打造面向未来50年的电力公司｜Zach Dell，Base Power

Of all the guests who have appeared on the show so far, yours is the business I understand the least. So let’s use this conversation to fix that. Tell us what you do for a living, what your mission is, and how you carry it out.

The electrical grid is part of the electrical system, and electricity in general is a topic that many people don’t understand. That’s quite common. I think it’s because it has many nuances. It’s a very old system, and it’s highly regulated, so it isn’t something that’s part of the national zeitgeist.

The truth is that our business is very simple. We’re dedicated to producing and supplying megawatts, and our megawatts are, without a doubt, the most affordable and reliable in the world. At least, that’s our ambition.

Our mission is to boost human prosperity by boosting energy abundance. We’re looking for a very simple correlation between energy consumption per capita and GDP per capita. The conclusion is that the more energy a population can consume, the better its life will be.

Therefore, if you can make megawatts, gigawatts, and terawatts more affordable and reliable, it’s the best way to improve people’s lives. That’s a mission we’ve all united around and become very passionate about.

We think about things in terms of a mission, a vision, and a strategy. The mission is: Why are we all here? We’re all here to fix the grid, provide affordable and reliable energy, and promote human prosperity by driving energy abundance.

Before we continue, why does the grid need fixing? What problem is it having now?

It’s not that it’s broken; it’s just too small. How is it possible that something as important as electricity and energy isn’t something we can scale up? How did we get to this situation in the first place?

I think it’s because capitalism hasn’t been able to work its magic in the industry because it’s too regulated. The companies that built it have no incentive to innovate. They’re not regulated and are paid based on capital expenditure, not R&D.

Therefore, the amount of money they spend on R&D as a percentage of revenue is as low as that of any other industry. They’re not engineering-led organizations. They’re organizations focused on project management and capital expenditure.

Therefore, there hasn’t been much innovation. How can we increase our electricity consumption capacity? It’s as if we built as quickly as possible and got a return on that building. We just changed that.

We’re an R&D-driven, engineering-focused energy technology company. We’re going to create technology that allows us to expand our electricity consumption, deliver more reliable and affordable megawatts, and help meet the tipping point in electricity demand.

That’s what I thought. I thought, “Well, there’s a big increase, and we’ll need more power and electricity because of everything that’s going on with AI.” Before that, were there any other turning points, or did the demand for electricity in the United States simply grow linearly?

Over the past 50 years, the demand for electricity in the United States has grown basically at the rate of inflation. Therefore, it hasn’t actually grown much.

This is a one-time historical problem, something that’s happening right now.

I think there was underlying growth looming, or at least beginning to emerge, from the electrification of transport and electric vehicles, but that has developed less rapidly than some might have thought. I think it will continue to develop as costs come down, and things like electric heat pumps and the electrification of heavy industry will drive demand for electricity.

But building AI infrastructure has accelerated it enormously.

Can you explain how big the demand for electricity is for AI?

We don’t even know. I’ve heard about it, but I don’t know.

The way to look at it is this: Over the past 20 years, electricity demand has grown at a compound annual growth rate of approximately 2%. We believe it will reach around 10%, which is obviously 5 times the rate. On a base as large as energy, that’s really very, very large.

Let’s get back to the mission and vision.

We thought about it in terms of mission, vision, and strategy. The mission is the reason for your existence. We’re here to promote human prosperity by driving energy abundance, which basically means supplying affordable and reliable energy.

The vision is: What does that mean? What is that really like? It looks like a modern electric company of the electric age.

We believe that a generational paradigm shift is taking place in the energy sector. For the past 5 decades, energy was defined by coal and then natural gas as the marginal megawatt. The next 5 decades will be defined by solar energy, batteries, and software.

We’re going to build a company oriented around that new paradigm. The strategy is: How do we win? What is our competitive approach? What is our formula for success?

I would describe it as the development of a composite cost advantage through vertical integration and technology. The reason that’s a strategy is because energy—electricity—is a commodity. The best basic product is the least expensive and the most reliable.

We’ve oriented the entire business around the fundamentals of the industry, which are developing a cost advantage, utilizing technology, and utilizing vertical integration—all oriented around the mission of human prosperity and energy abundance.

In the last 3 years, something interesting has happened: A new electricity consumer has appeared. Now it’s the fastest-growing and will soon be the world’s largest consumer of electricity, and its name is AI.

That’s why we’re going to orient the company around it, to meet that demand and rise to the occasion. We can continue to expand our AI infrastructure and accelerate all the incredible advancements that will come as a result of this technology, which I believe is the greatest technological breakthrough of our era.

Tell us how you’re reorienting the company around that.

It’s less about a reorientation and more about using all the technology we’re already building and planning to build to accelerate the construction of AI infrastructure—bringing power to compute and bringing compute to power.

What this means is accelerating the construction of these centralized data centers by deploying our megawatts in those data centers and offsetting that load, so we can add margin to the system and be able to build more.

Then we take that computing hardware and bring it to this huge energy fleet we’ve developed to accelerate its deployment.

1. How Batteries Make the Grid More Efficient

How do you generate more energy, then?

There are 2 distinct things to think about here: generation, and then transmission and distribution.

Generation is where the new electrons come from: solar, wind, gas, coal, geothermal, hydroelectric. There are many different forms, including fusion and fission. There are many different ways to generate energy.

Then you have to move it. Poles and cables move energy through space, and batteries move it through time. The grid is a system through which transmission and distribution occur, and it’s designed for peak demand.

Therefore, it’s vastly oversized, which means it has a lot of inefficiencies and isn’t used all the time. It isn’t being used to its full potential.

When you have a system that operates with low utilization, the system becomes very expensive. Batteries allow you to increase the utilization of that system because you can charge them when demand is really low and discharge them when demand is really high.

You can take the demand curve and flatten it. Therefore, you can reduce the total delivered cost because the capacity factor, as it’s called in the industry, or utilization, has increased.

With our current products, which focus on battery storage, we aren’t generating more electricity. We’re just using it more efficiently and increasing the utilization.

If I understand correctly, the optimization here isn’t about not adding more lines and cables. In reality, you’re just optimizing the existing system through batteries.

Exactly. There’s a math problem when you think about noon in Texas. Right now, it’s incredibly hot outside. The sun is high in the sky, and if you go to ERCOT.com and look at the prices, I bet the wholesale prices are really low.

That’s because we have a lot of solar energy in the state. It’s incredible, isn’t it? That’s why we’re charging our batteries right now. I can’t say for sure, but most likely we’re charging during today’s solar power surge, when prices go down.

Then, when the sun sets tonight and everyone goes home and turns on the air conditioning, prices will rise because demand will increase and supply will decrease. The sun sets, solar energy is no longer produced, prices rise, and we drain the batteries.

Therefore, we don’t create new electricity, but we change its schedule.

What was happening before? Were companies doing nothing?

We were simply using the system less efficiently. We were curtailing solar power, and there’s still a lot of excess generation happening in the middle of the day, which is why prices are so low.

We generate more solar energy than we can use, but we can’t program it to be used when the sun sets—in the afternoon. That’s why you’re obsessed with batteries.

I’ve been obsessed with batteries since college.

Batteries have existed for decades. In fact, John B. Goodenough was the original PhD scientist who worked on the chemistry of lithium-ion batteries.

Wait, was his name Goodenough?

Goodenough. Goodenough. May he rest in peace. He was a professor at the University of Texas, just down the street.

2. Early Ventures & the Insight Behind Base

Okay. So, how is it possible for a child to become obsessed with batteries?

Well, it's a long story, but I guess we have time. We have time. As you know, we've talked about a lot of things. Growing up, I was always obsessed with big, difficult problems. That was always my understanding of capitalism and starting businesses: organizing people around the most difficult problems. The bigger the problem, the greater the economic benefit derived from the solution.

I saw my father do it, and I saw him totally influence the PC industry. Now I see what he's doing with building AI infrastructure and the server business. That was always my biggest motivation. He was my hero, and he still is my hero. I always wanted to be like him, and quite simply, there's no other way. There's no going back from that.

