SpaceX

Dude, you got to get on Starlink. I know, I know. Can't wait. Fix up this latency in a heartbeat. Seriously. Welcome to Season 6, Episode 7 of Acquired, the podcast about great technology companies and the stories behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today, we are talking about SpaceX, the company that will, this very week, be attempting to launch humans into space as a private company and make the United States a spacefaring nation for the first time since the end of the space shuttle program, which, unbelievably, was it a decade ago?

David, how crazy is it that it's already been a decade since the end of the shuttle program? And also, how crazy is it that we haven't sent humans to space as the U.S. since then? So crazy. I remember when that happened, just like how disappointing that was, which makes what's about to happen so exciting. Yeah. Because, I mean, there was no date set for when it was going to start again. We decided, okay, the shuttle program's coming to the end.

You know, it was expensive. It was dangerous. It had its mishaps. And there's plans for stuff that's coming next. But there wasn't, there was no date. There was no plan. There was no mission. And so now here we are, almost a full 10 years later. With a date, a plan, and a mission, which we'll get into. All right. So listeners, here's the things that I knew about SpaceX, more or less, before we started researching. They're the first private company ever to launch a rocket to orbit, recover it, and reuse it.

And they can do all three of those things simultaneously, where they bring two rockets back down on land and one rocket back down on a boat almost a thousand miles away. Pretty unbelievable. They're, of course, led by the controversial genius, Elon Musk, or I should say genius entrepreneur. Yeah. And, of course, he has a plan, many would argue a credible plan, of getting a million human beings to live on Mars. But until I dove into this mountain of research, I didn't understand the company's truly amazing business model, the winds of change going on around the company in the space industry at just this moment in time, or really how they were actually going to be able to pull any of this off.

So what is the business? Who pays them? And for what? And what's with all these satellites that they've been launching recently? So today, David and I are going to dive into all of that in full gory detail. Yeah, we are. Yeah. Well, a few announcements before we get into it. If you love Acquired and you want more, you can become an Acquired Limited Partner. Our most recent episode was a crash course in fundamental startup concept pricing with Patrick Campbell, the founder and CEO of ProfitWell.

So Patrick is literally the world's expert on the topic. And so we brought him in to dive into how you should price software, because most people do it wrong, how you can raise your prices and still have that be okay for your existing customers. And things like what's the proper way to do a free trial. So if you want to join, you can get access by clicking the link in the show notes or going to glow.fm slash acquired.

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Or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at lagora.com slash acquired. And just tell them that Ben and David sent you. And now, David, over to you to take us into SpaceX. SpaceX. Wow. Where do you even start? Well, the place to start, listeners, if you haven't already, go back and listen to our Tesla episode, which was now a couple years ago, which is just crazy.

Man, we got to revisit that because a lifetime has happened to Tesla since we recorded that episode. But in that, we talk, obviously, a lot about Elon and his background, him as a person, some of the crazy things that happened to him that have turned him and his personality into the unique brew, the unique blend vintage that it is. But just to, by quick way of background, to catch everyone back up on it. So Elon obviously was born in South Africa.

He grew up with a pretty insane family. And even in an even more insane time to grow up in South Africa with apartheid and all the terrible violence that was happening there. And he wanted none of it. He wanted to come to the US. He thought America was the land of opportunity. He thought it was where things could happen. He was particularly interested in space and sci-fi and making the future the present. And so he basically, at age 17, hitchhiked his way from South Africa to Canada, lands in Canada, and then ends up going to the University of Pennsylvania.

From there, he makes his way out to Silicon Valley. He starts two very successful internet companies, one of which was a little company called PayPal. And somehow, in true Elon fashion, managed to get himself ousted as CEO of these two internet companies at least three and potentially four times. Which is pretty impressive, given that it's only two companies. This is X.com. And then, I'm sorry, before this, this is Zip2. Zip2. And then X.com, which merged into become PayPal.

Yep. First company, Zip2, got ousted as CEO. Second company, X.com, his employees staged a coup. That's the one that you may or may not count. Then the board removed him. Then he came back quickly. Then they merged with PayPal, Confinity.com, which had become PayPal. Then the board removed him again. So, all of this happened. Before you start your rocket company, have all these experiences to form you and then see what happens. Let's just play that experiment out.

Exactly. Well, so, this unique brew of life experiences for this man who's only 29 years old. He decides after, in October of 2000, being ousted for the final time from the newly merged PayPal, that he's had enough. He is done with Silicon Valley. He's hanging up his spurs. He is walking away from it all at age 29 with about $200 million, some of which, a small amount of which coming from his Zip2 sale earnings. And a large amount of that from his equity in PayPal.

And a silver McLaren F1. Oh, by the way, we didn't talk about this on the Tesla episode. Did you know, Ben, that he and Peter Thiel were driving said McLaren F1 up Sand Hill Road to go meet with Sequoia Capital one day. Peter asked him what this thing could do. Elon said, essentially, hold my beer. And they end up spinning it around, completely totaling it, being an amazing stroke of fate that they do not die. And then they end up going to the meeting afterwards with the car totally wrecked.

My God, I knew they totaled it. I had no idea it was with Peter or going to Sequoia. That's like almost too... Thank God they got away with their lives. I mean, this is Elon we're talking about here. So a lot of this history comes from the great, great Ashley Vance biography of Elon, appropriately titled Elon Musk. Because what else are you going to title a biography like that? And Ashley writes to take this into SpaceX now.

And so at the stage, Ashley writes about what is going on with SpaceX. He says, with SpaceX, Musk is battling the giants of the U.S. military industrial complex, including Lockheed Martin and Boeing. He's also battling nations, most notably Russia and China. And then shortly after, he has a quote from Elon. He says, my family fears that the Russians will assassinate me. Man, and you thought online banking was rough. No kidding. And how do you think about Elon at this point in time?

Like, is he a rich tech guy who now wants to get into rockets, much like the many sort of billionaire types before him who want to start a rocket company? Or what's... How do you think about that? Are you referring to Jeff Bezos? Well, I'm referring to the litany of people who have started a rocket company, bought one rocket, crashed it, and given up. I mean, there's like people who have started all sorts of companies have then gone and done this as their second act when they, you know, have a God complex.

And, yeah, there's the... It's interesting that you almost always, it's, well, always it's men that do this. It's like little boys growing up wanting to be astronauts, make a bunch of money, then decide to go create some spaceships as their toys. And that's what everybody thought Elon was doing here, including all of his friends, which we'll get into now. So it's October 2000. He's just been ousted. He's decided he's leaving Silicon Valley for good. Like literally, like metaphorically leaving, but also physically leaving.

He's going to move to Los Angeles because space is now what he's going to do with the rest of his life. And the aerospace industry is primarily headquartered in the Los Angeles area. And so he's going to move there. He's going to make connections and he's going to figure out what's next for him. And kind of amazingly through all this, this also says a lot about Elon. Despite having been ousted from PayPal twice, he remains really, retains really good relationships with all the team there, including Peter and Max and, you know, all the PayPal mafia and Ruloff.

And so one weekend, PayPal is starting to really take off at this point. They're not public yet, but they're starting to figure things out. The whole team, including Elon, goes to Vegas for a weekend. And Kevin Hartz, who was an early angel investor in the company, is interviewed in Vance's book. And he talks about that they are sitting. He says, we're all hanging out in this cabana at the Hard Rock Cafe. And Elon is there reading some obscure Soviet rocket manual that was all moldy and looked like he had bought it on eBay.

He was studying it and talking openly about space travel and changing the world. So this is like everybody's like, OK, man, this guy is like gone off his rocker. Yeah. And he's not sort of like hiring someone to go do this for him and saying, put my name on it. Like I'm going to flash way forward to today. But he's that he's effectively and maybe even entitled the chief engineer. I believe he is entitled the chief.

Yeah. Like I think I've heard the NASA director refer to him as chief engineer of SpaceX, Elon Musk. Like he was a sponge. Like he would go find resources on rockets and just go like suck all of the information out of physics textbooks and physics professors. And, you know, exactly what you just pointed out, rocket manuals. I don't want to I don't want my I don't want my question from a moment ago to linger too long feeling like I'm mischaracterizing him.

Elon is absolutely not a eccentric billionaire who now decided to get into space because there's nothing else to do. Like this is sort of the plan all along. And online payments were sort of this brief exit from the highway before he got back on to go and really run at this big problem. Yeah. Well, it was a way to get get all of these resources. So when he lands down in L.A., he gets hooked up with a nonprofit organization called the Mars Society.

