. And so before I met Elon, I had six companies. Not same time, but six companies kind of in a row, where we wrote the business plan on my kitchen table, scaled the company, sold it to a public company, did that six times in a row. And now I invent companies for a living. I'm back to my roots. And the reason I say problem solving is because we'll typically start with a big opportunity area. And we'll say, we got to create a company in this area. We got to figure out how to do that. We're going to create a vision eventually, but first we got to figure out how to. How to really make this company come to life.
- [33:09]
A
That's interesting.
- [33:10]
B
And a lot of that's problem solving at the very beginning. So I'll give you an example. Like, we saw that in the cyber or in the cyber security market. Last 5 years been about 1200 companies created in cybersecurity, all focused on the cloud, which I totally understand, because it's easier to write software for Amazon, Azure and Google than it is your local dentist, who could have any form of a tech stack. And so we said, how many cyber companies have been created for the local business? None. Isn't it interesting that most of the ransomware is happening in small and medium sized businesses? Yeah, because they're totally vulnerable. And they're vulnerable because their tech stacks are really hard to figure out. And so we just took this challenge and said, let's go create a vision. Here's the vision. Let's create a cyber company for the Main street business. To do that, we have to solve a big technical problem, which is how heck do we do this for an infinity number of tech stacks?
- [34:09]
A
Yeah. All right. I love when you guys send messages out on social media about the show and lately been getting a few of these messages about my wardrobe. I was wearing this sweater, this tan sweater, and I kept getting all these messages from guys going, where'd you get that sweater, bro? So I'm gonna tell you where I got it. I got it at Quint. A well built wardrobe is about pieces that work together and they hold up over time. That's what Quint does best. Here's the most important part. It's affordable. Don't break the bank. Right. Quince has the everyday essentials I love with quality. That last. Organic cotton sweaters, Polos for every occasion, lighter jackets that can keep you warm and changing seasons. Everything for everybody. Okay, Go check them out. Quint works directly with top factories. Cuts the middleman so you're not paying for brand markup. So refresh your wardrobe with quint. Go to quint.comed for free shipping on your order and 365 day returns. Now available in Canada too. That's Q U I n c e.com free shipping and 365 day returns. Quince.comed it's the paradise Podcast. I am your host, Ryan Michelle Bathe with my husband Sterling. What's up?
- [35:16]
B
Join us here on Hulu and Hulu
- [35:18]
A
on Disney where we'll discuss each episode with the cast and crew of Paradise. I'll be getting all the secrets from
- [35:25]
B
Dan Fogelman, James Marsden, Shailene Woodley, Julianne
- [35:28]
A
Nicholson and Sterling Kelby Brown.
- [35:31]
B
Paradise, the official podcast is now streaming
- [35:35]
A
and stream paradise on Hulu and Hulu on Disney.
- [35:40]
B
That's where the problem solving comes in.
- [35:42]
A
Very good.
- [35:42]
B
And so we spent a year solving that problem and then boom, we've got a company. And we looked like visionaries, but it was like both and you gotta have the vision and you gotta like do problem solving to actually get there.
- [35:51]
A
It's really good. I've never heard that before. Everybody should rewind that last two minutes. That's new. That's different. The other thing that you touch on in the book, in addition to the algorithm, five steps, I guess, or the five parts of the algorithm is culture.
- [36:04]
B
Yeah.
- [36:04]
A
Which is a big thing. If you go to any. If I go give a talk at, you know, Harvard or some business school, I mean, obviously culture comes up and everything, but you actually break it down into like three different components as well. So just if I said to you the word culture in a company, you would say what? Back to.
- [36:17]
B
I would say, like there's this secret sauce kind of secret ingredients to cultures that I, that, that I think are super successful. And both of them are really about creating feedback loops. So the first is, does leadership eat its own dog food? Meaning so good in the meaning, do they use the product?
- [36:34]
A
Yep.
