Khan Academy’s „Entrepreneurship“ – Interview with Elon Musk, Part 1 (2013)

As part of its “Entrepreneurship” lecture series, the Khan Academy published this interview conducted by Salman Khan with Elon Musk on YouTube on April 23, 2013. Topics covered in this first part (minutes 00:00 – 24:16) of the nearly 50-minute interview include a small USB cable that causes big trouble, the motivations for starting various companies, why large amounts of money can be peanuts, and that an aerospace company is not born out of a desire for a safe investment. To access the German translation of this transcript, please click on the link.

Sal Khan: (00:00) First of all, I just want to thank Elon for coming – hungry. You didn’t even have dinner. And we didn’t even feed you properly.

Elon Musk: No, sorry to be a bit late. I just came from the Tesla factory in Fremont.

Sal Khan: Yes. Was something wrong?

Elon Musk: There’s always something wrong.

Sal Khan: Did you have to like–

Elon Musk: At any given point, there’s always something wrong.

Sal Khan: Yes.

Elon Musk: Because there’s just too many things going on. So one of the trickiest things about a car is that there’s thousands of individual components – there are thousands of unique components – and even if one of those things is missing, you can’t make cars. So today’s fiasco was – I kid you not – we were missing a $3 USB cable. Okay. So we could not complete cars, because …

Sal Khan: So the whole line was stopped?

Elon Musk: Yeah. Essentially, because it’s part of the wiring harness. You can’t put the interior in without this cable. And so we could either make a whole bunch of cars minus the interior, which means that you’ve got to stack them up in the yard.

Sal Khan: The resale value would be no good.

Elon Musk: Well, it can be done, but if then things go out of sequence, and it’s way more inefficient; you don’t have a moving production line. Then you have to send people out to hundreds of cars that are sitting in the storage yard. And this happens to be a particularly pernicious cable. It’s kind of routed under the carpet, in a difficult place. And it’s literally $3. We basically had to send people throughout the Bay Area to go and buy USB cables.

Sal Khan: Like, literally, Radio Shack?

Elon Musk: Like Fry’s.

Sal Khan: Oh, Fry’s. That’s better.

Elon Musk: You’re going to have a hard time getting a USB cable right now at Fry’s because we bought every one of them.

Sal Khan: That’s good.

Elon Musk: And so we’re able to continue production. I don’t want to belabor the anecdote, but essentially the supplier is in China and we had plan A and plan B. Plan A was like the normal supply chain process. But what the supplier did was instead of sending our parts in their own package, they grouped it together with a bunch of other stuff for other companies and sent that all via some extremely slow boat from China to LA. And when it got to LA, the other stuff didn’t pass customs. So they wouldn’t let our stuff through because…

Sal Khan: They put it in like a barrel fruit or something.

Elon Musk: I don’t know what they put it in, but something that customs didn’t like. And the paperwork wasn’t in order or whatever. So it got stuck there for like a couple of weeks. And then we had plan B. We called and said, look, you’ve got to air freight some of these cables – because they’re just little cables – to us. We talked to their US subsidiary and ordered from the US subsidiary, who then communicated to China. But then, because this was another batch of parts, so it was kind of double the order, it exceeded the credit limit that we had. It bounced off the credit limit, so they didn’t ship it.

Sal Khan: Fascinating. So someone’s losing their job now. This is… no, I’m kidding. You shouldn’t fire anyone.

Elon Musk: I mean, it’s pretty farcical. And, anyway, so, it’s coming like tonight at 11 pm or something.

Sal Khan: Wow. And these things are happening all the time or this was an unusual circumstance?

Elon Musk: Yeah. That’s like one example, but there’s many things like that.

Sal Khan: I guess, I mean, that’s actually a really good example, because that leads into what I’ve always been fascinated by a lot of what you’re doing. Well, I’ll start with, how did you get into this?

Elon Musk: Into cars?

Sal Khan: Into cars. Into taking over NASA. Well, not taking over NASA – being a contractor for NASA.

Elon Musk: Just for the record, we are not taking over NASA.

Sal Khan: You’re not taking over NASA. They are an independent organization. But you are becoming a major provider of services for NASA. Obviously, kind of internet payments and payments generally. I mean, these are three completely different spaces. I think a lot of people would not take someone seriously if they had a business plan in one of these.

