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Elon Musk is 100 Percent Right–You Can Cut and Grow at the Same Time

Elon Musk recently made people do a double-take when he said he wanted to reduce his employee base by 10% and then later said Tesla would grow at the same time. Many were left scratching their heads, and took his seemingly conflicting positions as just Musk being Musk.  

The funny thing is, he’s right–and the head-scratchers should reexamine their criticisms. 

Musk, Tesla’s CEO, believes Tesla is overstaffed, and in an effort to be more cost-conscious, he felt the reduction was appropriate. Despite share prices falling 9.2% the following day, there is much more to this Musk’s strategy than the shaving off of employees from the roster. In fact, it’s precisely such cost-cutting initiatives that embody a core component of Musk’s business growth strategy. By taking a “prune and grow” approach (think: trimming a rose bush so it can better flourish), Musk is challenging Tesla to do more with less. It’s a “lean growth” approach, and it’s an approach that has proven to be quite effective. 

Currently, Tesla has roughly 100,000 workers around the globe, and 40% are located outside the U.S. At the same time, nearly half are in production, building cars or installing solar panels or batteries. But Musk’s cost-cutting initiatives do not pertain to these individuals. Instead, he has targeted other salaried employees who aren’t necessary for the company’s success. If Tesla were a rose bush, Musk is clipping the stems that don’t favor overall growth–a necessary task if Tesla is to bloom to perfection. 

Some analysts have suggested that Musk is concerned about a looming recession. Others believe it’s his antagonism to employees seeking remote work instead of returning to the office. But at the end of the day, his true motivation is because he believes this to be an effective business growth strategy.

 (Read more about how the remote-work migration is impacting the U.S. in this Bold story!)

“Nothing matters more in winning than getting the right people on the field. All the clever strategies and advanced technologies in the world are nowhere near as effective without great people to put them to work.” – Jack Welch

A History of Topgrading and Lean Growth

 Before exploring Musk’s human resource cost-cutting initiatives in greater depth, it’s worth noting he is in good company. Back in the 1980s, Jack Welch, former CEO of GE, adopted a business growth strategy to improve the company’s talent. At the time, GE had about 300,000 employees, and about 25% were considered top talent. In an effort to improve these statistics, Welch developed a process of topgrading where new hires as well as all employees were rated. Those rated “A” were top-tier and noted to be passionate, committed, charismatic, and high energy. In contrast, “C” employees were non-productive and tended to procrastinate. By using his topgrading approach, Welch eventually achieved a workforce where 80% were top-tier talent.

 (Dig into Bold’s talent acquisition outlook for the year in this story.)

The core part of Welch’s topgrading approach involved his chronological topgrading interviews for new hires. At the same time, he was also notorious for cutting the lowest ranked 10% of employees on an annual basis. In doing so, he progressively cultivated a culture of excellence and high productivity. In fact, roughly 30% of Fortune 500 companies continue to practice topgrading cost-cutting initiatives today—AIG and Yahoo among some of the more well-known ones. 

While this may not be Musk’s only target in his business growth strategy, it’s likely to be a significant component. As a workaholic who despises laziness, it’s no surprise he would favor a topgrading approach to staffing. 

“I think it’s possible for ordinary people to choose to be extraordinary.” – Elon Musk

Prune and Grow

 While recruiting and keeping top talent is critical to business success, this alone will not always provide a competitive advantage. Musk appreciates this, which is why he constantly challenges his team to explore the boundaries of what’s possible. He has done this repeatedly at Tesla and SpaceX by inviting experimentation and failure as a means to learn and grow. This provides a strong foundation for progress as a business growth strategy, which is why he has excelled. In this light, it should be clear that Musk likely uses cost-cutting initiatives as a means to challenge his team. By forcing them to do more with less, he invites greater creativity and innovation. That is precisely what his current talent downsizing plans are likely to be. 

(Bold Business has a lean growth program that can help organizations survive through turbulent times. Check it out, and download the whitepaper on the SMART+ Operational Excellence framework!)

Of course, many firms implement cost-cutting initiatives in times of stress. When recessions hit, companies may be forced to pursue reductions in costs in order to weather the storm. But these programs are not the ones we are referring to when discussing Musk’s business growth strategy. 

The view of a Tesla before it crashes into you
“Prune and grow” is a smart business growth strategy, and Tesla will only come out better for it.