- [36:34]
B
And I was with a group of bank CEOs and I said, hey, raise your hands if you guys use your app. Your bank's app on a weekly basis, no hands go up. And I said, to be honest, I wasn't surprised by this because I'm a customer of a couple of your banks, and your apps suck. And if you use them, they wouldn't suck for another day because you'd be so embarrassed. You would. You would haul yourself down to the people that were responsible for that app and fix it. But you don't use them, so you don't know. So you don't have a feedback loop. And the company doesn't have a feedback loop. And they think if it's acceptable to the CEO, it's acceptable to everybody else. And so I believe you got to use your own product. So I'm a board member at Lululemon. I've been in five stores the last two weeks because I want to shop. I secret shop. And I send our head of stores notes on every store visit, like, here's what. Look, here's what went great, here's what didn't go great. And it's a feedback loop that she can get them to fix stuff. But the message there is, rather than sitting in headquarters, you want your leaders to be out doing that same thing. And Tesla had this approach where we took a car off the line. If you were a senior management team, we took a car off the line every night, and we would drive it home, drive it back to the factory the next day, and within a half an hour, we'd have notes to the engineers. And so the feedback loop of using your own product is super important. And I'm shocked. Most people don't do this because it's just an easy hack. That's thing one. Thing two is there's a reason Elon can run so many companies, and that is he'd spend a lot of time thinking about what are the one or two. And there can only be a handful of existential issues for this company. And for him. He says, I'm only working on those two. I'm gonna delegate everything else in the business, but those two, I'm personally involved. And so, like, in the car business right now, he's determined that there are two existential issues for Tesla. One is autonomy. If you don't have a car that's a chauffeur and another company gets there first, you're gonna be out of business. This is like a flip phone to iPhone moment. And he really does believe this. I think that if you're a flip phone maker, like Nokia, Motorola, BlackBerry were when the iPhone came out, your market cap didn't fall by half, it went to zero. Zero. So that's existential. You've got to, you've got to be first in that technology. So what that means is, is that every week when he shows up to Tesla for one day, he's there a day, a week. He is only talking to the teams that are responsible for that issue. And because it happens weekly, there's weekly forward progress. Because teams, when they meet with the CEO, don't bring their B game, they bring their A game and they come with solutions and they're moving that problem forward just incrementally. Incrementally, Incrementally, incrementally. But because the CEO is personally involved, he can resource those, those needs and really drive forward progress. And essentially What Tesla and SpaceX do then is they're creating a compounding advantage versus their competition every week. And so if you look in space now, they've been landing rockets, parts of rockets, and reusing them for six years, seven years, and nobody can catch up because they're seven years ahead. They're already on to launching their own satellites and creating Starlink, et cetera, while like Blue Origin is trying to figure out, like, how do we launch one rocket and catch one fuselage? And so they've got, I think their launch costs are 90% less than the rest of the industry. They've got 90% market share.
- [40:15]
A
Oh my gosh.
- [40:16]
B
And that just keeps compounding. So the second cultural secret ingredient is as a CEO, have you figured out what the one issue is in your company that is going to drive survivability? And are you working that every week? So good. Yeah. And if you do, you're going to start to create advantage.
- [40:33]
A
Do you hire for culture? In other words, when you're, when you're hiring, do you, is culture fit important to you?
- [40:39]
B
Or we kind of hire for two things. Like, we hire for. This is going to sound crazy, this combination, but we hire for humility and capability. And believe it or not, like everything you'd, you'd read about Tesla externally, you'd think, boy, this is big ego driven culture. It's really a humble, it's very humble culture in the sense that Elon will create these crazy goals. And the response from some of the most brilliant engineers in the world will be, I don't know how to do that. So it's a really humble thing up front. Like, I don't know how to do what you're asking me to do, but I'll figure it out, or we'll figure it out. And so you want somebody who's got that humility but also that quiet confidence to say, I think I can go slay this.