For example, I wanted to be an entrepreneur. I founded my first company in 8th grade. I founded my second company in my 2nd year of high school, and I founded my third company in my 2nd year of university. None of them worked, but I was learning things and trying to go out and solve problems.

At university, I was working on a business—and “business” in quotes is more of a science project. It wasn't really a good business idea to convert human waste into compressed methane, or biogas, that could be used as a source of low-cost electricity in the rural world. My father was obsessed with the idea of providing access to low-cost energy to people who didn't have it, because it was an obvious way to improve their lives.

At that time, I was a nerd, for lack of a better expression, about solar energy. I thought solar energy was the best thing in the world. Solar energy was great, but the problem with the sun is that it disappears unless you're in space. You need a mechanism by which you can use the energy produced when the sun is out at times when the sun isn't out, and batteries are the answer.

Battery technology has many different chemical compositions. There was iron-air, solid-state, and then this high-nickel NMC lithium-ion chemistry, which got a lot of attention. Most electric vehicles in the early years were made with this high-nickel NMC chemistry. Only in the last 5 years or so has this low-nickel LFP chemistry become more common, and it's really better for stationary storage.

When I was in college, I was very excited about solar energy and batteries. In fact, when I was 21 and a college student, I tried to close a deal to lease a piece of land on the Big Island of Hawaii—very low-cost land with very high electricity costs—and build a solar array. At that time, it was going to be EPC'd by SolarCity, which was doing a lot of utility-scale EPC.

Was this before he sold it to Tesla?

Yeah.

Okay.

I was going to sign a power purchase agreement with Hawaiian Electric, which was a 20-year PPA, and then finance the entire project with a 90% loan-to-value and achieve a leveraged IRR of 20%.

I did it in college, so after working on this project in India, I ended up going into finance. Basically, I thought, “This business isn't going to work. Before I start another company, I need to learn about good business.”

I thought, “I'll go to the place where I can find the smartest, hardest-working people. I'll sit next to them, work hard, try to get smarter, and create tools for my toolbox.”

He knew that no matter what happened, he was going to be an entrepreneur.

Definitely. I never thought—I mean, I never said to myself, “I'm going to be a private equity partner at Blackstone.”

No, but you're one of the people I know who talks the most like a private equity guy. You can take the kid out of Blackstone, but you can't take the Blackstone out of the kid, I suppose.

I love it. I'm very quantitative and competitive, and I love markets and companies. I think that's because I grew up studying companies and markets.

Like any good young Jewish man, I took my bar mitzvah money and invested it in the stock market. I followed companies, and I continue managing a personal portfolio that I have a lot of fun with, following companies.

I love studying business and what makes a good business. As you know, I'm a big fan of Berkshire Hathaway letters, Amazon shareholder letters, and Constellation Software shareholder letters. We devour those things. I was more interested in finance, accounting, investing, and capital allocation because those are necessary skills to be a great CEO of a capital-intensive business, right? That was always the reason I was interested in those things.

To sum it up, I was in college and went to do an internship at Blackstone. They offered me a place to come back. I went back to university before returning to Blackstone and thought, “Okay, now I know how to use spreadsheets, whatever.”

So I created a model and some slides for this solar project. I went to New York and contacted several project-finance teams at large banks. I presented them with my model for a $30 loan to build a solar panel in Hawaii.

Everyone told me, “I go to meetings, and it's nice that people are willing to meet with this college student. I present my model and my memo. They ask me, ‘Who's going to lead the project? Where's your team?’”

I said, “I'm going to do it. It's simple. I already have everything worked out. I have the memo.”

They said, “You're going to be an analyst at Blackstone.” Everyone laughed and kicked me out. But I was very serious. I thought, “Yes, this is a great business.” I think it would have been a great investment and would have worked well, but I was very optimistic about the solar economics back then.

When I showed up at Blackstone, there were a lot of people looking at the battery industry and the supply chain. We thought about creating a lithium-ion battery business, which I invested a lot of time in. The company ended up buying a business that is now one of the largest utility-scale battery developers in the country.

I was very excited about what was happening in the battery sector, but there was an obvious problem with large-scale batteries. When I say large-scale batteries, I mean large shipping containers in a field somewhere. You can probably imagine what that looks like, and you've probably seen pictures of it.

That's been a really good asset class over the last decade or two. Basically, all the big private equity firms have a utility-scale battery platform: Apollo, KKR, Blackstone, Oaktree, Ares, Brookfield, and all these guys. They all own these assets, and they're highly leveraged and offer good returns, but they're fundamentally limited by 2 things.

One is interconnection capacity. There aren't enough places on the grid to install these large shipping containers. The second is transmission congestion. These large load centers—downtown Austin, downtown Dallas, downtown Houston, where you need power—are not where you can install a shipping-container battery.

Then you have transmission congestion, which is reflected in prices, and you can't get the energy where you need it at the right time. That showed me, or brought to light, what a distributed architecture entails: deploy batteries in every house where there's interconnection and where there's load.

You don't have to worry about the transmission problem, and you don't have to worry about the damn interconnection problem.

I don't think I understood it before you said it.

3. We Don’t Sell Batteries. We Sell Electricity.

So I began to study the world of distributed batteries and the world of residential batteries. I looked at every company in the sector. I read the 10-Ks and the S-1s, talked to the analysts, and learned that all the publicly traded companies and all the companies in this sector sell a high-margin, premium product.

It's a $20,000 home battery or a $20,000 home generator that they sell directly to you. They make their gross margin, and that's it. They're not actually building it as infrastructure, and they're not using it as infrastructure.

Then it was a moment of revelation: “Distributed architecture is the answer, and all the companies dealing with that problem are focusing on the wrong business model.” They're focused on initial sales with high margins.

I started to get really excited because I thought, “Oh my God, if you're going to take on an established company, the best way to do it is to have a counter-positioned business model.”

If I showed up and said, “I have the best home battery on the market, the best home generator on the market, and I'm going to sell it to you for 10% less than the big players,” your margin is my opportunity, right? If these big players only competed on price, they would copy my product if it was better. Then they would lower the price and kick me out of the business.

But if I come along and say, “I don't sell batteries. I sell electricity. We're going to install this battery in your house. When the grid is up, we use it. As a result, you get cheap electricity. When the grid goes down, you use it. Because of our different business model, you pay 1/20th or even 1/40th of what you pay for outright ownership,” then I can win.

If you want to compete with me and you're one of the incumbents, you have to completely change your business model, which, as you know, is very difficult for a public company.

Right? Because if you go to Wall Street and say, “We’ve been making money this way for the last decade, and now we’re going to make money in a completely new way,” Wall Street generally doesn’t like that very much. So I got really excited about setting up this distributed architecture, this kind of visionary business model, and then the opportunity arose to launch it into the universe and turn it into an opportunity that was not only large-scale, but also of importance and impact on the world.

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Let’s go back to the idea that you don’t sell batteries. It’s almost like renting them, isn’t it? As if they couldn’t buy them from you even if they wanted to. I was telling you about the team before you arrived. I thought there was some kind of strange parallel, and I don’t even know if this makes sense to Zach, but everyone was saying, “Oh, you should do more Founders episodes on Howard Hughes.” And I thought, “I’ve done 1 or 2.”

He’s really interesting, but if you read about him, I find his father more interesting than Howard Hughes, right? Because his father was selling a very advanced drill bit during the second oil boom, which was happening mainly in Texas, Oklahoma, and all the way around. Howard Hughes Sr. was one of the richest people in the world, and his innovation in the business model was that you couldn’t buy it from him. You had to lease it.

He’d repair it before it was going to break, and he’d sharpen everything else, but you literally had this recurring income because you couldn’t buy it from him. You couldn’t just buy it, take it, and never see it again. He’d say, “You have to pay me every month.” And then that compounds, and you end up printing money.

There was the money from his father’s business that Howard Hughes used for the movies, the planes, and everything else. There’s an interesting parallel with what I think you’re doing.

