The Man Who Took Tesla From $2B To $20B Shares The Exact Formula | Jon McNeill

The Home Service Expert Podcast

Jon McNeill, former president of Tesla who helped grow the company from $2B to $20B in revenue in just 30 months, shares his proven five-step framework called 'The Algorithm' on The Home

Key takeaways

• Quantum growth requires moving fast and embracing failure as part of the process—start before you're ready.
• The best teams are built around people who are insanely curious, biased toward action, and have a track record of world-class impact.

Main topics

• The Algorithm framework for rapid business scaling
• Talent acquisition and team building at high-growth companies

Notable quotes

"Don't wait until you've figured it out and then move. Move first and figure it out."

"Being a simplifier is unique. It's rare and it's super valuable, but it takes work."

Conclusion

Jon McNeill's 'The Algorithm' offers a powerful blueprint for scaling any business by focusing on

Transcript preview

Speaker 1 (0:00) I'm very, very excited about this podcast. This is going to be one of the best ones yet, and I've done over 700 podcasts. John was the president of Tesla when it grew from $2 billion to $20 billion in revenue in 30 months. He founded and sold six companies and sat on the boards of General Motors, Lululemon, and CrossFit. His new national bestselling book, The Algorithm, reveals... the five-step framework Elon Musk used to build Tesla and SpaceX, and how any company in any industry can use that to cut complexity and grow faster than they ever thought possible. Today, he runs DVX Ventures, a venture studio that's launched 12-plus companies using the algorithm as its operating system. And, you know, after this podcast, we might switch to this system as well. John, it's great to have you, my friend. It's good to be with you, Tommy. You know, you've already founded and sold six companies when Sheryl Sandberg decided to call you and said Elon needs help. And I've really researched the hell out of Elon Musk and his childhood. I read his biography. Yeah. And it's just interesting because he's the richest, most successful man in the world. But it's people around him that make it possible. There's no way he could do everything he's doing without a guy like you. Speaker 2 (1:10) Yeah, the team. He's got an incredible ability to attract people. of talent to him. And so like the, the team that's around him is fantastic. Uh, and the team below that team is fantastic. They get, I forget how many thousands of applications per job, uh, at a place like SpaceX or Tesla, because the best people in the world want to work with somebody that gives big challenges and then gives a lot of agency to go attack those challenges. So yeah, he can't do it alone. And he would be the first to say that, um, But he's got a pretty unique ability to attract talent, too. Speaker 1 (1:48) In your companies, as you created this algorithm framework, how much do you guys promote failure? I mean, it seems like failure is like race towards failure and fix it versus NASA trying to get it perfect. Speaker 2 (2:03) Yeah, exactly. Like the whole mantra is start. Like don't try to avoid failure. Just start knowing that like we're going to screw it up. We're not going to get it right. It'll probably take us 20 or 30 or 40 tries to get it right. you won't get to the end goal unless you actually start. So to your point, we don't wait until we've figured it out and then we move. We move first and figure it out. And that's key to this because what we're striving for is big, big breakthroughs. And you get those breakthroughs little chips at a time. You don't get them in big ahas typically. And so we're working really towards making these little gains, little gains that pile up into big gains over time. Speaker 1 (2:46) You know, I'm sure you came from lean manufacturing. I've read the Toyota way and the principles of Kaizen incremental improvement. You know, you said that Elon taught was complete opposite of everything you knew. What what was that like? What was what was different about that? Speaker 2 (3:05) Yeah, like I came in and we had immediate problems producing the Model X. And so I hopped into that problem with everybody else on the leadership team and started to use the skills that I had, the toolbox I had, which was Lean and Kaizen and the Toyota production system. And what I found was that stuff was great to drive incremental change, but it wasn't sufficient to drive quantum change. And when I met Elon and asked him, Like, what does success look like if I come and join Tesla? He said, what success looks like is you double the company every eight months. I was like, man, you're already $2 billion in sales. That's a big ask. And I learned that the lean and the Toyota production system weren't sufficient to drive that kind of growth, which is why over time we ended up inventing the algorithm because we wanted a formula that would drive quantum growth. And that's what the algorithm does. It really drives big, big innovation breakthroughs. Speaker 1 (4:08) I don't know if this is a question I should even ask, but what made you kind of go out on your own and bring a team and decide to dive into a few different board seats and start developing your own businesses versus continuing? You know, SpaceX just had a great IPO. I know a bunch of guys that were buying it at $12, and they 13X'd their investment. You know, what you just felt like you're ready to spread your wings and... Speaker 2 (4:37) Well, I felt like I was ready to get back to my roots. My roots was as an entrepreneur and I wanted to, I had had this vision to do this before I left for Tesla. So essentially this was like unfinished business for me. I wanted to, I wanted to prove that we could put a firm together that could grow companies from scratch and grow them into pretty significant, important businesses