Unlike other companies, his cost-cutting initiatives are done months to years in advance. In other words, they are proactive and not reactive. This added time is crucial in allowing value-added solutions to be developed and implemented. They aren’t launched in an effort to survive, or even in an effort to be more efficient. Instead, they are introduced to challenge others to develop more effective solutions to advance the company’s competitive advantages. At the heart of Musk’s business growth strategy is this prune-and-grow philosophy. 

“Talent is extremely important. It’s like a sports team, the team that has the best individual player will often win, but then there’s a multiplier from how those players work together and the strategy they employ.” – Elon Musk

Embracing His Own Philosophy

As SpaceX relocated to Texas from California, Musk sold off all of his various properties for tens of millions of dollars. He then purchased a prefab Boxabl tiny home where he now resides right on the SpaceX campus. As one of the world’s richest billionaires, the move may seem rather odd. But like his business growth strategy for Tesla, there’s more to the story here as well. In essence, Musk’s downsizing was a way to stimulate his own creativity and innovation through a reductionist approach. 

Musk’s ultimate goal is to create a sustainable colony on the planet Mars. In order to achieve such a goal, he will naturally need as much capital resources as possible. This could be a reason why selling off assets might be of benefit. But more importantly, any colony on Mars would rely on inexpensive, prefabricated structures. Musk’s decision to live in such a dwelling now is more than a coincidence. It’s much more likely to represent his own version of market research for his future goals and plans. In other words, he’s squeezing his own environment now in an effort to grow a deeper understanding for the future. 

For Musk, more pruning and growing is in store for his other businesses. Although he hasn’t yet sealed the deal on taking over Twitter, on a company-wide call last week, Musk talked about reducing staff if costs continue to exceed revenue. It’s like that the same could happen at the Boring Company, Neuralink, or anywhere Musk sees the need to prune away the unnecessary foliage so the rose bush can thrive!

Elon Musk quote to Twitter staff
Musk talks business growth strategy to the Twitter staff (courtesy of the Financial Times)

It’s evident that Musk’s decision to topgrade his salaried staff at Tesla is more than a reaction to the economy. Instead, it’s another aspect of a much larger business growth strategy that invites cost-cutting initiatives to stimulate innovation. Musk not only talks the talk but also walks the walk. 

In this regard, it’s a lesson for all of us. It is possible to shrink and grow at the same time. And doing it as part of an overall mission and vision makes the journey all the more rich in the end.

Ed Kopko, CEO and Publisher of Bold Business

      
Edward Kopko
CEO & Publisher
———————
Ed Kopko is BoldBusiness.com’s CEO and Publisher. He has a passion for business, economics and media. A serial entrepreneur, Ed has launched Bold Business to help broadcast the great accomplishments that come from business and entrepreneurial activity. He believes the very real and amazing Bold Impacts that these activities have created also make a micro economic case for trade and commerce. Ed’s previous media experience was as CEO, Publisher and Owner of Chief Executive Magazine and its related media activities. He has been published in many media venues including the Wall St. Journal, Detroit Free Press and Forbes.com. He has also been a sought after commentator and appeared numerous times on CNBC, MSNBC, Fox News and other media outlets.

Want to control your cost efficiency and protect your bottom line? Bold Business can help.

It’s About to Get Ugly for Startups and Venture Capitalists

Well, it’s been a good run. For the last 13 years, startups have enjoyed a heck of a bull run, especially for tech companies. But as the saying goes, all good things must come to an end. And when it comes to investment experts in venture capital funding, nearly all are predicting a market teardown. Given rising inflation, geopolitical conflicts, and increasing interest rates, the writing seems to be on the wall. That means startups, particularly ones who will need capital infusions in the future, may need to rethink things. According to the expected changes in the VC landscape, a new startup strategy will need to be developed.

Fortunately, that doesn’t mean there’s nothing startups can do in planning for a rocky future. Indeed, access to venture capital funding will be notably less during a market teardown and readjustment. But there are a variety of things companies can do as part of their startup strategy. In many cases, companies have room for improvement and can tighten the ship to help weather the storm. Others may have unique opportunities that need to be exploited now rather than waiting months down the road. In any case, it’s important for startups to take a close look at their operations given the evolving economic climate today.

