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Before John McNeil took over as CEO of DVx Ventures, he was president of Tesla and chief operating officer of Lyft. He helped Tesla grow its revenue run rate from $2 billion to $20 billion in 30 months, and doubled Lyft’s revenue ahead of its IPO. He also serves on the boards of GM’s Cruise and Lululemon, among other companies. So when he offers advice on how to build an innovative company, startups listen.
During this week’s Global Business Forum in New York City, McNeil offered insights into building innovative companies, a method Tesla CEO Elon Musk calls “algorithmic.” This approach is confirmed by the biography of Musk written by Walter Isaacson Radical simplification Both goals and processes.
McNeil’s main lesson: Start by defining the problem you’re solving, then aim for big (not incremental) goals. “An order of magnitude large,” he said.
He recounted Tesla’s “production hell” in 2017 when the company, facing bankruptcy, sought to boost digital sales of the $100,000 Model S by 20 times. Tesla has reduced the number of clicks to buy a car online from 63 to 10, streamlining the process and supply chain.
McNeil’s takeaway for startups?
“The answer is not ‘no’ or ‘this is crazy.’ The answer in innovative communities is: ‘I have no idea how to do it, but we will try.’”
Five steps to innovation through subtraction
1. Ask about all requirements
The only requirements that McNeil said are really important are the law requirements and the physics requirements. Everything else can be poked and prodded.
“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,” McNeil told TechCrunch. “It’s almost like a tribal myth or a game of telephone. And so (Musk) wants to really understand, is this a real requirement, or is this something that someone thought was a good idea, and over time, it was written into a requirement?”
2. Eliminate every step in the process that you can
McNeil advises companies to track each process in a spreadsheet so they can only identify the steps that add value to the customer. Everything else they should delete, with the caveat that they can always add some of these steps again if necessary.
“Until you have to add 10 percent more steps again, you haven’t cut deep enough,” he said.
He added that for managers to be successful at this, they need to spend 20% of their time on the front lines. If you’re the CEO of Starbucks, that means rolling up your sleeves and understanding not only how to make a cup of coffee from start to finish, but also understanding why your customers are frustrated with the process.
3. Simplify and improve
In 2018, when Tesla was trying to figure out how to increase Model 3 production, Tesla CEO Jerome Guillén realized that Tesla had over-automated production. He said the company needed to get back to basics, and for him, that meant building a huge tent where the team could build cars by hand.
The Model 3 was built this way by hand for months, which helped Tesla streamline the production process further when the team eventually moved the line back inside the main building, McNeil says.
“They were able to remove more than 50% of the steps because they just optimized the process manually,” MacNeil said.
4. Speed application. Maximize cycle time
“Simplifying and optimizing can lead to step four, which is then implementing agility,” McNeil said. “Speed exposes all weaknesses in the process.”
MacNeil says speed matters today more than ever.
“When your cost of cash is 5%, (simplification) accelerates your cash generation,” he said. “Cash speed is really the measure of elite artists.”
5. Finally, automate it
Only after companies streamline the process and truly understand the product and customer journey should they move to automation.
“Automation is like screws in the ground,” McNeil said. “Once you start writing code, it becomes very difficult to decode and replace it.”
“You automate to make it repeatable, you automate to make it scalable, and you only do that when you have a repeatable and scalable process.”
McNeil’s Three Secret Ingredients
In addition to the five lessons, McNeil introduced three additional cultural principles.
The first is that companies must broaden their view to include the entire customer journey or experience. example? GM is really good at producing cars, and that includes its electric cars. But shipping is part of the customer journey, and it’s something GM didn’t immediately commit to. Tesla did this when it built its supercharging network.
The second component is to create a sense of urgency and accountability by identifying the two or three things that matter to the company at any given time. The CEO should be allowed to fully focus on those things.
The third element is the product experience as your customer experiences the product. Or as McNeil said: “Eat your own dog food.”
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