And Elon's been percolating on Mars. He talks about he when he first started thinking about all this, he goes to the NASA website and he's expecting. On the NASA website to find, you know, all sorts of great plans about the future and exploring space and particularly Mars, like makes sense that people should go explore Mars. We've been to the moon and there's nothing there. And so he gets really disillusioned. He's like, I kind of want to make like I've got some resources.

I want to make a grand gesture. He's not thinking about a company. He's not thinking about a business. He's thinking about something to inspire people to get back into space exploration. So the Mars Society, this is their charter. So he makes $100,000 donation to to the Mars Society. He joins the board and he starts meeting all of these aerospace people in L.A. And and not just in L.A., of course, back up in Silicon Valley, there's NASA's Jet Propulsion Lab in Mountain View.

And so Elon, he's he's mostly down in L.A., but he's going back and forth and he starts organizing these Saturday salons. He calls them where he's just getting together industry leaders in aerospace and at JPL, both in L.A. and Palo Alto. And he's just kind of like there's no agenda, but he he kind of lets it be known to all of them that like he's got some resources. He's, you know, a dot com rich guy and he wants to make a gesture and like what could be done on the order of kind of 10 to 20 million dollars.

So they start to coalesce the group on this idea of building a quote unquote Mars oasis. And the idea behind a Mars oasis is that they're going to buy a rocket and they're going to put a plant on it and they're also going to put a robot on it and they're going to shoot this rocket to Mars. And when it lands on Mars, I can't remember if the Mars rover had landed at this point. I think so was a thing.

The lander that was the one that I remember was a really big deal that I think found ice. Yeah, I remember that. The Mars Phoenix lander was somewhere like 2008. And so that hadn't happened yet. But I think the rover had. Yeah, I think the rover was there. Anyway, it wasn't like I mean, it was kind of crazy. Obviously, everything about this is crazy. But, you know, you could sort of piece together how you could string along somebody that this could happen.

So they were going to put this there. And then the idea was that the robot was going to create a greenhouse and then was going to put the plant in the greenhouse and let the plant grow on Mars. And then the robot would have a camera and it would have video feed and kind of like the, you know, the whole Earth picture that the first Apollo astronauts took of of the Earth from the moon. That this would be a live video feed of a plant growing on Mars.

And then the robot would beam it back over the Internet onto a dot com site and inspire the people of the world to explore space with this. Love it. Love it. Sounds great. So the purpose being sort of like inspiration, a little bit of like a philanthropy stunt. Maybe even like a, you know, some kind of performance art project, not to foreshadow what's going on in Elon's life today. But but yeah, that's kind of that's kind of the idea.

There's one problem, though, and nobody in the group and the salon group is really willing to tell Elon, you know, he's thinking he's got, you know, probably 10 ish million left over from the sale that he made. He made about 20, I think, 22 million from the sale of Zip2, his first company. He's probably got about 10 million left over. He thinks he can probably scrape together maybe 20 million, maybe take some loans out against his PayPal equity.

That's that's his budget for this. And David, earlier you had said that number 200 million. That obviously would come later when he did get liquid on those PayPal shares. Now he's only got sort of this 10 to 20 million from their first company. Right. He's you know, he could he will end up being with 200 million dollars in liquidity. But at this moment, it's all tied up in PayPal. So the thing that none of these space experts want to tell him is that like he's off by an order of magnitude on the cost of this thing.

And 10, 20 million isn't going to cut it. You're needed more 100, 200 million, 300 million dollars. So Musk, though, like he's very, you know, he's singular in his focus. And so he keeps pushing forward on this and he comes up with this idea. I think this was his idea that the way he was going to make this happen was he was going to get a deal on a rocket by instead of using a, you know, purpose built space launching rocket.

He was going to go over to Russia. And remember this point, we're not that far removed from the, you know, dissolution of the Soviet Union. Like it's kind of the Wild West. Right. It's like 1989 to 2001. Yeah. We're now in 2001. And Musk's idea is he's going to go over there and he's going to buy an intercontinental ballistic missile because the Soviet Union has disintegrated. And you can like kind of do that in Russia these days.

Apparently there's an open market where you can go and buy. Well, maybe it's not open, but it's, you know, it's gray. It's it's. That's right. Didn't he have some sort of like shady, not shady, but a connection? Like, well, we're going to sort of like help him figure we're about to get into this. We should also contextualize here. I think to be able to actually buy one of these in the U.S. through more appropriate channels, like if you could actually get your hands on one, I think it's something like sixty five million dollars.

Like the the the reason to sort of look elsewhere is there's no way you're getting one here for any reasonable amount. Yeah. He thinks he's going to get a deal by buying a missile and converting it into a rocket. But this is like, you know, cue the cue, the James Bond, you know, villain theme here. So he goes over there. He he he hears what he hears from his network that there's a guy who can maybe make this happen.

And that guy's name is Jim Cantrell. And so Jim lived in Utah. He's an American and he had worked for NASA and also the French Space Agency and ended up doing a lot of actually like super classified collaborative missile defense projects with the Russians. I don't know if this was during the Cold War or just after where they were actually working together on, you know, missile defense. So he knows the Russians pretty well. So he tells the story.

One day he's he's in he's in Utah. He's driving. He gets a call on his cell phone and he says this is in Vance's book. This guy in a funny accent said, I really need to talk to you. I am a billionaire. This is Elon, by the way. Elon is not a billionaire at this point. I am going to start a space program. And Musk finally refuses to give Cantrell his cell phone number. And Musk made the call from his fax machine line.

He's like starting to get paranoid about what this is going to entail to go try and buy a missile. So must ask Cantrell to if there's an airport near where he is and if he could meet the next day. And Cantrell says my red flag started going off. And then he's he's fearful that one of his enemies is trying to set him up. He says, OK, I can meet you at the Salt Lake City Airport, but only behind security because he wants to make sure that these actually really smart.

I mean, these used to dealing with the Russians here. Just like it's a it's a good if I ever want a super high security meeting like now I know how to do it. Yeah, go to an airport. It's probably pretty empty these days. Coronavirus is going to have a very private meeting. So Cantrell rents out a conference room in the Delta Lounge at the Salt Lake City Airport. And they mean they end up hitting it off.

And Cantrell's like, oh, OK, like, I mean, this guy's something, but he's not totally crazy. And so he says he agrees. He says, OK, I'll go back to Russia with you. And I can I think I can help you buy a rocket. So at this point, Elon's friends all basically try and stage an intervention. They create like a compilation video of rockets blowing up. You know, they come up with all the stories. Ben, you were mentioning of everybody who's lost all their money doing this.

He goes forward. But one of his best friends from college, Adeo Resi, who started the funded dot com and founder institute is not great entrepreneur in his own right. He says, I'm going to come with you. Like he's like the friends must have like nominated him to kind of keep tabs on Elon. So the three of them, Cantrell, Elon, Resi and one other guy end up going to Russia and making a pilgrimage to try and do this.

The other guy who goes with them is a guy named Mike Griffin, who they get introduced to. Wait, Mike Griffin? Yeah, I'm seeing Ben's face right now. We'll come back to Mike Griffin later in the episode. My God, I have Mike Griffin listeners in my notes. I won't tell you where or what his title was, but wow, it's the same Mike Griffin. Yeah. Ben and I were talking before the show and I was like, all right, there's going to be a thing like just wait, just wait listeners.

There's going to be a thing about Mike. Wait, so what's Mike's role in this? So he comes over to just be part of this. What's the right word? Like emissary entourage, maybe to just kind of, you know, make introductions and meet with people. See how one would go about buying an ICBM from Russia. Yeah, I mean, you could call it an ICBM. You could call it a rocket to get to space, which is what, you know, the intention here is.

So Mike, he had worked at NASA earlier in his career and then he had run In-Q-Tel, which is the, it is part of the government, but it's the CIA's kind of venture arm for investing in commercial ventures that are going to be helpful to the government. So, you know, who knows why Mike was coming with them? You know, again, he's, he's coming from the government. He's coming from In-Q-Tel. Maybe he's keeping tabs on everything that's going on here.

So he comes along and it basically goes as you would expect listeners. They meet with a bunch of Russians, you know, Cantrell and maybe, maybe Mike sets, set up some meetings. And they kind of go like this, you know, Vance describes a bunch of them in the book. You know, they walk in, they sit down. There's a lot of, you know, the first thing that happens, of course, is vodka shots. And Vance talks about one meeting where they do, everybody in the room does vodka shots and the Russians are toasting to America.

