Fast track

Elon Musk is poised to become Silicon Valley's Next Big Thing. What put him in the driver's seat?

Topics: Silicon Valley,

If Elon Musk had bothered to surround himself with the public relations handlers who monitor the average Silicon Valley gazillionaire, he would never, ever have been caught on camera climbing into his new MacLaren F1. The MacLaren F1, with its gull-wing doors, rear engine and center-mounted driver’s seat, is essentially a road-ready version of a Formula 1 racer. Only 62 were ever made; the sticker price was 634,500 pounds sterling, and this is distinctly not a car that loses 30 percent of its value the moment you drive it off the dealer’s lot. In fact, pretty much the only way of getting one is to buy it at a hefty premium from one of the current owners. (Ralph Lauren, the tweedy fashion designer, tried to buy this particular F1, but did not move fast enough, calling an hour after Musk had signed the deal.)

Musk was able to buy himself the coveted car because, at 28, he’s already started and sold one Internet company — namely, Zip2, a creator of online city guides that Compaq, the big computer maker, bought in April for a cool $307 million in cash. (Musk and his brother Kimbal held about 12 percent of the company, and made out with tens of millions.) Now he is starting another, X.com, which may be the hottest company in Silicon Valley that you’ve never heard of. This makes Musk, in today’s Silicon Valley-speak, a “serial entrepreneur.” A better way of thinking of him, however, is as today’s Silicon Valley It Guy — a young man with a one-page risumi, a good Rolodex, an aptitude for programming, money of his own and a lot more backing him.

By the conventional lights of Silicon Valley, what Musk has done — taking me down to the garage of his Palo Alto, Calif., condominium and posing for snapshots with the world’s fastest production car — is a gross mistake. If you think of the photographs that you have seen of the Silicon Valley elite, you might notice that there is, in general, a striking absence of photographs of the newly mega-rich posed with their cars and yachts. The public relations machinery of the technology industry exists largely to maintain the fiction that the multimillionaires contemporary California produces in unseemly abundance are really just average, cubicle-dwelling Joes.



The immediate punishment for breaking these rules, generally, is a whacking by the very same press that you are indulging. Musk almost certainly knows this, because the last time that Musk was written about at any length, he took some heat for asking Upside magazine to take his photo in a black 1967 Jaguar. Musk’s detractors still cite the article as evidence of his outsized ego.

The funny thing is that Musk really does not seem to care. I find this, on the whole, endearing.
Here’s why: Modern business journalism is devoted to glowing profiles of corporate honchos and scrappy entrepreneurs. And yet there is an unwritten rule that these moguls and mini-moguls (with,
admittedly, the exception of a very few mega-moguls at the level of Bill Gates) should avoid displays of the extravagance that their wealth so obviously permits. They are schooled not to evidence any concern about their public personas.

The problem with all this is that, in fact, the showiness, the chutzpah, the streak of self-promotion and the urge to create a dramatic public persona are major elements of what makes up the Silicon Valley entrepreneur. If they were not, then people like Elon Musk, who already have tens of millions of dollars to their name, simply would not bother with starting a second
company. Musk’s ego has gotten him in trouble before, and it may get him in trouble again, yet it is also part and parcel of what it means to be a hotshot entrepreneur.

Musk’s public presence may grow exponentially in the next few months because the company that bears the cryptic X.com moniker is almost overwhelming in its ambitions. Musk intends X.com to be a financial supermarket — an online bank, mortgage broker, insurance vendor and mutual fund company all rolled into one.

The total banking experience that Musk brings to the enterprise is a college stint as an intern at a Canadian bank. The thought that he will succeed in building what is in essence the holy grail of online companies, while institutions like BankAmerica and Citicorp have been banging their manifold corporate heads against the seemingly insoluble problems of online banking for years, is amazing.

Musk’s plans would probably be dismissed as a pipe dream if his venture was not being funded by one of the few really big names among technology investors. It is a name that I have promised not to reveal, but in Silicon Valley is one of about half a dozen drop-out-of-your-seat names — a venture capitalist who can not only pour enormous amounts of money into the enterprise, but can also raise tens of millions from other investors just by picking up the phone.

