This article is from Full Stack Economics, a newsletter about the economy, technology, and public policy.
As I’ve followed the saga of Elon Musk taking over Twitter in recent months, I’ve had a sense of déjà vu. I haven’t written much about Musk or his companies in the last year or so. But I wrote about Musk extensively in 2018—the last time Musk tried to take a company private and wound up in a bitter legal battle.
“Am considering taking Tesla private at $420,” Musk wrote in a now-infamous Aug. 7, 2018, tweet. “Funding secured.”
Buying out Tesla’s public shareholders would have given Musk greater control over the company. And in retrospect, it would have been a great deal for whoever financed the transaction. On a split-adjusted basis, the stock is now worth about eight times Musk’s proposed buyout price.
Unfortunately, Musk didn’t have “funding secured” for a buyout, so the deal never happened. And the Securities and Exchange Commission doesn’t look favorably on CEOs tweeting out inaccurate, market-moving information about their own stock. The agency sued Musk.
Around this time, I wrote an opinion piece for Ars Technica arguing that Tesla was outgrowing Elon Musk, and that the company would be better off with a different CEO. Beyond the “funding secured” shenanigans, 2018 was an unusually chaotic year for Musk and Tesla. Tesla was struggling to scale up production of the Model 3, and the company was bleeding cash, and it seemed to be losing executives left and right. It was also the year Musk called a British cave rescuer a “pedo guy” on Twitter, earning another lawsuit.
“Elon Musk is impulsive, he micromanages subordinates, and he hates to admit when he makes a mistake,” I wrote in 2018. “All of these are bad traits for the CEO of a big publicly traded company, and they are going to become bigger and bigger liabilities as Tesla grows.”
In retrospect, I was clearly wrong. The Model 3 was a big success, Tesla prospered, and Musk is now the world’s richest man.
Since Musk formally gained control of Twitter last Thursday, the media has portrayed it as a company in chaos. We can expect a lot more stories like this in the coming months. But as you read these stories, you should resist the urge to conclude—as I did four years ago—that Musk is an ineffective manager. Musk’s management style frequently generates chaos for his subordinates. But there is usually a method to his madness.
Musk is reportedly considering a number of ideas to make Twitter more profitable, including charging verified users as much as $20 per month to keep their blue checkmarks. But it looks like the first and possibly most important thing Musk is going to do is to significantly reduce Twitter’s headcount, producing a company that’s more profitable and—perhaps—better positioned to nimbly implement other ideas Musk dreams up in the future.
“UPDATE: Stop printing”
Inside Twitter, “Musk’s arrival has been experienced primarily as chaos,” journalist Casey Newton wrote on Saturday.
According to Newton, Twitter engineers were asked to print out their code in hard copy so they could go through it with Musk or a senior Tesla engineer who had been dispatched to help with Twitter’s leadership transition.
“Please print out 50 pages of code you’ve done in the last 30 days (if you haven’t submitted code in the past 30 days, then you can go back up to 60 days),” an internal Slack message said.
According to Newton, “engineers spent Friday afternoon at Twitter dutifully printing out their code in anticipation of meetings with Musk and some of his senior engineers from Tesla.”
But then the instructions changed again, Newton reports.
“UPDATE: Stop printing,” another Slack message said. “Please be ready to show your recent code (within last 30-60 preferably) on your computer. If you have already printed, please shred in the bins on SF-Tenth. Thank you!”
It obviously wouldn’t have been practical for Musk to personally review the work of hundreds of Twitter engineers. And of course Musk would have known that. It’s possible that this was a simple miscommunication, or perhaps an impulsive request Musk made before changing his mind. But it seems more likely that Musk knew exactly what he was doing here.
If you were an engineer who got this message and you hadn’t written 50 pages of code in the last 30 days, you would probably get nervous about your job prospects. Maybe you’d decide to start working more nights and weekends. Or maybe you’d start working on your résumé. Either way, the exercise would nudge Twitter toward a more workaholic culture.
At most companies, this would be a disastrously bad management strategy because the engineers with the best outside options would get frustrated and leave. And most companies struggle to recruit and retain tech talent.
But Musk has a long track record of recruiting talented engineers to both Tesla and SpaceX and motivating them to work hard. Moreover, Musk apparently believes that Twitter is dramatically overstaffed, so if 10 or 20 or 30 percent of the company’s engineers leave due to concerns over work-life balance, he might view that as pure upside.
Musk also has a penchant for theatrical management flourishes that help him communicate his ideas in vivid ways. In 2018, he talked about sleeping on the factory floor as he worked around the clock to fix problems with Model 3 production. It’s debatable whether this saved him much time. But it surely helped to communicate to Tesla workers that he felt a sense of urgency about fixing problems with the Model 3.
Musk’s Track Record of Cutting Costs
Musk reportedly told prospective investors that he could cut as much as 75 percent of Twitter’s workforce. More recently, Musk has told employees the cuts won’t be that deep. But it seems clear that substantial layoffs are coming.
This matters because Twitter could be quite a profitable business if its expenses weren’t so high. Last quarter, Twitter brought in an impressive $1.1 billion in revenue. However, it lost money because it spent $1.5 billion—including $454 million in research and development.
And if anyone knows how to squeeze costs out of engineering projects, it’s Elon Musk. A big reason Musk was able to grow SpaceX into the dominant force in the rocket industry was a relentless focus on cost-cutting, allowing SpaceX’s rockets to be dramatically cheaper than those of its competitors.
Journalist Ashlee Vance gives a colorful example of how he did it in his 2015 biography of Musk. In 2004, SpaceX needed a part called an actuator for its first rocket, the Falcon 1, and Musk tasked engineer Steve Davis to build it. Vance describes what happened next:
Davis had never built a piece of hardware before in his life and naturally went out to find some suppliers who could make an electro-mechanical actuator for him. He got a quote back for $120,000.
“Elon laughed,” Davis said. “He said, ‘That part is no more complicated than a garage door opener. Your budget is five thousand dollars. Go make it work.’”
Davis spent nine months building the actuator. At the end of the process, he toiled for three hours writing an email to Musk covering the pros and cons of the device. The email went into gory detail about how Davis had designed the part , why he had made various choices, and what its cost would be. As he pressed send, Davis velt anxiety surge through his body knowing that he’d given his all for almost a year to do something an engineer at another aerospace company would not even attempt.
Musk rewarded all of this toil and angst with one of his standard responses. He wrote back, “Ok.” The actuator Davis designed ended up costing $3,900 and flew with Falcon 1 into space.
I doubt that Twitter today is as bloated or bureaucratic as the aerospace industry was 20 years ago. But I bet there’s substantial fat that could be cut, and if anybody can find it, it’s Musk.
Twitter currently has around 7,500 employees and 237 million monetizable daily active users.
Some people have pointed out that at the time Facebook acquired WhatsApp, the messaging app had around 400 million monthly users and around 50 employees. This isn’t an entirely fair comparison for Twitter, for several reasons:
• Scaling a public, many-to-many microblogging service is harder than scaling a private messaging service.
• Twitter deals with images, video, and audio as well as text.
• Twitter has substantial personnel and infrastructure devoted to serving ads.
• And Twitter has to deal with content moderation questions that don’t come up with private messaging.
But does this greater complexity justify having 150 times as many employees? Musk clearly doesn’t think so.