How Would You Beat?

How Would You Beat Tesla?

July 17, 2020 thrv Season 1 Episode 8
How Would You Beat?
How Would You Beat Tesla?
Chapters
How Would You Beat?
How Would You Beat Tesla?
Jul 17, 2020 Season 1 Episode 8
thrv

In this episode, we take a slightly different approach. Why is Tesla succeeding? The market thinks Tesla has exceptional growth prospects. How can JTBD innovation methods help understand why? We explore functional, consumption, and emotional jobs that Tesla is satisfying and why they are succeeding. And we ask how could you use JTBD to beat Tesla. 

Show Notes Transcript

In this episode, we take a slightly different approach. Why is Tesla succeeding? The market thinks Tesla has exceptional growth prospects. How can JTBD innovation methods help understand why? We explore functional, consumption, and emotional jobs that Tesla is satisfying and why they are succeeding. And we ask how could you use JTBD to beat Tesla. 

Jay Haynes :

Welcome to our podcast. How would you beat? In each episode we pick a company and talk about how you could use jobs-to-be-done innovation methods to beat that company's product. We'll discuss innovation theory and explain the methods so you can put the theory into practice at your company. I'm Jay Haynes, the founder and CEO of thrv, that's T H R V without the vowels. thrv.com. We help product marketing and sales teams use jobs-to-be-done innovation methods to build market and sell great products. I'm here with my colleague Jared Ranere. Welcome! So this week, we're going to focus on Tesla. Normally, we asked how would you beat a company? So, we would ask, how would you be Tesla, but we're going to do something a little bit different today, we're going to ask, why is Tesla winning? So, in other words, why is Tesla beating its competitors today? Tesla's market cap hovers around $180 billion, which is about five times larger than General Motors. So clearly, something's happening with Tesla that is indicating that they're winning in the market. At least investors certainly think they're going to continue to win. So why are they winning? It's such an interesting question that we'll explore today. And we'll look at every element of jobs-to-be-done to help explain Tesla, the functional elements, the job consumption, jobs and emotional jobs. If you were a competitor, how would you beat Tesla, and we'll also look at why Tesla is beating its competitors.

Jared Ranere :

I love this topic, because I've actually wanted to get a Tesla for a long time, but I don't have a garage currently, and it seems to be a requirement for a Tesla. I have to get that piece of my house built. So instead of buying a Tesla. I actually bought stock a while ago. When I was doing the research for this particular podcast, I saw this article from May of 2018 when Goldman Sachs recommended to sell Tesla, because they needed to raise $10.5 billion in capital, according to Goldman, to make it through 2020. At the time, Tesla in May of 2018 were trading at around $200. I bought a little under there and is now trading at $900 plus almost $1,000. Goldman was wrong. I evidently was right for now. And I'm happy to say so.

Jay Haynes :

I bought a Tesla and you bought Tesla's stock. So want to trade? No. I would rather own the stock than Tesla. But if you really like my Tesla, so we can get into why.

Jared Ranere :

I'm going to use the stock to buy the car eventually. So brilliant strategy. So why was I so bullish? When we look at product strategy, we think about what is the job that's trying to get done? What are the unmet needs in that market? What is the market size? Who are the customers they are targeting? How are they delivering customer value? The Tesla strategy is sort of fascinating when you look back to when they first launched, because they launched with a roadster. Right, so who was the customer for a roadster? Well, it cost over $100,000 I remember. It went super, super fast. And I do remember the mileage Jay? I don't remember the mileage off the top of my head.

Jay Haynes :

I don't remember off the top of my head.

Jared Ranere :

So but it wasn't a practical car at all. The customer was a super-premium segment. And what was the job? Because are you going to use the Roadster to go from A to B. And how did their short term strategy affect their where they are? Today where they're selling Model 3.

