A Twitter is Not a Tesla
Elon Musk highlights the importance of Founder-Business-Model-Fit
From an FT article describing Elon Musk's approach with Twitter's largest paying customers:
Musk, meanwhile, has sought to personally call chief executives of some brands that have curbed advertising in order to berate them...“He seems to put off even those advertisers who wanted him to succeed,” another top advertising agency executive said....
Wow.
I think we can all agree that Musk is one of the great tech founders & operators of our times. But he is seriously missing the mark with advertisers at Twitter.
In doing so, he's providing a lovely illustration of what is one of the most under-appreciated factors in the success of startups: the importance of founder-business-model-fit.
A founder who is legendarily effective in one type of business model might be a bust in another. Musk is arguably the greatest founder and operator ever in deep tech startups. But I think he would fall flat if he took the same approach to a bottom-up SaaS startup.
Twitter's current ad business is driven by brands. Brand advertisers need hand-holding. They need a soothing bedside manner. This is in contrast to Google and Facebook, which have online advertising businesses powered by direct response advertisers. Direct response advertisers care primarily about ROI, not service. But Twitter's ad business is essentially a service business.
For a service business, berating customers is a no-no. The customer is always right. This would be obvious to a CEO with a more congenial personality. Unless there are major leadership changes, I'm not optimistic about Twitter's ad business.
I don't mean to be overly harsh on Musk. Clearly, his personality fits like a glove at deep tech startups like Tesla and SpaceX. The audacious technology does the selling for customers and the CEO's bedside manner with customers is irrelevant.
I suspect that Elon Musk would have been a force if he were a software founder in the 1980s. The best founders of that era such as Larry Ellison or Oracle and Bill Gates of Microsoft were brilliant & visionary, like Musk. They were also cutthroat & aggressive. Their success had nothing to do with congeniality. Musk would have fit in quite well.
But Musk would struggle in bottom-up or product-led SaaS. The best founders here are collaborative & service-oriented. Early on, these founders all made a critical choice to prioritize value creation for users over monetization. The founders of bottom-up SaaS winners like Shopify, Canva, and Zoom tend to have highly conscientious personalities. They tend to be the types of people who would genuinely feel lousy if a customer has a bad experience. Founders of the early software winners would fall off their chairs laughing at that idea.
Why are the winning founder personalities so different for different business models?
Selection pressures can vary dramatically across industries and time periods.
The winning business model of early software companies was to "pour cement around the ankles of customers." Switching costs were sky-high and customers lacked capacity to judge good software solutions from bad ones. Winners like Oracle and SAP and Microsoft had visionary leaders and sales-driven cultures. High-priced sales reps would say anything to close a customer. Then, thanks to those switching costs, a miserable customer would still have to pay through the nose in perpetuity.
Today's product-led SaaS startups live-and-die on their net promoter scores. Particularly in the early stages, great SaaS founders today must have no qualms about giving away big chunks of their product for free. They know that switching costs are relatively low and that the cheapest marketing strategy is word-of-mouth.1
Back to Twitter. As long as Musk is a hands-on CEO, he should prioritize business lines that don't require a service-oriented mindset. If Musk wants to grow the ad business in its current form, he seriously should consider turning over the reins to someone who is a better fit for that business model.
I should note that mature product-led SaaS companies will sometimes shift their strategy to harvest more revenue. But, critically, they started out with an attitude of generosity towards their early customers. The DataDogs and the Canvas and the Stripes would never have found tight product-market-fit without this mindset of generosity and without building their early culture around obsessively creating value for all users, with revenue a distant secondary priority.