And that, that probably should set, you know, some, some red flags off there for everybody just in the get go there. And then, you know, they chat for a while. They're not really talking about anything related to buying a missile. Lunch is served, you know, a couple hours go by. And then finally they get around to like, so the purpose of your visit. And for anyone who's ever met with any of Elon's companies, let alone Elon himself, like this is not how you get to have a meeting with someone at SpaceX.

It's quick. It's to the point. It's how fast, give me really good reasons for everything and let's move on. And like Elon is the personification of that type of meeting. Yeah. So he starts getting really frustrated by all these meetings. And finally, you know, by the end, he's, he's had enough of this kind of Russian way of doing things. And he just starts coming out like right after the vodka shots. Like I want to buy, I want to buy rockets, you know, here's my offer.

And he's, he's calculated. He's willing to offer the meeting with one group. This is the last group they meet with. I think has either two or three rockets. He offers them 8 million for, for the two of them. And they're like, yeah, how about 8 million each? Each. Each. And they, needless to say, they don't come to a deal. So everybody leaves the meeting. By the way, they're there in the middle of Moscow and Russian winter, which is obviously pretty depressing.

I've been in Moscow in February and it is like, it is like freeze your face off cold. So it is, it is literally February, 2002 when this is happening. Wow. Yeah. So let's, let's recap dollars real quick, just so everyone has a, because, because dollars are going to be an important thread through this, um, through this whole story, not just because this is an expensive endeavor, but because the, the scale of dollars to other dollars is important to think about of how would you go about solving this problem?

So Elon's basically got 170 million from PayPal of post-tax dollars. Once the acquisition happens, which is not for another five months. Which didn't happen yet. So he's got 20 million total now. Um, but you know, he'll, he'll eventually have 170 million. And, and, um, so the, the, that number that I quoted buying a, uh, a rocket like this from a U S company that manufactures, it's like $65 million. So, you know, he's trying to buy him for eight, 8 million, um, for, for, for two of them, um, in Russia.

So that keep those sort of relative dollar amounts in your head. Of course the deal goes blows up. He doesn't actually end up buying them, but, um, that would have been what, it cost him. And he couldn't, you know, even if he were willing to put all his money into this, he couldn't do the $65 million launch. Cause that's just the launch. Like, you know, then you gotta like get the stuff there. You gotta build the robot.

You gotta set up all this stuff. Like, um, I'm sorry. That's 65 million that I'm quoting. It was literally to buy a rocket from. Oh, interesting. Yes. I didn't realize that you couldn't even, I guess you couldn't at that point in time, just walk up and like reserve a launch spot on a rocket. You had to actually buy the rocket. Yeah. Who, who, who can you just go and say, Hey, I want to. Yeah. Well, imagine if there were a company that did that.

And also I take that back. I think such a concept did exist, but I think it would have cost you 150 million to 500 million quoting some of my numbers that we're going to sort of bust out later in our future cost comparisons. Wow. All right, listeners. Now is a great time to tell you about a longtime friend of the show. Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF.

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That's V-A-N-T-A dot com slash acquired for $1,000 off. And just tell them that Ben and David sent you. So, okay. So back to February 2002 in Moscow, they leave the meeting, this, uh, this motley crew, they get on the airplane and, uh, and they, you know, head back to, to the U S, uh, on the plane. And, um, uh, Cantrell talks about this. He says, um, whenever you get on a plane in Moscow, particularly in, in, in February, heading back for the, for the States, he says, you always feel particularly good when the wheels lift off in Moscow.

It's like, my God, I made it. So he and Griffin, you know, they're veterans here. They, you know, call over the drink cart and they start, you know, celebrating, getting out. Meanwhile, Elon sitting in front of them, uh, and he's just like furiously typing away on his laptop silent. They can't, you know, figure out what's going on. And, uh, about halfway through the flight, he turns to them and he says, Hey guys, I think we can build this rocket ourselves.

And then he hands them the laptop and they look at it and they're just like dumbfounded. Elon has this spreadsheet on his laptop. This is, I don't know if it was like, it must've been Excel. Like Google sheets didn't exist at this point. So he's got this Excel doc and it's like a hyper detailed spec sheet with costs and all the materials needed to build a rocket. Not necessarily a rocket that would get them to Mars, but it's like, you know, it's real.

And, um, and so they're, they're stunned and they say, how did you build this? Well, it turns out Elon had been reading a lot of Soviet rocket manuals and he had also met as, um, part of this kind of group of advisors he'd been putting together. He met this guy named Tom Muller and Tom had worked at Hughes aviation. He was of course being Howard Hughes back in the day. Speaking of, uh, of billionaires who started rocket companies.

Indeed. Um, and then we've done to TRW space and he was kind of known in the industry as a real savant about engines, like probably the best, um, most impressive rocket engine engineer in the world. And Musk had, had gotten in touch with him and, uh, and met him and started asking him all these questions about how rocket engines work and what needs to, you know, go into building a rocket. And he had helped him put together the spreadsheet.

So it was, it was pretty damn good. So they get back to the U S and then basically a whole chain of events gets kicked off that ends up in SpaceX, uh, and, uh, tomorrow an American company launching people into space. Yeah. Yeah. Uh, another, um, just to keep the dollars thread going, I think it was, I can't remember exactly which of the sources it is. We, David and I have 20 or 30 different sources that are in the show notes, um, where you can go and read, read more about this.

I want to say this was originally from a SpaceX engineer, but, um, pointed out if you calculate the cost of goods sold for aerospace grid, aluminum alloys, plus some titanium, copper and carbon fiber on the open commodities market, it's about 2% of what rockets cost. And I want to plant that seed because the, the question in your mind throughout all of this should be where, why is this expensive? Like, obviously this is expensive. It's almost unfathomably expensive.

When, when you, when you hear about anything in this industry, contracts awarded cost of emission NASA's budget, which by the way, uh, in the last 20 years has gone from about 1% of our federal, uh, budget down to about half a percent. Um, it was as high as 5% in 1969 at the height of the space race. So just interesting to think about that. The, the, the question that's of the U S government budget, by the way, these are the numbers that we're talking about.

The entire federal government. Yes. Um, but so it's immensely expensive, almost to the point where it's, you, you can't even discern between the millions and the billions. And I'm, I'm, I'm trying to sort of paint a picture here where you really should just try and figure out every single time you hear a high number, why is it expensive and where does the money go? And of course you can't make a rocket just by throwing commodities at a wall.

So, um, you're not going to get it all the way down to 2% of what that rocket costs. But 2%, uh, being sort of like the hard materials. I, I'm not someone who's in a industrials job, but I have to imagine that in most manufacturing businesses, um, the actual hard materials are much more than 2% of the final sticker price of, uh, of whatever was off the line. Yeah. The bomb versus the, uh, MSRP totally. Well, and this is, you know, Elon, Elon studied physics and undergrad in addition to business, you know, he is a physicist.

And this is the question he asked himself. He's like, you know, yeah, like this is hard, but at the end of the day, these are atoms and like, you know, it's a bunch of gas in a tube, right? Like that's what a rocket is. Um, and so this is what he's putting together in the spreadsheet. So they touched down back in the U S and basically at the same time, PayPal finally goes public. Uh, and right after, so even they were the first, we talked about this with, with rule off in our adapting episode with, with, uh, with rule off at Sequoia, who was at the time the CFO of PayPal, they broke, you know, they were the one bright spot in the, in the.com,

you know, the Russian Russian, like.com winter. Um, the stock pops 55% right after the IPO. Uh, so Elon sees this, he's got this spreadsheet and something clicks in his mind. And he says, you know what? This isn't just a gesture. This isn't just a inspirational thing. I want to do. I can actually disrupt this industry. I want to build a company. I can take, you know, all of this cost bloat that's happened in this industry. Um, use my spreadsheet, use my connections and do this for real.

So he gathers up, you know, they, they walk up the plane, he gets Cantrell, he gets Griffin, he gets smaller, uh, the rockets, you know, literally the rocket scientist. And a guy named Chris Thompson, who is an aerospace engineer at Boeing. And he says, let's do this. Let's start a company. Nonprofit is dead. I'm going to start this. I'm going to fund this all myself. PayPal is a liquid public currency. The lockup will be over soon.