The way Justin and I thought about the business model from the beginning is that it simply starts with the customer and what they want. If I ask you, David, what would you like from your electricity company, I suppose you’d say something like, “I want my bill to go down, and I never want to lose electricity.” Is there anything else you want from your electricity company? No. No, right?

So how do we deliver that outcome for you? If I sell you the battery, you’re not a participant in the wholesale electricity market. You’re not a qualified scheduling entity or a load-serving entity, and you don’t have a hedging team or a trading desk. You don’t think about commodity prices, right?

So you can’t use that battery 99% of the time when the grid is up to your advantage. You can’t use it to drive down energy prices. It just sits there in your house, and then when there’s a blackout, great—you’ve got a backup that you paid $20,000 for. You probably feel like you overpaid a bit, but you’re happy.

By owning the battery, we can use it 99% of the time the grid is up as a wholesale electricity market asset. Then we can leverage the value of that to drive down your bill, to drive down your price, because we’re creating value.

It’s like we have a box in your home that’s going to generate money, and we’re going to share that money with you in the form of a lower electricity bill. It’s that simple. So the asset ownership model isn’t because we’re greedy or just want to own things; it’s because it’s the way to deliver the best product to the customer. And that’s all that matters.

Yes, and in an industry where they really don’t give a damn about the customer because they’re monopolies in most cases.

Yes, it’s complicated.

4. How Base Works With Utilities & Competes for Customers

So, first of all, there are regulated and deregulated states. We were talking about this before we started recording. This is really interesting. Can you explain regulated and deregulated states in the US?

And if you look at it—it’s kind of a history lesson here—but if you look back more than 50 years, electricity is one of the few industries in the US that wasn’t fully deregulated. Shipping, airlines, telecoms, and trucking had all been deregulated. Electricity only began to be deregulated in the late 1990s—or in the early 2000s, actually.

In California, deregulation started, and basically Enron manipulated the market and sort of ruined the electric market in California. Deregulation completely stopped. Rick Perry and George W. Bush in Texas carried the torch of deregulation, and the Texas Public Utility Commission pushed this kind of competitive market structure.

Now, it’s going to get even more complicated. In Texas, 80% of the market is deregulated, and 20% of the market is still regulated. Austin Energy is a municipal utility. So we’re here in Austin, in our office, which is serviced by Austin Energy. We can’t be Austin Energy’s electricity provider.

The same thing is happening in San Antonio, where CPS is a municipal company. The same thing is happening in Georgetown, where Georgetown Electric is a municipal company. There’s another category of utility called a cooperative. This happens more in rural areas, but now there are really big cooperatives like CoServ, which is our client, or Pedernales Electric Cooperative, which is the largest cooperative in the country, also in Texas.

Think of them as a kind of nonprofit organization that operates for the benefit of the members. All the members own the cooperative, and its job is to drive down rates.

So, in Texas, you have 80% of the market in Houston, Dallas, North Austin—Oncor, CenterPoint, and AEP territory—which is deregulated and competitive. You can register to be an energy retailer; you can sell energy to anyone.

You have generators that operate the gas plants, the coal plants, and the nuclear plants, and they sell energy to a retail provider like us, which sells directly to the consumer. Then you have the municipal utilities in Austin, San Antonio, and Georgetown. You have the cooperatives: CoServ, Guadalupe Valley Electric Cooperative, and Farmers Electric. These are all our clients.

What do you mean by your clients?

We build battery fleets for companies in the sector to use. For example, for CoServ Electric, we have built, or are building, a 100 MW battery fleet that will soon be expanded.

They use it in the same way we do in deregulated markets. They charge the batteries when the price of energy is low, discharge them when the price of energy is high, make money from the difference, and share that difference with their members in the form of lower prices.

And do they install their batteries, or do you still do the installation?

We install the fleet for them. It’s very similar to them saying, “I need a 100 MW utility-scale battery.” Instead of the large shipping-container battery, we place thousands of batteries in their service territory and provide them with software.

basepowercompany.com/co-serve

They can log in, see their entire fleet, charge and discharge it, and program fleet behavior. It’s a wholesale energy asset they can use to lower prices and then reap the reliability benefit for their owners.

Good. And that was going to be my next question. Right now, they’re only installing batteries in individual homes, correct?

That’s how it is.

Are they doing anything else besides that at the moment?

Today, we only focus on residential homes.

Yes, okay. So, going back to the market setup, in the early 2000s, there was this push for deregulation.

Texas really carried the torch. A couple more states in the Midwest—Ohio and Illinois—and in the Northeast, Pennsylvania, New Jersey, Connecticut, Massachusetts, and parts of New York, although it’s a little complicated. They’re all deregulated to some extent, but not all of them are, and none are really like Texas. Texas is the most competitive and deregulated, which is why we decided to start here.

In deregulated markets, we compete with retail energy providers—gentailers like Vistra, Constellation, and NRG. In regulated markets, we’re a supplier to utility companies and a partner to them. And you’re absolutely right: they have no incentive to innovate, build a factory, or create new types of technologies because that’s not how they’re set up to make money. They have regulated rates.

Explain to us why they have no incentive to do so.

If you had a utility company that had a monopoly over a service territory—for example, let’s say PG&E had all of California, which isn’t exactly true because there’s LADWP in Southern California and Southern California Edison too—but let’s use PG&E as an illustrative example. If it had a monopoly on everything, it could raise rates indefinitely and make a profit, and that would be bad for consumers.

Instead, we have this rate-base concept, where there’s a utility commission that governs the utility company and tells them what they can and cannot build. Then they get a regulated return, usually 9% without leverage, on the capital expenditures they deploy. They go to the regulator and present what’s called a rate case, which is essentially, “We have to build all this and update the system.” The regulator says they can build it, and then they build it and get a return on it.

Therefore, there’s no financial incentive for them to develop new technology. Their only financial incentive is to increase the size of the rate base and build more assets. So we introduce ourselves and say, “We are your technology partner. We are your outsourced R&D engine. We’ll offer you better solutions so you can expand your infrastructure without increasing rates for your ratepayers.”

That’s how we serve the regulated utility. Today, our business consists of a single technology stack, which we can discuss in depth, marketed through 2 business models: regulated and deregulated.

In the deregulated model, we sell energy directly to the homeowner, install a battery in their home, own and operate it, and bid on the wholesale energy market when the grid is up and running. When the grid is down, the homeowner is left with the battery. That would be their preferred option.

If I could snap my fingers, the whole country would be like this, right?

Not necessarily. We also love the utility-company partnership model because it has a really broad reach, and there are advantages to working with a single counterparty to address a broad service territory. There are also some synergies. For example, you wouldn’t want 10 different cables going into one house, would you? That would be redundant, wouldn’t it? That’s why it makes sense for poles and cables to be regulated.

I think there are many nuances in energy markets, so it’s difficult to say that the entire grid should be regulated or deregulated. It’s a very geographically defined problem. But the deregulated business is direct-to-consumer retail energy and participation in the wholesale market for our technology.

The regulated business is that we’re suppliers to the utilities. We build these battery fleets for them and then sign 10-year contracts with them, and they pay us for that fleet over time. It’s megawatts as a service.

That’s what this business is all about: megawatts as a service. We build 100 megawatts, 500 megawatts, 1,000 megawatts, or 1 gigawatt, and we get paid for it. They use those megawatts, and we make money by buying those megawatts over time.

Okay, wait. Can you say more about that? You said they’re 10-year contracts?

Yes. They’re usually long-term contracts in which we build a fleet of batteries for them, and they operate it for 10 years.

Why is the long term important?

They’re very capital-intensive.

For you or for them?

For us, because we’re building them. Therefore, the long-term contract gives us certainty around the cash flows we can use for financing.

I think I understand your business model better now, definitely more so for the deregulated business than for the regulated one. I want to talk about how you think about starting businesses. You’ve been obsessed with entrepreneurship since you were a kid. You said you founded your first company in eighth or seventh grade, something like that?

Eighth grade, yes.

Okay. Tell me about it.

My cousins were in high school. They had a little more experience than I did, but not much. I’ve been studying this since I was a kid. I had a front-row seat to one of the greatest entrepreneurs of all time, and he remains one of the greatest entrepreneurs of all time. I learn from him every day.

