by Ashlee Vance
What kept the employees’ spirits up were the continuous improvements Musk made with the Zip2 software. The service had morphed from a proof-of-concept to an actual product that could be used and demoed. Ever marketing savvy, the Musk brothers tried to make their Web service seem more important by giving it an imposing physical body. Musk built a huge case around a standard PC and lugged the unit onto a base with wheels. When prospective investors would come by, Musk would put on a show and roll this massive machine out so that it appeared like Zip2 ran inside of a mini-supercomputer. “The investors thought that was impressive,” Kimbal said. Heilman also noticed that the investors bought into Musk’s slavish devotion to the company. “Even then, as essentially a college kid with zits, Elon had this drive that this thing—whatever it was—had to get done and that if he didn’t do it, he’d miss his shot,” Heilman said. “I think that’s what the VCs saw—that he was willing to stake his existence on building out this platform.” Musk actually said as much to one venture capitalist, informing him, “My mentality is that of a samurai. I would rather commit seppuku than fail.”
Early on in the Zip2 venture, Musk acquired an important confidant, who tempered some of these more dramatic impulses. Greg Kouri, a Canadian businessman in his mid-thirties, had met the Musks in Toronto and bought into the early Zip2 brainstorming. The boys had showed up at his door one morning to inform Kouri that they intended to head to California to give the business a shot. Still in his red bathrobe, Kouri went back into the house, dug around for a couple of minutes, and came back with a wad of $6,000. In early 1996, he moved to California and joined Zip2 as a cofounder.
Kouri, who had done a number of real estate deals in the past and had actual business experience and skills at reading people, served as the adult supervision at Zip2. The Canadian had a knack for calming Musk and ended up becoming something of a mentor. “Really smart people sometimes don’t understand that not everyone can keep up with them or go as fast,” said Derek Proudian, a venture capitalist who would become Zip2’s chief executive officer. “Greg is one of the few people that Elon would listen to and had a way of putting things in context for him.” Kouri also used to referee fistfights between Elon and Kimbal, in the middle of the office.
“I don’t get in fights with anyone else, but Elon and I don’t have the ability to reconcile a vision other than our own,” Kimbal said. During a particularly nasty scrap over a business decision, Elon ripped some skin off his fist and had to go get a tetanus shot. Kouri put an end to the fights after that. (Kouri died of a heart attack in 2012 at the age of fifty-one, having made a fortune investing in Musk’s companies. Musk attended his funeral. “We owe him a lot,” said Kimbal.)
In early 1996, Zip2 underwent a massive change. The venture capital firm Mohr Davidow Ventures had caught wind of a couple of South African boys trying to make a Yellow Pages for the Internet and met with the brothers. Musk, while raw in his presentation skills, pitched the company well enough, and the investors came away impressed with his energy. Mohr Davidow invested $3 million into the company.* With these funds in hand, the company officially changed its name from Global Link to Zip2—the idea being zip to here, zip to there—moved to a larger office at 390 Cambridge Avenue in Palo Alto, and began hiring talented engineers. Zip2 also shifted its business strategy. At the time, the company had built one of the best direction systems on the Web. Zip2 would advance this technology and take it from focusing just on the Bay Area to having a national scope. The company’s main focus, however, would be an altogether new play. Instead of selling its service door-to-door, Zip2 would create a software package that could be sold to newspapers, which would in turn build their own directories for real estate, auto dealers, and classifieds. The newspapers were late understanding how the Internet would impact their businesses, and Zip2’s software would give them a quick way of getting online without needing to develop all their own technology from scratch. For its part, Zip2 could chase bigger prey and get a cut of a nationwide network of listings.
This transition of the business model and the company’s makeup would be a seminal moment in Musk’s life. The venture capitalists pushed Musk into the role of chief technology officer and hired Rich Sorkin as the company’s CEO. Sorkin had worked at Creative Labs, a maker of audio equipment, and run the business development group at the company, where he steered a number of investments in Internet start-ups. Zip2’s investors saw him as experienced and clued in to the Web. While Musk agreed to the arrangement, he came to resent giving up control of Zip2. “Probably the biggest regret the whole time I worked with him was that he had made a deal with the devil with Mohr Davidow,” said Jim Ambras, the vice president of engineering at Zip2. “Elon didn’t have any operational responsibilities, and he wanted to be CEO.”