“We do not believe that this is going to be another steep correction followed by an equally swift V-shaped recovery like we saw at the outset of the pandemic…The era of being rewarded for hypergrowth at any costs is quickly coming to an end.” – Sequoia Capital

Different Pressures, Different Outcomes

When it comes to a market teardown, it’s easy to compare to recent events. Some may believe that any setback might mirror the recent Great Recession in 2008. The stock market suffered significant losses then, causing venture capital funding to fall for a time. But that was triggered by a housing bubble collapse, which no one expected currently. Instead, most expect home values to maintain their gains and continue to slowly increase over the next few years. Others liken current times to the challenges suffered during the early pandemic months. But many firms, including technologies, thrived during this time, generating tremendous capital supports. As a result, most companies had to readjust their startup strategy very little.

The economic pressures today are quite different, however. Inflation is rising and is expected to continue to do so over the course of the year. This has prompted the Fed to raise interest rates, which will further hinder consumer spending. Likewise, a post-pandemic adjustment by consumers is causing many pandemic business winners to suddenly experience setbacks. Netflix, Shopify, and Peloton are perfect examples of that. And of course, the volatile and unpredictable nature of the Russian-Ukrainian conflict further complicates matters. Because of these developments, the stock market is already showing signs of a bear market. And financial experts anticipate the worst is still yet to come.

(Read more about how some of the pandemic’s business darlings are doing now in this Bold story!)

“If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well. We recommend you change your plan.” – Y Combinator

What Startups Can Expect

Understanding the probable situation for the future, there are a few things companies can expect regarding venture capital funding. First and foremost, there won’t be as much of it to go around. According to some projections, global venture capital funding will decline by 19% quarter-to-quarter in the coming months. The market teardown will persuade VC firms to spend less and to be more critical of firms. As a result, the number of VC deals will decline, and the size of such deals will drop. It also means that other financing opportunities will evaporate for many companies in a pre-IPO phase. Given the limitations in accessing additional capital, it is highly recommended that companies adopt a new startup strategy to fit the times.

An entrepreneur gazing up his capital-raising options.
Hopefully your startup strategy has prepared you for the upcoming capital-lean times.

In addition to declining access to venture capital funding, startups can also expect lower valuations. With a market teardown, the potential value any company brings to the market will naturally be less. Therefore, companies should no longer expect past trends in valuation levels to continue. The erosion of a startup bubble will naturally further limit opportunities for financing and capital. Some startups will be affected more than others. These include international companies, those with heavy assets, and those in hard technologies. Low margin startups will also be more heavily scrutinized. All of these explains why a new startup strategy will be needed.

(Dig into more about the startup bubble in this Bold story by publisher Ed Kokpo!)

“Reevaluate your valuation, understand your burn multiples, and build scenario plans.” – Andreessen Horowitz

New Startup Strategy Considerations

A market teardown doesn’t mean all hope is lost, but it does mean a shift in startup strategy is necessary. During preceding years, venture capital funding has been abundant. High yields in some sectors along with competition among VC firms helped this situation. But now that the brakes are being applied, it will be important for companies to get lean and get mean. In other words, startups will need to do more with less while preserving the capital they have. Cutting costs and streamlining operations will be essential for survival. And most experts are encouraging startups to secure a 24-month cash runway based on expected market conditions. Many companies have already begun laying off staff as part of such a strategy.

Of course, not all companies will be in a position to extend their cash runway this long with additional funds. For these startups, securing venture capital funding sooner rather than later is essential. The longer such companies wait, the more difficult and more costly the access to capital will be. At the same time, all companies should develop multiple scenario plans as part of a startup strategy. Plan for the worst as well as the best and determine ways that best position the company for success. There’s little doubt many startups won’t survive the market teardown that’s anticipated. But among those that do, they’ll be stronger and more adept as a result.

 

Want to control your cost efficiency and protect your bottom line? Bold Business can help.

Crossroads of Influence – The Effect of Political and Business Decisions

In 1990, the Soviet Union was about to dissolve, ushering in a new era at the close of the Cold War. It was then McDonalds, one to the most obvious symbols of Western capitalism, decided to open its first Russian store. Russians lined up in the thousands to get their first taste of a Big Mac. It wasn’t that Russians were anxious to embrace western ways. Instead, it was about finally having an experience that had previously been unavailable to them. Now, some 32 years later, McDonalds has decided to sell all its Russian stores. And the impact this may have on Russia today goes far beyond the loss of a hamburger.