We’re probably close, as you know, and we compare notes on the subject. We talk about his business, we talk about ours, we give each other feedback, we disagree, and we argue. Honestly, it’s extremely fun.

I’ve been studying the art of creating companies for as long as I can remember, both in that context and through the role played by investors. Investing is simply trying to predict the future in the context of understanding what makes a company great and which companies are going to succeed in that version of the future. That seemed to me like the perfect training ground to become an entrepreneur.

You said earlier that your father, Michael Dell, is your hero. He’s also one of my heroes. In fact, I spoke to him yesterday. The funny thing about him is that although he has such a user-friendly interface, he turns out to be so competitive and so determined to win that I don’t even know how to define the juxtaposition between how friendly he seems and how fiercely competitive he really is.

5. Learning From Michael Dell: The “Dad Terminal”

Since you mentioned it, I wanted to mention something you told me once, when you called it the Dad Terminal. Can you tell me what the Dad Terminal is?

You joked that I’m a financially minded person and that the Bloomberg Terminal is obviously an amazing technology that people in the financial sector use to ask questions, gather information, think, and analyze opportunities. The Dad Terminal is my version of that, where I call my dad and we have conversations about business topics, strategic objectives, and challenges I’m facing.

It’s the funniest thing ever because he has more context than anyone else, although my mom probably knows me best and knows what’s going on in my head. He also has a lot of context about the business because we talk all the time. He has scaled a vertically integrated, capital-intensive, consumer-oriented hardware company.

There are many similarities between our 2 businesses, so I’m taking this as an opportunity to learn from him. I like to think that every now and then, he gets a new perspective or I ask him an interesting question, and he learns something from me.

I was going to ask: When was the last time you presented him with a situation that was new to him?

I like to think it happens quite often. You have to ask him.

Yes.

But it’s fun. We challenge and push each other, and we don’t spend time celebrating. Basically, all the time, we’re trying to solve problems. And you’re right: he’s totally competitive and incredibly focused, but he does it with a smile. I try to do the same thing.

I think if you talk to the team here, they would tell you that I’m quite intense, competitive, and focused, but I do it with a smile and try to have fun. I take my work very seriously, but I don’t take myself that seriously.

6. Vertical Integration & Lessons From SpaceX

You’ve mentioned vertical integration a couple of times. Why is it so important?

It’s only important if you’re playing a cost-focused game, right? It’s not vertical integration because it’s fun or because it’s cool; it’s because we’re trying to compete on costs. Vertical integration is a great strategy for saving on costs, right?

Electricity is a commodity. The best form of a commodity is the cheapest, and if you’re going to offer it, you have to vertically integrate it. That’s why we’re vertically integrated.

When you founded the company, how did you go from a company that didn’t exist to saying that you were going to create a new, vertically integrated electric company?

There was a lot of reading, writing, and thinking. We deliberated with my co-founder, Justin; Jared, who was our first employee; and Dana, Cole, and the first people who joined the company.

I think we’re still doing this to this day. We do a lot of crawling, walking, running, iterations, testing, and learning. Justin and I started out believing that the energy industry was going to have a paradigm shift, that battery storage was a really valuable technology in that paradigm shift, and that building a highly optimized battery-pack assembly business in the U.S. was going to be a really solid position to be in.

Why at that point?

Because batteries were very valuable, and the OEMs were making a big profit margin, basically.

So why is it important to manufacture them here?

To control the supply chain. It’s less about where you are physically—whether in this country or another country—and more about combining engineering and manufacturing and actually making things where you design them. The engineers who make the thing and the engineers who design it are close to each other.

You have a lot of that. I did this episode about Elon, “How Elon Musk Works.” I think it’s the most downloaded Founders episode in history.

You have a lot of the SpaceX culture and ideas that I hear from you.

Yes. Obviously, Justin was there. Anduril, too. Jared, our first employee, was there during the formative years of his career. The same goes for Cole Jones, who was the fourth employee. We have a lot of SpaceX people here.

It's a company I deeply admire. I've gotten to know Justin, the finance director there. I really admire him and Glenn, and of course, Elon is the greatest technologist of all time. I think the culture within SpaceX, the operational cadence, and their ability to focus on the critical path and unlock the things in their way to achieve their mission-oriented goals are very inspiring. It's something that we have tried to replicate.

It's very difficult to compete with SpaceX. I think it was here last year, or about 6 months ago, and they said, “Yes, that building over there—we almost had a lease agreement, and then Elon came along and took it away.”

They did. It was a nuisance, but you can only look forward, not back, so we found a new place. Actually, it's going to be better. We're going to build a campus with manufacturing, engineering—everything in one place.

One near the airport? Tell us more about this.

Yes. The business is growing, and we need to expand our manufacturing footprint. Of course, so does the headquarters. The last time you were here, I think we were only on the first floor. We are now on all 3 floors, and soon we'll fill it all.

Dude, growth is crazy. I've been reading all of your company's monthly reports. They were like, “Okay, let's do 1.3 a day or 6 a day.” Then I skipped to the final part and said, “Now we have tens of thousands of these things everywhere.” It's quite impressive.

It's like manic focus, relentless execution, and trying to improve a little bit every day, every week, and every month. You can do a lot, but yes, business is going very well, and we need to expand our manufacturing footprint.

Our workforce is growing, and we are very focused on in-person work—having everyone in the same place: one team, one dream, one culture. It's not like, “Oh, the factory people and the office people.” It's one company. We have lunch together, and we spend time together.

Well, having everyone in the same place is very important.

Yes. Your desk is here.

Yes.

Yes, just like anyone else's.

Yes, of course.

There are many things that fascinate me about the way Elon runs his companies. He has what I think are very simple ideas, but they all work together. Obviously, he's doing complex things.

Yes.

But it's not rocket science. Private offices are nonsense. I want to be in the thick of it. I want to be with everyone. I want to hear things. I want people to listen to me. I want people to feel like they can come to my desk and ask me questions.

It's simply better, and it's more fun. I love the team. I like being with them, and there's no reason to hide in a private office. I don't deserve special treatment, either. I'm on the team just like the interns, just like the person who started a week ago, and just like the third person hired. We're all on the same team. We eat the same food, we have the same desk, and we use the same tools. I think that's the right way to work.

These new facilities are going to be amazing. We're going to have everything in the same place. Go to Round Rock—I think you've been there—and you see the Dell facilities. For a long time, everyone was there. Of course, now the company is global, and they have offices all over the world, but I've seen that work very well for other companies, and I think it will work well for us.

Speaking more about the structure, you don't separate design, engineering, and manufacturing. Is everything in one of the locations?

Correct.

And that's happening right now across the street?

Yes. You could walk for 2 minutes over there and get to Factory Base 1. You'll see there's a little driveway here, and you'll see engineers walking back and forth all day. Most of them have scooters and golf carts and things like that.

That's where the product is manufactured, and this is where the product is designed. You can either walk or use a golf cart or a scooter to get around. Simply having the ability to design a part, walk to the factory, see how the part is being assembled, figure out the failure mode, fix it, and iterate quickly with people you see every day is a huge accelerator and increases the pace of execution.

It's funny to me because I've read a lot about the robber barons and the Industrial Revolution, and I feel like there was a gap of 50 or 70 years in American history where we forgot these things. But the way you describe it is exactly what Ford used to do, what Carrier did, and what the entire industry in the United States did before it left.

It's as if we had lost that knowledge and now we're regaining it. It's like, “Yeah, guys, that's exactly what you used to do. Why don't we do it the same way, too?”

Completely. We have many companies from Elon—Tesla and SpaceX—but also Anduril. We have to thank these companies for training a whole group of engineers on how to build hardware products, how to scale manufacturing, and how to build a supply chain. We didn't like it.

I'm glad you mentioned it. The other day I was thinking, “Can you imagine the deficit the United States would have if Elon didn't exist in this field?” We'd be crushing it in software, but this guy is the most incredible contribution I think anyone has ever made to humanity. It's not just the companies he has created, but the engineers he has trained who have created other great companies. As I said, he is the best technologist of all time, in my opinion.