Ambras had worked at Hewlett-Packard Labs and Silicon Graphics Inc. and exemplified the high-caliber talent Zip2 brought on after the first wave of money arrived. Silicon Graphics, a maker of high-end computers beloved by Hollywood, was the flashiest company of its day and had hoarded the elite geeks of Silicon Valley. And yet Ambras used the promise of Internet riches to poach a team of SGI’s smartest engineers over to Zip2. “Our attorneys got a letter from SGI saying that we were cherry-picking the very best guys,” Ambras said. “Elon thought that was fantastic.”
While Musk had exceled as a self-taught coder, his skills weren’t nearly as polished as those of the new hires. They took one look at Zip2’s code and began rewriting the vast majority of the software. Musk bristled at some of their changes, but the computer scientists needed just a fraction of the lines of code that Musk used to get their jobs done. They had a knack for dividing software projects into chunks that could be altered and refined whereas Musk fell into the classic self-taught coder trap of writing what developers call hairballs—big, monolithic hunks of code that could go berserk for mysterious reasons. The engineers also brought a more refined working structure and realistic deadlines to the engineering group. This was a welcome change from Musk’s approach, which had been to set overly optimistic deadlines and then try to get engineers to work nonstop for days on end to meet the goals. “If you asked Elon how long it would take to do something, there was never anything in his mind that would take more than an hour,” Ambras said. “We came to interpret an hour as really taking a day or two and if Elon ever did say something would take a day, we allowed for a week or two weeks.”
Starting Zip2 and watching it grow imbued Musk with self-confidence. Terence Beney, one of Musk’s high school friends, came to California for a visit and noticed the change in Musk’s character right away. He watched Musk confront a nasty landlord who had been giving his mother, who was renting an apartment in town, a hard time. “He said, ‘If you’re going to bully someone, bully me.’ It was startling to see him take over the situation. The last time I had seen him he was this geeky, awkward kid who would sometimes lose his temper. He was the kid you would pick on to get a response. Now he was confident and in control.” Musk also began consciously trying to manage his criticism of others. “Elon is not someone who would say, ‘I feel you. I see your point of view,’” said Justine. “Because he doesn’t have that ‘I feel you’ dimension there were things that seemed obvious to other people that weren’t that obvious to him. He had to learn that a twenty-something-year-old shouldn’t really shoot down the plans of older, senior people and point out everything wrong with them. He learned to modify his behavior in certain ways. I just think he comes at the world through strategy and intellect.” The personality tweaks worked with varying degrees of success. Musk still tended to drive the young engineers mad with his work demands and blunt criticism. “I remember being in a meeting once brainstorming about a new product—a new-car site,” said Doris Downes, the creative director at Zip2. “Someone complained about a technical change that we wanted being impossible. Elon turned and said, ‘I don’t really give a damn what you think,’ and walked out of the meeting. For Elon, the word no does not exist, an
d he expects that attitude from everyone around him.” Periodically, Musk let loose on the more senior executives as well. “You would see people come out of the meetings with this disgusted look on their face,” Mohr, the salesman, said. “You don’t get to where Elon is now by always being a nice guy, and he was just so driven and sure of himself.”
