13 years ago, Elon Musk knew all of the reasons Tesla could fail. So why did he try anyway? It's a story of rational-and irrational-belief.
Looking back on the paths of accomplished entrepreneurs and it's easy to think you could have predicted their success. Steve Jobs. Jeff Bezos. Sara Blakely. With the benefit of hindsight, the Apple, Amazon, and Spanx outcomes seem inevitable.
Accurately predicting success at the beginning of an entrepreneurial journey is a whole lot harder.
Prime example? Charlie Munger and Tesla.
If you aren't familiar, Munger is Warren Buffett's longtime business partner and the vice chairman of Berkshire Hathaway. For those who like to keep score, Munger is currently worth approximately $2.6 billion.
So yeah: He knows a little something about picking winners.
But he's not always right. According to Elon Musk, in 2009 Munger spent considerable time telling a table full of people - including Musk - all the ways Tesla would fail.
"I was at a lunch with Munger in 2009 where he told the whole table all the ways Tesla would fail.
"Made me quite sad, but I told him I agreed with all those reasons & that we would probably die, but it was worth trying anyway."
- Elon Musk (@elonmusk) February 16, 2022
To be fair, Munger was right, at least early on. After Tesla's IPO at $17 per share, the stock price quickly dipped and for the next three years traded for less than $10 per share.
Today, though? Tesla stock closed trading last week at $985 per share - which means the $1,700 you might have spent to purchase 100 shares at the IPO price would now be worth $98,500.
A misjudgment Munger admits, if in a backhanded-compliment kind of way.
According to Munger, Musk is:
... very able, but he thinks he's even more able than he is and that's helped him. Never underestimate the man who over-estimates himself.
... some of the extreme successes are going to come from people who try very extreme things because they're overconfident. And when they succeed, well, there you get Elon Musk.
Which leads us to two things.
Outsize returns don't just involve money
By launching Tesla, Musk clearly hoped to seize a financial opportunity. Finding and extracting hydrocarbons grows increasingly expensive. Hybrid cars, electric cars... they're the future.
And the automobile market is a huge market.
But Musk also clearly believes in finding ways to reduce the need for non-renewable resources by cheaply and efficiently tapping and using renewable resources.
To Musk, the potential return, both financial and environmental, outweighed all the negatives - all the reasons Tesla would probably "die" - he knew all too well before Munger pointed them out.
Musk felt the potential returns were so large that the risk of failing on such a grand scale was worth it. (In fact, early on he gave Tesla a 10 percent chance of surviving.)
Munger? He felt Musk was overconfident.
Maybe even irrational.
Which is point number two.
When belief is rational and irrational
Success starts with belief. Belief that you are smart enough. Dedicated enough. Adaptable enough. Willing to work hard, overcome challenges, persevere in the face of adversity...
And be willing to see feedback from other people as information: Information you can use to make the right decisions for you. Musk listened to Munger. He agreed with his analysis. He didn't think Munger was wrong.
But he still pushed ahead.
Musk knew batteries were too heavy and delivered insufficient life; he decided he could design lighter, longer-lasting ones. He knew building an automobile company - as capital intensive a business as you can start - would be incredibly difficult. He knew gaining widespread consumer adoption, especially early on, would be extremely difficult. He knew the leading edge is often the bleeding edge.
He was both rational and irrational. He knew the data, the challenges, the realities - and believed he could build a team capable of changing those realities.
Listen to the naysayers. They might provide information you didn't have. They might uncover challenges you didn't predict.
And then decide if you believe in yourself.
Especially when success - in whatever way you choose to define success - is worth what others might consider an unacceptable risk.
Because Munger was right about this: You should never underestimate people who overestimate themselves.
Especially when that person is you.