I can get out, exit my stock. And I'm willing to go all in on this. So almost all in, almost all in, greater than half in, greater than half in. Now he hasn't yet met JB Straubel and gotten introduced to the electric car scene. Uh, so at this point he's, he's thinking all in, um, the one person who everybody's in except for, for Mike Griffin, uh, he lives on the East coast. You know, he's the former rank you tell guy, he says, you know, look guys, I'm a little farther on in my career.

I'm a little more senior. You know, this is all a great adventure. Best of luck. I'm rooting for you, but I'm not going to move out to California and, and do this. Uh, and that ends up being a very good thing for space X that he, uh, did not do that. As we will see. I'm like learning in real time for you on this episode. I had, it's a very good thing for, for space X that, uh, this is how it showed up.

Very good thing for space X and the world that he did not do that. Um, everyone else though is in can trails in for a few months. He ends up leaving a few months later, but in June, 2002, they officially incorporate space exploration technologies. And then the very next month in July, 2002, eBay buys PayPal for one and a half billion dollars. And Elon now doesn't just have a liquid public stock currency. He has $180 million plus in straight up cash that, uh, that he gets out of PayPal.

And at this point in time, he says, you know, remember he's been ousted three or four times from the two companies he started in the past. This is going to be his life's work, his next company. He says, I don't want any, any chance that anyone could kick me out here ever again. I'm not taking on any outside investors. I'm putting my entire fortune into this. I will fund it all myself. Yep. It's mine. Um, and the super interesting thing is, you know, Ben and I, we were, we were talking about this.

Um, we were texting about this all told over the life of SpaceX. I think Elon has only put in about a hundred million dollars into the company versus Bezos at Blue Origin puts in a billion dollars a year. Um, and so many other, you know, people that have entered into the space industry, uh, just become money pets. That's a good, let's, let's plant that seed. Uh, because yes, SpaceX is very revenue funded instead of sort of equity funded.

Of course it's very equity funded too. This is a company that has a, what, $35 billion valuation today and has over $3 billion invested in it. Um, from not much of which is outside of Elon. Yeah. Uh, oh, interesting. Good point. Yeah. I think much of which is secondary. Okay. Well, the the point I want to drive home here is, uh, SpaceX was founded and there's two, there's one thing that's known about the company at this point.

And one thing that's not super solidified, at least as far as I can tell, the thing that is known is we're, we're going to freaking Mars. Like we're figuring this Mars thing out and we're going to start by lighting a one engine candle on fire. And like, we're going to, we're going to figure out how to, you know, take baby steps here. So that part is figured out. The part that's not figured out is what you'll find in the very first paragraph of the Wikipedia entry on SpaceX, which is this sentence.

They were an American aerospace manufacturer and space transportation services company. It is very, very important to understand SpaceX today is both of those things and they are different. They are a company that makes stuff for aerospace and, and may well one day run a business on that. And then they also have this business where they're basically a logistics company to ship stuff up to space. And that ladder business funds the former business. And I think the, the missing puzzle piece that sort of comes along that, um, lobbies for SpaceX to do that is, is not yet in place yet.

Yeah. Well, so the business plan for this new company, and again, very, Elon is very insistent. This is now a company is that he's seen all this cost bloat in the industry. He thinks they can do much better. And he realizes really the hard part about launching things into space is the engine of the rocket. And he has the best rocket engine engineer in the world. Tom Mueller working for him. They're going to build their engine completely in house.

And then the idea is that the initial initial idea is they're going to go to third party suppliers and commodity folks and get all the, all the rest of the stuff together and work with, work with contractors. Kind of like, um, you can imagine the business plan ironically is sort of like the traditional Detroit automotive companies where they make the engines and they make the finished products, but everything in between the engine and the final car comes from a whole network of suppliers.

Yeah. Yeah. A horizontally integrated company. Yeah, exactly. Exactly. Um, so the plan is this is what they're going to do. They're going to build the engine and, um, they're going to start launching in September, 2003. It is now July, uh, 2001. Uh, yeah, that's, uh, that was some wishful Elon thinking classic, classic, uh, it may have been the first, the, the beginning of the Elon timeline because in software, you know, you can ship that fast, a little harder in, uh, in hardware.

Uh, we should also say like, there's a, and this I think is from, from the Ashley Vance book as well. Like the way that Elon calculates these deadlines is like, he thinks about it. About literally how long would he sort of like builds a Gantt chart in his head. And then he tries to compress all the minutes together. And then he also tries to apply a speed acceleration there where he says, look, like I would work on this really fast all the time.

So anybody that I'd hire would also do that. And so he basically creates this like ultra, ultra compressed Gantt chart. That's massively sort of like, uh, has the Elon multiplier on it. And that's sort of how he expects the work to get done. Yep. Yep. So they decide they're going to name this first, um, rocket, the Falcon one after the millennium Falcon, of course. Um, and, uh, since the rocket is named Falcon and the key is the engine, they're going to name the engine Merlin, which is a type of, uh, a type of Falcon.

Also, I wasn't able to find, I don't know if you were, if this was intentional or not, but the Merlin engine actually has a storied history as a different type of engine, which is the Rolls Royce Merlin engine, um, which powered all of the, most of the British, uh, air fleet during world war two and the battle of Britain and was like storied for being its power and reliability and, um, you know, helping, uh, the allies win the war.

That threw me for an SEO loop. Cause I was, uh, I was searching for information on the Merlin and, uh, kept getting this Rolls Royce thing. And I was like, what the, I thought SpaceX always made their own engines. Wouldn't that be funny if Rolls Royce made the SpaceX engines? That would be the ultimate irony based on where the company would end up today and their sort of strategy and principles. I know. I know. Um, okay.

So they get to work building the Falcon and the Merlin working with all of these, you know, the network of contractors and suppliers being, you know, horizontal, uh, horizontally integrated company. Um, and, uh, they pretty quickly find that it's not just Boeing and Lockheed and everybody who is, uh, subject to cost bloat and time bloat and project scope bloat in this industry. It's all the contractors all the way down. Uh, so Elon starts asking questions of these guys pretty quickly.

And this isn't just like two levels of contractors. It's not like, well, I'll sub it out to Boeing and then they'll sub it out to someone. This is like, like it's turtles all the way down type type thing. Like there's this crazy recursive loop where, yeah, it's everywhere. So Elon of course starts asking questions and people in this industry aren't really used to questions being asked of them. Um, and he starts figuring out that some of these components, whether it's, you know, um, part of the shell for the fuel tank on the rocket or some of the avionics components that contractors are charging a hundred thousand, multiple hundreds of thousands of dollars a piece that they can just manufacture them either in-house fab them in-house or use off the shelf, you know, consumer

grade electronics and computers for, you know, 1% or less of the cost that, uh, that these contractors are quoting them. So he says, all right, screw it. We're not just like Tesla. We're not going to take the Detroit, you know, approach to this. We're going to vertically integrate. We're going to make 90% plus of this rocket in our own factories. Which is wild. I mean, the SpaceX sort of, um, coyly talks about how, uh, raw material rolls in one side of the factory and rockets roll out the other side and, and they almost like talk about it like, well, minerals show up on the left side and rockets show.

It's not quite that they, they do have a network of suppliers. I think the number is 3000 suppliers and 1100 that supply them product every week. Uh, but the way to think about it is those suppliers are just sort of like way lower level. Like they're more the raw, you know, material, um, you know, think about sheet metal and wiring rather than fully assembled, you know, motherboards and, uh, you know, fuselages. This is like, it's, it's kind of a crazy undertaking because really in business, the, the, the theory is only take your core competency in-house and outsource everything else, outsource everything that can be commodity.

But there were so few players in this industry and so like such limited number of customers on the demand side that like, there was a very specific way that it was done. And that way just involved this wild scattering of subcontractors, each of which had to make their own product profit margin. And so you end up with this stacked like margin margin. And as, uh, um, uh, someone who we will talk about here shortly, uh, brings up in a, in a speech, her quote is it's exponential GNA that you get when you have multiple layers of integration.

And I've never heard someone describe it so aptly that of course this is exponential because every time somebody needs to make their 30% or whatever it is, that's on the previous person's 30% or whatever it is. And I bet it's a lot higher than 30. Yeah. Well, and let's think about who the end customers were in the space market, mostly, you know, pre SpaceX, well, and even now post SpaceX, uh, they were governments, you know, primarily the U S government, but also other governments around the world.