Jay Haynes :

I think that's a great point to start to the discussion. If we break down the jobs here, we haven't talked about this as much in previous episodes, but there are functional jobs. That's the goal you're trying to achieve. And of course, with a car, you're trying to get to your destinations on time. Also, you've got consumption jobs, which are how you purchase it and maintain and etc. We'll get into that, but also, there's clearly an emotional job. And an emotional job is how you want to feel or be perceived while using the product. Someone who's buying a Tesla Roadster clearly wants to be perceived in a certain way. They're successful, they've spent $100,000 on a car. Might not be a great decision, but they do want the functional job of going very fast. And what I find interesting about Tesla's strategy is if you look at the first car, well, one, they're also trying to lower the cost of actually building these batteries. They're basically subsidizing get to someone who buys a Tesla 3, like me, which I love, but at a much lower cost than it cost the initial battery that rolls off the assembly line. There are economies of scale etc., that are going to playing here. If you think about it from a jobs-to-be-done perspective, they also want to establish that electric car does not give you the emotional experience of a Prius. So, I'm probably a very typical Tesla owner. I used to have a sports car when I was younger. I like going fast, it's fun. And then 20 years ago, I switched to a Prius. Actually, back then I still I couldn't even get a Prius. They were in such high demand. But what I did get was a Honda Civic Hybrid. And then eventually I got a Prius and I was a Prius owner for 15-17 years or something. I made that decision because there's the functional job I need to get done. And a Prius actually was a great car, huge trunk, I could just I could pile so much stuff in the Prius was really great. But also, I really wanted to help with sustainability and avoid environmental catastrophe. And also, I wanted to be perceived a certain way. Obviously, the emotional job was I care about the environment. I didn't drive a Hummer. I drove a Prius that says very different things about you emotionally. But it was always a tradeoff. On the functional side, I was driving Prius, it was slow, it had no acceleration. So being green or sustainable, which is what electric cars were associated with obviously means those kinds of tradeoffs. What's interesting about launching with the Roadster, and even true with my Tesla 3, as I tell people, it is insanely fast. And I just have the regular mode, I don't even have the super ludicrous mode. It is insanely fast. It's faster than sports cars. So that what they wanted to do was show that the normal tradeoffs to get the functional job done, were not there. They were breaking through those differences. And I think that still a critical part of their brand. You're not buying a Prius, because you want to make compromises. You're buying a Tesla, because you want higher performance on a lot of dimensions, functional consumption and emotion.

Jared Ranere :

A Prius seems like you're definitely willing to make a tradeoff. It doesn't feel as nice on the inside. It doesn't, the performance isn't great. It's okay. And it actually raises a really interesting question about segmentation. Because when you think about the job of get to a destination on time, the core functional job of a car the max speed at which the car can go, and the acceleration at which the car can go is not going to change whether or not you get to a destination on time, in most cases, right? It's pretty rare that you can go faster than the traffic in your area, especially when you're thinking about a commute. When you think about acceleration, as a nice within that functional job, it, it kind of doesn't totally pass muster, right? Because it's not going to like how fast you accelerate isn't going to change if you get there on time or not. It's all the other factors the road. So is it a consumption job is sort of the question and have cars been competing on consumption and emotion for a long time because they haven't been changing the key jobs get to destination on time.

Jay Haynes :

Yeah, and I would say, and this is where I think Tesla just thinks about the problem differently is acceleration although it's not going to help you get to a destination on time, it actually has a safety component. And what I find fascinating about that, is it right where I live, there is an on ramp to a freeway that we use very frequently, that is uphill and short. I get in there and it's right near a place that we go with our kids. I gave them our minivan with the four kids and my wife and a bunch of stuff. A minivan is not a high performance vehicle. Going uphill into a freeway, it's actually terrifying. I'm constantly worried we're getting hit by a car because we can't accelerate fast enough to get up to 55. It's a 55 mph zone, which means everybody's going 75 mph. So, in a very short period, uphill, you've got to go 75 mph. Acceleration actually has a safety component to it. But clearly, there's also the emotional. It's super fun to accelerate really fast. And that's an emotional experience of being in that kind of control with that kind of speed.

