Entrepreneurial

What the Tesla founders’ feud can teach entrepreneurs

June 22, 2009

Tesla Motors Inc. CEO Elon Musk

High-powered electric-car startup Tesla Motors has hit a speed bump with the filing of a lawsuit by former CEO and founder Martin Eberhard.

The libel suit, filed on May 26 in San Mateo County, Calif. Superior Court, alleges current CEO Elon Musk falsely portrayed himself as the founder of the company and orchestrated Eberhard’s ouster as original CEO in 2007. In the lengthy 22-page document, Eberhard accuses Musk and Tesla of, among other things, libel, slander, breach of contract, negligence and failure to pay wages. The suit doesn’t even refer to Musk as a co-founder, but simply as one of “various investors,” who joined the Tesla board in April 2004.

Eberhard’s suit claims that from the moment he came on board, Musk “began a campaign to appropriate control of Tesla Motors and Eberhard’s legacy as the company’s founder and visionary.” The suit further alleges that Musk “began a pattern and practice of defaming and disparaging Eberhard in various widely distributed media outlets,” a few of which included The New York Times, Newsweek, USA Today and NPR.

Musk has responded to the accusations in a lengthy blog posting on Tesla’s corporate website. According to Musk, the posting is an attempt to “correct several misconceptions propagated by Eberhard that are now being reported as truth.”

Tesla founder Martin Eberhard

While claiming he was “pushed out of the company he founded,” Eberhard agreed to leave because he felt it was “in the best interest of Tesla” and that he hoped his “vision for the company would be realized and his spirit would continue even in his absence.” Something Eberhard now feels never happened.

In a further bizarre twist, Eberhard accuses Tesla of giving his own personal Roadster – the second model off the production line and one valued “as high as several million dollars because of its historical value” – to one of Musk’s friends. His suit claims when Eberhard eventually received his own Roadster, it had been “smashed into the back of a truck.”

The lawsuit throws a stick in Tesla’s spokes, as the company had recently announced a $50-million deal with Germany’s Daimler, who in return get a 10 percent stake. In March, Tesla unveiled its new, more affordable Model S sedan, which had attracted positive reviews and widespread media play.

In a Wired article (Tesla’s Founder Sues Tesla’s CEO), Tesla called Eberhard’s suit “twisted and wrong” and a “fictionalized account of Tesla’s early years” and intends to file a countersuit.

“As the media have already chronicled extensively, the board of directors unanimously fired Martin, largely over the fact that the cost of the car was more than twice what Martin portrayed it to be at the time,” Tesla said in a statement. “Incidentally, Tesla will also be filing counterclaims and in the process present an accurate account of the company’s history.”

The feud between Eberhard and Musk acts as an important cautionary tale on the perils of bringing in high-powered investors and how naive founders can find themselves shut out from their own companies.

WHAT IS THE DEFINITION OF A FOUNDER?

In her article in Earth2Tech, entitled “Tesla Lawsuit: The Incredible Importance of Being a Founder,” Katie Fehrenbacher ruminates on the nature of what being a “founder” means and says Eberhard’s accusation “begs the questions: What is the definition of a founder, and why is the title so important to entrepreneurs?”

While Fehrenbacher doesn’t provide any definitive answers, she says there are deep financial and social implications to being a founder. Founders, like Eberhard, typically take most of the risks associated with their business and want the recognition for that, both spiritually and financially, when the enterprise becomes successfull.  Fehrenbach adds that in Eberhard’s case the “sense that he has contributed to progress seems to shape his identity.”

Peter Thiel, left, with Elon Musk.

Musk’s own hasty departure as CEO of PayPal in 2000 was the subject of some speculation at the time and was broached in Eric Jackson’s book “The PayPal Wars”, although Musk has since claimed all is well with PayPal co-founders Peter Thiel and Max Levchin. Musk’s assertion appears accurate, as the three serial entrepreneurs have invested in each others’ ventures over the years.

In 2007 Musk told Gawker’s Valleywag, in a lengthy article titled “An alternate history according to Elon Musk,” that the three remain on good terms and “there is no significant rivalry or animosity that I’m aware of today between myself and Peter Thiel or Max Levchin. After PayPal was sold to eBay, the three of us co-invested in and serve on the board of Room 9.”

In the same article, Musk constructs a meticulous case for why he should be considered as a co-founder of PayPal, along with Thiel and Levchin. This seems a bit odd, as it was several years later and after the sale to eBay had made Musk incredibly wealthy (eBay bought PayPal for $1.5 billion in 2002).

This would seem to support Fehrenbacher’s assertion that, “In the United States, creating a business is prized above keeping a business going, thriving within an existing company, or fixing a failing business.”

However the Tesla saga plays out, it will no doubt impact the business and will make for a fascinating entrepreneurial case study on the potential pitfalls of multiple founders.

What is your take on the Tesla founders’ feud? Which side do you support? And what do you think is the definition of a founder? Leave your comments below.

Comments
One comment so far | RSS Comments RSS

I’m excited about electric cars news but tired of hearing about Tesla Motors- until they start producing cheaper models. For electric cars to be serious contenders, they need to be mid-priced economy vehicles that most households can by with tax incentives etc. According to new reports, up to 1/3 of cars buyers want to go electric- which would reduce oil dependency, green house emissions, foreign oil dependency, health care costs, and create jobs. For more information about electric cars, I suggest checking out the website http://www.twocentspermile.com or http://www.bit.ly/2centspermile

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