Tesla first announced that it will sell its cars only online, and so will shut all its showrooms and stores — thus saving a lot of money — proceeding to pass these savings on to its customers in the form of reduced prices of its cars. This announcement was predictably met with a lot of enthusiasm by Elon Musk fan-boys, who lost no time in pointing out how Musk and Tesla were once again upending and disrupting how cars were made and sold... and just as predictably, there were enough sceptics who just dismissed this as one more gimmick by the ‘man child’ who runs Tesla.
This time around, the sceptics are having the last laugh, as within a few days of the original announcement, Tesla came out with another announcement saying that they are not actually shuttering all those showrooms. In fact, the price of a Tesla car will go up by some 3%.
Joseph Spak of RBC Capital comments, “The seemingly spontaneous yet dramatically altering strategic decisions (for a $50 billion market cap company) doesn’t lend a lot of confidence, in our view. Rather, it makes it seem like Tesla is making decisions on the fly and reacting to very short-term factors.” The frustration with Musk and Tesla is clearly evident, but what’s more important to note is how he points out the large market capitalisation of Tesla, almost as if to point out that it is not a startup anymore.
Method to the madness
A key behaviour common across startup CEOs is how nimble they are in quickly changing the direction in which their company is headed. This may be in response to changing market conditions, or more often than not, just a realisation that their current business model is not working out and they need to cut their losses quickly and try something else. Or pivoting, as they call it.
When a startup is still young or small, or when the only major stakeholders are the founders and the initial set of investors, such course corrections hardly cause problems, and more often than not, the leader driving such changes is appreciated.
Frequently, and this is probably the case with Elon Musk too, these figureheads become used to the freedom of frequently changing directions, strategies, or even tactics. But as the startup grows into a larger company, each such decision comes with a cost, and the CEO has no experience or any tools to measure what the cost is, so that they can weigh it against the probable benefits of such a change.
It may be useful for leaders of fast-growing startups to form their own systems that allow them to measure both the negative and positive impact of changing a priority for the company. They need not lose their ability to be nimble, for it will always be useful, but as the company grows, they need to figure out exactly how much and where there is room to be nimble like that.
Else, they will just find themselves in the position Musk is in today, announcing big things, and then, embarrassingly, having to walk back on that.
The author heads product at a mid-sized startup in the real estate space