Jared Ranere :

I love this idea that that Tesla has taken on a couple of different emotional consumption jobs in the in the broader customer experience to win. Right? There's the feel like you're having a positive impact on the environment which matters to a segment and then they took this other job of feels safe. Enjoy the fun of accelerating quickly, which isn't always the same segment that is not a one to one overlap between the green heads and the people who want to go super fast. They had this really clever product strategy of saying, let's get both groups of people and figure out where they intersect in the premium market for the Roadster, and then figure out how to produce our product at a lower cost at scale. We can get more and more of those people who are not necessarily the same right? Not all the people who are buying a Prius want to go fast. And so I think that's a really, really clever, go-to-market approach when you think about it from the jobs perspective. And there were clearly unmet needs there. Right? You can if you want to go fast, you have to have a gas guzzler, previous to the Tesla.

Jay Haynes :

Yeah, I think that's right. And, and also, I think the safety element is very interesting. My wife, there was a story recently of someone in our area, who was in a car full of 20 year olds . They drove off a cliff and died. My wife was having discussion with our family about it. And we're all very worried. We all have kids who aren't yet driving. But we all shared experience of almost dying by driving. Clearly the biggest the closest we ever came to dying for each of us was in some sort of car accident. I've been in car accidents where the car has been totaled. So that day when that email thread was going around, my Tesla literally sent me an update and said, news for you. We have self-driving capability, you can come schedule the service, and we'll upgrade your car because I already pre-ordered that feature. And you can have full self-driving capabilities. Now that's pretty remarkable. Now, even if you don't trust like the fully autonomous, self-driving vehicle yet, clearly it can do things like prevent you from driving off a cliff. All of the different functional elements that include getting to destination time but also the safety jobs of keeping you safe. Clearly, they've built a platform that they want to continue to improve. In fact, one of the updates I got in my Tesla was like, Hey, your cargo goes faster, which is not going to happen with an internal combustion engine just overnight and Wi Fi, your car gets updated goes faster. That is also, I think, a key architectural difference. And we talked about product strategies and platforms, and how you're building those platforms to satisfy unmet needs over time. And that's what's really fascinating. Tesla is a software driven car. Their ability to update the software and include new functionality and improve on amongst different dimensions is very, very different than any other car. If you're going to compete in the future in the car market, you're in this is already true cars. All cars have like profound amounts of software in them. But it is interesting, that's Tesla from the ground up was built, obviously, as a platform designed to run software.

Jared Ranere :

We seem to be making a case that Tesla has an outstanding product strategy and is executing on that very well. The market has now caught up to that idea. Why were people the analysts at Goldman Sachs, who were presumably good at this and pay spend a lot of time thinking about company metrics and what who's going to be a winner and who's going to be a loser? Why were they suggesting selling your stock back in 2018, when it was low?

Jay Haynes :