- [41:23]
A
I see that in you.
- [41:24]
B
Well, it's, it's. And so then they'll fit in the culture for sure if they have those two attributes.
- [41:29]
A
That's interesting because my favorite people, friends, I started to deduce like who do I like to be around in my life? And it's, it's people with tremendous humility. But they nuance it because they also have a high level of self confidence as well. They toe that line.
- [41:44]
B
Yeah, exactly.
- [41:44]
A
These people that have tremendous confidence and bravado with no humility, they become exhausting. Yeah, they are around.
- [41:51]
B
They are.
- [41:51]
A
And then the people that don't have the confidence, you're dragging them through life in business all the time as well. So it's a really unique nuance. This, you guys in the book, this eat your own dog food part will stand out to you and it's outstanding. Tell us about what you're doing now. I'm just sort of interested. Like give us the name and I know it's in.
- [42:08]
B
Yeah, so. So we call this DVX Ventures. And what we are is a group of people with an idea disease essentially for businesses. And we create businesses from scratch. So we're kind of inventors of companies. And we'll take these in. These have to be in big kind of big opportunity areas where we feel like we're moving the world forward. And we've created 12 companies in five years. And we just have this systematic way of doing this where we will come up with the idea for the company, we'll get the first product into the market, we'll get it to post revenue, and then we go look for a second or third time entrepreneur who has had success, but they don't have their next idea.
- [42:48]
A
Yeah.
- [42:49]
B
And then we'll bring them in and they can typically bend the curve of this business really fast.
- [42:54]
A
Have you had any setbacks the last 10 years?
- [42:56]
B
Oh, yeah, yeah.
- [42:58]
A
Can you explain one? Describe one?
- [43:00]
B
Yeah. So like one of the things I observed at in the rideshare industry was they have this genius ability to be able to price a ride for what you're willing to pay for it and what they can deliver it for at a moment in time, in a street corner, in a weather condition, whatever, super sophisticated. And so they have these pricing engines that can determine what people are willing to pay. And every product company I've been a part of or sat on the board of doesn't have that capability. So Lululemon set their legging prices at $108, like 12 years ago. And they don't know why, and it hasn't changed. They don't know whether they could sell twice as many at 98 bucks or whether somebody is willing to pay 118. They don't know. And so I said, you know, we ought to take this insight from rideshare and being able to price dynamically and bring this into the consumer market for products. So you could understand, like, hey, if I lowered the price on this thing, could I sell more? And we'd actually done this at Tesla, we plotted out a demand and pricing curve and figured out that we could drop the price on the Model S by five grand and sell 25% more cars, which is really great insight and important insight to have. So my idea was, hey, let's start a company to do this.
- [44:11]
A
Yeah, great idea.
- [44:13]
B
And we looked around and said, well, there's a bunch of carcasses around that have tried to do this. And they turned out to be consulting companies because they couldn't get people to buy software. So we brought a bunch of really brilliant people in, people that had worked at Boston consulting groups, pricing group, etc. And we start to build this product and we take it out to companies and companies like, yeah, we really want the product, but we want your consulting more. Because our business is so unique. And one of the diseases I think, in business is people think their business is unique. It's really not, but they think it is. And at the end of the day, they thought it was. And we couldn't figure out how to create a software business out of this. It was going to be a consulting business. And consulting businesses are tough. They're low profit, et cetera. So my team turned to me and said, we have to kill this idea. And we do this a lot. And I said, yeah, you're right. Like I thought this was going to be applicable, but I was wrong. And so we killed the idea.
- [45:06]
A
You'll stop throwing good money after bad.
- [45:07]
B
Exactly, exactly.
- [45:10]
A
When you look at business right now, so there's things Elon said that scare me almost about what he thinks is AI is going to do to the world. So you're there that entire time. Right. And you've obviously had. You've proven your algorithm and your success not just in one place, but in multiple places. That's why it's a valid theory when. When something's pressure tested multiple times, then
- [45:33]
B
we know it in multiple contexts.