Elon Musk: Right. Sorry to eat. (eating some fruit he got offered)

Sal Khan: Oh, yeah, take your time. What was your… – did you always think you were going to be doing this or– when did it dawn on you that you would try to revolutionize three industries?

Elon Musk: Well, when I was in college… – I didn’t actually expect to do it. It was not like this is some long-fulfilled expectation. But when I was in college, I thought about what were the areas that would most affect the future of humanity, in my opinion. The three areas were the internet, sustainable energy, and space exploration, particularly if humanity becomes a multi-planet species. You know, there’s kind of like a pretty substantial bifurcation in our future, if we’re either out there among stars (05:00) on multiple planets, or if we’re confined to Earth until some obviously eventual extinction. Not that I’m pessimistic about life on Earth. I mean, things are likely to be good. More likely to be good by far than bad.

Sal Khan: Yellowstone’s due for an explosion every several hundred thousand… Shandra (in the audience) knows about that. It’s been 700,000 since.

Elon Musk: Right. Right. Yeah.

Sal Khan: Supervolcano, for those of you who don’t know. It would envelop, but well…

Elon Musk: Yeah. Exactly. I know exactly what you’re talking about.

Sal Khan: We read the same books. I can tell.

Elon Musk: Absolutely. I mean, something bad is bound to happen if you give it enough time. And civilization has been around for such a very short period of time that these time scales seem very long, but on an evolutionary time scale, they’re very short. A million years on an evolutionary time scale is really not very much. And Earth’s been around for four and a half billion years, so that’s a very tiny, tiny amount of time, really. But for us, that would be… – can you imagine if human civilization continued at anything remotely like the current pace of technology advancement for a million years? Where would we be? I think we’re either extinct or on a lot of planets.

Sal Khan: Yes. We should…

Elon Musk: Those are the two options.

Sal Khan: But given that – I mean, one, that’s kind of as epic as one can think about things, literally. How did you make that concrete? How does that turn into SpaceX, Tesla, and PayPal?

Elon Musk: Well, so I thought about these things kind of in the abstract. Not from the expectation that I would actually have careers in those arenas. But, I wanted to be involved in at least one of them. At first, I thought the best bet was going to be electric cars. So, the area that I was studying was advanced capacitors, essentially, capacitors that have an engine density exceeding that of batteries. Because they have a very high power density but a low energy density. Maybe you have a lecture to that effect, I don’t know.

Sal Khan: Oh, yes, no. We should do that. We’ll get to it later.

Elon Musk: Exactly. So obviously, if you could make a capacitor that had anywhere near the energy density of a battery with this incredibly high power density and this quasi-infinite cycle and calendar life, then you’d have an awesome solution for energy storage and mobile applications. So I was going to sort of work on that and try to leverage the equipment that was developed for advanced chip-making and photonics to create ultra-precise capacitors at the molecular level.

Sal Khan: And this was when you were going to go into grad school? You had a brief stint at Stanford?

Elon Musk: That’s right.

Sal Khan: For a Ph.D. in applied physics?

Elon Musk: Applied physics, material science.

Sal Khan: Right. So even then, you were thinking of trying to do something in the space?

Elon Musk: Actually, this was to work on energy storage solutions for electric cars. I’d actually worked at a company in Silicon Valley called Pinnacle Research, which did advanced capacitors. They were electrolytic capacitors. They actually were pretty good. They had like the energy density of a lead-acid battery, which for a capacitor, that’s a big deal. But they used ruthenium tantalum oxide. I think at the time, there was maybe like one or two tons of ruthenium mined per year in the world. So it’s not a scalable solution. But I thought there could be some solid-state solution, like just using chip-making equipment. That was going to be the basic idea. But it was one of those things where I wasn’t sure if success was one of the possible outcomes. It’s difficult to bound that problem exactly and say, okay…

Sal Khan: So you’re saying, I felt like this was a destined failure, is another way to parse that sentence. But anyway, sorry.

Elon Musk: No. I didn’t think it would fail, but I wasn’t sure that success was a possibility.

Sal Khan: Okay. Yes.