As Musk tried to come to terms with the changes the investors had inflicted on Zip2, he did enjoy some of the perks of having big-money backing. The financiers helped the Musk brothers with their visas. They also gave them $30,000 each to buy cars. Musk and Kimbal had traded in their dilapidated BMW for a dilapidated sedan that they spray-painted with polka dots. Kimbal upgraded from that to a BMW 3 Series, and Musk bought a Jaguar E-Type. “It kept breaking down, and would arrive at the office on a flatbed,” Kimbal said. “But Elon always thought big.”*
As a bonding exercise one weekend, Musk, Ambras, a few other employees and friends took off for a bike ride through the Saratoga Gap trail in the Santa Cruz Mountains. Most of the riders had been training and were accustomed to strenuous sessions and the summer’s heat. They set up the mountains at a furious pace. After an hour, Russ Rive, Musk’s cousin, reached the top and proceeded to vomit. Right behind him were the rest of the cyclists. Then, fifteen minutes later, Musk became visible to the group. His face had turned purple, and sweat poured out of him, and he made it to the top. “I always think back to that ride. He wasn’t close to being in the condition needed for it,” Ambras said. “Anyone else would have quit or walked up their bike. As I watched him climb that final hundred feet with suffering all over his face, I thought, That’s Elon. Do or die but don’t give up.”
Musk continued to be a ball of energy around the office as well. Ahead of visits by venture capitalists and other investors, Musk would rally the troops and instruct them all to get on the phone to create a buzzy atmosphere. He also formed a video-game team to participate in competitions around Quake, a first-person-shooter game. “We competed in one of the first nationwide tournaments,” Musk said. “We came in second, and we would have come in first, but one of our top players’ machine crashed because he had pushed his graphics card too hard. We won a few thousand dollars.”
Zip2 had remarkable success courting newspapers. The New York Times, Knight Ridder, Hearst Corporation, and other media properties signed up to its service. Some of these companies contributed $50 million in additional funding for Zip2. Services like Craigslist with its free online classifieds had just started to appear, and the newspapers needed some course of action. “The newspapers knew they were in trouble with the Internet, and the idea was to sign up as many of them as possible,” Ambras said. “They wanted classifieds and listings for real estate, automotive, and entertainment and could use us as a platform for all these online services.” Zip2 acquired a trademark for its “We Power the Press” slogan and the influx of cash kept Zip2 growing fast. Company headquarters were soon so crowded that one desk ended up directly in front of the women’s bathroom. In 1997, Zip2 moved into flashier, more spacious digs at 444 Castro Street in Mountain View.
It irritated Musk that Zip2 had become a behind-the-scenes player to the newspapers. He believed the company could offer interesting services directly to consumers and encouraged the purchase of the domain name city.com with the hopes of turning it into a consumer destination. But the lure of the media companies’ money kept Sorkin and the board on a conservative path, and they decided to worry about a consumer push down the road.
In April 1998, Zip2 announced a blockbuster move to double down on its strategy. It would merge with its main competitor CitySearch in a deal valued at around $300 million. The new company would retain the CitySearch name, while Sorkin would head up the venture. On paper, the union looked very much like a merger of equals. CitySearch had built up an extensive set of directories for cities around the country. It also appeared to have strong sales and marketing teams that would complement the talented engineers at Zip2. The merger had been announced in the press and seemed inevitable.
The opinions on what happened next vary greatly. The logistics of the situation required the two companies to go over each other’s books and to figure out which employees would be fired to avoid a duplication of roles. This process raised some questions about how frank CitySearch had been with its financials and rankled some executives at Zip2 who could see their positions being diminished or erased altogether at the new company. One faction inside Zip2 argued that the deal should be abandoned, while Sorkin demanded that it go through. Musk, who had been an early advocate of the deal, turned against it. In May 1998, the two companies canceled the merger, and the press pounced, making a big deal of the chaotic bust-up. Musk urged Zip2’s board to oust Sorkin and reinstate him as CEO of Zip2. The board declined. Instead, Musk lost his chairman title, and Sorkin was replaced by Derek Proudian, a venture capitalist with Mohr Davidow. Sorkin considered Musk’s behavior through the whole affair atrocious and later pointed to the board’s reaction and Musk’s demotion as evidence that they felt the same way. “There was a lot of backlash and finger-pointing,” Proudian said. “Elon wanted to be CEO, but I said, ‘This is your first company. Let’s find an acquirer and make some money, so you can do your second, third, and fourth company.’”