- [45:35]
A
Correct.
- [45:35]
B
Large, small.
- [45:36]
A
Yeah, that's why I. I found I sound like the better salesman for the book than you're even your public here today. Just because I believe so deeply in the principles in the book, especially now. Give us just a peek. What do you think the next five years looks like? I mean, he's actually said, I think I quote him correctly, where he says, I don't think we'd have a workforce anymore. I think we're going to have, you know, guaranteed minimum income. Everyone's going to be kind of floating around and the robots are going to do everything. I'm oversimplifying, but not by a lot. What do you see the next five years of business in general looking like? And the changes, the warnings, the sense of direction you would give someone listening or watching this today.
- [46:15]
B
I. My reaction is a little different. I think. I think the first part is right. I think humans are really good at seeing the first impact of technology, which is typically job destruction. We're really good at that destruction.
- [46:27]
A
Yeah.
- [46:28]
B
And we're really good at wringing our hands at that. We are not good at seeing what's on the other side.
- [46:33]
A
Right.
- [46:33]
B
And the reason is, is because we can't see what's on the other side because the world hasn't existed like that before. So I'll give you an example. I grew up in very rural America. I grew up in Nebraska. And the whole country looked like the place I grew up in. In the early 1900s, about 67% of jobs were in agriculture. And this thing came along called the tractor, and people started to wring their hands and said, 67% of Americans are going to be out of a job. This is going to be terrible. Not good. Terrible. So the tractors roll out. Farming gets a whole lot more efficient. Today, I think less than 2% of our population is in agriculture. But somehow on the other end of that, there was a second order effect that we didn't understand. And the second order effect that we didn't understand was a couple things. One is, if mass production of food exists, it makes it a lot cheaper. So people need less income to afford food. And then if they have more income, they can invest in other things. The other thing that you could invest in was this tractor was the product of the beginnings of an industrial revolution that then created all kinds of industries. Cars and trucks and trains. And you go on and on to today to computers and pharmaceuticals. So what jobs get created? Well, car factories need people, and then you got to build roads, and so you have construction jobs that get created. And I watched this Even in my own life, when I was a kid in this rural place, to make a long distance call, I had to push zero on the phone and talk to a human being. And I knew her, she was in my town. She's an operator for the local phone company. And what she did physically was take my call and plug a wire into the national system so that that could create a link for a long distance phone call. And she did this all day long. And then Sometime in the 70s, really bright engineers at Bell Labs figured out an electronic switch. Yeah. That could connect those two systems without a human having to connect two wires or a wire, a plug on each side. And overnight, 800,000 operators were out of a job. Job's gone. So it looked a lot like AI Big technical revolution. All these jobs are going away and this could be massive unemployment for these people. But we couldn't see what was on the other side of that. And some entrepreneurs, once they discovered that you could switch for free, said, oh, we're going to make long distance calls free. We're going to have this special area code. It'll be 1, 800. And all of a sudden you could dial anywhere in the country for free. Dialing 1-800-something. Something that created a need for call centers. And now there are millions, not 800,000 people, millions of people employed in call centers. We couldn't see that on the front side. So now we say, okay, AI is going to take all these call center jobs away because they're. AI does support really well and there's going to be massive unemployment and we're going to have universal. I'm not sure that that's the case. If you look historically, every major technical breakthrough has led to an increase in GDP for humanity.
- [49:35]
A
Very good.
- [49:36]
B
So like, I don't subscribe to the doom and gloom. We're not going to have jobs. I just don't think that's the way the world has worked historically. And this could be the first time in history. And I could be wrong, but I think we're going to see opportunities get created that we can't even imagine sitting here today.
- [49:50]
A
Day. I'm glad to hear you feel that way. Okay, last question. It's a two parter.
- [49:54]
B
Okay.