Yeah, that's a great question. And the mistake that any valuation of a company, generally when someone makes some sort of mistake, is usually around the growth rate. Because it's really, really hard to change margins. You can get higher gross margins, and you can cut costs and get higher operating margins. But the growth rate really is everything. Warren Buffett said, Growth and value are tied at the hip. That makes sense, because what the value of a company is the present value of its discounted cash flows. You assume that the company's going to go forward, make profit. And you discount those profits back to today and that's your value of the company. It's the Buffett’s intrinsic value model. And clearly, people were thinking Tesla couldn't grow. And it was going to have problems with its manufacturing, which would likely hurt its margins etc.. This is where jobs-to-be-done can be really useful in investment analysis. So,the better question, than Goldman's very, very short-term thinking is that they're going to need capital to survive. They can't figure out their manufacturing problems. Is Tesla really satisfying unmet needs in a very big market where they continue to grow in a way that's differentiated from competitors. I think the market is now answering correctly, yes, they are satisfying those needs. And what Goldman clearly didn't do is look into those needs and say, Is this a big growth opportunity? And sure, Tesla's had manufacturing issues and even in my 3, my biggest criticism of the 3 is the kind of fit and finish - - there are things that rattle. It just doesn't feel like everything's like super tight, like a modern car, not even a Mercedes, but like just a modern Honda. I'm old enough that I was driving in the 1980s. The most basic car today feels very different than a car from the 80s. And the cars in the 80s felt like they were all going to fall apart as you drove down the freeway relative today. But Tesla's still lacks a little bit of that. That's a fixable problem. Anything on your cost side of your equation, you really can control that and fix it. Unless you've got something like an invention, like curing cancer, but that's not really the problem. If you have a problem on the demand side, where are people actually going to buy your product, that is the whole problem, that jobs-to-be-done and can be really helpful in solving or evaluating a company whether why it's successful like Tesla. As as a data point, if we were doing jobs-to-be-done research, we would talk to customers who are trying to get to destination on time. They had functional and consumption and emotional jobs. If I were interviewing myself, I would say, what's the functional job you're trying to get done. And Tesla did an amazing job of that I'm trying to get to point A to point B, and their tradeoffs along the way. But with Tesla, I don't have to make those tradeoffs. I can go fast when I need to and I can still feel like I'm helping to do my tiny little part to save the planet from environmental collapse. And also I feel good about myself, I feel good. I'm driving a Tesla people know Jay probably cares about the environment. Also, I feel like I can go fast because I really care that Tesla's crazy fast, but also from a consumption standpoint, and we don't talk about this as much in the podcast, but consumption jobs are very important. They're things like interfacing with the product, learning to use it, maintaining servicing it, etc. There's a great MIT articles written about this. So those consumption jobs can be important. They are not the market because no one buys a product to interface with it or service it. But they can really influence how people get the functional job done. In Tesla's case, the consumption jobs are incredible. Starting with the purchasing of it, you go online, you enter your credit card, you get your spot, it shows up, you go to their place, they serve you a cappuccino! It's very elegant. They take you to your car, they set you up with the app, and you're on your way. I have bought a lot of cars in my life, both new and used. And it's just every case, it's a horrible experience. Tesla was clearly an amazing purchasing experience. And then the interfacing with the car is remarkable. My wife has a different car by a German manufacturer, and the interface with it is insane. It looks like you're in a 747 cockpit. It's got buttons on the console. It's got buttons on the dashboard. It's got buttons and knobs and wheels on the steering wheel on the front and the back and the sides. What am I supposed to do to start the car, let alone listen to the music? I want to or navigate to where I'm going to go. It's so confusing. Tesla, of course just has one screen in very modern, elegant interface design. And it's funny my wife, she doesn't know how to drive it because it's an electric car. So, it feels different. And I keep telling her it's, it's about as difficult as a golf cart. You and the experience for people who don't have an experienced Tesla, there's literally no on off button. You get in and it's already on because it detects your phone and it's already unlocked the car and when you leave, it already locks the car. And we talk about this all the time. The goal for any interface or for any product is really to get the job done for the customer. And if you're thinking about your product, why does your customer have to go through things like even unlocking and locking the car? Well, today you don't have to do that right? You've got near field communication. Your phone knows you there you get in the cars already started. So, you literally just put it in reverse or forward and you hit the pedal. That's it. It feels like a golf cart. So that really is a kind of profound, different way of thinking about consumption jobs. One final point I'll make is also even on the service side. People may know Tesla had very big battles around dealerships and not having dealerships with different states, because dealers make a lot of money from servicing your car. But with Tesla car doesn't need to be serviced that much, it's just a giant battery. You're not changing a whole bunch of filters and oil and belts and things. I did have my windshield wiper fluid not work. And from their app, I just scheduled it and the service guy showed up at my house. Fixed it while I was there and was gone. It was incredibly painless. We measure everything in terms of speed and accuracy. That was much much faster than having to take it to a dealer. I didn't have to drive there and have to make an appointment and have to wait there and sit while ago guy filled out 50 forms just to change one thing. And then, and then it was done. So, speed and accuracy, like on all these consumption dimensions much, much higher with Tesla.

