What happened when Elon Musk gave a credit card to anyone who wanted one
News | 14.11.2018
Elon Musk isn’t scared of taking risks. “I gave basically both SpaceX and Tesla from the beginning a probability of less than 10% likelihood to succeed,” the billionaire entrepreneur said at a SXSW panel in Austin, Texas earlier this year.
But a few years ago, Musk’s former business partner Peter Thiel shared an eyebrow-raising anecdote about how his partner’s appetite for risk manifested itself during their time working together as co-founders of PayPal. Now, the story is resurfacing after a video of Thiel’s speech was uploaded to YouTube on Nov. 13 and spotted by venture capitalist Paul Kedrosky.
Speaking at the Center on Capitalism and Society’s November 2015 conference, Thiel told the following anecdote:
I was thinking of doing a book on PayPal … and [the chapter on Elon Musk] was going to be titled, “The man who knew nothing about risk.” … We had decided to give a credit card to anybody who wanted them. You got up to $10,000 credit limit. Elon had told the woman who was rolling the service out that he wanted 1 million people to be using the new credit card by the end of the year. Fortunately, it was about two levels down from the front page, and so not that many people were able to discover this. Some people did. They wrote us back and said, “You know this is fantastic! I haven’t had credit in years. I can’t believe you’re offering me credit. I haven’t even had a checking account in 10 years!” … We ended up with something like a 50% charge back rate—the worst subprime companies are like 4%-6%. And then, happily, we sort of rolled that product back very quickly.
Thiel wasn’t telling this story in order to cast doubt on Musk’s talent or abilities. Indeed, Thiel was an early investor in SpaceX, a company that Musk has described as one of the “dumbest and hardest” ways to make money. Rather, Thiel was making a point about risk management, urging entrepreneurs not to shy away from wild ideas, but rather to focus on getting rid of “as much risk as you possibly can.”
While Musk is clearly not afraid of risky ideas, other comments he’s made reveal a deliberate method to his decisions. As Michael Coren wrote for Quartz last year, “Whether it’s reaching Mars or boring tunnels through the earth, the CEO of Tesla and SpaceX loves to talk about basic math.” In describing the principles behind his innovations, Coren writes, it becomes clear that Musk operates by “calculating what physics dictates is possible, not extrapolating from the status-quo.” That has paid off handsomely for Musk’s manufacturing ventures post-PayPal, but it seems he was lucky to have others second-guessing his instincts when it comes to the financial industry.