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What you can learn from Elon Musk’s vertical integration

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  • Despite his flaws, Musk has still built several very successful companies and catapulted himself to billionaire status.
  • Two of SpaceX’s recent projects — plans to build a rocket called Starship that can send 100 people to Mars, as well as a network of satellites called Starlink that can beam internet anywhere on Earth — have contributed to the company’s estimated base value of $52 billion.
  • How is Musk leading his company to disrupt the legacy industry of spaceflight and to innovate global internet connectivity? By weaving vertically integrated manufacturing into processes.
  • “He basically created an infrastructure of diversified assets that he can combine in different ways to optimize his companies as needed,” said Irina Cozma, an organizational psychologist and executive coach. “He creates synergies across these different companies and industries.” 
  • Click here for more BI Prime stories.

Elon Musk launched SpaceX in 2002 with the goal of sending people to Mars.

With his ambitious plans, Musk has earned the respect from many people inside and outside of his companies, though at the same time many say he can be a demanding and capricious boss.

“Elon Musk appears addicted to a mental state where he can endlessly push on,” said Janine Woodcock, an international executive coach. “Because the company culture is driven from the top, most team members will equate the leader’s behaviors as the ones to emulate. In the example of Elon Musk, a company full of overworking individuals will be incompatible with long-term success.”

But despite his flaws, Musk has still built several very successful companies and catapulted himself to billionaire status. SpaceX, in particular, competes with industrial space manufacturers to reduce the cost of rocket launch by producing hardware inhouse and developing reusable rockets.

In the 2018 book, “The Space Barons: Elon Musk, Jeff Bezos, and the Quest to Colonize the Cosmos,” author Christian Davenport wrote that Musk “didn’t just have to build reliable rockets — he had to upend the industry’s entrenched hierarchy.” This was done, in part, by how SpaceX “designed and developed [Falcon 1] from the ground up, from a blank sheet of paper they’ve done all the design, all the testing in house,” Davenport added.

Cut to news of SpaceX’s recent valuation, where two projects — plans to build a rocket called Starship that can send 100 people to Mars, as well as a network of satellites called Starlink that can beam internet anywhere on Earth — have contributed to its estimated base value of $52 billion.

So how is Musk leading his company to disrupt the legacy industry of spaceflight and to innovate global internet connectivity?

Consider his leadership style.

The designs for SpaceX’s Starship include Tesla batteries that will move the rocket’s fins during flight.

Tesla produces a majority of its own supplies through vertically integrated manufacturing. The company follows the century-old approach of Ford Motor Company by controlling its supply chain to make its products more affordable. 

But Musk has long been broadening the scope of vertical integration to support interrelated, and sometimes controversial, research and technologies across his companies, including battery packs at SpaceX and Tesla, solar energy at Tesla and SolarCity, and artificial intelligence at OpenAI and Neuralink. 

“He basically created an infrastructure of diversified assets that he can combine in different ways to optimize his companies as needed,” said Irina Cozma, an organizational psychologist and executive coach. “The most obvious [example] is battery technology that benefits both Tesla and SolarCity. Another example is the use of the SpaceX campus to start The Boring Company. He creates synergies across these different companies and industries.” 

Musk is at the center of continuous headlines on the state of his businesses. Some experts say that Musk is a visionary, while others weigh in that Musk’s leadership style is unsustainable. 

“What Musk has developed that so many of the entrepreneurs in Silicon Valley lack is a meaningful worldview,” author Ashlee Vance wrote in the 2015 book “Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future.”

But Woodcock sees Musk as a cautionary tale. “Yes, he has achieved great success, however, his behaviors — micromanaging his teams and projects and working extraordinary hours … should [make] investors and shareholders very wary of the longevity of this type of leader,” she said. 

Musk has stated that SpaceX plans to “have more satellites in orbit than all other satellites combined” within two years. If successful in telecommunications, financial analysts at Morgan Stanley Research reported that the company could be worth up to $120 billion — revenue that Musk plans to funnel into research and development for Mars exploration. 

However, Musk’s on-going controversies — from the cost of launching the Starlink network to a lawsuit on the Tesla and SolarCity merger — will eventually unravel whether Musk’s leadership style is one to emulate. 

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