Creating a “hot” Internet company involves a kind of alchemy that no one has yet developed into a science. In general, the biggest Internet “plays,” as they are invariably referred to by the people who think of themselves as movers in the valley, are more about money than about ideas. Ideas are plentiful, but getting big consumer companies like X.com off the ground is largely dependent on getting backing from venture capitalists — investors who are able to pour millions of dollars into and lend their credibility to a new enterprise.

Venture capitalists do not usually back ideas; far more often they back teams — sometimes managers, sometimes engineers — that they think will be able to “execute.” Finding the right team is an almost obsessive concern.

Here’s the thing that’s really weird about Musk’s plans, the part that, the more you think about it, the harder it is to understand: There is no very obvious reason why Musk is the person to pull this off.

He has no knowledge of banking. (If anything, the main lesson he took away from his short internship was a general contempt for corporate processes. “They didn’t have just one coffeemaker there,” Musk says. “They had a special coffeemaker for the executives. An ‘executive coffeemaker.’”) While an adept programmer, Musk does not think of himself solely or even primarily as a software engineer. He doesn’t even have an MBA.

And yet … Here he is in his Palo Alto office, well advanced on the project of starting a huge online bank.

Musk’s own description of his talent, taken from an e-mail, goes like this: “I guess my talent/expertise is that I know how to build a killer Internet company with a solid foundation. I didn’t know anything about the media business when starting Zip2, but figured it out along the way. Actually, I’ve found that being an outsider helps you to think creatively about improving the way things are done. When people have been doing things the same way for years, they stop questioning their methods even if they defy common sense.”

This self-description is strikingly circular. Musk’s talent for building companies consists of … a talent for building companies.

It is awfully hard to figure out what this means. It is important to note that when it comes to technical matters, Musk’s ability to deal with programmers is well-respected. Not long ago I talked to a president of an Internet company who was looking for some technical talent. He had asked around to find out who
would know the best developers, and his sources had pointed him to Musk as the person with the best sense of whom to hire. However, Musk shot back an e-mail saying that if he knew of any great programmers for hire, he’d have signed them up himself.

There are plenty of people in Silicon Valley, however, who have enormous technical expertise, and more than a few who can put together a great team of engineers. Moreover, Musk does not think of himself as a chief technology officer, and would undoubtedly recoil at a description that brands him as simply a “techie.”

I had come down to X.com’s office, a cramped space above a bakery not far from the Stanford University campus, to understand what makes up the constellation of talents of the killer entrepreneur. I will tell you right now that I did not find the full answer, but I think I did find a few hints.

To understand where Musk is coming from, you should understand the history
of his first company. It is instructive — and it is very different from
what you might expect of a short bio of a mega-millionaire netpreneur.

Having grown up in South Africa, the son of a South African engineer and a
Canadian model, Musk left home at 17 to go to Kingston, Ontario, and enroll at Queen’s
University. He went without his parents’ support, motivated in no small
part by the distasteful prospect of compulsory service in the South African
military. (“Who wants to serve in a fascist army?” Musk asks, reasonably
enough.) He got a scholarship and transferred to the University of
Pennsylvania, where he received an undergraduate business degree from
Wharton, and stayed on another year to finish a second degree in physics.
He went on to a graduate program in physics at Stanford, in
which he stayed exactly two days before dropping out to start Zip2.

Seeing the future in the Net, Musk, a self-taught programmer, started
building the software that Zip2 would use to put newspaper-style ads and
directories on the Web. Musk claimed no special knowledge of or
insight into the future of the media, aside from the simple and fairly obvious
principle that a lot of what newspapers did — entertainment guides,
classified ads — worked better online. In 1996, a Silicon Valley venture
capital firm gave him $3.5 million for a little less than half his company
(his brother Kimbal and a friend, Greg Kouri, had joined up along the way).

Several months later, Richard Sorkin, a more experienced manager, joined up
to run it. For venture-backed companies with young founders, bringing in a more experienced CEO is a fairly common practice; in fact, Musk helped hire Sorkin. But in this case, the outcome was a series of ego clashes that almost shut down Zip2.

From early on, Sorkin and Musk disagreed on strategy. Zip2 was not a
“consumer” company with a big brand name. The sites it created for the New York Times and other smaller newspapers bore the names of their sponsoring papers, with a little logo and the words, “Powered by Zip2.” To users of its sites, Zip2′s work was almost invisible.
Sorkin wanted to concentrate on dealing with Zip2′s customers and
financiers. Musk, according to Sorkin, wanted to be in the public eye.

