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From the book "You are Solving the Wrong Problem"

Chapter 6: Invention over Convention

The most serious mistakes are not being made as a result of wrong answers. The true dangerous thing is asking the wrong question. - Peter Drucker

Martin Eberhard had just gone through a divorce when he decided to buy a sports car. This purchase soon turned into a passion for automotive design. He had started companies before with his business partner and fellow engineer, Marc Tarpenning. Their vision was a fully electric vehicle that was much more efficient than any conventional design.

In 2003, the two gentlemen created a small Silicon Valley startup called Tesla Motors. The company was as much a technology company as it was a car manufacturer. Their core technology consisted of the battery, proprietary motor, and computer software that made the whole thing go. Eberhard served as the company's CEO, but finances were not his strong suit. The following year, Tesla teamed with Elon Musk to lead a round of funding. Musk took a very active role from that point forward, and he has largely been seen as the face of the company ever since.

Working backward from the customer need

The goal of any automotive company is to make great cars and sell as many of them as they can. Yet, that was not the first step taken by Tesla. Many automakers had worked on EVs to some degree over the prior 30 years, but the market had not significantly changed. These vehicles were often seen as niche products with limited appeal.

Elon Musk and the team recognized that other automakers were solving the wrong problem. They saw the actual problem that needed to be solved. How do you get consumers to buy into an all-electric vehicle?

Most people don't want a specialty car. The hybrid Prius was popular, albeit among consumers who valued that particular brand image. Mass-market consumers just want a regular car, one that is also more efficient. Consumers don't want to sacrifice performance or style. They need the ability to drive on longer trips. They don't want to be inconvenienced.

Tesla set out to show consumers that a pure electric vehicle could be as performant and stylish as anything on the market. To do this, they built a high-performance EV called the Tesla Roadster. It won the 2006 Global Green Product Design Award as well as the 2007 Index Design Award. Most notably, it sparked consumer interest in Tesla.

Now, back to the primary goal of car companies, which is to sell cars. The plan for the Roadster was not to mass-produce or mass-market the vehicle. The company wasn't able to do so at the time. There were financial challenges, and economies of scale had not been established. In other words, it couldn't afford to sell a lot of cars. At least, not yet. The long-term strategic goal was to create affordable, mass-market electric vehicles, but they needed to get there.

Given the momentum and interest generated by the Roadster, Tesla was able to move on to full production of its Model S. The Model S was listed for $76,000 as compared to around $100K or more for the Roadster. It was a luxury sedan, and Tesla proved its EVs were on par, if not better, than other comparables in the market. According to Tesla's website, the 2023 Model S goes 0-60 MPH in 1.99 seconds. Compare this to the 2923 Porsche 911 Carrera T, which according to Porsche, requires over 4 seconds to accelerate 0-60 MPH. That is a significant difference!

Technology beyond the battery and motor

A huge part of Tesla’s transformation was its supercharging infrastructure. They recognized that range anxiety was a major barrier to EV adoption. Thus, Tesla invested heavily in building a network of Supercharger stations. This enabled drivers to go on long-distance travel with convenient and fast charging. Not only that, the software in the Tesla tells drivers exactly when and where they need to go to charge next. Tesla truly has a network of connected cars.

They also famously pushed the boundaries of autonomous driving technology. All new Teslas now come equipped with the autopilot feature. Not only has Tesla produced a pure electric equivalent, but their automotive technology has surpassed many others in the market.

Through this process, Tesla didn't just create electric cars; they transformed the entire automotive industry. They demonstrated that electric vehicles could be high-performing, practical for everyday use, and desirable to a wide range of consumers. By working backward from the broader goal of reimagining transportation, Tesla has become a leading force in the transition to sustainable mobility.

Only twenty years after it was founded, Tesla has the highest market capitalization of any automaker. Stock market values fluctuate, but as of the time of writing, Tesla has a market cap of over $850 billion. This valuation makes it the sixth-largest American company.

Although the EV market continues to see ups and downs, Tesla solved a massive underlying problem facing the EV market. Their consumer focus combined with high-quality technology enabled them to capture a large segment of the growing market. The figure below shows how they approached the problem differently than their competitors.

How to become successful at scale

There are two ways to do this:

1. Become one of the best at something
2. Be the only one doing something valuable

Which approach are you taking?

The first approach is undoubtedly challenging, as it necessitates nearly flawless execution. Most markets are saturated with well-established competitors. To succeed in such markets, you must surpass your competitors in some aspect and provide customers with a compelling reason to choose your product or service. The presence of existing brand loyalties further complicates this task. While not impossible, breaking into these markets is undeniably difficult.

Let's take the example of creating a new stock-trading website or cryptocurrency exchange. While the popularity of cryptocurrencies has fluctuated over time, Bitcoin's potential for the future remains promising. Alternatively, you might decide to focus on traditional stocks. In either case, your trading platform needs to differentiate itself by being faster, more reliable, or offering unique features to attract a portion of the market share. Convincing customers who have been using platforms such as eTrade or Sofi to switch to your platform will require significant effort. While offering discounts or incentives may initially attract customers, it is essential to retain them in the long run. Otherwise, the initial boost from promotions may be short-lived, especially if a competing startup provides similar incentives to lure customers away. Warren Buffett coined the term "economic moat" to describe a sustainable competitive advantage.

