Tesla's Product Strategy Keys to Growth
Starting & staying focused through strategic choices
The Zone Where Your Product Wins
The best mental models instantly share complex concepts at a glance.
In a single graphic, I can sum up what great product strategy looks like.
In their book “Build What Matters,” by Ben Foster and Rajesh Nerlikar share a crystal-clear framing of a successful product strategy as carving out a small concentration of ideal “customer personas” from a universe of available choices:
This meshes perfectly with what we call our “Where to Play” and “How to Win” choices in the “Playing to Win” Strategy Choice Cascade.
Elon Musk’s Strategy with Tesla
Elon Musk had a clear strategy for the future of electric vehicles.
When he took over Tesla in 2006, they had delivered exactly zero cars in their 3-year existence.
Musk successfully steered Tesla to finally deliver the Roadster in 2008, a high-end, revolutionary electric sports car.
The Roadster
The original Roadster broke the mold of what people thought was possible with an electric vehicle, targeting the techno-lust of the 1% of the 1%.
But it was small, expensive, had short range, and at the time, there were few available charging options.
Tesla’s “Where to Play” and “How to Win”
Under Musk’s leadership, Tesla went from an engineering-focused to product-focused culture, and started with a very clear set of strategic choices:
Where to Play: Sell direct to high-end, tech-ready auto enthusiasts who would pay more for a revolutionary electric sports “super” car.
How to Win: Differentiate through being the first production Lithium-Ion battery-powered vehicle capable of going from 0-60mph in 3.7 seconds.
Tesla intentionally started with a small, high-margin, upscale product, and crushed it, creating a new and highly-focused “Product Win Zone” with the Roadster:
The strategy was to start high-end and build a solid, profitable business. This would give them the cushion they would need to develop their electric vehicle manufacturing and servicing capabilities.
At the same time, they would be able to perfect and scale their quality, sales, servicing, and customer management systems.
Tesla expands their “Product Win Zone”
Tesla next moved to expand their appeal through all they’d learned with the Roadster to expand into luxury and comfort with the Model S sedan, and build out their charging network.
The introduction of the “X,” the “3,” and the “Y” models let them further grow their “Product Win Zone” by introducing vehicles that addressed a broader set of unmet customer needs:
Can I travel with my family?
How far can I go?
How do I charge it easily?
This allowed Tesla to radically expand their “Product Win Zone” to look like this, appealing to new customer personas:
The undisputed king
While there were other electric cars available, Tesla came in and became the undisputed electric car category king.
Because they don’t publicly break out specific profit and revenue numbers in their financial reporting, it’s hard to know for sure, but it’s estimated that Tesla rakes in 60% or more of global electric car profits, given its sales, margin, and scale advantages.
Along the way, they've revolutionized how cars are built, sold, and powered.
Tesla recently announced their latest reboot of the Roadster as an “all electric supercar,” and it’s everything its original customer base would love, and more.
Takeaway: Start high
As Musk’s Tesla demonstrated, if you have the product management, design, and engineering capabilities, and can launch a great product that appeals to luxury buyers, you can rely on higher margins.
That extra profit gives space for the learning and iteration necessary as a company builds reliable capabilities and management systems. This creates the option of either moving into another luxury market, or use lower-priced offerings to appeal instead to a broader audience at greater scale.
Apple’s focus on product, engineering, and design allowed them to do this successfully for years, regularly commanding 2-3X over competitors’ computers. They’ve since expanded to offer mass-market products with their iPhone SE, Apple Watch SE, and their acquisition of Beats.
But Apple still sells a $7,000 high-end beast of a computer.
That’s it for this edition!
Tesla is a great example of a go-to-market strategy. Thank you for the interesting article, Michael!