Elon Musk: And generally, you want to embark on something… it’s desirable to figure out if success is at least one of the possibilities.

Sal Khan: Right, exactly.

Elon Musk: Because for sure, failure is one of the possibilities. But, ideally, you want to try to bracket it and say success is in the envelope of outcomes. I wasn’t quite sure if that was the case. I think success on an academic level would have been quite likely because you can publish some useless paper. And most papers are pretty useless…

Sal Khan: We have a few – (to the audience) don’t take offense.

Elon Musk: I mean, how many Ph.D. papers are actually used by someone ever?

Sal Khan: That’s a good point.

Elon Musk: Percentage-wise, it’s not good. It could have been one of those outcomes where you add some leaves to the tree of knowledge. And that leaf is, nope, it’s not possible. (10:00) And there goes seven years of my life. That was one path. And I was prepared to do that.

But then the internet came along. And it was like, okay, the internet, I’m pretty sure success is one of the possible outcomes, and it seemed like I could either do a Ph.D. and watch the internet happen, or I could participate and help build in some fashion. I was just concerned with the idea of watching it happen. So I decided to put things on hold and start an Internet company. We worked on internet publishing software, maps, and directions, yellow pages, those kinds of things. And we had as investors and customers the media companies like the New York Times Company, Knight-Ridder…

Sal Khan: This is just at the early stages. I mean, this was like late nine…

Elon Musk: ’95.

Sal Khan: ’95. It’s really early stages, so it’s really out the gate.

Elon Musk: Yeah. Absolutely. Then we… the reason we worked with the media companies was because we needed to have money. There was no advertising money in ’95. In fact, the idea of advertising on the internet seemed like a ridiculous idea to people. Obviously, not so ridiculous anymore. But, at the time, it seemed like a very unlikely proposition. A lot of the media companies weren’t even sure that they should be online. Like, what’s the point of that?

Sal Khan: And did you all think that PayPal was just going to be a simple, little internet way to… or did you think it was going to turn into the major kind of transaction processing engine that it is right now?

Elon Musk: I didn’t expect PayPal’s growth rate to be what it was. And that actually created major problems. We started PayPal on University Avenue. After the first month or so of the website being active, we had 100,000 customers.

Sal Khan: Really? That fast. Wow, I didn’t realize it was…

Elon Musk: Yeah, it was nutty.

Sal Khan: And how did it start? How did people just even know to use it? I mean, obviously, both buyer and seller have to be involved.

Elon Musk: Yeah. Well, we started off first by offering people $20 if they opened an account. And $20 if they referred anyone. And then we dropped it to $10. And we dropped it to $5. As the network got bigger and bigger, the value of the network itself exceeded any sort of carrot that we could offer.

Sal Khan: How much money did you all spend with that kind of $5, $10, $20 incentive to get that critical mass going?

Elon Musk: It was a fair amount. I think it was probably $60 or $70 million.

Sal Khan: Oh, wow, okay. So it was substantial. Okay, we’re not talking peanuts here.

Elon Musk: It depends on your relative scale. It’s a peanut to Google.

Sal Khan: Yeah, no, that’s right. That’s right.

Elon Musk: This is a peanut. I mean, Google’s got $50 billion. Apple’s got $150 billion, some crazy amount of money. That’s just cash.

Sal Khan: Yeah. So it’s not an outlandish… I didn’t realize that was so core.

Elon Musk: Like 1% of Google’s cash would be $500 million. You know, that’s 0.1% percent of Google’s cash.

Sal Khan: That’s true. You’re right, that’s inexpensive. It’s nothing.

Elon Musk: Relative to them, it’s pretty inexpensive.

Sal Khan: That’s right.

Elon Musk: And then we did a bunch of things to decrease the friction. It’s just like bacteria in a Petri dish. What you want to do is try to have one customer generate like two customers. Okay? Or something like that. Maybe three customers, ideally. And then you want that to happen really fast. You could probably model it just like bacteria growth in a Petri dish. Then it’ll just expand very quickly until it hits the side of the Petri dish, and then it slows down.