These are entities like a, a lot of these contracts are done on a cost plus basis, which, you know, by the way, side note playbook theme, if you ever as an investor or an operator encounter a situation where there is a cost plus contract, uh, as a way of doing business, you need to either, if you're an entrepreneur, disrupt them as soon as possible. Or if you're an investor run the other way, because with a cost plus literally it's, you get a, there's the cost of what it costs to make something.

And then the contractor makes a percentage profit on the cost. So the incentive of the contractor is to make it cost as much as possible so that their absolute dollar profit as a percentage of the bigger number is bigger. Like it's nuts. Yeah. Yeah. It's a great point, David. And I, and I think, you know, it's ambitious, but it, it still seems silly that this is a company that is both best in class at, you know, creating motherboards for this purpose and best in class at writing software and best in class at creating rocket engines or, you know, top three in class at creating rocket engines.

It's like an insane number of core competencies. And operating those rockets. Right. That's the other thing is they, yeah, they are the operator of the final product. Yeah. They vertically integrate everything. It's just, you know, it's, it's obviously it's a 7,000 person company now, but it is just shocking how many core competencies they need to be excellent at. Yeah. So, okay. So what's the business model for all this? Like what's the target market? So Elon, you know, he comes from this internet industry, you know, new, you know, PayPal, zip team, new markets, lots of demand, um, you know, highly rapidly growing markets and all the folks that he's surrounded himself with who are instrumental at SpaceX.

They're all the, these are the bleeding edge of the bleeding edge folks in the space industry. The people who like Boeing and Lockheed aren't moving fast enough for them. So they think there's this concept in the space industry at the time, um, and has been for many, many years that small satellites are going to take over and there's going to be this big democratization of the space market. Um, you know, and where, whereas it was just governments and big satellite companies that were launching big stuff into space, there's going to be small sats and cube sats.

And now like everybody, there's going to be this massive opening of the market, kind of like there was with PCs and cell phones. Um, and that's who SpaceX is going to try and serve. Exactly like PCs and cell phones. Like if you think about it, the reason that a lot of these cube sats can do what they do is because we've got, you know, a few billion smartphones out there and we can massively bring down the cost of, of, uh, you know, the really innovative stuff that goes into creating something that, you know, fits between your hands outstretched.

Yeah. And it, uh, it really amazed me doing the research. We've all heard this story about, um, space and small satellites, uh, in recent years with the venture funding in the space, but this was the story even back in 2002, 2003. Like it's, that's true. That's a fair point. This is five years before the iPhone and, you know, eight, nine years before smartphones had scale. So people, people were always thinking this and, you know, I think it will materialize in the future, but the reality is it didn't quite materialize for a long time, a big market there.

And so at this point, SpaceX makes a critical, critical hire that Ben, you were alluding to earlier, a woman named Gwen Shotwell. And Gwen is just an incredible force of nature in, uh, every dimension today. She is the president and COO of SpaceX and runs most of SpaceX at the time, uh, runs most of SpaceX today at the time she was the first salesperson. And so she had come actually, interestingly, vice president of business development, David.

Oh, it was sales, uh, which, you know, in, um, Elon's, uh, world is, is, is a, uh, is a good thing. Um, and, uh, so Gwen started in the automotive industry, uh, earlier in her career, but then moved into the space industry. And she says, Hey, wait a minute, guys. Like, so everything around the, the company was architected to sell to this emerging market of small satellites. Like the Falcon, the Merlin engine was incredible. It was the most highly efficient rocket engine ever built, but the Falcon one using one of these engines was a pretty small rocket and could get just small satellites up.

She said, I think it was like 70 feet tall. Does that sound right? It's like, it's not called exactly. When you think about walking up to a rocket and marveling at sort of this, this skyscraper structure, like that's, that's not what the Falcon one was when I sort of like made a joke earlier about, you know, strapping a rocket to a candle, like it's tall, but it's not that tall. No. I mean, compared to like, um, Saturn five or something like this is, this is just a little bean shoot.

Um, and, uh, so Gwen says, you know, yeah, like let's go pursue, you know, try and sell to these small site guys. But honestly, the market, like she knows the market and she says, it's not there, but I think you guys are, I think she's the one who says this, you guys are missing something. The big players, the governments, uh, the big satellite guys, the department of defense, NASA, they're also interested in what you're doing. Like they don't like it that they are paying so much money for all of these, uh, rockets and these launch, uh, operations that they need.

Uh, you know, if we can prove to them that we can actually do this, we can get some money out of the big boys. Yeah. And And Gwen importantly spent a decade at, um, at the aerospace corporation and microcosm. So she sort of like knew the way that this industry did business and sort of knew the way that money flow around, uh, floated around new, like what the different total addressable markets were. Like, I think Elon probably didn't have a pie chart, uh, on his computer of sort of like segments in the TAM for sending stuff to space.

Like Gwen lived in that pie chart. And, um, she was the second tab of the model. Yes. And when we were alluding earlier to, uh, uh, of course my comment on, on Gwen with, um, the, the sort of, uh, benefits of and cost savings of vertical integration, but also to the, the sort of dual business model of, of SpaceX, the sort of owned and operated things that they send up versus the, Hey, we're a shipping company.

She sort of is the force behind, Hey, we're a shipping company and that's going to fund the rest of this operation. Yeah. Like proof of concept, um, of the Falcon one, let's load it up on a truck and let's take it to Washington DC and just park it in front of the, I think it was in front of the FAA, not the pet and gone. Um, but the engineers are like, what are we doing? This is crazy.

This is like just showmanship, but, um, but it works. They get the attention of DC. That's crazy. And I think I remember too, is something like it's a more shiny, nice idealized rocket than the one they were actually designing, but, uh, it had the SpaceX logo on it. Yep. So meanwhile, the Tom and the team are working away at building the Merlin and the rocket and, um, and of course the original, uh, well, so the original, uh, goal was to fly in 2003 that gets pushed to 2004.

And then finally in 2005, they're ready to go. And Gwen has managed to land, not a small satellite deployer as, um, the first customer, but the department of defense has a, uh, they're starting to experiment with launching smaller satellites. And so they want to say, they say like, okay, we'll, we'll take a flyer on you guys. We'll put up a small satellite. You've never sent a rocket to space. Like let's take our satellite and we'll put that right there in the nose cone and the fairing of your, uh, of, of your.

Of your rocket. So, so they do, um, they believe they're going to launch out of Vandenberg air force base, uh, just North LA in, uh, in California, but, uh, typical bureaucratic red tape also because, um, uh, there's some competitors that may or may not also have some launches going on at Vandenberg at the time may have forced them out. They have to go find another site. So they scour the world. Um, they find an abandoned, uh, not abandoned, but a, uh, not currently used space in the Pacific ocean between Hawaii and Guam and the Kowajalian Island, uh, islands or Kwaj, uh, which is part of the Marshall Islands.

Yeah. I think it's the Kwajalian Atoll. The Kwajalian Atoll. And, um, they basically, they ship the rocket and they ship the company out there. They say like, all right, we're going to, we're going to set up a rocket launch site there. Yeah. All right. Well, let's, let's talk about this. So the launch site is on Omelak Island in the Kwajalian Atoll. And so, uh, if you work for SpaceX at this time and you have to go out there, um, here's how you do it.

So you take a five hour flight from LAX to Hawaii. You stay overnight. Uh, you catch the 7am flight to the Marshall Islands, which of course makes several stops in the, that area of the Pacific, because you're not, you don't just have a everyday back and forth single shot to the Marshall Islands. This is like a place where, in fact, I think my high school guidance counselor went on the Peace Corps there. Like this is a remote, remote location.

Um, also sadly a place where we tested lots of weapons in, uh, in World War II and I'm sure many other times. So then you get to the Marshall Islands, you then have another hour long boat ride to actually get to Olamec Island. So you're like, every time you go out and back, I mean, it's like a multi-day experience that you're putting up with changing time zones all over the place just to, to do your job, which is top 0.1% in terms of cognitive requirement to do that job.

Yeah. And spoiler alert, a good portion of the company spends most of the next three and a half years going back and forth to this Island. Um, they initially think they can launch in November, 2005. There's a valve problem. The launch gets canceled. It takes them until March of 2006 until they get all systems go again. They ignite the Falcon one. It takes off. It starts climbing. Everybody's going nuts. And about 25 seconds in, it blows up.

