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Find the Gap: How Jack Ma and Elon Musk See What Others Miss

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Alibaba’s Jack Ma and Tesla’s Elon Musk Think Differently Than the Rest of Us. Here's How.

Jack Ma was an English teacher of modest means in the southern Chinese province of Hangzhou. He had little business experience and few connections in the Chinese government. Yet he launched a new kind of Internet company that became the $216 billion market behemoth Alibaba—the world’s largest business-to-business e-commerce marketplace.

What made it possible for a teacher in rural China to create a whole new way for his country’s small business owners to gain access to the international marketplace? People often point to entrepreneurs’ resources and personal connections but Jack Ma had neither.

Or consider Elon Musk, a South African-born entrepreneur who dropped out of his Stanford PhD program just two days after he began it to launch the first in a rapid succession of ground-breaking companies. Zip2, PayPal, SpaceX, Tesla Motors, and SolarCity each tackled a major problem and built a new solution from the ground up. How, by his early 40s, could Musk have created an online currency, designed and built an electric car, created a rocket company that resupplies the International Space Station, and formed the largest residential solar company in the United States?

If domain expertise is the catalyst, then Musk could not have succeeded in such diverse fields. Expertise, raw talent and resources each have something to do with innovation, to be sure, yet scores of people who possess all of these ingredients nonetheless launch businesses that wither on the vine. And entrepreneurs who possess none of them continue to succeed. It happens every day.

I would argue that Ma and Musk, and others like them, have a certain sensibility that strengthens their ability to identify gaps and opportunities. They see what others don’t. Entrepreneurial alertness is one way to describe it. The concept comes from the British-born economist Israel Kirzner, who illustrates how it works with the case of arbitrage in finance, where success comes to those who can uncover market discrepancies that can be exploited for financial gain. But the concept applies well beyond finance. The ability to recognize “competitive imperfection” in a marketplace is a key attribute of successful entrepreneurs.





Spotting opportunities involves a substantially different way of thinking than what is required for sound execution in business. Applying logical analysis and strategic planning are the vital elements of peak corporate performance. That is why most CEOs have these skills down cold. But these attributes fall short when it comes to improvising and discovering.

How can we spot opportunities that others don’t see? Through 200 interviews with today’s leading entrepreneurs, I’ve identified three key patterns of discovery. Understanding theses ‘ways of seeing’ as an Architect, Sunbird, or Integrators helps to unravel the mystery of spotting breakthrough ideas.

 

Architects: Building New Models from Scratch

 





elon musk

Elon Musk, who embodies entrepreneurial alertness (Getty Images)

Jack Ma and Elon Musk saw what was missing and built new solutions to fill the void. They are Architects: blank-sheet-of-paper creators who design and build new models from the ground up.

Just as professional architects who design tall buildings work within environmental and logistical constraints, Architects deal with individual components of projects, striving to understand how each element builds upon the next. They have a unique ability to envision how separate parts fit together into a logical design. Like celebrity “starchitects,” they often reconfigure elements into something breathtakingly new.

Architects have the ability to see what is not there. They listen for silence and pay attention to what others have overlooked. They build their creations in open spaces.





Jack Ma focused on a part of the Chinese market that was of little interest to others at the time. In 1998, on a business trip to Seattle, Ma first saw a computer connected to the Web. On a whim he typed-in “beer” as a search term. The search engine returned sites from all around the world…except for China. He searched again, this time trying “Chinese beer.” Still nothing. In a flash of insight, Ma recognized that China’s small and medium-sized businesses were invisible on the Internet. They were not there. And he saw what a huge untapped opportunity that represented.

Ma decided to test his hunch. He posted an advertisement for the English-to-Chinese translation service he had developed while teaching English at Hangzhou Teachers College. With some help, he posted a one-page site featuring the name of the service, a price list, and contact information. The site went up at 9:30 A.M. and by 5 P.M. he had received 5 emails. This was enough to convince him that he was on to something.

At the time Ma was getting started, only large Chinese companies had clear sales channels to the international market. Ma knew that four-fifths of China’s companies were small and medium-sized, and they faced tremendous obstacles without a means to connect with each other or the outside world. The beauty of Alibaba was that it provided visibility to smaller players.

 

Also Read: Five Leadership Qualities You Didn’t Know





 

By the end of 2001, the Alibaba China “Supplier Club” had topped one million, making it the largest B2B Web site in the world in terms of members. In 2004, at an Alibaba conference, Yahoo’s co-founder Jerry Yang noted, “this is the first time I have even heard people talking about ‘Net business.’ America doesn’t really have this. I myself had not appreciated the usefulness of the Internet as a tool for small and medium sized enterprises to transact business.” Yahoo invested $1 billion dollars for a 40 percent stake in Alibaba in 2005.

It took a while, but others soon saw the missing space that Ma had spotted. A few years later, an Alibaba conference in Hangzhou suddenly attracted a host of big international players such as Wal-Mart, Proctor & Gamble, and Home Depot. By 2014, when Alibaba went public on the New York Stock Exchange, it was the largest seller of online goods, as well as the largest payment processor, and cloud storage business in China.