The other fundamental approach is to be both unique and innovative. By being the lone player in a particular domain, you can naturally consider yourself the best. However, the caveat is that your activities must provide tangible value to the customer. For example, you could leverage artificial intelligence (AI) to offer personalized investment recommendations or utilize sentiment analysis based on recent social media activity to provide real-time stock ratings. The key is to invent and deliver something truly valuable and distinctive to the customer.

The question then arises: How can you create something that is both valuable and unique for the customer?

The first step is to retrain your brain and reframe the problem at hand. This concept aligns with the idea of "Working Backwards," which holds great significance at Amazon, where I worked as an engineer for almost five years. Amazon's approach to building products and services is rooted in starting from the customer's needs, recognizing the importance of solving existing customer problems. This customer-centric approach has greatly benefited Amazon, despite occasionally being caught off guard by emerging trends such as generative AI, where they have faced some challenges in catching up.

While certain businesses may achieve success by adopting a technology-first approach, their odds of triumph are often slim. OpenAI serves as an example of a company reshaping the entire technological landscape, but they still face organizational and leadership obstacles that could impact their future dominance. Nonetheless, it's important to note that transformative approaches extend beyond just large tech companies and can be applied across various industries.

Innovation, but not too much

Elon Musk and Tesla's leadership reached their plan by taking a different approach compared to other automakers. While other companies had already developed electric vehicle (EV) prototypes, these prototypes often had a niche appeal, both in terms of design and performance. In contrast, Tesla's Roadster and later the Model S were designed to resemble regular cars, making them more appealing to a broader consumer base.

Tesla faced numerous technological challenges in developing their vehicles, including designing the motor, battery, and autonomous driving software. The complexity involved in tackling these obstacles was undoubtedly significant.

The key to Tesla's success in gaining a foothold in the EV market while other automakers struggled lies in their business strategy. While previous EVs deviated from what consumers were accustomed to, Tesla recognized this reluctance to embrace overly innovative cars. Harvard University Professor Calestous Juma discusses this phenomenon in his book, "Innovation and Its Enemies: Why People Resist New Technologies." By understanding and addressing consumer concerns, Tesla was able to navigate these barriers and position itself as a leader in the EV market.

A primary thesis in Professor Juma's book is that people resist innovation when it is vastly different then what they are used to. The reason people resist radical change is that it threatens to undermine a part of their identity. Incremental change, on the other hand, is more easily accepted because it doesn't carry the same sense of "loss." Instead, the emphasis is placed on what is being gained through the change.

Introducing significant changes often elicits resistance, as people generally dislike change, even when it comes to revolutionary technologies. Cars, for instance, are personal possessions that contribute to individuals' self-image. A portion of the market is reluctant to relinquish their gas-powered engines because they appreciate the engine's sensation and the responsiveness of the gas pedal. Interestingly, I once experienced the fastest acceleration in a Tesla vehicle, although as a passenger rather than a driver. Despite not being the one with the lead foot, I was genuinely impressed by the performance.

Don't wait, create

Somewhere in life, you realize that you have to create your own opportunities. No one is going to hand them to you on a silver platter. People think, I would love to have a job where I do xyz. Guess what? You need to create that role, if you believe in it strongly enough. Start doing it, and if there is value there, someone will instruct you to start doing it as if it was their own brilliant idea.

Uber and Airbnb, two groundbreaking companies, redefined the concept of market creation. They demonstrated how innovative business models can forge entirely new markets where none previously existed. Uber, launched in 2009, revolutionized urban transportation by tapping into smartphone technology and the gig economy. Prior to Uber, the concept of hailing a taxi with the tap of a button was unheard of. The traditional taxi industry dominated urban transport. Uber's platform ingeniously connected drivers who had idle cars with individuals who needed rides, effectively creating a new market segment that offered convenience, efficiency, and affordability. This peer-to-peer ride-sharing model not only filled gaps in existing transportation systems but also addressed broader issues like reducing traffic congestion and the environmental impact of private car ownership. As a result, Uber kickstarted a new sharing economy, inspiring many other similar services across various industries.

Airbnb, founded in 2008, leveraged a similar concept to create a unique market niche in the accommodation sector. Before Airbnb, the lodging industry was predominantly controlled by hotels and bed-and-breakfast establishments, offering limited options that lacked a personal touch or affordable pricing. Airbnb's innovative approach allowed individuals to rent out their private spaces, be it a room, apartment, or house, to travelers seeking authentic and cost-effective accommodation experiences. This model not only provided homeowners with an opportunity to earn extra income but also enriched the travel experience for guests. It offered them a home away from home. Airbnb's success lies in its ability to build a community-driven platform that emphasizes trust, local experiences, and a vast array of choices. They are able to cater to diverse preferences and budgets. By doing so, Airbnb disrupted the traditional hospitality industry and established a new paradigm, expanding the market to include private residences as viable, desirable lodging options. This reshaped how people travel and stay around the world.

So, how can you apply similar techniques in your endeavors? In the next chapter, we will dive into how you can reframe the problem to your advantage.

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"Provides concrete techniques and tools"

"What's truly fascinating is how accessible these new approaches are"