from scratch with the best people that I'd worked with at Tesla and Lyft. So this. in essence, was Speaker 1 (5:07) me Speaker 2 (5:07) returning to my roots. Speaker 1 (5:10) How do you, so with all these companies you're making, you know, we keep talking about the talent acquisition. And sometimes it's, you build the right moat, people come to you. But when you're starting new businesses, there's no brand. You're not a $2 billion company. You've got who you guys are today. But I think talent acquisition, I'd really like to focus in on that and just understand how do you guys really go out there and build a world-class team? I think a lot about Steve Jobs. It's just what he did. And I've been studying him like crazy as well. What is it that you guys do to build so many companies so fast? And you use the framework, but how do you get the talent so quickly? Speaker 2 (5:52) We go with intentionality and look for specific kinds of people. In our world, we look for people with kind of three characteristics. One is they're insanely curious. And people that are insanely curious tend to be dissatisfied with the status quo, which is a good starting place for the kind of work we do. The second characteristic these people have is they've got a bias to action. So not only are they dissatisfied with the status quo, they're super curious. They won't just sit on those thoughts or those insights. They go do something about it. And then the last thing we look for is if they've had world-class impact. And so you can literally say to somebody, hey, give me an example, something that drove you nuts, what you did about it, and what impact you had. And pretty quickly you can figure out this is a pretty special person across the table or maybe not. And those are the people that we, the people that kind of check those three boxes are the people that we want around us. We've got a network we reach out into to find those people. We've got a search team that's incredible that we reach out to find those people. But it's pretty easy to spot them when we do. Speaker 1 (7:12) Do you guys use personality profiles or, you know, the resume doesn't tell you anything about a person? We don't. We don't use Speaker 2 (7:18) personality profiles. The resume, as you said, is an interesting starting point. What we use is diving into these examples with the candidate, and then we use a ton of references, both backdoor references and then references that are provided by the candidate. The most useful are the backdoor references we find. Speaker 2 (7:42) What company do Speaker 1 (7:43) you use to do that? Because right now I'm Speaker 2 (7:45) in Speaker 1 (7:45) a process. Speaker 2 (7:47) We do Speaker 1 (7:47) it Speaker 2 (7:47) ourselves. Like I insist on, like if I'm hiring somebody, I want to do the references. Like I want to hear, I want to ask the questions. I want to hear the answers. I don't want any filter between me and that because there's no more important decision I make than talent. And so I want to be directly involved in that. Speaker 1 (8:03) When you're reaching out to references, is it a past coworker? Is it somebody you kind of a LinkedIn acquaintance? Like what's the best way to get those backdoor references? Best Speaker 2 (8:12) way, like you just said, is a warm intro to somebody. If we can get it, if we can't, then it'll be a cold outreach. But typically what I'll say is, hey, look, CEO to CEO, cone of silence to cone of silence. I'm about ready to make a hiring decision. You know how important these are. Can we have an honest discussion about this person? And I promise I will not share anything, but I've just got a handful of questions I'd like to walk through. And nine times out of 10, people are really open to that because they're doing the same thing I'm doing pretty constantly. And that is they're trying to acquire talent, trying to get underneath the hood of, is this person really this good? Is there any watchouts? Are there any development issues that I could actually help this person with? You want to know all that. And they totally understand that, too. And so it tends to be highly effective. Speaker 1 (9:08) It's so interesting. You know, I'm in the garage door industry, blue collar space, and it's never been better for us. I mean, AI is definitely going to change the way we do business, but we're still going to be going out there until the robots are here and maybe seven years. But, but, you know, I'm just, I'm constantly like, this is fascinating for me just thinking about these changes. I want to dive into the algorithm, the five-step framework, question every requirement. delete every possible step, simplify and optimize, accelerate cycle time, and automate last. Can you walk us through each one of those and start with question every requirement? And what does it actually look like in practice? Speaker 2 (9:49) Yeah, I think to find a breakthrough or an innovation, you want to question every assumption that people that are in the business follow like religion. And the reason you want to do that is because if you can determine that several things that everybody else believes to be true or not true, you might be on your way to a breakthrough. So super obvious example of that from the Elon world is he had a hunch that it shouldn't cost $100 million to launch a rocket. And so the first thing he did was he built a spreadsheet of every part that went into a rocket and added them up. Speaker 2 (10:32) And it turned out that that total cost was around $36 million, if I remember the numbers right, not $100 million. And he sort of went, huh, I wonder what the big gap is. The big gap was a lot of labor, engineering, approvals, all kinds of stuff. But then he started to say, geez, if it costs $100 million to put one of these up in the sky and you let all the parts fall back down and go to the bottom of the ocean. that seems like a waste. I