Jared Ranere :

Yeah, I think we've done an incredible job of establishing how awesome Tesla is, and that you could totally be Goldman Sachs by making a value investment on that. But that's not the name of the episode isn't unfortunately not how to be Goldman, maybe another episode, we'll do that. So, what would you do today to beat Tesla? In thinking through what we're talking about here? They're really killing it on the sustainability emotional job, which has a functional component to it, of course. The safety, functional and emotional aspects get to a destination on time. They haven't changed a ton. The core thing is you are going to get there earlier because you're driving a Tesla? Probably not. Right? Beating Tesla by creating another car that performs just as well on whether or not you get to destination on time and has to win on sustainability and all these other dimensions. We've been talking about how great Tesla is that it will be incredibly difficult. One area that hasn't totally lost to Tesla has been trucks right and SUVs yet. Tesla has plans to move into this area they've debuted a pickup to mixed reviews. But trucks are still selling like crazy. And that's because if you think about it, there's a different functional job at hand. It's not just get to the destination. It's also to haul equipment. Be a base if you're a contractor or any kind of builder who uses tools. You have got to store the tools there. You have got to bring materials around. There are different functional jobs there. So, if you're a car company that strategy is proving out to work pretty well. Pick a different functional job other than just get to a destination on time. Don't focus on sustainability as much and maybe you can win for now there.

Jay Haynes :

That's right. And there's tons of ways to look at the transportation domain to compete in it. And of course, Tesla, in in many ways is very conventional. You get in a car behind a steering wheel and you're driving yourself somewhere. And your friends and family. That's very, very conventional. So, you could compete against Tesla and first of all, it is a humongous market. It's not like Tesla is going to have 90% of the market. That would be an exception. But you can think about it in different functional dimensions like you're getting to a truck. Tesla is still being very conventional. Their SUV called the X and now they have the Y. Those look like very conventional SUVs. I have to say as a father 4 children, in a minivan gets the job done way better than an SUV. Now of course I have lots of friends who are horrified that I drive around a minivan, but I love that thing. When I have my four kids, my wife, some friends and a bunch of stuff in the car minivan, it's just it gets the job done. It's the greatest thing in the world is sliding doors. That's a functional job that is getting to a destination with a lot of people and a lot of gear. And you could look at that very differently. There also is traveling salespeople. What are you doing on the road in your car is very different than just driving around in a sedan. Also, there is just the single person who needs a car. One of the reasons I love the 3 is that it is smaller. I wanted the smallest car because when we have the family, we're all in the minivan. But when I'm with myself, it's almost always just me driving myself. There was a car called the Tango that I absolutely love. They couldn't get it to market. I'm pretty sure it's called the Tango, but it's just a tiny one-seater car, it takes up half a lane. The guy who founded the thing had this vision of also reduced traffic because now everybody would be there be twice as many cars and the same amount of road and I love this thing. It never got to where you could buy it unless you made the custom version. I think like George Clooney bought one or something like that. But it was electric, it was insanely fast. Because it proved the same Tesla concept that electric cars can go faster than internal combustion cards. And it was built around a NHRA roll cage. It was an incredibly safe, roll cage that protects 300 mile an hour crashes. That's a way you could compete as well as look at the functional job differently, where someone's traveling by themselves. That's a big market. And I think this is actually happening over in Asia. I don't follow the worldwide car market is closely, but I do believe there are companies in Asia that are competing with Tesla on these kind of different dimensions. Very small single person with some groceries.

