64 Business The Economist February 13th 2021
Alphapipers
“I
am becomememe, Destroyer of shorts.” This recent tweet by
Elon Musk struck a messianic tone that his disciples lap up.
The past month has boosted the cult status of the uber-entrepre-
neur. The GameStop saga gave him ammunition in his long-run-
ning battle with short-sellers, while also positioning him as a
champion of the little guy taking on Wall Street. This week fans
were spellbound by the announcement that Mr Musk’s electric-car
maker, Tesla, had invested $1.5bn in bitcoin and would start ac-
cepting the cryptocurrency as a form of payment. Earlier, a barrage
of cheeky tweets from Mr Musk about dogecoin (“the people’s
crypto”) had sent serious investors scrambling to learn more
about a digital currency that started as a joke.
Impish humour is a Musk hallmark, but the impact of his mis-
sives is no joke. They can set herds stampeding. His bitcoin an-
nouncement propelled it to new heights. Tesla’s market value
briefly climbed above $830bn, near its peak. The history of busi-
ness is littered with Pied Pipers but, as Peter Atwater, a social psy-
chologist, points out, none has matched Mr Musk for the number
of things he has helped turn red-hot, from cars and crypto to space
travel and Clubhouse, a live-podcasting app he appeared on. That
invites two questions. What makes the Musk scent so intoxicating
to so many? And what are the pros and cons of being a cult ceo?
Larger-than-life business figures enjoy various degrees of ce-
lebrity. One category includes chief executives of big firms who,
while charismatic, fail to inspire feverish devotion. Jeff Bezos,
Amazon’s outgoing boss, commands admiration on Wall Street
and envy in other corner offices, but is too restrained to attract
drooling groupies. Similarly, in his 20 years running ge, Jack
Welch earned a reputation (since disputed) for red-toothed suc-
cess, but was too cold-blooded to mesmerise the masses.
The second group comprises tycoons who achieve cultlike sta-
tus but whose businesses scarcely warrant the adulation. Their
trademark is often shameless self-promotion. Richard Branson
has spent decades cultivating an image as a corporate hippy-cum-
pirate who takes on complacent incumbents in industries from
aviation to finance. Donald Trump touted himself as the arch-
dealmaker. Both have hordes of wide-eyed fans. Neither has built a
business that comes close to $10bn in value or is built for stability.The third category is more exclusive: those who build both
cults of personality and huge businesses. Joining Mr Musk in this
club is Jack Ma, the founder of Alibaba, China’s tech titan. Millions
of Chinese college students and other wannabe entrepreneurs
bought into the image he cultivated, of a humble teacher turned
philanthropic tech titan with a splash of cultural cool (he once ap-
peared as a tai chi master in a martial-arts film). Admiration of Mr
Ma has often verged on religious fervour. In 2015 a group of online
merchants created a shrine to him, to bring them good luck on
“singles day”, an e-shopping festival.
Messrs Musk and Ma walk a trail blazed by an Indian business
legend: Dhirubhai Ambani, who founded Reliance Industries, a
petrochemicals-to-telecoms conglomerate. The son of a village
schoolteacher who cut his teeth trading polyester yarn, Ambani
pioneered the equity cult. His trick, in a country where companies
had long relied mostly on banks for funding, was to see the un-
tapped potential lower down the pyramid. He toured India, con-
vincing middle-class savers that they, too, could join the capitalist
class. When Reliance went public in 1977 it attracted 58,000 punt-
ers. The shareholders he drew in have done well: the share price
has gained 275,000% since the flotation. When 30,000 of them
turned up to pay homage at one general meeting, it had to be
moved to a park. These days only Warren Buffett attracts zealots in
such numbers (or did before covid-19).
Cult status confers perks. Equity is cheaper when those buying
it are devout retail investors, not hard-headed institutions. Small
investors are also more patient, heeding calls to “keep the faith”
during profitless investment splurges. Marketing costs are low;
Mr Musk can use social media to burnish his (and Tesla’s) brand
for nothing. Fans are willing to overlook flaws that more dispas-
sionate consumers won’t. Tesla’s build quality is hardly world-
class and regulators, most recently China’s, frequently flag up
concerns. Yet it is hard to see that reflected in the firm’s sales or
share price. Lastly, mass appeal means political clout. Ambani’s
popularity helped him bend India’s trade policy to his advantage.
Mr Musk’s helps explain soft treatment by governments and regu-
lators, over rogue tweets or reopening factories in the pandemic.
But combining star power and scale is not risk-free. Mr Musk
forged his reputation as a David, fomenting rebellions against De-
troit and Wall Street elites. But now he is a Goliath: the world’s
richest man who runs its most valuable carmaker. Playing both
roles is a dangerous game. This is made more so by being a cultural
icon, which leaves him more vulnerable to changing social taste—
and taste can change in a trice online.Ye shall fund you no idols
Sentiment could turn if his devotees start to doubt he has their in-
terests at heart. Ambani was able to bat away repeated allegations
of financial manipulation; he beat back short-sellers with help
from a group of brokers known as “Friends of Reliance”. Mr Musk
may not be so lucky. Acolytes who piled into GameStop stock after
his “Gamestonk!!” rallying cry on January 26th were buying near
the top. His recent crypto-talk looks self-serving in light of Tesla’s
bitcoin move.
Finally, political advantage can turn into a bane. Just ask Mr
Ma, who, overestimating his power, publicly chided Chinese regu-
lators last year. Irked, Beijing scuppered the planned listing of Ant,
Alibaba’s financial affiliate, and is forcing it to restructure. Joining
the ranks of cult ceos may lower your cost of funding. But it raises
the cost of miscalculation. Schumpeter
The cult of an Elon Musk or a Jack Ma has its perks—but also perils