Visionary. Genius. Innovator. Disruptor.
These are all words used to describe Elon Musk. And they are all true. Elon is an amazing individual, with an almost cult following. A sort of Tony Stark of our time.
While he embodies all of the descriptions above, if you look at the fundamentals of his companies, they are broke and supported by massive debt. Over the last 4 years, Tesla has lost $9 billion in free cash flow and has made up for its losses with huge amounts of debt. In fact, Tesla's interest payments doubled in 4th quarter 2017 from the year prior at 15% of gross profit to 33% - which of course contributed to it's massive losses in net income.
Now, I'm not here to bash Elon or Tesla. That't not the point and the facts and data are the facts and data - look them up.
What I do want to share are the things, as an entrepreneur, that you should take away from what Elon has done and some lessons you can use to run a more successful business.
First, businesses can go on for a long time funded by debt (Just ask Amazon), as long as people and markets believe in them. This is one thing that Elon has done very well. He has created the belief in his vision and the future of what Tesla can mean for the world. And this will last until it doesn't, unless the company produces tangible results. But that can be a while.
As an entrepreneur, you must be able to present your vision in a way that just about anyone can understand it and you must do it with such conviction that they have no doubt about your commitment to making it a reality.
If you can do that, you have a good start. Of course, that means wholeheartedly believing in your vision and if you don't, you better come up with one that you do believe in pretty fast. Crafting and presenting a vision with conviction is a big lesson you can learn from Elon.
Next, run your business with the same commitment to excellence as you have conviction in your vision. Cash is king and if you can delay gratification and build your business out of cashflow without taking on large debt, you will be much better off. But, if you do take on debt, do it with skepticism and have a serious plan on how you are going to turn that debt into profits. How will you take the debt and create a machine that will pay for that debt 5x over (within a few years) and continue to pay you? If you don't have a reasonably good idea of how you can use the debt to create a 5x return or better, it is probably not a good idea to take it on - because it always takes more to pay off debt that you think it does.
And the worst place that you can get yourself into is a compounding debt scenario where you have to take on debt to pay off debt, and so on. This is where Musk is with Tesla and will need a truly big breakthrough soon to get the return on debt needed to turn around this current track.
In the world of Silicon Valley hype and unicorn stories of people becoming billionaires in their 20's off an idea; it's hard for entrepreneurs just not to follow what they think the herd is doing: Come up with an idea, go get a bunch of investment, take on more debt/investment, sell out. The reality is that the chances of that happening are very slim to none, so if you are going to start a business or have one, you have to approach it from a long term view. Build it so that it can be sold (if the opportunity presents itself) but run it like you will have it forever. If you think of things in those terms, you will be able show great vision, but have better financial responsibility - and could prove to run a business better than Elon Musk!