What Is Zip2? Elon Musk's First Business Venture

This article is an excerpt from the Shortform book guide to "Elon Musk" by Ashlee Vance. Shortform has the world's best summaries and analyses of books you should be reading.

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What is Zip2? How did Zip2 make Elon Musk a millionaire?

Zip2 was Elon and Kimbal Musk’s business that they created at the start of the dot com era. The Musk brothers saw a business opportunity that would allow companies to advertise online. After expanding the company with help of venture capital firms, the Musk brothers sold Zip2 for a huge profit.

Keep reading to find out what Zip2 is.

How Zip2 Was Started

So, what is Zip2? In 1995, after graduating college, Musk moved to Silicon Valley with his brother Kimbal to try to start a dot-com company. They founded Zip2, which is a searchable online directory that linked to a map. Vance explains that Musk thought of the idea during one of his internships after a salesman gave a weak pitch for an online Yellow Pages. But Musk saw a business opportunity: selling a way for companies to advertise online.

The brothers rented a small office for Zip2. Despite some financial help from their father, they struggled with a lack of money after their startup expenses. (Shortform note: After the book’s publication, Musk took to Twitter to clarify how much his father helped financially. He explained that Errol contributed just $20,000 to Zip2 in a round of angel funding that raised $200,000 after the company was already well-established, thus asserting that his father didn’t contribute in a meaningful way.)

What is Zip2’s impact on how the Musk brothers lived? Vance describes how they lived at the office and worked long hours to create the initial product. Musk handled the coding while Kimbal focused on sales. They slowly started to build their enterprise and hire a few employees to help with the software and with pitching the idea to businesses. Because businesses were wary of the internet (a relatively new technology at that time), it was challenging to convince the companies to buy a listing on their site for better advertising.

Debunking the Entrepreneurial Myth

Musk and Kimbal’s creation of Zip2 supports Michael Gerber’s idea of what he calls the “Entrepreneurial Myth.” In The E-Myth Revisited, Gerber explains that most businesses aren’t started by entrepreneurs with business knowledge but are instead started by people who are good at something and believe their technical skills are all they’ll need to succeed. They acquire business knowledge later—in other words, most entrepreneurs don’t set out specifically to create a business, but instead, to put their idea to work. Gerber argues that the entrepreneurs who succeed are the ones who, like Musk and Kimball, make a point of later acquiring business knowledge to support their idea.

Musk and Kimbal didn’t start Zip2 with business knowledge or a clear plan—just an idea and some technical skills. They gained business knowledge as they developed their business and used what they learned for future ventures. So while your first venture may not be an immediate success, what you learn from it can help you in the future.

Expanding Zip2

Then, in 1996, a venture capital firm heard about the site. They wondered, what is Zip2 all about? After Musk’s sales pitch, the investors were impressed with his energy and his belief in the product. The firm invested $3 million into Zip2. Vance explains that while this was an accomplishment for the company, it brought challenges for Musk. The board brought in new engineers, who made changes to Musk’s code. While the changes improved the software, Musk bristled at his new lack of control and rewrote some of their new code.

(Shortform note: James Kouzes and Barry Posner discuss the danger of trying to exert too much control in their book The Leadership Challenge. They warn against the tendency to start micromanaging other peoples’ responsibilities—like Musk rewriting his engineers’ code—cautioning that doing so will limit you to the level of a supervisor or manager, and you’ll never rise to the level of a true leader. They argue that a leader is one who can stand back and trust her team, knowing that she’s hired capable people, trained them well, and given them the resources they need to succeed. By allowing other people to make decisions on their own, you’ll build a climate of trust that’s an essential element in a strong organization.)

At the time people wondered, what is Zip2 focused on? Zip2 focused on selling software packages to newspapers—including the New York Times—and big businesses, giving them a quick and easy way to get online. As the company grew, Musk wanted to make Zip2 into a consumer product, not just one for newspapers and big companies. The executives didn’t want to take this new approach yet, preferring to continue with the plan they already had since they didn’t think a consumer approach would be as profitable.

(Shortform note: Musk foresaw the future of the internet more than the other executives did. In a Twitter post from 2018, Musk explained that Zip2 was the first company to calculate point-to-point directions in the US and that he did all of the coding prior to the board’s new team of engineers. The fact that ZIp2 was the original maps program indicates that he predicted that the internet would be about democratizing access to information, not just finding ways for businesses to use it.)

Vance explains that the executives eventually gave Musk the role of chief technology officer, not chief executive officer (CEO). In 1998, when Musk urged the board to make him CEO, they declined and revoked his chairman status. They believed Musk didn’t have the experience required to be CEO of a company yet.

So what is Zip2’s significance in Elon Musk’s success story? In February 1999, Zip2 received a $307 million cash offer from Compaq Computer to buy the company, which they accepted. Musk made $22 million from the deal. He emerged from the venture as a millionaire and with experience bringing a business idea to life.

(Shortform note: While the Musk brothers expanded the Zip2 until it was bought in 1999, the site fell into obscurity within a few years. Zip2 was passed from internet company to internet company until it became unrecognizable from the original site. Google Maps has largely replaced Zip2 and other online directories.)

What Is Zip2? Elon Musk’s First Business Venture