Sal Khan: And then after Paypal, then I mean… to some degree, especially us in Silicon Valley, we kind of understand the internet. We know people. PayPal’s obviously of the scale that is noteworthy, but then SpaceX just seems really, you know… well, how did you decide that I’m definitely going to do that? And then like, what’s the first thing that you do? How do you even go out… I don’t even know how to start trying to make a rocket company.

Elon Musk: Well, neither did I really. In fact, the first three launches failed. So it’s not as though it was spot on. It’s like, did not hit the bull’s eye.

Sal Khan: But even getting to the point that you’re launching rockets. I don’t even how do you get there? One, how did you decide it? And then what did you do on day one? Like, who did you call? Did you write a plan? Did you start…I don’t even know.

Elon Musk: Actually, the origin of SpaceX is that I was trying to figure out why we had not sent any people to Mars. Because the obvious next step after Apollo was to send people to Mars. But what, in fact, happened was that we sent a few people to the moon, and then we didn’t send anyone after that to the moon or Mars or anything. But if you’d asked people in 1969 what would 2013 look like, they would have said, (15:00) there will be a base on the moon. We would have least sent some people to Mars. And maybe there would even be a base on Mars. There would be like orbiting space hotels. And there would be all this awesome stuff in space. That’s what people expected.

And if you said, well, actually, the United States in 2013 will not be able to send anyone to orbit. But I’ll tell you what will exist is that there will be this device in your pocket that’s like the size of smaller than a deck of cards that has access to all the world’s information, and you can talk to anyone on planet Earth. Even if you’re in some remote village somewhere so long as there’s something called the internet – they wouldn’t know what that means, of course – then you would you be able to communicate with anyone instantly and have access to all of humanity’s knowledge. They would have said, like, bullshit. There’s no way that that’s going to be true.

Sal Khan: Right. Right.

Elon Musk: And yet we all have that. And space is not happening. So I was trying to figure out what was the deal here. This was 2001. It was just a friend of mine who asked me what am I going to do after PayPal. I said, well, you know, I’ve always been interested in space, but I don’t think there’s anything that an individual could do in space because it’s the province of government, and usually a large government. But I am curious as to when we’re going to send someone to Mars. So I went to the NASA website to try to figure out where is the place that tells you that. I couldn’t find that. I was like, either I’m bad at looking at the website, or they have a terrible website, because surely there must be a date.

Sal Khan: That should be a big date.

Elon Musk: Yeah. This should be on the front page. Then I discovered actually that NASA had no plans to send people to Mars or even really back to the moon. This was really disappointing. I thought, well, maybe this is a question of national will. Like, do we need to get people excited about space again and try to get NASA a bigger budget, and then we would send people to Mars? So I started researching the area, becoming more familiar with space, reading lots of books.

I came up with this idea to do a so-called Mars oasis, which was to send a small greenhouse with seeds in dehydrated gel that, upon landing, you hydrate the gel. You have green plants on a red background. The public responses to precedents and superlatives. So it would be the first life on Mars, the furthest that life’s ever traveled. And you’d have this money shot of green plants on a red background. That seemed like it would get people pretty excited. So I started getting into this and trying to figure out, okay, well, can I afford to build a spacecraft? Because I had some money as a result of PayPal, but it had to fit within that budget. I figured we had to do two missions because if we only did one and it failed, then it might have the opposite effect.

Sal Khan: But you were willing to bet the farm, so to speak, on this?

Elon Musk: Yeah. Well, I figured I was willing to spend half the money that I got from PayPal with no expectation of return. Because I thought this was just something that was pretty important, and yeah, it seemed like I could spend half the money I made on PayPal on this, and if that got NASA a bigger budget and resulted in us going to Mars, that would be a pretty good outcome.

Sal Khan: And when your friends or your family came up to you and said, look, there’s nations that can’t do this. You’re a guy. I mean, you have some resources; what did you say or do or think?