The effect of political actions on business choices is easily recognizable. Some 600 companies have decided to suspend services in Russia since the Ukrainian invasion. At the same time, business decisions affect politics in major ways as well. This is especially true in a globally, interconnected world with hundreds of multinational corporations. But the magnitude of these impacts is just beginning to be realized in the aftermath of a global pandemic and humanitarian crisis. Both politics and business choices can affect the final outcomes when the dust settles. That’s why it’s important that businesses make decisions wisely and thoughtfully as these crises continue.

“The humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment, have led McDonald’s to conclude that continued ownership of the business in Russia is no longer tenable.” – McDonalds Corporation company statement

The Repercussions of Political Actions

Russia’s decision to attack Ukraine is rather complex and results from developments occurring over many decades. Nonetheless, the unprovoked attack resulted in hundreds if not thousands of civilian casualties. And the effect of political actions on business choices has been substantial. In addition to government responses, major companies decided to pull out of Russia altogether. Notably, these business decisions affect politics in a significant way. In fact, Russia is already feeling the economic impacts of these new world developments. And it may soon be feeling the social effects within its country as well.

According to some analysist, the unemployment rate in Russia could rise from 4% to 7.5% in a short time. In essence, this would be comparable to the country’s unemployment rate in the Recession of 2009. In addition, Russia pays unemployed workers 67% of their salary if unemployment results from a company decision. With hundreds of thousands at risk for losing their jobs, this would force Russia to rethink its position. This is how business decisions affect politics from an economic perspective. Of course, no one anticipates that these developments would be enough for Russia to change course. But it does highlight how the effects of political actions on business choices result in challenging situations.

“We have a commitment to our global community and must remain steadfast in our values. And our commitment to our values means that we can no longer keep the Arches shining there.” –  Chris Kempczinski, CEO of McDonalds Corporation

Business Values and Political Influences

The effect of political actions on business choices is often multifactorial. At one level, corporations must negotiate logistics and changes in supply chains affected by new policies. These issues affect business operations and secondarily profits. Therefore, they will notably influence business decisions as well. But these are not the only effect of political actions on business choices. Many companies, including McDonalds, made the decision to leave Russia due to their value systems. This is important because these business decisions affect politics and social attitudes greatly. This is likely to be the case in Russia as time evolves.

(Read more about the growing relationship between supply chain logistics and robotics in this Bold story.)

A politician giving a speech to some people
Now, more than ever, it’s clear that business decisions affect politics.

While recently unemployed Russian workers can fall back on government supplements, many aren’t having to do so. Companies like McDonalds have made the decision to continue to pay worker salaries for now event though they’re shut down. In essence, the effect of political actions on business choices were aimed at affecting Russia economically. But this was not intended to target individuals who had supported the company. As a result, McDonalds employees recognize the company values in place despite the decision to leave the country. This will make it more difficult for Russia to blame companies like McDonalds for ill effects. This is how business decisions affect politics by espousing corporate values that align with those of the people.

“There’s just this sickening feeling that [Russia is] going to go back, not to the 1990s, but to the 1970s when [Russians] didn’t have access to these things, and when you were living isolated from the rest of the world.” – Angela Stent, Georgetown University Professor and former National Intelligence Council officer

The Expanding View of Corporate Social Responsibility

For some companies, corporate social responsibility has become a buzzword for sustainability and charity work. While these are important responsibilities that business may have, they no longer encompass the entirety of corporate social responsibility today. As the effect of political actions on business choices grow, corporations must consider their options in greater depth. Because business decisions affect politics, companies can also play an important role in advocating specific values. In the process, they can influence the policies countries around the globe consider moving forward. This is precisely what companies like McDonalds and others are doing in regard to the Ukrainian crisis.

Critics may suggest that McDonalds plans to exit Russia have little to do with values and much to do with operations. Without a doubt, the company has faced numerous setbacks in its operations in Russia since the Ukrainian crisis began. At the same time, however, experts estimate the departure will cost McDonalds about $1.4 billion in total. Thus, it’s hard to suggest that profits and logistics alone are driving this choice. The effect of political actions on business choices for the corporation extend beyond routine business considerations. Values are playing a significant part in the decision-making process as they are for other companies. Naturally, the hope is that business decisions affect politics in a positive way. But even if these effects are limited or even nonexistent, corporations like McDonalds can be proud that they took a valued approach. And in the long run, this is what customers will remember, including those no longer served in Russia.

 

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