And remember, it has the Department of Defense, uh, you know, experimental small set in its bearing, has its payload that gets blown out of the rocket, ends up falling through the roof of the building, uh, of the launch facility. They're mostly ends up surviving. I realized that. Um, yeah, a lot of the rocket ends up getting blown into the ocean. Um, but, uh, Elon notes in his, uh, postmortem from the event, it is perhaps worth noting that, uh, those launch companies that succeeded also took their lumps along the way.

SpaceX is in this for the long haul and come hell or high water. We are going to make this work. So they're not deterred. It takes them another year to attempt a second launch, March, 2007. This time they make it three minutes into the flight. Um, the first stage, uh, of the rocket had separated the Merlin engine, did its job, uh, fantastically. The second stage kicks in the Kestrel, the smaller Kestrel engine. And, uh, that's going to take the rocket and the payload up into orbit.

Everybody's cheering, high-fiving. Then as it says, as Ashley says in the book, it starts to wiggle. And this just, I can also imagine this must've been so demoralizing. So two things I want to point out here. One is, and I remember like thinking about this the first time I watched Apollo 13 when I was a kid, like they don't know exactly what's going to happen when it goes up, but you can model a lot of it out with equations.

And so you do, and you run computer simulations and, you know, you do your best, but you don't, what if you didn't think of like just one force that's going to be acting at one point during the journey? And in this case, the one force that they either didn't think of or that, you know, it just, you know, was miscalculated in some capacity is that I, it was either the fuel or some kind of fuel and was like sloshing around causing it to spin.

It was that everything functioned perfectly as it was going up because the fuel tank was mostly full, but then when it got to the second stage and the fuel tank was getting down towards empty and there was all this empty space in there, it started sloshing around in, and in the body of the rocket. And that started, started it wiggling and moving around in a circle. And then eventually it sloshed so much that there was an air bubble, uh, and the air bubble got into the engine and it, and exploded, uh, up almost into orbit.

God, that just must've been so demoralizing. I mean, to be, especially after just having the last year. Yeah. Holy year. Yeah. I think it's, this is a good place to like, just, just, um, do, uh, all systems go on, uh, on our terminology here because, uh, listeners, as you know, David and I, neither of us are in the aerospace, but I'd say, um, know enough to be dangerous here. So it's, it's worth just articulating some of the terminology we're using and what are these rockets?

So the things that that's the big main body of the rocket, I'm going to work my way out from the bottom is called the first stage. And this is where, um, all that liquid fuel is that gets it up, not all the way to orbit, maybe all the way to orbit. Um, it basically gets it off the ground. It gets us through the thick atmosphere of the, the, um, close to the earth and it sets it off on its sort of, uh, uh, more horizontal journey to, to, um, start orbiting.

And of course the, um, engines are sort of the, uh, attached to that, or in this case in the Falcon one, uh, just the one Merlin engine. So that goes up. And David, you mentioned the stage separation. So the first stage sort of falls back toward earth. Uh, nowadays it can land, then it couldn't, um, and, uh, and you know, splashes down. Just casually dropped that. Uh, yeah. Nowadays it can land. Doesn't it, doesn't it feel barbaric?

Like, okay. I was thinking about this the other day. Uh, some of SpaceX's competitors have rockets that the first stage, when they come down, they splash down into the ocean and then they're useless. Doesn't that feel barbaric? Like it was mirrored a few years ago where it was the most amazing thing in the world that, oh my God, we vertically oriented a rocket and then we can sort of like clean it up and then we can use it again.

And now you're like, wait, wait, wait, I'm sorry. It's just wasted. It's just like, you can never, it's just trash. Like it feels like, like you just threw. It's at the bottom of the ocean. Yeah. Uh, yeah. It feels like I just like finished a LaCroix and then threw it directly in a trash can. And it's like the, um, you know, that scene in, uh, in Mad Men, I think it's in the first season maybe where, um, the Draper family is out on a picnic in a park and they just, yes.

And they just dump all the trash from all that. They pick up the blanket and just kind of shake it. And all of it just gets, and then they just walk off like happy family. I take it back. This is like finishing your Nalgene water bottle and then throwing it in the trash. It's like, it's amazing how your perspective changes. But anyway, I, I, I digress. So we, uh, so we've got through that first stage. Then you've got the second stage of the rocket or, um, you know, the, the, this is the part that does something out in space.

This has another engine on it. David, you just mentioned the Kestrel engine. That's the smaller engine. That's sort of better for little maneuverability out in space. Cause these, uh, Merlin and then later the, um, what's the current remind me the Raptor. Yeah. The Raptor. These are powerful freaking engines. Like if you're going to go try and dock it against something, that's going to create a problem. And so you've got a baseball bat. Yeah. Yeah. Yeah. It's the Falcon punch.

And so you've got this, uh, you know, smaller stage that has a, a single, you know, smaller engine on it. So that's the second stage that we're going to talk about. It does stuff in space. Then there's one more thing on top and that can be one of two different things. One is, uh, a payload that is, um, contained within, I think the right way to say it is within a fairing or maybe within fairings, but basically the, the fairing splits into two, um, those things fall back toward earth.

And then it's got something in there. It's got, for example, a satellite or a bunch of satellites in there. Um, the other configuration is that it could have a capsule on there. Uh, that would be a spacecraft that, you know, humans could operate one day, who knows? And so, um, uh, that's sort of the, the structure of the rocket and the terminology that for a long time, when people talked about the multiple stages of a rocket or my eyes would sort of glaze over, but it's, uh, at least in SpaceX's case, because it's a relatively straightforward design.

Um, it's, it's good to just sort of keep it in mind so you can go, Oh, okay. And follow along. Yep. Yep. So they were so close. They were so close to actually doing this being the first private company ever to launch a satellite into orbit. Um, and then right at the last minute it, uh, it failed. So they're undeterred. Um, classic Elon fashion. He says, not only are we go for number three, we're go for, uh, so this is the Falcon one, which was both the first and one engine, one Merlin engine.

Um, they had been, uh, Tom is Mueller's genius. Uh, he and Elon had been thinking about this. Isn't just one of, this is a modular system. And, uh, you could, you can have multiple of these engines put together and build bigger rockets with the same engines. And so the idea initially was they were going to have the Falcon one and then the Falcon five, which was going to have five Merlin engines. And then the Falcon nine with nine Merlin engines.

Elon says, not only are we undeterred by the second failure, we're going to, uh, go full steam ahead with trial. Number three, try number three with the Falcon one. I'm green. I'm killing the Falcon five to green light the Falcon nine. All systems go development on that while we haven't even launched the Falcon one. Now there was a big reason why he did that, which we've, we've been building up for the whole episode. But when we add eight more and an octa web around that engine, it will really work.

It will really work. Uh, to be fair, the first stage did work. So, uh, that, that, that second launch was a success by some measure, although they never could have delivered whatever payload was, uh, you know, on the second stage and going into space. Yup. So with the third try again, takes them a year to the summer of 2008, when they are finally ready to, to give the third try at the Falcon one launch from the Island to go the first attempt on August 2nd, 2008, they have to abort the launch at T minus zero seconds, but they've got a, they've got a launch window.

The weather's cooperating. They're going to try again on the same day. They go later on that same day. It all starts working well again. And then there's another failure, uh, before the first stage is even finished. And, um, Elon only has so much money. I know. I know. It's just like, it's crazy. So Elon is what put, uh, so we said a total of a hundred million and a hundred million into SpaceX. I think he said at some point that that was enough for three or four.

And I'm quoting the wait, but why urban here, which was great, which is three or four launches. Right. But that's cool because you know, Hey, look, like he's deep into this. He said, they're going to do this hell or high water. He's put a hundred million in, but he made like close to 200 from PayPal. Right. So like, he's good for it. Right. No, he's not because this is 2008 and two things had just happened. And this is summer of 2008 one.

Elon has now summer of 2008. He takes over as CEO of Tesla and he's pumped almost all of the rest of his money into Tesla. 70 million, 70 million. Um, and two Lehman brothers is about to collapse and the world is about to, the financial world is about to go nuts. So good luck raising money. Uh, so internally, like he keeps a cool head to the company and externally, but internally he is like freaking out. So what does he do?

He calls up his old friends from PayPal who are now at Founders Fund. Hey, remember that time we were in a McLaren? Yeah. He calls up Peter, uh, and Peter's, uh, Peter's partners at Founders Fund and says, um, yeah, I didn't want to raise cap outside capital, but I guess if I'm going to do it from anybody, I'll do it from you guys. Um, Peter, you replaced me as CEO once, so there's no way you would do it again.