Reasoning by first principles is another way Architects spot opportunities. By definition, first principles are the fundamental elements upon which a theory is based. In entrepreneurial endeavors, reasoning by first principles requires Architects to break an issue down into its basic parts. They identify assumptions one-by-one and determine what is challenging or special about each element.

Elon Musk is a classic first-principles entrepreneur. Consider, for instance, how he built the case for all-electric cars at Tesla Motors. For most people, the argument for electric vehicles foundered on the simple fact that batteries are hugely expensive. Musk deconstructed that logic, breaking battery packs down into their component parts to examine the case from a ground level. Can’t we make batteries much, much more cheaply, he asked?

 

tesla charging

A Tesla charging station (Justin Sullivan/Getty Images)

While battery power typically costs about $600 per kilowatt hour, Musk found that the open market arithmetic of battery components told a different story. He assessed the spot market value of carbon, nickel, aluminum, and steel on the London Metals Exchange to find that the combined price was closer to $80 per kilowatt hour. By acquiring the principle elements of battery packs and putting them together in a new way, this Architect believes that battery powered vehicles will continue to become more affordable

Musk’s ambitious hope with SpaceX is to enable transport to Mars for human colonization. Although it sounds improbable if not impossible, Musk has already secured a $2.6 billion NASA contract to resupply the International Space Station. With supporters and naysayers all standing by to see what happens next, Musk continues to move ever-closer to his radical vision of an interplanetary age by reinventing the model.

In examining the basic components of interplanetary transport, Musk hit a snag when he looked at the price tag on a rocket. “I could compress the costs of everything else,” he said, “but I couldn’t compress the cost of a rocket.”

 

[youtube height=”500″ width=”800″]https://www.youtube.com/watch?v=F0n-ESrml3g[/youtube]

 

Musk considered buying from Russia, then decided to (you guessed it) build his own rocket piece-by-piece. Thinking by first principles, Musk continues to question the basic assumptions of space travel. Currently, rockets burn up and are destroyed upon re-entering Earth’s atmosphere. But rockets with a short lifecycle and high price tag don’t fit into Musk’s ideal. As an alternative, SpaceX’s goal is to create a reusable rocket—one that would return to earth intact for refueling and reuse.

Musk explains: “Kind of like in sci-fi movies, the rocket takes off and land on a sheet of flame. That’s how a rocket should work.”

 

Sunbirds: From One Domain to Another

Another way to find the gap is by repurposing something that already exists. Unlike Architects, Sunbirds start with things that are fully formed. They transport ideas across geographies and domains, seeing solutions in one area that will solve problems in another.

The name comes from a small bird native to Africa, Asia, and parts of Australia. Like the North American hummingbird, sunbirds subsist primarily on nectar. They fly from bud-to-bud, cross-fertilizing flowers by transferring pollen.

 

Robert Langer

Biotechnology pioneer Robert Langer (above) approaches the world in much the same way. “When I finished my doctorate, I did something very unusual for an engineer, I actually started in a surgery lab,” he recalls.

Transferring his engineering knowledge into the medical field, Langer invented a breakthrough technology—a new type of polymer able to deliver angiogenesis inhibitors to prevent blood vessels from feeding cancerous tumors. Today, Langer’s technology is used to deliver drugs used not only in fighting cancer, but also in treating diabetes, schizophrenia, narcotic addiction, and alcoholism, among other diseases.

 

Also Read: 5 Brilliant Ways Smart Leaders Motivate

 

Langer has an astounding ability to pick up ideas in one sphere and apply them in another. For a recent invention, Langer drew an analogy from the Intel microprocessor. “The whole idea began by watching a television show on how they make microchips,” Langer explains. “When I saw that I put two-and-two together and I thought, well, maybe this could be a whole new way of delivering drugs to patients.” The microchip works as a “pharmacy on a chip” implanted in a patient’s body. It was successfully used to administer daily doses of an osteoporosis drug in 2012.

Langer had another Sunbird inspiration when he read an article about shape-changing materials used in cars of the future. The article described how if a car got a dent, it could be heated up and snapped back into shape. Langer drew a parallel that produced a whole family of ‘smart materials’ that could change shape inside the human body, including sutures that tie themselves together after a minimally invasive procedure such as a gall bladder surgery. In another example, he and his team emulated a Gecko’s foot to create “an internal Band-Aid.” The stickiness of a Geckos foot and its texture, grooves, and unique design inspired a polymer adhesive able to hold tissues together even in wet places inside the body.

Today Langer’s biomedical engineering lab at Massachusetts Institute of Technology is the largest of its kind in the world. It has spun out over twenty-five startups, each generating over $100 million in annual revenue.

For Sunbirds, spotting an idea that’s worth transferring requires an understanding of why it worked in the first place and what similarities or differences will make it work again. Sunbirds reason by analogy.

