Doing Things that REALLY Don’t Scale

In a previous post I suggested that I may develop some of my key take-aways from the WBW posts about Elon Musk and his companies into separate blog posts. This is one of them.

The credit for getting the term “do things that don’t scale” into the Silicon Valley jargon belongs to Paul Graham, the Y-Combinator co-founder, who popularized it in one of his most notable and frequently-referenced blog post.

Paul’s post focuses mostly on tactics. On doing things that don’t scale in the way that you do them, not in the purpose of the things themselves. It focuses on the “how” no the “what”: recruit users in a way that’s not scalable, over-weigh feedback and be extremely responsive, provide a level of customer service that will be impossible to maintain when you get bigger, do things manually that eventually will be impossible to execute without automation. Paul advocates for scrappiness, which is a critical mindset for an early stage company. He argues that doing the right thing is far more critical than doing that thing right in the early stages. And he is absolutely right.

But in the Tesla story, the WBW folks tell us about a different type of “doing things that don’t scale”, a type that pertains not to the “how” but to the “what”. Things that REALLY don’t scale. It is beautifully illustrated through what they refer to as the Hershey’s Kiss business model:

pyramid.png

Step 1: High-priced, low-volume car for the super rich. Come out with the expensive first product, but make the car so fancy that it’s worth that price—i.e. just make it a legit Ferrari competitor and then it’s okay to charge over $100,000 for it.

Step 2: Mid-priced, mid-volume car for the pretty rich. Use the profits from Step 1 to develop the Step 2 car. It would still be expensive, but more like a $75,000 Mercedes or BMW competitor instead of Ferrari.

Step 3: Low-priced, high-volume car for the masses. Use the profits from Step 2 to develop a $35,000-ish car that, after the government’s $7,500 EV tax credit and the savings on gas, would be affordable to the middle class.

Delivering on the company’s mission: “to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.” will take years if not decades and a massive amount of funds. The only way to get there is through different types of products targeting different types of markets. The thing that doesn’t scale here is the strategy, not the tactics – it’s the business model, both in terms of the target market, and the product that’s being used to address its needs. But in the process, every phase provides enough revenue, and enough learning to drive the next step/phase in the evolution.

SpaceX is using the same approach: figure out how to put things into space ==> Revolutionize the cost of space travel ==> Colonize Mars

Uber is doing the same, but with slightly lower stakes and on a much accelerated timeline: Uber Black ==> Uber X ==> Uber POOL

I can imagine a similar trajectory for AltSchool: run our own private schools ==> provide services, software and expertise to other independent schools ==> transform public schools

Now THAT is doing things that REALLY don’t scale. Perhaps one of the only long-term strategies for driving change in industries where both a massive amount of time and a massive amount of money will be required.

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Doing Things that REALLY Don’t Scale

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