Yeah. Right. Well, I don't think that was Peter's choice to replace him at PayPal. No, I don't think it was. Um, and, uh, so Founders Fund in the summer of 2008 invest $20 million into the company. That is enough to very quickly turn around for a fourth and what would be final attempt to first do the first successful launch of a Falcon one the very next month in September, 2008. Uh, the same month that Lehman Brothers went under, they finally succeed in a launch and it's crazy.

They don't even, they only have a dummy payload at this point in time. The only customer that, uh, that trust them that, that Gwen has been able to, to wrestle up is, um, I believe the Malaysian government, I think to launch a communication satellite. The Malaysian government till the next one. Yes. Well, the Malaysian government didn't even trust them enough that it wasn't going to blow up. So they said, all right, we'll like, we'll let you take us up.

But, um, on this one, you got to put a dummy payload on there. And like, if this works, then you're going to do another one and you're going to take our actual satellite up. Yeah. And revenue for, uh, these Falcon one launches was pretty low. It was something like 7 million. 12 million bucks. Yeah. Oh, wow. So they get, that's even, the initial price was 7 million. I don't know if they'd raised it by, by this point in time.

Well, they, they only ever did five launches of the Falcon one. So they did. Couldn't have climbed too high. So they finally, exactly. They finally succeed. Elon gives a speech afterwards in classic Elon. He says, well, that was freaking awesome. There are a lot of people who thought we couldn't do it a lot, actually. But as the saying goes, the fourth time is the charm, right? There are only a handful of countries on earth that have done this.

It's normally a country thing, not a company thing. My mind is kind of frazzled. So it's hard for me to say anything, but man, that was definitely one of the greatest days in my life. Now, to be fair, he has a family and five kids. And so, yes, one of, but like classic Elon, I think probably for most people here too, we showed people we can do it. This is just the first step of many. I'm going to have a really great party tonight.

I don't know about you guys. So Elon. Was he on the quaj? Like, do you know where? I believe he was there. Yep. Okay. Because this was it. Like everything was riding on this and he had taken out a loan against his SpaceX or he was about to take out a loan against his SpaceX stock to fund Tesla at this point. Yeah. I mean, that's, that's a whole nother story. I suppose that's worth telling here too.

Well, we'll get into that in one sec, but the code on this is that finally in, in, in July, 2009, they did do a fifth launch of the Falcon one to get the actual Malaysian satellite up into orbit. But by this point in time, they had already moved on to what was going to be the real business model here, which is the Falcon nine and government contracts. Yep. And again, the real business model of the space shipping company, where we're, we're, we're still, uh, very far from the, Hey, we, uh, we own a rocket and we're our own internal customer.

Like we also own things that we're sort of operating in space. We're very much, Hey, we're a shipping company. We're a shipping company indeed. So remember a little bit ago when Elon and Gwen, uh, put the model of the, uh, the Falcon rocket into DC and started, you know, current current favor there. And remember all the way back to that trip to Russia where the guy, Mike Griffin was along for the ride. Well, guess who's head of NASA at this point.

Mike Griffin, Mike Griffin. Um, just incredible. And he was a Bush administration appointee. If I remember, right. Indeed he was indeed. He wasn't that. And I believe he, he resigned amicably when, when the Obama administration took over. Um, so this is right at the end of his tenure tenure, like literally the 11th hour we're talking here at the end of December, 2008. And through presumably through Mike and other contexts, Gwen and Elon had found out that NASA was going to bid out a resupply contract, a new resupply contract for the international space station.

And this is going to be a big, big contract. And NASA was maybe open to a new entrant in the space, potentially taking on this contract. Yeah. I mean, uh, reflecting back now, now understanding, uh, the, who the NASA administrator was at the time, um, makes a lot of sense how incredibly fast SpaceX was able to build and be awarded this contract. I'm sure they went through all the proper review and everything, but that relationship has to help.

Uh, I do want to give a little bit of context to listeners on, on sort of what a big shift this was in space policy. Like if you think about the Apollo missions, like NASA would design something, it was the NASA engineers, and then they would bid out these sort of subcontracts to, to different people. And like, ultimately it was a NASA owned and operated vehicle that they paid enormous amounts of money to someone else to build.

And then they'd run their own missions on it. And this is, you know, uh, over many more decades than, um, sort of getting compounded. Things get more expensive. Um, they're bidding out more and more and more. If you're, you know, Northrop Grumman or Lockheed Martin, like you then have subcontractors under you and on and on. And this is a huge policy shift where NASA is basically saying, well, instead of us just subbing out the manufacturing, let's just tell people, Hey, our statement of work is we need to get this thing, the ISS.

And like, we will pay you to do that for us. Whoever can do it cheapest and best. Yeah. Like that's, that's all we're asking here. And that's like a staggering shift in policy that enabled this to actually happen. The, the, the nuts and bolts of it are, um, COTS, the commercial orbital transportation services, um, that later led to other contracts for both cargo to go to the ISS and people to go to the ISS. Uh, but this is a, what they call a space act agreement, which is, it's sort of like a contract where the, you know, that NASA has done a ton of these over the years, but this timeframe we're talking about this 06 to 08 timeframe is when they really started to use them to

say, Hey, can, uh, why don't you be a shipping company for us? Um, and, and we'll, uh, we'll fund you helping to build your UPS trucks and figure out how to design those. Um, but then you get a big contract for doing the shipping for us. And you may know this more than me. I was, was Mike kind of the architect of this huge change in policy for NASA? Uh, he was, I don't think the architect, but it was definitely under his watch and a big, a big shift for sort of the industry that he's sort of credited with kicking off.

Yeah. I mean, this is, this is so huge and, um, incredibly visionary. I mean, without this change in the way NASA operated, like there'd be no SpaceX, there'd be no, none of all the innovation that's happened in space. Like it's incredible. So the thing is, you know, for, for SpaceX to bid on this contract, they got to be able to get like stuff, like a lot of stuff up to the ISS. That means you need a lot more than the Falcon one.

So back, remember when Elon canceled the Falcon five and said, we're going straight to the Falcon nine, this is what it was all about. They needed the nine to be able to get up to the ISS and bring enough stuff up there. So this is crazy. Like 2008 is winding down. We're in December, 2008. Like Elon is literally running on fumes. Like he's not going to be able to make payroll at either Tesla or SpaceX, uh, for like the January 1st, 2009 payroll on December 23rd, two days before Christmas, they get the news from NASA.

They have one there, they're two winners, two companies get the contract, split the contract. SpaceX gets a big part of it. 1.6 billion dollar payment from NASA to fund. I think it was 12 missions, cargo missions up to the ISS. And it's just like game changer. I remember they were charging, you know, 10 million dollars on the order of that for like a space for a Falcon one launch. Um, you know, this is, uh, this is $1.6 billion for 12 missions just completely changes the company.

Um, so at this point then Elon does a whole bunch of stuff. He also has, he's quoted in the Ashley Vance book as he says, it's like the, uh, uh, flipping and he doesn't say flipping matrix, uh, the moves, the financial moves that he was making to stay alive at this point. So this contract comes in, he takes out a loan against his SpaceX shares. Um, he, uh, he's an investor in a company called Everdream that gets, which is a hosting company gets acquired.

He gets liquidity from that. And he's able, like he's able somehow to make it out of this with both Tesla and, uh, SpaceX surviving him with SpaceX at this point, like completely set up to transform from these ragtag guys are launching, you know, rockets from an Island in the Pacific to like, no, we're going to Cape Canaveral. We're launching out of the Kennedy space center. Um, completely incredible. It's worth, you know, you say they make it out alive by the skin of their teeth and it was a near death experience that will continue to happen for Tesla over and over and over again in the coming years.

I mean, like the, the amount of financial engineering that it takes to keep that company alive and the amount of, you know, spikes in production and all that, that, that we've all watched them go through. Funding secured. Yeah. I mean, it would be nice if the, uh, you weren't triggering SEC investigations, like that would make it easier. But the point that I want to make here is to contrast SpaceX because there are places where SpaceX definitely puts it all on the line.

Um, but they were kind of out of the woods at this point. They didn't have the constant near death experience after this, that, that Tesla would have. SpaceX is a company that very, very quickly grew from this ragtag bunch of guys that smelled bad and we're all sleeping in a room in the quaj, um, to, to suddenly having guaranteed revenue if they could come through on some promises. So they staffed up aggressively. They got huge, um, and they turned into a grownup company.