wonder if you could recycle these parts. And so he started to question the first assumption in the industry, which is you couldn't reuse rocket parts. And he said, why? And people said, well, because it's really hard to catch a rocket. And he said, okay, maybe I can figure out how to catch a rocket. Maybe I could put a barge that's really big and try to get the thing to land on it and use a little bit of reverse thrust from those very expensive rocket engines. And people said, you're crazy. And he just kept questioning that assumption until it took 15 years. Guy's super stubborn. But it took 15 years and they caught a rocket. And now their launch costs. are 90 % less than everybody else's. Nobody else has caught a rocket yet. And they did their first catch in 2018. So they've had an eight-year head start. Their costs are 10 % of everybody else's. And now they control 90 % of the launch business because he questioned the requirement that everybody else or the assumption everybody else thought wasn't true. And that is you can't reuse rocket parts. Speaker 2 (12:16) And you can add, you can question this in your business on a daily basis. You can start to look for things that you've, that you've followed in your process, kind of almost robotically and start to say, do we really need to do this? Why are we doing this? Is it a requirement of law? Is it a requirement of safety? Is it a requirement of physics? And if it's not a requirement of law, safety, or physics, then it might be a candidate to get deleted. Speaker 1 (12:54) We there? Speaker 2 (12:55) Yeah. Are you there? Speaker 1 (12:57) Okay. Yeah. No, I thought I might've lost you for a sec. No, that's absolutely phenomenal. You know, we kind of fall into this pattern. Look what happened with COVID. There was 30 % of people that dove in 40 % that followed and 30 % that said now, not me. And I'm not making this political or about anything else, but a lot of us just follow the status quo and we're not willing to question anything. And I love that, that principle of those three things to look at. So we question everything. And then we delete every possible step that's unneeded. Tell me a little bit about how that works. Speaker 2 (13:30) So Speaker 1 (13:31) I have Speaker 2 (13:32) teams literally go to a wall and they take a pile of sticky notes and they put a sticky on the wall for every step in a process. Speaker 2 (13:41) And then underneath those process steps, there are sub-process steps with sticky notes. So we got a wall where we can see the whole process, maybe the whole customer journey of buying a garage door. and everything that needs to happen. You got to go out to the house. You got to measure. You got to determine specs. You choose styles, whatever. You order. You set up the appointment. You load the truck. Team goes out, does the install, like your invoice, like all that stuff. Just put it on a wall. And then once you have it on the wall, ask a question. Circle the steps that the customer pays you for. Speaker 2 (14:27) They don't pay you for an invoice. They don't pay you for a site visit. They pay you for a garage door. They don't pay you for a purchase order. They don't pay for your accounting. They don't pay for your training. Like all this stuff that we do inside of businesses, the customer doesn't pay for. And when you look at the process through that lens, Speaker 2 (14:49) almost everything is a candidate for deletion. And this sounds crazy, but we were asking this question even in a huge manufacturing space. And that is, do we really need purchase orders? Do we really need invoices? Like we'd ask crazy questions like that because every once in a while, you'd find something you could delete and it was painless. And so what you want to do is, what you're after here is simplifying the process radically. Speaker 2 (15:18) And when you simplify the process, now you've got something that will look very, very different from your competition. And hopefully it looks really good from your customer standpoint. So an example of that is we took all the paperwork that you sign when you buy a car and we put all those process steps on a wall. And you've probably been through this process yourself, Tom. You go, you buy a new car, you buy a new pickup. You sit at the dealership for three hours filling out paperwork and going through the whole finance and insurance process. And we said, let's get that down to less than 10 minutes. Let's map it out. Let's figure out what the customer pays us for and what they don't. And what the customer pays you for is getting a car and getting the heck out of there. And they don't want to sit through all these mounds of paper that they have to sign and people are trying to upsell them, et cetera. And when you do that, you look quite different and people come pounding a path to your doorstep because you're a pleasure to deal with, not a hassle to deal with. And so deleting these steps can actually lead to a much better customer experience too. Speaker 1 (16:28) Yeah. I want to, I want to unpack that. You just reminded me, a buddy of mine just sent me this, a pattern I've noticed in successful people. They're all a little bit delusional about their abilities, not arrogant, just unreasonably optimistic about what they can figure out or achieve. While everyone else is listing reasons why something won't work, they're already trying it. Half of the time they're wrong, but the other half they're changing their life. Reasonable people don't build unreasonable lives. Speaker 2 (16:54) I love that. And I Speaker 1 (16:55) think that's something you've lived. Speaker 2 (16:57) I love that. Yeah, I think that's right. You have this. To your point, you have this unreasonable or unrealistic optimism that you can figure out a new way. And you've got this gut belief that you and your team are going to figure this out. And again, if you just start hacking away