It has been a great advantage to be able to hire people he has trained, who have worked with him and learned from him. They bring their best practices here and, to be fair, we adopt them, don't we?

We do things in a very basic way. We have all sorts of things, like use cases, turtles, control panels, and our North Stars, that are fundamental to our culture. They simply arose from the way our team operates and the way we solve problems. Many of them are inspired by companies like SpaceX and Tesla, but many of them are organic to us.

7. Writing Clearly & Making Time to Think

Okay, explain some of these things to me.

From the very beginning—and you can go back and look at some of the artifacts and the wording of this—I've focused a lot on a small number of important goals that are very clear and understandable to the whole company. We hold ourselves accountable for those objectives.

For example, we write monthly updates about what we do, what we don't do, and what we're going to do next month. I've written one of these monthly updates for the last 3½ years, every single month. I've never skipped a month, nor do I plan to.

For me, it's a great catharsis to sit down and write it all down, and I think it's an advantage for the company to have this kind of account of what has happened and what will happen next month. They're a great recruitment and fundraising tool.

From the beginning, we started the company based on a memo. I think you've read it. It's 10 pages, from beginning to end, about what Base Power is, why it exists, what problem we're solving, and how we're going to do it.

Where did you get the idea to write that initial memo?

I'm the type of person who needs to write clearly in order to think clearly. I've always been a writer. I loved writing and reading, just like you, and I think part of the memo culture comes from finance, investing, and putting your ideas on paper. I can't think clearly if I don't write clearly.

I needed the memo for myself. I always take this little notebook with me, too.

Yes, I always have my notebooks with me.

I have 2 notebooks. I have the red notebook, which is for business, and I have my black notebook, which is also for business. I take the red notebook to the office and to meetings, and the black notebook is for when I'm at home trying to strategize.

Wait, explain the inside-and-outside thing to me.

I think there's a concept of working in the business or working on the business. Working in the business means unblocking, addressing, and resolving problems that are blocking us today. I'm trying to solve personal problems, product problems, and acute problems that are short-term.

Working on the business means thinking 6 months ahead, 12 months ahead, and doing a strategic wargame—playing chess.

I love reading that notebook, by the way. It could be private if you don't want me to read it.

There are good things there.

Okay.

There are also all sorts of bad things.

I know. That's great.

I try to divide my day into very specific parts. When I'm in the office, I almost always work exclusively on the business. I basically leave the office at 9:00 p.m. every night. If it were up to me, I would stay longer, but I have a wife I love, and I want to spend time with her before she goes to bed.

I leave at 9:00, and I hang out with her until she goes to bed. From 9:00 to 10:00, I'm with her, more or less, until she goes to bed. Then I open the black notebook and sit down. My phone is in another room, my computer is in another room, and I focus on the strategy, what's most important, and what we're not thinking about.

Sometimes there are very specific things I have to do, like writing an outline for a memo or figuring out something important that's going to happen in a couple of weeks—a big problem.

And sometimes I just sit there and have no idea what I’m going to write. I stare at a page until something comes to me. That process has generated some of the best ideas I’ve ever had. I think deliberately setting aside time each day to work on the business, rather than just being in the business, helps, as does physically having a different notebook that’s a different color.

I open the black notebook and think, “It’s time to be creative.” I’m not in the office; I’m at home, after hours. That has helped me a lot—that segmentation of when to work on the business and when to work in the business.

Do you think there’s something special about it being analog, about writing with a pencil on paper?

Of course. I’ve tried switching to a computer, and all the good ideas disappear. Not entirely, right? The thing is, now I get up quite early in the mornings, and from 6:00 to 8:00 a.m. is my most productive time. But what I do in the morning is basically the work I assigned myself the night before.

So I think, “Okay, I have to figure this out. I have to figure that out.” Then I open the computer, and everything is already on the computer, and then I’m kind of running it. But there’s something special about 30 to 60 minutes in the afternoon with a pen and paper and no distractions. I don’t receive notifications or get calls. I’m focused, and I really like that.

I’m sure some people have the ability to concentrate using digital tools, but analog is really enlightening and focused for me.

8. North Stars, Turtles & Relentless Execution

Okay, let’s go back to this idea of the North Star. It’s a handful of simple ideas that get the whole company focused. How would you describe it?

These are 3 things we must accomplish this year to stay on track toward our mission: become the world’s largest distributed battery fleet, the fastest-growing battery fleet in the world; land batteries at the lowest landed cost, because cost is everything in a raw materials business; and achieve financial sustainability.

What does it mean to land?

Connecting batteries to the grid at a lower cost than anyone else, per kilowatt-hour.

And how does that affect the price?

It includes the hardware and materials, the installation cost, the customer acquisition cost, all overhead expenses, and the operations required to get the battery there.

Good. It’s the fastest-growing battery fleet, the most megawatts at the lowest cost, basically, and then financial sustainability.

Which is basically the profitability of the unit economics, right?

Those are the 3 things, and those are the 3 North Stars. If you enter the office, in the middle of the office by the stairs, there’s a poster, beautifully designed by the design team on purpose, but it only has the 3 North Stars. That same poster is in the middle of the factory, and everyone passes by it every day.

At the beginning of the year, I emailed the team and said, “Look, these are our 3 North Stars. If we accomplish these 3 things this year, we’ll be on track to achieve our mission.” So people know, “Okay, if we want to accomplish this mission, these are the 3 things we need to do.”

Then there are objectives that come after the North Stars, which are specific things we have to accomplish to reach the North Star. Everything we do internally is focused on those North Stars. We have these very specific North Stars, monthly updates to organize the team, and then we relentlessly focus on unlocking whatever is on the critical path to achieving those North Stars, which keeps us on track for that mission.

I mentioned the turtle. The turtle is this device we use, and there are tools. The turtle is a tool, metrics and dashboards are tools, and updates are a tool. Writing and organizing thoughts are tools, too.

The turtle is a literal physical turtle. There are a couple of them that go on the desk of the person who’s on the critical path. That turtle can only be moved when the critical path is resolved.

With the turtle comes something called a hot potato. A hot potato is basically a squad that revolves around a problem. We have a problem in the business. There’s a part of the supply chain where we can’t source something in volume. So there’s a turtle on the head of supply chain’s desk, and there’s a team of people working to solve that problem.

There’s a meeting every day, and there’s an email that goes out every week to the whole company at updates@basicpowercompany.com. It’s a hot potato update, and it’s like, “Hey, this is the constraint in the business right now. This is what we’re doing to resolve the constraint. These are the next steps to resolve the problem.”

Then, when the hot potato is resolved, an email is sent saying, “Hot potato resolved. It’s done.” Those people return to their normal course of business. It’s not like they’re in a meeting every day forever. They’re in a meeting until the job is finished, right?

The turtle is physical, and it’s kind of funny and silly. We have a stuffed turtle, a ceramic turtle, and all kinds of turtles around the office. There’s a small version of this that we need to unlock, and it’s this concept where people take their work very seriously but don’t take themselves as seriously.

We have stuffed turtle animals everywhere and little inside jokes like this, but they’re really motivating for people. People take pride in having the turtle because they think, “Now my job is to unlock the business and move it forward.”

We’re talking about it being a tool, right? All companies use metrics and dashboards, but I think we do it in a very thoughtful way. When you walk through the office, what do you see?

It looks like a Best Buy. There are TVs everywhere, and each TV has metrics that are important to the company. The good ones are in green; the bad ones are in red.

Each team in the company is, like you said, sitting in these armchairs in an open floor plan. Each team has TVs literally hanging over their heads with the metrics that are important to that team. The good ones are in green; the bad ones are in red.

You show up every day and know if things are going well or badly, because the TVs tell you. Those metrics are very focused and specific. If they’re not a clear signal, the leaders of the company—their job, and everyone else’s job—is to point it out and say, “Hey, that’s a bad dashboard.”

That dashboard isn’t telling us anything useful. It’s leading us in the wrong direction, right? If you measure something that isn’t useful, you’ll end up going in directions that won’t actually move you forward.

