How to Create a Company: Elon Musk’s 5 Rules

How to Create a Company: Elon Musk’s 5 Rules

The richest man in the world is a serial entrepreneur. Elon Musk has spent his whole life building businesses from scratch, the early ones he sold and the latest ones he has kept. His record for creating companies is staggering in quantity, scale, and magnitude.

What companies has Elon Musk created?

His first business building win was as co-founder of Zip2, a web software company, it was acquired by Compaq for $340 million in 1999. Musk made $22 million from his 7% share of Zip2 in the sale.

With $10 million of the capital from Zip2 he invested it for his next startup win as the co-founder of PayPal which was acquired by eBay for $1.5 billion in 2002. PayPal was acquired by eBay to integrate into their platform so buyers and sellers could easily make transactions directly between each other online.

The $180 million Musk received from selling his 11.7% stake in PayPal to eBay was used to found start ups SpaceX, Tesla, and Solar City as he believed that space travel, electric cars, and the solar power industry were the future of technology. He went all in on these three new business bets.

“My proceeds from the PayPal acquisition were $180 million. I put $100 million in SpaceX, $70m in Tesla, and $10m in Solar City. I had to borrow money for rent.” – Elon Musk

He was the founder and CEO of SpaceX, co-founder and CEO of Tesla, Inc., and also the chairman and helped start Solar City which was later acquired by Tesla.

Musk was a key Angel Investor that helped launch an artificial intelligence company DeepMind Technologies in 2010. The company was sold to Google for a reported price of $400 to $600 million.

He is also the co-founder of Neuralink; founder of The Boring Company, and co-founder of OpenAI. [1]

How many companies has Elon Musk founded?

Elon Musk has founded eight companies so far.

  1. Zip2 Corporation
  2. X.com/PayPal
  3. SpaceX
  4. Tesla Motors
  5. SolarCity
  6. The Boring Company
  7. Open A.I.
  8. Neuralink

Elon Musk Advice On Creating A Business

  1. Work super hard
  2. Create a great product of service
  3. Recruit and hire great people
  4. Focus on the signal over the noise
  5. Take smart risks early

1. Work Super Hard

Elon Musk’s first advice on creating a company: “I think the first is, depending on how well you want to do, and particularly if you’re starting a company, you need to work super hard.”

“You just have to put in 80 to 100 hour weeks every week.”

“If other people are putting in 40 hour workweeks and you’re putting in 100 hour workweeks, then even if you’re doing the same thing … you will achieve in four months what it takes them a year to achieve.” – Elon Musk [2]

He advises that the cost of success in business creation is measured in both time and effort. Working hard doesn’t guarantee success but it increases the odds of winning and is the minimum barrier to entry for entrepreneurs whether they succeed or fail.

80 to 100 hour work weeks are not for everyone as most people have other priorities in life but this is the unbalanced life that most business owners live to get up and running and achieve success.

2. Create a great product or service

“If you’re building a product or offering a service, it can’t be just a little better than the competition–it has to be great.” – Elon Musk [3]

“If you’re entering anything where there’s an existing marketplace, against large, entrenched competitors, then your product or service needs to be much better than theirs. It can’t be a little bit better, because then you put yourself in the shoes of the consumer… you’re always going to buy the trusted brand unless there’s a big difference.” – Elon Musk

New businesses can only beat old businesses when they have an edge with their own product or service. To win in business you must be better in customer experience, product quality, speed of service, better design or the business model itself. Business is a competition that you must win. Find your own edge.

3. Recruit and hire great people

“The other thing I’d say is that if you’re creating a company or if you’re joining a company, the most important thing is to attract great people. Either join a group that’s amazing that you really respect, or if you’re building a company you’ve gotta gather great people.”

“All a company is, is a group of people that are gathered together to create a product or service. So depending upon how talented and hardworking that group is, and the degree to which they’re focused cohesively in a good direction, that will determine the success of the company. So do everything you can to gather great people if you’re creating a company.” – Elon Musk 

Businesses are only as good as the people that manage them and do the work. The job of a business founder is to recruit the best people and hire people that will add value to the team. Then the business owner is the leader that sets the vision, inspires, leads, motivates, and incentivizes his associates to be successful and achieve their goals.

4. Focus on the signal over the noise

“Focus on signal over noise. A lot of companies get confused, they spend money on things that don’t actually make the product better. So for example, at Tesla we’ve never spent any money on advertising. We put all the money into R+D, and manufacturing and design to try to make the car as good as possible. And I think that’s the way to go.”

“For any given company, just keep thinking ‘are the efforts that people are expending resulting in a better product or service?’ If they’re not – stop those efforts.” – Elon Musk

Focus the businesses capital along with the employees time, attention and energy only on the things that matter most to achieving the company’s goals. Pet projects, egos, and opinions can get a company off track to what is most important.

Pick what is most important and master that area. Focus like a laser only on what matters and understand the feedback the market gives you after each success and failure.

5. Take Smart Risks Early

“The final thing I think I would encourage you to do is, now is the time to take risks. You don’t have kids, and your obligations are limited, but as you get older your obligations increase. Once you have a family you start taking risks not just for yourself but for your family as well. It gets much harder to do things that might not work out. So now is the time to do that, before you have those obligations.”

“So I would encourage you to take risks now, do something bold, you won’t regret it.” – Elon Musk 

Taking smart risks when you’re young or when your business is still small can be the best time as the risk of loss to the downside is minimized early on but the upside reward can pay off huge.

How to Create a Company: Elon Musk’s 5 Rules
Image Created by Holly Burns