“There were disagreements over the priority of general visibility for the
company,” says Sorkin in perfect corporate-speak.

I asked Sorkin if it was true that Musk, in the words of another associate,
wanted to see his picture on the cover of Rolling Stone. “Yes,” he said. “For Elon that’s what general visibility meant.”

- – - – - – - – - – - – - – - – - – - – -

In 1998, Zip2 announced plans for a merger with a competing city guide
company, Citysearch. At the time, both companies were in the dangerous
position of competing with Microsoft’s Sidewalk city guide service, then
generally believed to be the behemoth that would crush any small players. A
merger was seen as a major coup in a war in which no one expected more than
one or two big survivors.

The merger was approved by the two companies’ boards of directors, press
releases were sent out and there were congratulations all around. Problem
is, it never happened.

At the last minute, Musk says, he had a conversation with Charles Conn, the
chief executive of Citysearch, and decided he didn’t trust him. In theory,
the terms of the merger had Musk staying on as an executive vice president.
In practice, says Musk, after talking with Conn he felt that the Citysearch CEO would
force him out in a matter of months. Musk and his brother withdrew their
approval. The boards of the two companies met in Santa Fe, N.M., and called the
whole thing off.

Says one senior participant in the negotiations, “The merger came apart over
the inability of the people involved to work together.”

The result wasn’t pretty. A failed merger is the corporate
equivalent of a wedding that is called off after all the relatives have
been invited. Everybody would rather forget it. As a result of the soured
deal, Citysearch was forced into a merger with Ticketmaster Online, the
national ticketing company.

Meanwhile, Zip2 faced a worse fate. Both Musk
and Sorkin, who supported the merger, wound up losing out. Musk gave up the
position of chairman of the company. Sorkin became chairman in name only,
effectively losing his job. Derek Proudian, a venture capitalist
with the firm Mohr Davidow, Zip2′s first investor, took over as acting chief
executive officer. In general, when a venture capitalist — who is
essentially a money manager — comes in to actually run a company, it is a
sign of major trouble. Compaq’s decision to buy Zip2 in February 1999, in fact, might count as one of the more notable corporate rescue missions in Internet history.

By the traditional standards of corporate America, it was a dismal showing.
On the corporate report card, Musk’s grade for “plays well with others”
would have been a solid F. For a senior executive at a multimillion-dollar
company, boardroom maneuvering is what management consultants might call “a
core competency,” and Musk seems to have indicated a definite lack of talent.

And yet, put simply, it just doesn’t matter, because what matters in
traditional corporations is not what matters in a start-up. In start-ups, ego
wins. What Musk is, and what his backers are looking for, is a believer — someone whose very ignorance of corporate manners allows him to induce a whole company to come together and embark on an ill-defined but promising course.

In one conversation with Musk, I asked him how he imagines the advertising for X.com will look. In this, as in everything else, Musk does not pretend to be an expert. His perspective is just that of a gifted amateur.

“You know the ads for Tide?” Musk asks, “where there’s a name brand and brand X, and brand X always loses? Well, our ads can be like that except that brand X wins.”

It is too easy an analogy to say that Musk himself is Silicon Valley’s Brand X, the young entrepreneur with a very peculiar combination of calculation, bravado and expertise in nothing in particular. There is, however, some truth in it. There is so much money to be made off the Internet, and most of the experts don’t know where to start. None of the traditional talents seem to correlate with success. The only one that seems to really matter is the peculiar ability to get started.

Everybody in Silicon Valley is looking for the lucky guy who can lead them to the big score. There is a talent that Musk has, but nobody can put his finger on it. It seems in some way to be connected to the mixture of brazenness and guilelessness involved in bringing a reporter down to the garage to see your million-dollar car. It is undoubtedly connected to the egotism that makes him unsuited to corporate maneuvering. Maybe Musk really has a special spark that lets him think more strategically than everybody around him. Maybe Musk really is the next big thing. Or maybe he has just managed to make his backers believe that he is the Brand X, the next superstar. In today’s Silicon Valley, the difference between being the next big thing and looking like it may not even matter.

Mark Gimein is a staff writer for Salon Technology.

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