With the deal busted, Zip2 found itself in a predicament. It was losing money. Musk still wanted to go the consumer route, but Proudian feared that would take too much capital. Microsoft had mounted a charge into the same market, and start-ups with mapping, real estate, and automotive ideas multiplied. The Zip2 engineers were deflated and worried that they might not be able to outrun the competition. Then, in February 1999, the PC maker Compaq Computer suddenly offered to pay $307 million in cash for Zip2. “It was like pennies from heaven,” said Ed Ho, a former Zip2 executive. Zip2’s board accepted the offer, and the company rented out a restaurant in Palo Alto and threw a huge party. Mohr Davidow had made back twenty times its original investment, and Musk and Kimbal had come away with $22 million and $15 million, respectively. Musk never entertained the idea of sticking around at Compaq. “As soon as it was clear the company would be sold, Elon was on to his next project,” Proudian said. From that point on, Musk would fight to maintain control of his companies and stay CEO. “We were overwhelmed and just thought these guys must know what they’re doing,” Kimbal said. “But they’ didn’t. There was no vision once they took over. They were investors, and we got on well with them, but the vision had just disappeared from the company.”
Years later, after he had time to reflect on the Zip2 situation, Musk realized that he could have handled some of the situations with employees better. “I had never really run a team of any sort before,” Musk said. “I’d never been a sports captain or a captain of anything or managed a single person. I had to think, Okay, what are the things that affect how a team functions. The first obvious assumption would be that other people will behave like you. But that’s not true. Even if they would like to behave like you, they don’t necessarily have all the assumptions or information that you have in your mind. So, if I know a certain set of things, and I talk to a replica of myself but only communicate half the information, you can’t expect that the replica would come to the same conclusion. You have to put yourself in a position where you say, ‘Well, how would this sound to them, knowing what they know?’”
Employees at Zip2 would go home at night, come back, and find that Musk had changed their work without talking to them, and Musk’s confrontational style did more harm than good. “Yeah, we had some very good software engineers at Zip2, but I mean, I could code way better than them. And I’d just go in and fix their fucking code,” Musk said. “I would be frustrated waiting for their stuff, so I’m going to go and fix your code and now it runs five times faster, you idiot. There was one guy who wrote a quantum mechanics equation, a quantum probability on the board, and he got it wrong. I’m like, ‘How can you write that?’ Then I corrected it for him. He hated me after that. Eventually, I r
ealized, Okay, I might have fixed that thing but now I’ve made the person unproductive. It just wasn’t a good way to go about things.”
Musk, the dot-com striver, had been both lucky and good. He had a decent idea, turned it into a real service, and came out of the dot-com tumult with cash in his pockets, which was better than what many of his compatriots could say. The process had been painful. Musk had yearned to be a leader, but the people around him struggled to see how Musk as the CEO could work. As far as Musk was concerned, they were all wrong, and he set out to prove his point with what would end up being even more dramatic results.
5
PAYPAL MAFIA BOSS
THE SALE OF ZIP2 INFUSED ELON MUSK WITH A NEW BRAND OF CONFIDENCE. Much like the video-game characters he adored, Musk had leveled up. He had solved Silicon Valley and become what everyone at the time wanted to be—a dot-com millionaire. His next venture would need to live up to his rapidly inflating ambition. This left Musk searching for an industry that had tons of money and inefficiencies that he and the Internet could exploit. Musk began thinking back to his time as an intern at the Bank of Nova Scotia. His big takeaway from that job, that bankers are rich and dumb, now had the feel of a massive opportunity.
During his time working for the head of strategy at the bank in the early 1990s, Musk had been asked to take a look at the company’s third-world debt portfolio. This pool of money went by the depressing name of “less-developed country debt,” and Bank of Nova Scotia had billions of dollars of it. Countries throughout South America and elsewhere had defaulted in the years prior, forcing the bank to write down some of its debt value. Musk’s boss wanted him to dig into the bank’s holdings as a learning experiment and try to determine how much the debt was actually worth.