Elon Musk: I had a lot of friends of mine try to talk me out of starting a rocket company because they thought it was crazy. And one friend of mine made me watch a video of rockets blowing up. And there were just lots of people that thought it was a really crazy idea. And there were some people that had tried to start rocket companies, not succeeded. And they tried to talk me out of it. But the thing is that – their premise for talking me out of it was, well, we think you’re going to lose the money that you invest. I was like, well, that was my expectation anyway, so I don’t really mind if I lose… – I mean, I mind, but I mean it’s not like I was trying to figure out the rank-ordered best way to invest money and on that basis chose space. It’s not like that I thought, wow…

Sal Khan: You weren’t looking at like money-market bonds, AAA bonds, rocket company. You weren’t like…

Elon Musk: I could do real estate. I could invest in shoemaking. Anything. And, whoa, space is the highest ROI (return on investment) – that is not what I… – it wasn’t the premise. I just thought that it was important that humanity expands beyond Earth, and we weren’t doing that, so maybe there was something I could do to kind of spur that on. Then, I was able to compress the costs of the spacecraft and everything down to a relatively manageable number. And I got stuck on the rocket. The US rockets were way too expensive. I ended up going to Russia. (20:00) I flew to Russia three times to negotiate a purchase of an ICBM (Intercontinental Ballistic Missile). I tried to buy two of the biggest ICBMs in the Russian fleet in 2001 and 2002. And I actually negotiated a price.

Sal Khan: I’ll just let that statement stand. I’m not even going to… – Well, actually, I have to… – Who did you call?

Elon Musk: You open the Yellow Yages. Go to ICBMs. Oh!

Sal Khan: How does this… – I don’t want to get too much into it, but I’m curious about this one particular thing. You decided at some point you need to buy an ICBM?

Elon Musk: Yeah. Well, actually, at first, I tried to buy just a normal launch vehicle that they use to launch satellites, but those are too expensive.

Sal Khan: I see. I see.

Elon Musk: The Boeing Delta II would have cost $65 million each, so two would have been $130 million. And then I was like, woah, okay, that breaks my budget right there. I tried to negotiate with them. And that was not… I did not make progress.

Sal Khan: How much does an ICBM go for? I’m curious what’s the market rate for one of those?

Elon Musk: Well…

Sal Khan: This was right after the fall; it might have gone up.

Elon Musk: Yeah, it’s gone up a lot since then. But in 2001, it would’ve been about $10 million each. Two would have been $20 million. And then I thought I could get the rest of the mission down to also around $10 million per, so we’d have a dual mission with like two identical launches, two identical spacecraft for roughly $40 million. And I thought, okay, I can do that.

Sal Khan: But you must have had some like rocket scientists advising you at this point? This sounds like you were serious. I mean, you were…

Elon Musk: Yeah. I engaged a bunch of consultants and started to kind of get familiar with the space industry. But then, after the third trip to Russia, I came to realize that I was actually wrong about my first premise, that there was a lack of will. In fact, I think that there’s a tremendous amount of will in the United States for space exploration. Because the United States is essentially a nation of explorers. I mean, it’s a distillation of the human spirit of exploration.

So, of course, it was quite silly of me to think that people lacked motivation. But what people don’t want to think is that, okay, sending people to Mars is going to be so expensive that they’ll have to give up health care or something. They’re not going to do that. It’s got to be that going to Mars is not going to cause some meaningful drop in their standard of living. So, if it’s like maybe a quarter of a percent or half a percent of GDP – something like that is palatable. Anyways, I thought, okay, it’s not really going to maybe matter that much if I do this mission because what really matters is having a way. I was wrong; I thought there wasn’t enough will, but there actually was plenty of will if people thought there was a way.

So I said, okay, well, I need to work on the way. How hard is it really to make a rocket? Historically, all rockets have been expensive, so, therefore, in the future, all rockets will be expensive. But actually, that’s not true. If you say, what is a rocket made of? And say, it’s made of aluminum, titanium, copper, carbon fiber, if you want to go that direction. And you can break down and say, what is the raw material cost of all these components. And if you have them stacked on the floor and could wave a magic wand so that the cost of rearranging the atoms was zero, then what would the cost of the rocket be.

And I was like, wow, it’s really small. It’s like 2% of what a rocket costs. So clearly, it would be in how the atoms are arranged. You’ve got to figure out to how can we get the atoms in the right shape much more efficiently. I had a series of meetings on Saturdays with people, some of whom were still working at the big aerospace companies, just to try to figure out, is there some catch here that I’m not appreciating. And I couldn’t figure it. There didn’t seem to be any catch. So I started SpaceX. (24:16)

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