Before Jon McNeill was CEO at VC firm DVx Ventures, he was the president of Tesla and chief operating officer at Lyft. He helped Tesla grow its revenue run rate from $2 billion to $20 billion in 30 months, and he doubled Lyft’s revenue ahead of its IPO. He’s also on the board of GM’s Cruise and Lululemon, among other companies. So when he comes out with advice for how to build an innovative company, startups listen.
During the World Business Forum this week in New York City, McNeill presented insights into building innovative companies, a method Tesla CEO Elon Musk calls “the algorithm.” This approach, covered in Walter Isaacson’s biography of Musk, emphasizes radically simplifying both goals and processes.
McNeill’s key lesson: Start by identifying the problem you’re solving, then aim for massive (not incremental) goals. “Order of magnitude big,” he said.
He recounted Tesla’s 2017 “production hell” when the company, facing bankruptcy, sought to boost digital sales of the $100,000 Model S by 20x. Tesla reduced the 63 clicks to buy a car online to 10, simplifying both the process and the supply chain.
McNeill’s takeaway for startups?
“The answer isn’t ‘No,’ or ‘It’s crazy.’ The answer in innovative communities is: ‘I have no idea how to do that, but we’ll try.’”
Five steps of innovation by subtraction
1. Question every requirement
The only requirements McNeill said are truly important are requirements of the law and requirements of physics. Everything else can be poked and prodded at.
“When you have a large organization, things that started out as a good idea can become a rule, and then those rules can become requirements,” McNeill told TechCrunch. “And it’s almost like a tribal myth or a telephone game. And so [Musk] wants to really understand, is this a real requirement, or is this something that somebody thought was a good idea that, over time, has been codified into a requirement?”
2. Delete every step in the process that you can
McNeill advises companies to track every process in a spreadsheet so they can identify only the steps that add value to the customer. Everything else they should delete, with the caveat that they can always add some of those steps back in if needed.
“Until you have to add back in 10% of steps, you haven’t cut deeply enough,” he said.
For managers to succeed at this, they need to spend 20% of their time on the front lines, he said. If you’re the CEO of Starbucks, that means rolling up your sleeves and understanding not only how to make a cup of coffee end to end, but also understanding why your customers are frustrated with that process.
3. Simplify and optimize
In 2018, when Tesla was trying to figure out how to ramp production of Model 3s, Tesla executive Jerome Guillen realized Tesla had over-automated production. He said the company needed to go back to basics, and for him, that meant building a massive tent in which the team could build the cars by hand.
McNeill says the Model 3s were built this way, manually, for months, which helped Tesla simplify the production process further when the team eventually moved the line back inside the main building.
“They were able to remove more than 50% of the steps because they had just optimized the process manually,” McNeill said.
4. Apply speed; maximize cycle time
“Simplifying and optimizing can really work into the fourth step, which is to then apply speed,” McNeill said. “Speed exposes all the weaknesses in the process.”
McNeill says speed matters more than ever today.
“When cash costs 5%, [simplification] speeds up your cash generation,” he said. “Cash velocity is really the metric of elite performers.”
5. At the very end, automate it
Only after companies have simplified the process and really understand the product and customer journey should they move to automation.
“Automation is like the bolts in the floor,” McNeill said. “Once you begin to write code, it gets very hard to unwind it and hard to replace it.”
“You automate to make it repeatable, and you automate to make it scalable, and you only do that when you have a repeatable and scalable process.”
McNeill’s three secret ingredients
On top of the five lessons, McNeill provided three extra cultural principles.
The first is that companies should expand their view to include the entire customer journey or experience. An example? GM is really good at producing cars, and that includes its EVs. But charging is part of that customer journey, something GM didn’t latch on to right away. Tesla did when it built its Supercharger network.
His second ingredient is to inject urgency and accountability by identifying the two or three things that matter to a company at any given time. The CEO should be allowed to concentrate entirely on those things.
The third ingredient is to experience the product as your customer experiences the product. Or as McNeill put it: “Eat your own dog food.”