Here’s another story of the plucky young entrepreneurial Elon Musk — and his brother and cousins:
Here’s an idea that one of five young South African cousins threw out sometime in the 1980s: What if they could arbitrage the cost of chocolate in an Easter egg? Plain old chocolate at the time cost virtually nothing, but a nicely packaged chocolate Easter egg cost about one rand. So the young cousins melted regular chocolate, molded it into egg shapes, wrapped the chocolate eggs in foil, and went around the poshest parts of their Pretoria neighborhood. And instead of selling these chocolate eggs for the going rate, they cranked up the price to 10 rand.
When neighbors balked at the price, the boys responded as they’d rehearsed. Purchasing from them, they said, would mean the buyer was supporting young capitalists. It worked.
This is not the kind of scheme most 14- or 15-year-old relatives dream up, but these were not most 14- or 15-year-olds. This is a piece of lore essential to understanding what may be the 21st century’s First Family of entrepreneurship, a family of happy capitalists intent on cracking today’s toughest problems by building businesses. Those budding teen tycoons included two sets of brothers: Elon Musk, whom you’ve likely heard of, and his brother, Kimbal, a fellow entrepreneur focused on trying to change America’s food culture; and Lyndon and Peter Rive, the founders of SolarCity. (Their brother Russ now runs the art, technology, and design company SuperUber, in Brazil.) Each family also has a sister: Tosca Musk, a filmmaker, and Almeda Rive, a competitive dirt-bike rider.
Elon may be the most famous of the clan, thanks to his mad-scientist ways and the Beatles-esque buzz surrounding the companies he’s dreamed up—from PayPal to electric carmaker Tesla Motors to aerospace manufacturer SpaceX to what remains—for now—the mere concept of the high-speed Hyperloop. But each of the Musk-Rive cousins has achieved notable levels of success. Kimbal Musk co-founded The Kitchen, a group of eight restaurants that source directly from local farmers, and The Kitchen Community, a nonprofit that’s opened more than 250 school and community gardens that impact 140,000 kids each day. Lyndon and Peter Rive founded SolarCity, the energy-service company that has a market cap of about $4 billion, after Lyndon, Peter, and Russ sold their company, Everdream, to Dell in 2007.
How is that easter egg story an example of capitalism, entrepreneurship, or even of arbitrage?
It sounds like they had an absurd price model that didn’t have a hope until they started marketing themselves as a charity case. I suppose you could call that aggressive pursuit of venture capital. Sounds to me like rent-seeking.
Musk is brilliant at rent seeking. Right now he is selling USG the fantasy that they have a space program.
The egg story is an amusing foreshadowing of his future. Apparently he had the pattern set early.
That said, SpaceX is doing a bit more than “selling USG the fantasy that they have a space program.” They’ve put together a mid-weight launch vehicle with American reliability but a Russian price tag. That doesn’t sound glamorous but it will have a big impact on the launch industry (government and commercial) over the long haul, even if their more ambitious plans don’t come to fruition. There’s quite a bit more development trajectory left in their approach as well.
Contrary to how it’s being portrayed, it’s not revolutionary new technology that’s letting them do this. It’s finally putting into practice the ideas that Truax, von Braun, and others were talking about in the late 60s, with further gains from actually applying the best of current materials science.
For your information, the first crew to fly the SpaceX Dragon V2 vehicle is already chosen and training right now! The same is true for the Boeing CST-100 ; both were selected by NASA back in 2014 for the Commercial Crew Transportation Capability program and both are expected to fly to the International Space Station with an astronaut aboard by December 2017.
Graham, even if they market themselves as a charity case, it’s still marketing. They found a good way to present their product in a good enough light that people would part with their money.
Well, I’m willing to walk it back and concede to them having had a good marketing pitch. But the original description referred to their entrepreneurship, not just marketing savvy, and not just marketing savvy of this particular type either.
If their pitch convinces people to part with modest cash for an unneeded product at 10x the price on the pitch of, “We’re poor kids who need to be encouraged by kind strangers”, it’s in that neutral zone between marketing a real product/idea/innovation/commodity, however modest, and panhandling.
I’m willing to admit I’m potentially in the grip of illusion, but I like to think that actual business, again however modest in scale, requires that the customer actually want to buy the product and consider it worth the price, or that the investor consider it reasonably likely they will make acceptable return, as opposed to merely thinking ‘let’s encourage the youngsters’.
No blame attaches to 7 year olds running a lemonade stand either, but people don’t stop because they really want lemonade.