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.
“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.
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.
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.
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!
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.