- [49:54]
A
By the way, I've enjoyed today so much.
- [49:55]
B
Me too.
- [49:56]
A
It's. We, we could do six hours and it would fly by.
- [49:59]
B
Yeah.
- [49:59]
A
A commercial for the book. Why should someone get the book and then be attached to it? I've always wanted to ask somebody other than my normal circle of people that we talk about Entrepreneurial. I remember when Michael Gerber wrote the E Myth, he called it having an Entrepreneurial Seizure. I don't know if you read the E. Myth Having an Entrepreneurial Seizure. I think that's a great book as well.
- [50:20]
B
I do too.
- [50:21]
A
And that's, it's like the Vogue thing now on social media. Everybody wants to be an entrepreneur. I'm curious as to your thoughts. So commercial for the book slash finish with who should be an entrepreneur. Do you think everybody can be? Do you think it's a genetic thing? Do you think it's a deal with the projection type thing? Just your thoughts on who should be one, if someone's watching or listening today and who maybe should be. Nothing wrong with being a number two and running a business of an entrepreneur.
- [50:47]
B
Yeah. So like the reason I wrote the book was I wanted, first of all I wanted people to know how Tesla operates and this is largely how SpaceX operates too. And there's this operating system we use and it's called the algorithm. And I wanted to get that out there, that framework out there, so that, so that we could drive more innovation in this country. And that was my primary motivation. I've read books like Gerber's books and other books where they've had a profound effect on me and my capabilities. And so I wanted to get this out there in, in the chance that that has that impact on somebody.
- [51:18]
A
It's going to.
- [51:19]
B
And then should people be entrepreneurs like I, I teach like you do in business schools and I'll have people, students come up to me at the end of class and I want to be an entrepreneur. And my first response is, are you sure? Like, are you really sure? Do you know how hard this is? This is really hard and it's really enjoyable if you're, if you're wired for it, but it's super duper hard. And I think when I was starting my career, there was a guy that I was working for who spotted in me that I was an entrepreneur. And he said, you ought not to stay here as an investor, you ought to go be an entrepreneur. And I said, okay, what do you see in me? And he said, well, I see that you want to be hands on, solving problems. I see that you're a creative, you want to create and you can't really do any of those in the kind of job that you're in right now. Now. And so those are the first two things I ask entrepreneurs, like, tell me, tell me how, how creative you are. Like when you look at it, if you're looking At a situation, do people often say to you, wow, you look at, you look at that with a different angle than all than the rest of us are looking at it. That gives you the creative insight to create something that is going to be meaningful, important. And so that's the vision piece. And then essentially, are you stubborn as hell?
- [52:36]
A
Yeah.
- [52:37]
B
Because you're gonna hear no 500 times for every one. Yes. You just gotta be able to ignore that. You have to have the kind of, you have to kind of like short term memory and like misplaced confidence that you can fix that. And so like, if you're just stubborn as hell and you're creative, you're gonna have a pretty good, pretty good chance of success. But if you're not, then this probably isn't the thing for you.
- [53:00]
A
So good. You said meaningful. Today was, this was really meaningful. Done a lot of podcasts, brother. I really, really grateful that we did this today.
- [53:08]
B
Same.
- [53:09]
A
Yeah. I'm really grateful you wrote the book.
- [53:10]
B
Thanks you guys.
- [53:11]
A
Get the algorithm. Just take my word for it. Get the book. You're gonna be glad that you did. It's gonna help you in your business, gonna help you execute better. It's gonna give you a philosophy and a theory that he's applied in multiple businesses, but particularly Tesla, which has done pretty good. Three months operating cash, that still blows my mind. John McNeil, thank you for being here today.
- [53:28]
B
Thanks for having me.
- [53:29]
A
God bless you everybody. Share today's episode. Take care.
- [53:36]
B
This is the Ed and Mylan Show. This episode is brought to you by Athletic Brewing Company.
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A
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