 

Howard Schultz

Howard Schultz, the founder and CEO of Starbucks (Spencer Platt/Getty Images)

Starbucks founder and CEO Howard Schultz is notable Sunbird innovator. On a trip to Italy, he was intrigued to find people flocking to local cafés, drinking espresso and enjoying the company of friends and neighbors. Espresso bars were an important a part of the cultural landscape throughout Europe. It was quite a different story in the United States, where coffee outside the home tended to be a barely palatable brew that people gulped in diners or on the go.

Schultz didn’t invent the espresso bar concept—he borrowed it. But he was alert enough to key-in on coffee bars, and insightful enough to add a few new twists and bring them to the United States, and later to other countries.

Many other well-known products are Sunbird creations. “What I set out to do was to take something that worked really well in the off-line world—namely trade and commerce—and bring it to the online world,” Ebay founder Pierre Omidyar explains. Nike co-founder Bill Bowerman used a Sunbird discovery pattern when he saw his wife’s waffle iron and applied its principles to create the company’s original waffle-tread running shoe.

 

Integrators: Combining New Concepts

Unlike Sunbirds, who transfer ideas across divides, or Architects, who construct new concepts from the ground up, Integrators combine existing elements to shape novel outcomes.

Unusual spice combinations yield exotic foods. Fusing retro and modern trends shapes fashion. In art, abstract forms such as cubism represent objects broken up and reassembled. In the academic world, behavioral economics, bioinformatics, and geophysics are all new fields created by the integration of disciplines.

 

Steve Ells

Steve Ells, the founder of Chipotle Mexican Grill (Gabriel Olsen/Getty Images)

Yet, while combinations strike us as innovative and unusual in the abstract, they can be tricky to pull off. Steve Ells, the founder of Chipotle Mexican Grill, is someone with a reputation for combining unusual flavors to create original recipes. A graduate of the prestigious New York Culinary Academy, Ells began his career as a chef at Stars, a posh top-five restaurant that was based in San Francisco. But Ells was not ready to stop and settle for the norm: he wanted to reinvent it. Going against all advice, he confounded critics and peers alike to integrate his fine dining expertise with fast food delivery. Cooking up a new combination, Ells launched Chipotle in 1993, creating a whole new category of restaurant called “fast-casual.”

“I sort of grew up in the world of fine-dining. I didn’t know the fast food rules,” Ells explains. As a result, the chef turned businessman created a different dining experience. Today, Ells leads a fast-growing fast food company that is anything but “fast food-y.”

If Ells is relentless about anything it is in wanting “both.” “I was never a good compromiser, even as a little kid,” he admits. “My parents would say ‘well Steve, you can have this or that,’ and I would answer: ‘I want both.’”

Chipotle’s distinctive practice of serving customers quickly yet still cooking from scratch stems from what Ells calls “cooking for the line.” As a line of customers grows longer, cooks increase the amount of ingredients they prepare, and when the lines tapers off they systematically pull back, integrating real-time demand into Chipotle’s made-to-order equation.

All the elements of the Chipotle formula existed elsewhere, but Ells integrated them in a new way. The fast-casual, simple-gourmet dining concept took hold. Today, Chipotle operates 1,780 restaurants creating over $4 billion in annual revenue.

Combining opposing wants and needs often opens up a new set of possibilities. This approach neatly characterizes Gilt Groupe, an online luxury retailer that brings together invitation-only sample sales and the mass-market networking capability of the web to build out a consumer category called “accessible luxury.” The “luxury SUV” class of vehicles combines a high-end vehicle designed for comfort with an all-wheel, off-road sport vehicle built for rugged terrain. Today’s marketplace is full of product categories created by integration: “rugged comfort” in travel packages and clothing, which target the adventurous explorer who also demands the comforts of home and “shabby chic” in interior design, tailored for individuals who seek a casual yet upscale home style.

 

The Trap of Knowledge

Knowledge plays a paradoxical role in an individual’s ability to discover. Firsthand experience supplies the raw materials from which new ideas are forged but can carry with it the potential to ensnare us in old ways of thinking and seeing.

Jack Ma tells a story about the Balinese money trap that captures the point. A monkey trap is made of rope and a coconut with a small hole and a shiny treasure inside. The hole is large enough to fit a monkey’s hand, but too small for its fist when clasped around the shiny object. The trap works because the monkey, after grabbing the spoon, refuses to release his grip.

We must be willing to unclench our fist to avoid old ideas from entrapping us. Much of what holds us back is our inability to give up past ways of doing things to consider new approaches. It all starts with an alert and questioning mind.


This post has been excerpted and adapted from Amy Wilkinson's new book, The Creator's Code: The Six Essential Skills of Extraordinary Entrepreneurs, to be released Tuesday, Feb. 17.

Wilkinson is a strategic adviser, entrepreneur, and lecturer at the Stanford Graduate School of Business. She frequently addresses corporate, association, and university audiences on entrepreneurial leadership. She also advises startups and large corporations on innovation and business strategy.

Learn more about her work at AmyWilkinson.com.

 

Watch The Six Essential Skills of Extraordinary Entrepreneurs

[youtube height=”500″ width=”800″]https://www.youtube.com/watch?v=6R3kNn461Xs[/youtube]

 

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