Jared Ranere :

I remember the smart car is done pretty well in Europe. Because of that there are small streets people are driving themselves to work because then some cities have public transit isn't great, and they want to park it in really tiny spots that you can find in Europe where there's not as many painted areas to park. It's another interesting way that you could go after that. Interestingly, you could innovate on get to destination on time and get people to their destinations faster and more accurately. But it probably wouldn't be a car because there are so many environmental constraints on a car getting anywhere faster than it does today. We've talked about that ad nauseum regarding Google and Apple Maps and how you can satisfy particular needs in that job differently with different types of products. We always talk about determine the optimal sequence and making plan stops. But you could also innovate at the job level and think how can we create a transportation situation in which you can get there faster than you can in a car? Public transit is another option for that right? Subways are a great innovation for getting around, particularly New York City. It's much slower to get in a cab at certain times a day than it is to get in a subway and it depends on where you're going, as well. Interestingly, Elon Musk is defending himself against that disruption by investing in new solutions for getting to destinations on time. Famously with the Hyperloop. And also, he's got a company called the Boring Company, which is digging, creating a faster way and cheaper way to build tunnels, so that you can go underneath traffic and have a faster way to get to your destination. And he's looping Tesla into that solution as the preferred mode of transit for the for the electromagnetic platforms he's creating. I think that's another way to go. But the thing to think about is the risk level. When you innovate at the job, let's try to make the functional job with a lot of constraints at its top most level, faster and more accurate without thinking through like specific needs that you could go after over time. There's a lot of risk there. Elon Musk has invested a lot of money in the Boring Company. Nobody's talking about how that's winning any markets over yet. It could eventually, but it's a very long-term investment very expensive. And you have to think through how you right size, your product strategy with the investment you're going to make and the timetable you have to get there. I think that's a critical thing that we don't talk about too much when you're generating your product strategy is, what's your level of patience? How much capital Can you raise to get it done? And what's your likelihood of success? If you do get it done? And what are the obstacles standing in your way to make that happen?

Jay Haynes :

I think you could also approach competition with Tesla. Those are all, of course, great observations along the functional job as well. We don't talk about this as much, but it's important. You could also innovate against Tesla with business model innovation. So clearly, other car companies are trying to build electric cars was GM, BMW, Nissan, whoever and they're trying to compete with Tesla. And Tesla's actually, like opened their patents and said, Hey, we need more electric cars in the world. Because the earth isn't headed in the right direction. The other way you could compete is on business model innovation, I still had to buy my Tesla. Business models, how you generate revenue and what your costs are. They generate revenue by selling cars. I bought my Tesla, it's, it's my garage most of the time doing nothing. Instead, you could see how, especially with autonomous cars coming you have a network of cars that are out there. That if I needed to use the Tesla instead of my minivan, I could call it up and a Tesla would show up. And if I didn't want to drive, I would get in it. It would drive away and take me where I'm going. Or if I was like, hey, I want to experience the Tesla today. You could zip around and experience the drive. That kind of business model comes from companies like Ford who are experimenting with this kind of stuff where it's kind of rather than ownership of the asset you're renting it and coming up with a model that works. That does make a ton of sense. There are still unmet needs, even in getting to a destination on time that you can compete with Tesla. If you were a car company looking at Tesla saying, Oh my gosh, I’m GM, how is Tesla worth five times what we're worth? We are obviously a much bigger company. It's because people see growth, obviously, they see Tesla growing way faster than GM. And in some cases, taking a lot of market share from GM. What could GM do? Starting point is still understand the functional consumption and emotional jobs. And then from there, look at those bigger questions, what platform they're going to use and what and getting down to the business model level, so still like enormous opportunities for innovation even in an incredibly mature market like automobile.

Jared Ranere :

Yeah, so as good as Tesla is and as much as we like it and as happy as we are to see the story, there are still ways to create product strategies to beat them. Which is always fascinates me when we get into these discussions.

Jay Haynes :

Yeah. Great. Well, thanks and look forward to seeing everybody next time. Thanks for listening to our How Would You Beat Podcast visit us at thrv.com. That's T H R V.com to get our free How to Guides and try our jobs-to-be-done software for free.