The metrics have to be super specific, aligned with the North Stars, and very visible and readable. That’s been a powerful tool for everyone to focus on the right things and get on board quickly.

If you’ve just joined the company and don’t know the North Stars, and you’re learning about them for the first time and haven’t yet assimilated our mission, vision, and strategy, these metrics that point you toward very specific things for your team really help you focus quickly.

Then, over time, as you become more immersed in our mission, our vision, and our strategy—and as I mentioned, there’s a presentation I give every quarter as part of a course called “Engine of Success,” which I’m actually giving tomorrow—I get very excited about it. It explains our formula for winning.

How do we win? It’s our super-secret formula for success. This is how we beat the competition. It’s a talk about effectiveness that I give to the whole company, and it’s really designed for the new cohort of people who joined that quarter.

I want everyone, from the interns to the most senior staff, to understand how we’re going to do this. What’s the plan?

I think a lot of companies, when you join at our scale—500 people and growing really fast—they say, “Hey, here’s your desk, here’s your computer. You’re working on this very small part of the machine. Good luck, and do a good job.”

I really care that the management team here—all of us—makes sure everyone understands why we’re here, what we’re looking for, and how we’re going to do it. We want people to contribute all kinds of good ideas about things that aren’t necessarily within their area of expertise, because we want to hear them.

Good ideas can come from anywhere. You have more context about the specific topic you’re working on and how it affects the business in general. That’s why we teach these things, and it’s really my job. I’m a coach and teacher for the company in many ways, and it’s an important part of my job.

It’s like writing these monthly updates, making these quarterly presentations, clearly explaining these North Stars, turning them into the right North Stars, putting them on a poster, making sure all the metrics are correct, and guiding us in the right direction. That’s what working in the business is all about—so that I can make sure the people who work in the business, which I also work in every day and love doing, are working on the right things.

Yes, I’ve heard you describe your role. You see your role as that of a player-coach. Can you tell us more about that?

Yes. I think the coach’s part is working on the business. There’s also a personal element to running a company. We’re working hard. It’s tough. This group is working hard.

I think you’ve seen that working with the team and meeting with the team. There’s a lot of work going on here at 9:00 p.m., and there’s a lot of work to be done here on Saturday. It’s stressful. There’s also a lot of helping the team and the people—the humans—to do the best work of their careers.

That’s a big part of the coach’s job, working with them. I studied psychology at university, which definitely doesn’t make me an expert, but I’ve read all sorts of behavioral psychology books. It’s a subject I really enjoy learning about, and I love helping people become the best version of themselves.

Then, of course, there’s guiding the company toward the right North Stars, the right metrics, and the right quarterly targets, and focusing on the right things. That’s really the coach’s part.

The player’s part is that I also want to be a world-class IC. There are things I can do day to day in the business to unlock the company, to help build and score points—to use a sports analogy.

I am a great basketball player. For example, when the game is in progress and the team needs a basket, they can give me the ball and I can go and score. I can also defend the best player on the opposing team. I also know, if 2 people guard me, who to pass it to.

You have to be able to draw up the play and help motivate your teammate when he misses an important shot. If your team needs a basket, you have to go get a bucket.

I interrupted you earlier. You were discussing some ideas you gleaned about entrepreneurship when you started investing. What were you going to say about that?

I think investing—maybe this was just my perspective—is the art of studying good businesses. What makes a business good, and what makes it bad? How do you predict which ones will be good and which ones will be really bad?

I’m quite competitive and quantitative, and I’m interested in things like accounting, capital allocation, and capital markets. How many of the robber barons started in accounting? It’s the language of business, right? You have to be immersed in that to understand what makes a business work, what makes a business healthy, and what makes one unhealthy.

There’s also a lot of study of people, going back to the topic of psychology. I think this is one of the things that makes Josh, our mutual friend, whom I used to work for at Thrive, top-notch at his job. He’s an incredible talent identifier and is very good at understanding who’s going to be a good CEO and who isn’t.

You already know what a good leadership team is and what it isn’t. My interest in and passion for investing was largely due to the fact that this is where I can acquire many skills to become a great entrepreneur. I can learn accounting, capital allocation, and what makes excellent leadership teams.

I still love thinking about business and thinking about investing, primarily as a means to learn how to be a great entrepreneur. The companies I want to invest in are those run by entrepreneurs I want to emulate and learn from.

9. Learning From Great Founders & Building a Beloved Brand

Tell me about some of the entrepreneurs you would like to emulate.

That’s interesting. My dad is at the top of the list. I really admire Patrick Collison and John too. I think the Collison brothers and the way they run that business are impressive—their culture, their pace of execution, and the way they’ve continued to evolve the company over time as it has grown.

Obviously, they started by providing services to startups and now to companies. They’re doing many interesting things with emerging technologies such as stablecoins.

I greatly admire Eric and Karim from Ramp, who are also close friends of yours, and the way they’ve created an incredible talent magnet in a category that, at first glance, may not be so attractive. They’ve turned that category into something really compelling and created an amazing set of products and tools for businesses that are incredibly useful in an area where you wouldn’t otherwise have thought that was possible—at least I wouldn’t have.

They’re simply great operators. They’re incredibly obsessed with the customer, truly product-focused, and want to drive results for their customers.

Going back to the point that affordability and reliability matter to you, they care about saving you time and money. That’s all they care about, right?

That’s why they can differentiate themselves in that space. Those are 2 very different companies in 2 very different sectors. Ramp could build a great brand in what many people consider an unattractive category. I think Base is actually the only brand in the energy sector that comes to mind.

We talk all the time about creating the first beloved brand in the energy sector.

I think branding is one of the most undervalued assets in business, don’t you? You usually only think about consumer products, like Coca-Cola and Nike. These brands are so valuable that it’s hard to put a dollar figure on how valuable they are.

I assume you’ve read Zero to One, right?

Of course. I think I’ve just read it for the fourth time.

I just finished recording another episode of Founders, and I was talking about all the ways to build a creative monopoly. In that book, Peter Thiel says something funny: “Well, brand—I just don’t understand it.”

What do you mean? It’s very valuable, and there really aren’t any beloved brands in the energy sector, which makes the opportunity even greater because it’s positioned in opposition. It’s unique, right?

If you’re able to do something that no one has ever done in your sector, you stand out. Being able to build a beloved brand in this category has become a huge advantage for us.

Are there any other entrepreneurs you like to emulate or study? You’ve obviously mentioned Elon a few times.

Yes, Elon is undoubtedly one of the greatest of all time. I think I’ve learned more from the people I’ve worked with who have come out of his companies, and from the way they operate, than from Elon himself.

10. What’s Your Constraint?

What have you learned from the people who worked for him?

Mostly, this manic focus on the critical path and overcoming constraints. I’ve also learned a lot from Antonio Gracias, who’s on my board and has worked quite closely with me and Elon for decades.

During the first year or 2 of working with Antonio, basically all the conversations I had with him—and they continue to this day—had the same main theme. Every conversation was the same.

“Hi, Antonio. How are you?”

“Good. How are you? How’s it going?”

“Zach, what’s your limitation? What’s the limitation of the business?”

I would simply answer the question, and that was all we talked about. That’s it. What’s the limitation? What’s the limitation? What’s the limitation?

If we agree on the mission, the vision, and the strategy, then we’re good there. What’s stopping us from getting there? We’re going to focus all our time and energy on that.

That’s reflected in all the little things in the process and how people operate, which manifests day to day with metrics, dashboards, hot potatoes, and turtles. It’s all about trying to get to what’s limiting our business and how we resolve the limitations that are on the critical path to our mission.

Here’s a strange idea. I’ve mentioned it several times on the other podcast, but I’ll say it here. I’m obsessed with things that last a long time.

Then I thought, what man-made things last the longest? Countries last longer than companies. Companies can last a long time, but countries last longer than companies. What lasts longer than countries? Is there anything man-made that lasts longer than religions?

I actually think companies can learn a lot by studying religion. Some of these ideas are, first, that whether you’re an intern or the CEO, you want everyone to have a shared knowledge base. Religions do this really well. Usually, it’s a book. We all agree on it, and we all take it for granted.

