SpaceX #1: A Different Kind of Company

Elon Musk is a software guy, a man who made his first (multi) millions via a Silicon Valley startup. And it is this software guy who has gone on to create Tesla, the electric car company, and SpaceX, a rocket company. Both those companies stem from his belief that we humans may make Earth uninhabitable, and therefore need alternatives – (1) electric cars instead of the fossil fuel guzzling ones (Tesla), and (2) well, if we can’t save Earth, we should prepare to move to Mars (SpaceX). Yes, Musk doesn’t think small.

 

Eric Berger’s book, Liftoff, tells the story of SpaceX. It all started when Musk was surprised that NASA didn’t have plans to send man to Mars. Perhaps their website didn’t talk of it, he thought. But no, NASA really didn’t have plans to send humans to Mars. The more Musk dug into NASA, the more he was convinced that NASA “would probably only lead to more flags-and-footprints missions”. That’s Musk for you – cocky, brash, outspoken, a man who wants to change the world, and then actually goes about trying to make that change.

 

Musk realized the biggest hurdle to space missions was the high cost of launching objects into space. With the aim of reducing launch costs drastically, he founded Space Exploration Technologies in 2002 – it was later shortened to SpaceX. But how do you attract talent to a new company?

“Musk was a siren… with an irresistible song. He offered an intoxicating brew of vision, charisma, audacious goals, resources, free lattes and Cokes.”

And:

“His willingness to jump into the fray, and get his hands dirty by their sides, won him admiration as a leader.”

 

At SpaceX, Musk declared that failure was an option. He made impossible demands from his engineers – if they had good ideas, well he’d fund the effort (He was paying for everything out of his pocket). This was a very different culture from the space industry, and it attracted many who were tired of the bureaucracy and wanted to try something new. As one employee put it:

“Go to Boeing, and you spend money to try and figure out what your liabilities are going to be before you try anything… (Elon) was willing to spend money to try things.”

 

Given how hard he drove the team, Musk could also be generous in the perks and rewards. Like giving select employees an all expenses paid vacation with family for two weeks to any place. Or booking a $100,000 Zero-G flight experience. And yes, stock options.

 

SpaceX was also different in that it drew up fixed-price contracts with suppliers, incentivizing to get things done on time. Conversely, that also meant SpaceX would not accept late design and requirement changes. The company also undercut the competition – it offered $6 million pricing for what the industry charged $26 million. But this could work, financially speaking, only if SpaceX launched at least dozens of such rockets annually. Musk was willing to take the risk of underbidding, then getting enough contracts to get the volumes.

 

When there were many failures (as was inevitable for any new company), employees worried. Would potential customers lose faith? Also:

“Elon’s funds, not unlike his patience, had limits.”

 

There were many sceptics too. What did Musk know about rockets? The industry worked on government contracts and “relations”; what chance did a new company stand? The NRO head told Musk:

“Son, this is much harder than you think it is. It’s never going to work.”

A SpaceX’er remembers that moment:

“The effect of his words on Musk, “He’s going to make you regret the moment you said that.”