What can be learned from the optimism of Churchill, Elon Musk

A new movie, “The Dark Years,” depicts Winston Churchill during the perilous times he faced in 1940 when he first became prime minister.

The country he then led faced a Nazi war machine that controlled almost all of Europe and was intent on invading England.

Churchill, who was unpopular with the king as well as many in his own party, commanded a defeated, nearly non-existent army, a royal navy fully occupied with a German (U-boat) force that threatened to starve the British Isles of food and supplies, and a total absence of powerful allies.

All that stood between Britain and its future as Hitler’s vassal state was a pitifully small number of planes and pilots.

If ever an individual had a right to feel all alone and beset with problems, it was Churchill.

And yet his energy, optimism, and relentless good cheer carried the day.

Tesla Corp. is not England, and its CEO, Elon Musk, is not Churchill. But they both have something in common … and we can learn something from it.

Some people seem to flourish under pressure. Adversity seems to bring out their best qualities so that instead of being worn down or crushed by setbacks they stiffen their resolve.

Equally important, their energy and confidence are contagious and would allow a country or a business to succeed when all the signs point to failure.

Tesla faces a serious problem. There is no doubt that Musk has innovative ideas that capture the imagination of consumers and investors alike. The problem he faces, though, is in delivering the finished product and collecting the cash that these ideas promised. The current estimate for production output of the company’s Model 3 sedan, is a small fraction of what was originally forecast.

The problem this creates is that Tesla’s business model is built on a diversity of products, from rockets to cars, and operations in markets at home and abroad. The plan includes production of a chain of successive products so that the profits from the first would finance the second, and so on.

The production problems are creating a problem because there are no profits from the sale of the cars to finance anything.

Tesla continues to spend large amounts of cash, domestically and for its commitment to the market for electric cars in China. The result is a cash flow problem of significant proportions — in other words the company would run dry in the near future unless something changes.

The obvious solution would be to go to the market for more funds. Tesla’s production problems have received a lot of publicity, though, and that probably has reduced somewhat the appeal of the company to investors. A setback is never an ideal time to take a stock or bond issue to the financial markets.

CEO Musk’s response has been a combination of energy, honesty, and optimism. The production problems of the Model 3 sedan have been disclosed and discussed freely.

His latest media announcements, though, have concentrated on achievements — such as bringing in the world’s biggest lithium ion battery backup system for 30,000 homes in Australia—and new product ideas such as the electric semi-truck for long distance freight hauling.

What can we learn from Winston Churchill and Elon Musk?

The first lesson is from both men: when things start to go terribly wrong, we have to remember that our demeanor, even our expressions, are factors in our success or failure.

If we go around moping, blaming ourselves or others — it doesn’t matter which — investors, creditors, suppliers, and even our own team will believe that it is a hopeless situation and start looking for the nearest exit.

If we are honest about the situation and yet are energetic, cheerful, and optimistic, our team will pull together and the company’s confidence will often win the day.

The second lesson we can learn is from Tesla alone and it has two parts.

The first is that that cash flow shortfalls are an inherent by-product of growth. The second is that managing cash flow is a critical factor in a business’s success.

The simplest explanation of the relationship between cash flow and growth can often be found in your own business’s income statement.

Start down the list of variable cost expenses — those that vary with sales volume.

Most will have to be paid before you collect the money for your goods or services delivered. The simple fact is that growth devours cash and if you don’t manage that element of your business, healthy growth could leave you unable to pay all your bills.

We can be neither Winston Churchill nor Elon Musk. And we shouldn’t really try to imitate them. But we can learn a few lessons from their leadership. It couldn’t hurt.

James McCusker is a Bothell economist, educator and consultant. He writes a column for the monthly Herald Business Journal.

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