We don’t read it one week and then meet the next week and say, “Oh, no, we’re done with that book.” We go back to that book again and again. We have the same conversation over and over again.

We find places to meet with like-minded people—people who believe in the same things we do—at regular intervals. Even if they believe in different things, religions have these parallels or similarities that I think businesses should leverage.

This is what came to mind when you talked about being on the phone with this guy all the time for 2 years and having the same conversation over and over again.

But it explains why it's valuable. It's about focusing, and it forces you to do it, which is uncomfortable. We don't want to talk about all those fun, strategic things and all the bets we can make. We're being asked what's limiting us from accomplishing our mission. Let's focus only on that.

It's incredibly clarifying. At first, it's uncomfortable, but over time, it becomes very comfortable.

Wait, why would it be uncomfortable at first?

Because the natural tendency is to talk about all the different things that are going on and all the opportunities available. The difficult thing is to focus and concentrate only on the most important thing, which is the limitation between you and your goal.

It's a way of dealing with things, so to speak, to talk about other things because it's like, "Yes, there's this limitation, but there are all these other things going on." It's like, "No, no, no. Focus on the limitation."

I think my co-founder Justin is very, very good at this. Justin and I have our one-on-one meetings every Sunday, and we have these kinds of strategic conversations. We never talk about what's going well.

Yes.

We have a lot of work to do, but I think I could say that, overall, the last 3 years have gone reasonably well. You would never know that if you listened to the conversations Justin and I have on Sundays because there's no benefit to it. It's as if that were a thing of the past. We only look forward.

What problems can we solve? What things worry us? What restrictions can we alleviate? That's really the only thing that matters. Everything else is just noise.

Munger and Buffett have a great quote about this. They're like, "Tell me the bad news, because the good news will sort itself out."

Exactly. Is there anything else you think is beneficial about these conversations? For example, how often, whether you're talking to a board member or your co-founder, do you find it helpful to organize your thoughts with another person?

You know, Charlie Munger has this thing called the orangutan theory. Have you ever heard of it?

No.

He says that a smart person could sit and have a conversation with an orangutan for 30 minutes or whatever, then get up and leave. Obviously, the orangutan doesn't say anything, and the person who had that one-sided conversation actually benefits just from being able to organize their thoughts out loud.

This is the notebook?

Okay. This is the notebook, right? It's not the monthly updates. It's like writing clearly to think clearly.

When I have a good idea, I write it down first and put it in front of my team like, "Hey, I wrote this down. What do you think?" And it's like, "Oh, I just totally messed this up." Then we debate the writing. We debate what's written.

That's why every night I sit down with this notebook, stare at it, and force myself to write things down, because it allows you to organize your thoughts. I analyze things with Justin, Jared, Dana, Cole, Dino, Zena, my dad, Lee, Antonio, other friends like Zach, and other people who are involved in the business, who have a lot of contacts, who have some context, and who have experience with the subject.

David, how many times have you just received a document from me? It's like I'm asking you, "What do you think of this?"

True?

It's my way of communicating ideas. That's how I get my thoughts out of my head: by writing.

The other day I came across something else called rubber-duck debugging. The programmer sits down with something like a turtle or a rubber duck. It's as if the rubber duck is sitting there, and the programmer explains the code they wrote and why they did it that way to the rubber duck, hearing themselves say it out loud. It's a way of clarifying your thoughts.

I do this all the time because, obviously, my other podcast is a solo podcast. I sit down to record and think, "Oh, I understand why this guy did this or what happened here." Then I hear myself saying, "I don't really understand this. I need to sit down and think about it a little more."

It's fascinating how helpful it is to have a sounding board that doesn't respond to your ideas.

We were talking about the capitalization table and our investors. Most, if not all, of my major investors—I’m constantly sending them things I write and calling them first thing in the morning and last thing in the evening. I'm just trying to brainstorm and analyze things with them, and I think it's been incredibly helpful to have all of your investors.

Honestly, our mutual friend Zach—

We can't say his last name.

Say his last name.

He's not even one of our major investors, but he's a very close personal friend and a Base investor. He's one of the best business strategists I've ever met. I think he's probably the best investor of our generation and one of the best company builders of our generation. He's an investor himself.

I'll see him later today, but I have to tell you a story about this.

Yes, go ahead.

A friend of mine is having a problem. He has 2 companies and didn't know whether to sell one or focus on the other. I had my own opinions about this. Obviously, I was focused on one thing.

I arranged for them to sit down. Ten minutes later, our mutual friend pinpointed exactly what was wrong. Then the guy I connected with texted me, saying he'd gotten to the bottom of the problem right away. I thought, "Yes, that's why he's so good."

He's a brilliant business strategist and trader. He's seen a lot, and he listens really well. I think he's very patient and considerate, and he's been incredibly helpful.

My dad is almost at the top of the list. We talked about this when we were together. I spoke to him on the phone yesterday because I was supposed to see him last night, and I said, "I need to get some sleep."

None of the conversations with him last 5 minutes. If you're his friend, they'll last 3 hours. It'll be amazing, and you won't be able to sleep. I said, "I have to get up at 5:00 the next day. I'll see you tomorrow."

Totally.

I'm very lucky to have a lot of people like Josh Kushner, who I worked with for a couple of years and who is obviously a major investor. Brad Gerstner is a great thought partner and someone I call all the time with crazy ideas. Leaf is for all of us, you know, their company is our biggest investor. Antonio Gracias and his partner, John Schulkin, are a huge help in that regard.

But if you had to pick just one?

It's my dad. That's the truth.

There you have it.

He knows me better than anyone. He's known me longer than anyone except my twin sister, technically.

I was talking to him yesterday, and one thing we talked about—and something I respect about you—is the spark of praise and admiration you have for him. It was great, but I said, "Listen, Zach thinks he loves you. Zach doesn't know what love is until he has his first child in his arms."

Your father laughed and said, "He's absolutely right."

What you feel for him, I promise you, is a love that flows through the generations of humankind. Imagine he felt the same way about you a thousand times more, and you'll understand. You'll appreciate your father much more.

I hope that maybe later tonight you'll be working on the baby. When that happens—say, 9 months and 1 day later—when you think, "Damn, David was right about this," you'll appreciate your father even more, which will blow your mind. I'm looking forward to that moment for you.

I'm so excited to have children. I am one of 4, and I have an incredibly close relationship with my parents, especially my mother.

If you think my father is competitive, my mother is on another level.

I saw the photo in your father's office. Your mother is a beast—an incredible athlete.

She is a world-class endurance athlete. She's competed in Ironman.

Will she do something for your birthday?

Every birthday, she says, "I'm going to travel 160 kilometers more than your age," or something like that. Every year, she traveled 160 kilometers more than her age for the sake of her 4 children. Not because we asked her to, but because she wanted a challenge and wished to somehow commemorate the moment of birth, so to speak.

She is an intense person with an incredible amount of love, affection, and care. She's an amazing mother and wife to my father, and he constantly talks about how she is his secret weapon. It is the absolute truth, because she is the driving force of the whole family and, in many ways, the cornerstone on which everything is built.

We are definitely a matriarchal family that revolves around her in the best way. I am very lucky to be able to call her my mother, to learn from her, and to continue to be inspired by her every day. She's a force of nature.

11. Base Core & Taking Control of Manufacturing

I'm going to change the subject quickly because I saw a guided tour of your factory. What is this cube? Can you explain the evolution I saw?

I reviewed all your company's updates and saw the evolution of where you installed them, how you manufactured the batteries, the lessons you learned, and now this is the next generation—your latest product. Could you explain everything you learned to create it and why it looks exactly that way?

Yes, the core. It's called Base Core.

The core?

It's called Base Core.

Do they call it a cube?

Okay, it looks like a cube.

Okay, my mistake.

It looks like a cube. It's called Base Core, and it's our custom battery. It's the result of the last 3 years of learning how to install, operate, and manage tens of thousands of distributed home batteries. It is completely designed by us from scratch.

