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Playing The Long Game: 1: Tesla

Tesla took an unconventional approach by starting with a high-end luxury sports car, the Roadster, rather than a lower-cost mass market vehicle. This allowed Tesla to gain expertise, build brand recognition, and achieve economies of scale before attempting more affordable models. Similarly, Apple waited to release the iPhone until the technology was mature enough for a mainstream audience, rather than early adopters, allowing tremendous commercial success. Both companies prioritized long-term goals over quick profits through minimal viable products.

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Ahmad Safi
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173 views3 pages

Playing The Long Game: 1: Tesla

Tesla took an unconventional approach by starting with a high-end luxury sports car, the Roadster, rather than a lower-cost mass market vehicle. This allowed Tesla to gain expertise, build brand recognition, and achieve economies of scale before attempting more affordable models. Similarly, Apple waited to release the iPhone until the technology was mature enough for a mainstream audience, rather than early adopters, allowing tremendous commercial success. Both companies prioritized long-term goals over quick profits through minimal viable products.

Uploaded by

Ahmad Safi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1: Tesla

Playing the Long Game

Conventional business logic is that when you're starting something new, you
create a 'Minimal Viable Product' or MVP. Essentially that means that you create
a version of your product that is very light in terms of functionality, but just about
'gets the job done'. It also means that the first version of your product usually has
to be sold at a fairly low starting price, both to compensate for its lack of
features, and to generate interest in a new launch.

Some organizations (including many tech startups) take this concept even
further and launch the first version of their product completely free of charge,
with a plan to 'monetize' later on once they've added more features and feel
confident that people will be willing to pay money for what they're offering.

Tesla on the other hand, did things completely the other way around. It's been
known for a long time that Tesla's long term goal is to be the biggest car
company in the world. They know that in order to become the biggest by volume,
they're going to have to kill in the lower-end consumer car space - that is cars
costing less than around US$30,000 to buy.

Rather than start with this market though, and create a cheap low-featured


version of their electric car to achieve scale quickly (and therefore benefit
from economies of scale in addition to reaching their growth goals) - Tesla
instead created the absolute most luxurious, expensive, fully-featured sports car
that they could muster. That car was the Tesla Roadster, and for context, the
newest generation of the Roadster will retail from upwards of US$200,000 for the
base model. And this was the first car that they ever produced - knowing that they
couldn't achieve the necessary scale or efficiency to turn a profit (even at such a
high price).

Fast-forward to today, Tesla just recently beat General Motors in becoming the


most valuable car company in the world. So their unconventional strategy
certainly seems to be working
The first thing to note is that Tesla have in-fact made incredible progress towards
their goal of mass-produced affordable electric cars. They've even made a
genuine annual profit for the first time in their history. The second thing to note is
that much of Tesla's business strategy was actually forced upon it. In reality
there was no way that they could have created a cost-effective mass-market
electric car without economies of scale. And as a startup, they weren't even close
to having those economies of scale. Furthermore, because what they were
building was so unique they couldn't rely on outsourcing or partnerships to gain
those economies of scale.

Actually, Tesla's supply chain strategy is one of the most brilliant moves they've
made. They knew early on that batteries would present not only the biggest
technological hurdle to their car, but also the biggest bottleneck to production.
Rather than let this derail them however, they took complete control of their
supply chain by investing in factories that made batteries themselves. This had
the additional benefit of allowing them to use those same batteries in parallel
business ventures such as their Powerwall.

2.Apple
iPhone Launch Shows Tremendous Restraint

Ok I hear you - this is such an obvious inclusion for the 'best business strategies'.
But as one of the first people to adopt smartphones when they came out in the
1990's this is something else that's pretty close to my heart. I remember using
Windows Mobile (the original version) on a touchscreen phone with a stylus - and
it was horrible. I loved the fact that I had access to my email and my calendar on
my phone. But I hated the fact that my phone was the size of a house, and
required you to press the screen with ox-like strength before any kind of input
would register.

Thankfully, a few years later, BlackBerry came along and started to release
phones that were not only smart, but much more usable. Sony Ericsson, Nokia,
HTC and a whole host of other manufacturers all came out with reasonably solid
smartphones, all well before 2007 when Apple finally released the iPhone.

I remember arriving at the office one day and my boss had somehow gotten his
hands on one of the first iPhones to be sold in the UK. I was shocked. Normally I
was the early adopter. I was the one showing people what the future looked like.
And yet, here was this guy in his mid 50's, with his thick glasses, showing off a bit
of technology that I'd never even seen before.

And that is the masterstroke that is the iPhone. The reason why every single
smartphone I'd ever owned had sucked in comparison to the iPhone, is because
there's no real market in selling phones to geeks like me. We're too few and far
between - and either too poor or too stingy to drop any real cash on new tech.
Apple could easily have created a phone much earlier than it did and sold it to
me. But it didn't. Instead it waited until the technology was mature enough to be
able to sell to my boss. Someone who is far less tech savvy than me. But also far
more financially equipped.

The big learning here is that first mover advantage is often not an advantage. A
well executed 'follower' strategy will outperform a less well executed 'first mover'
strategy every single time. One of the most common misconceptions in the
startup world is the concept that it's the 'idea' that matters the most. The truth is,
the world's most successful companies were rarely the first ones to innovate. I'm
looking at you Nokia. At you Kodak. And at you too, Yahoo.

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