It's manufactured there, across the street, through a supply chain that we control and manage completely. It's designed specifically for that use case. Its bill of materials has a lower delivered cost, it installs much faster, it charges much more cleanly, has more power output and longer energy life, and is really designed to be a network resource.

It is the embodiment of our strategy. We talked about mission, vision, and strategy: combining cost advantage with vertical integration and technology. This is vertical integration and technology coming to life. Our business has gone from a good return on investment installing standard hardware to incredible profitability with this vertically integrated cost structure, and to a product that we can scale by an order of magnitude more than the previous product because we were outgrowing our existing supplier.

It's as if we were buying all their materials and they couldn't manufacture batteries. We're booked solid until November, and it's only August. Therefore, we cannot meet the demand with the current supply chain. We have to do it ourselves, right?

Thus, we are building factories 1 and 2 and incorporating module and inverter lines as quickly as possible to meet all the demand. The only way to do it is through vertical integration, and the core business is the embodiment of that strategy.

But when you trust suppliers, you are, in a way, at the mercy of their execution. When you do it yourself, you control it. You control your own execution, you can rise to the occasion to meet the demand, and you can invest the CapEx because you have the conviction.

If I go to the supplier and say, “We’re going to be the fastest-growing energy company of all time. Three years ago, if I told you, ‘We’re going to be the fastest-growing energy company of all time, we’re going to install tens of thousands of batteries in the next 3 years and then hundreds of thousands of batteries in the next 5 years, and we need you to invest hundreds of millions of dollars in CapEx to create manufacturing capacity to meet our demand,’” they’re not going to do it. They’ll say, “Send me the purchase order and then we’ll talk.”

So we have to do it ourselves, and we have to finance the CapEx. We need to develop the execution capabilities and experience to actually do those things. When you do that, you have a better cost structure because the OEM you were buying from no longer keeps the margin. That’s the margin you need to preserve. You have more control over scalability, and you can make those kinds of future investments to bet on future growth.

How far can you go with this vertical integration? When you were talking, I had this sort of conversation and, to be honest, I’m not thinking about what’s going on with Zach and Base. I’m thinking things like, “This reminds me of Henry Ford, who took vertical integration much further than you could imagine when he was manufacturing cars.”

He bought his own railway because he was annoyed at not being able to obtain his raw materials quickly enough. He thought, “In fact, I can run a railway better than you, and I will prove it.” He ended up managing it, optimizing it, and I think he also sold it for a profit of $30 million. So how far can you take this?

There’s a lot to say here. We could take it further and buy a lithium mine, start refining lithium, manufacture our own cells, and even get into mining. Of course you could, right? I mean, call Travis. Call Travis.

We could do that, but I think the question is how far we want to take it and win, right? Over time, there are diminishing returns—not to zero, but perhaps a plateau or asymptotic returns up to a certain level of vertical integration. When you reach a certain scale, it makes sense to vertically integrate the business even further, and then further and further.

Based on our current scale, we like the position of final assembly, testing, and packaging. We designed everything, while manufacturing is largely carried out by third parties—our suppliers. We obtain all the parts, put everything together, test it, package it, and then install it, own it, and operate it.

Over time, we could reach a scale where the economies of scale and profits basically exceed the cost of manufacturing the cell, refining lithium, extracting lithium, and so on.

That gets you excited. CapEx excites you, for example.

But this is a journey of several decades—50 years—that we’re on. In the third year, it doesn’t make sense for me to waste my energy and intellectual capacity thinking about manufacturing cells, right? In year 30, it’s almost certain that it will.

12. A Lifelong Mission & the Last Company He’ll Build

Okay, do you think you’ll make it to 30? And I don’t mean to say that the company won’t be successful.

I love your competitive nature. Of course.

No, what I mean by this is that there’s something that—I don’t know the word I have for this. It’s a total perversion in the business ecosystem. I hate that there is a business-industrial complex. It’s largely driven by investors, which I can’t stand, and it’s all about starting, scaling, and selling.

I say, “No.” So what are you going to do? Your exit should be death. I recently spoke with 2 founders about this. Do you know Scott Wu? They’re giving this kid billions. Billions, and he says no so far, and I hope he holds out.

I think he will do it because he’s already rich, and I think he’s super competitive. I just spoke with Torsten Reil, who was the founder of Helsing. That conversation hasn’t come out yet, but I think he started the conversation by saying that Europe needs its own way of defending itself. This is not a fucking business. This is a mission. He says, “I’m not going to sell this for any amount of money.”

Look, you said it yourself. What are you working for? Are you working for the mission? Are you working for a salary? I think you could probably guess, based on my background, that I’m not working for a salary, right?

The way I talk about the business, how we operate, and how it’s managed shows that we’re here to accomplish a mission. That mission seems endless, doesn’t it? Human prosperity, energy abundance, affordable and reliable energy.

Whenever you say, “Well, we did it,” for example, we have achieved affordable and reliable energy—what’s next? It’s a mission that will last forever. It will probably outlive the company and me. Hopefully, the company will outlive me, and then the mission will continue forever.

Eventually, one way or another, something will end up destroying the Earth, and that will end the company, won’t it? But this way, this company will last until the end of the universe. That’s the plan, right?

Your father has a great quote about this from when he was fighting with Carl Icahn. I said to him, “Why don’t you start another company?” And he told me, “I don’t care about this company when I die.”

You asked me what would require your father to stop working at Dell, and I told you that you would have to kill him. Right?

Then it’s about the mission. It’s the honor of my fucking life, the blessing of my life, to be able to wake up every day and work on this mission with this group of people and come to this building. When I’m not here, I want to be here, right? I want to think about it.

Like me, I’m constantly obsessed with moving this mission forward, and that will never change. Your point about vertical integration is that whether you had 3, 30, or 50 years, the problems we have ahead of us—or the opportunities we can take advantage of that will bring us closer to that mission—will change, right?

They’ll seem more capital-intensive, they’ll seem vertically integrated, or they’ll involve deepening and expanding. All of that will change, but it’s all about the mission, and it always will be.

The reason we’re focused on other things right now besides making cells, refining lithium, and extracting lithium is that there are a lot of other opportunities in the mix that we want to pursue, and they’re all aligned with the mission.

At a very high level, energy is 4 things: producing, moving, storing, and selling. You have to produce it—you have to generate it. You have to move it, transmit it, and distribute it. You have to generate electricity and transport it to where it’s used.

You have to store it in batteries because it’s not always used when it’s produced. You have to move it because it’s not used where it’s produced. You have to store it because it’s not used when it’s produced. Then you have to sell it.

To produce, transport, store, and sell: generation, transmission, distribution, storage, and retail sale of energy. And everything related to it—the software and everything related to selling energy.

We started with storage and sales because we thought it was the best place in terms of scale and return on investment to enter the market. But we have ambitions in terms of producing, transporting, storing, and selling because if we orient ourselves around the mission, which is affordable and reliable electricity, and electricity is 4 things, if you want to have the greatest impact on the mission, you have to do all 4 things, right?

So instead of vertically integrating deeply into storage in the third year, I prefer to develop excellent solutions to reduce costs and increase reliability in manufacturing, transportation, and sales. Then, over time, as opportunities arise to improve in manufacturing, transportation, storage, and sales, we will do so.

Whether that means refining and extracting lithium or not. And then there’s this interesting new angle where we take that stack we developed—the manufacturing, storage, and sales stack—and direct it toward the world’s largest and fastest-growing energy consumer, which is AI, which we talked about at the beginning of the conversation.

Okay, this is your last company.

Of course.

Since you’re going to dedicate yourself to this for the rest of your life, I’m going to do what I do for the rest of my life. I’d love for you to come every 6 months, whenever you want. We’ll have more conversations and then, over time, in the coming decades, we’ll have a live, ongoing history of Base.

I love that. I love every conversation I have with you. You always encourage me to think big, to push myself harder, to really analyze why I do things, to make comparisons with other entrepreneurs throughout history, and I always learn something in our conversations.

I love that. Thanks for taking the time to talk to me, man. I appreciate it.

Brilliant.