And of course, you know, they, they, um, they kept a lot of their same culture. I mean, Elon famously has these weird interviews that he did for the whole first thousand people and all the engineers after that. And, um, you know, it's a very different company that's still aggressive on vertical integration, that's still, you know, a lot of the same principles, but like they weren't on the verge of dying constantly the way that we, we described Tesla in that last episode.

Yeah. This is the moment when it like, it's, it's all a step change at this moment. And, and again, like, I think it was, was all the way back to Gwen saying like, no, no, we got to go, like, this is the market. We got to go after these contracts. Um, and then having Mike as, as head of NASA and like having this come through. Um, yeah. So the other thing they get, so, so now they got to make the Falcon nine work, but again, because Tom had Mueller designed this modular in a modular fashion.

Like they know the Merlin engine works now and the Kestrel, you know, second stage engines. It's a lot easier. Even like you said, Ben was stringing together an octo web, which is the, the, the, uh, configuration that they have them in together, but it's a lot easier to go from, you know, that to building a whole brand new engine to take up, uh, a rocket, the size of the Falcon nine. The other thing they have to do though, is they have to make a capsule, uh, to go on top of it.

So they're not just taking satellites up. They got to take a spaceship up, uh, no, an unmanned spaceship to, to bring cargo to the ISS, but a spaceship nonetheless. And so they, David, that would have poked funny to hear from it. The, um, so in the wait, but why article, one of the best lines is, uh, uh, when he's describing the thing that I did with each component of this, uh, the rocket, he's like, and of course the thing that sits on top is a spacecraft or if you're nine, a spaceship.

Yeah, that's right. Oh, I thought you were going to go with the other part of that post where, um, you know, of course these things all look like, uh, back to childhood. Yeah. Falaces. Yeah. For sure. I mean, basically we're all nine years old, you know, with everything that's happening here. For sure. All right, listeners. Now is a great time to thank our longtime friend of the show service. Now, if you are running a large enterprise, AI agents are likely spread across every team and deploying them is, uh, no longer the hard part.

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Well, is it worth talking about a little bit of context around the space industry around them at this point? Yeah, go for it. Yeah. So I alluded earlier that, you know, SpaceX has been heavily revenue funded and, you know, lots of that by NASA. There's a great publication, which is the great thing about NASA is it's a government agency. So everything's public. So there's this audit. It's called Audit of Commercial Resupply Services to the International Space Station.

And this was published in 2018 that has this great diagram of, you know, money that flowed to different companies, SpaceX, Boeing, Orbital, Sierra Nevada, others, and what it flowed for all the different programs, be it commercial crew or shipping people up. And SpaceX has received $7.7 billion in contracts from NASA for launches, which is astounding compared to a company that would be trying to sort of do as much as SpaceX has done without actually having a customer on the end of every rocket.

It'd be impossibly hard. I mean, it would take so much more capital and it would change your priorities. And what SpaceX really has done here, and I don't think I realize this, every time I'm watching one of these SpaceX launches and getting all excited about a new piece of technology on that rocket, which, by the way, there's a new piece of technology on every rocket. Every single mission they fly is different hardware than the previous one because they're constantly iterating.

Every time they do that, almost every time, save for 10 or so, there's a customer that's paying them money to send that thing up. And so, you know, NASA has been responsible for $7.7 billion of that. The other thing that NASA has put in money for, which has been really interesting, is when you mentioned the spaceship, David, which would ultimately be called the Dragon capsule. Developing the sum total, the Falcon 9, which we're about to go into the story of, and the Dragon, that cost about $400 million of NASA's money.

And about $450 million of SpaceX's money to go and develop that. And at some point, NASA did an internal audit to basically say, well, how much would that have cost us if we didn't sort of bid this out to SpaceX to go and do this? You know, if we had built this the way that we built the space shuttle, how much would that have cost us? And it basically, what they find is the number is about $4 billion.

Wow. Wow. So it is one-tenth the cost. Absolutely. Like, say what you will about, wow, SpaceX really got in there and scored that NASA contract. But they're saving NASA an enormous amount of money by sort of taking on the risk to vertically integrate all of this and making much cheaper rockets. Yeah. Yeah. It's actually, you know, I hadn't thought about this until down to where we were recording the episode. I suppose you could listen to everything we just said and say, wow, what a case of cronyism.

Like, you know, this dude, Mike, was on the initial trip to Russia with Elon, and then he's headed NASA. And like, of course, they get the contract. I don't think that's what's going on here at all. Like, this is a combination of several people, all the folks at SpaceX and Elon, Mike at NASA, lots of other people in the government and the DOD coming together and saying, like, the industry needs to, like, innovation has died and progress has died in this industry.

And we need to change the way it works. And if we can do that, you know, maybe we can get people excited and recording podcasts about a space launch again. And here we are. Yeah. And build a real industry. Yeah. I mean, this is an actual great example of sort of a win-win where, you know, they're able to enable a company to bootstrap itself by, you know, SpaceX now owns and operates rockets that NASA is not paying them for and missions that NASA is not paying them for.

So, you know, on the one hand, you could say, hey, come on, that's taxpayer money that's now going to allow this company to generate profits and enterprise value all on their own. Well, it's a win-win because it costs the taxpayers a lot less to get these missions done. And I think it's just this really interesting example where, I don't know, who loses here? Probably just the congressman who represented districts where there was a sub, sub, sub, subcontractor and they were, you know, winning on sort of bureaucracy to be able to win those contracts.

But yeah, it's a great example of a growing pie. So this is probably a good time to give a little context on the industry around SpaceX because they're not the only people that NASA is trusting to go and send stuff up. They're awarding contracts to other people. There are big incumbents. So what the heck? This startup isn't just going to come in and win the one point whatever billion dollar contract and everybody else goes home. And, you know, that's not how this is going to play out.

So what's happening in the industry around them? Well, in the space industry to date, at least for governments, the goal has really been build a really extravagant machine to do one thing where price is basically no object because either we're trying to win the space race or we're, you know, calling it a part of national defense or that's the lineage of whatever we're currently working on. So that's the only thing that we know that it costs.

So we're just going to keep going. You know, these things are funded by the military and NASA and all of the stops were pulled out for reliability and performance. And, you know, we talked about how it's very subcontractor driven here. So the if you were a sub sub subcontractor and you could make your thing slightly more reliable or slightly more performant, even if that's not totally necessary for that, you know, practical purpose for that mission, you know, you do it anyway to kind of win the bid.

And so you can almost think of these existing space incumbents like United Launch Alliance, who will go into detail on as sort of the Intel of this world and Intel today, where SpaceX is a lot more like the arm. And the reason I draw this comparison is, you know, Intel made much more powerful chips for computers, but notoriously lost in smartphones. Um, but, you know, those chips were hotter, they were bigger and they were more expensive, which is fine when we all had desktops.

And SpaceX being like these arm chips, you know, especially early on and having this, you know, sort of toy rocket with the, uh, the Falcon one worked under a very different set of requirements. And it ended up building a completely different system, one that was cheaper and they could iterate on it very quickly, shipping up a different rocket every single time. Especially because they controlled the whole stack. Right, exactly. But initially it didn't seem very useful for anything.

I don't know for sure, but this feels like it could be a case of, uh, of disruptive innovation here. Yeah. Looking like, I mean, the Falcon one definitely looks like a toy to a lot of people in the industry. Right. Absolutely. You don't look at the Falcon one and say, well, they're just a few years away from resupplying the ISS and probably sending people up to it too. Like, that's just not, it's not your natural inclination there.

But David, as you were mentioning, like the design requirements around a lot of the other stuff that they would send up in the meantime was totally changed with these small satellites, CubeSats, um, commercial space sort of developing. So, uh, getting back to United Launch Alliance, who I mentioned there, and I think they're important to understand in the context of this story. So Lockheed Martin and Boeing had both been longtime government contractors. They built, uh, amazing things to their credit, still build amazing things.

Uh, and, and a few examples, you know, Lockheed made that big orange tank on the space shuttle that we all know. And it's iconic. And I think still one of the most elegant, you know, when you see the space shuttle launch videos, that's still to me is this romantic version of space that, uh, in, in some ways, the, the, the SpaceX rockets aren't as beautiful and don't just sing space to me the way that that shuttle design did.

They also made the Hubble telescope and the, the Mars lander. So, you know, the, the, the Phoenix, so lots of, um, really storied stuff that they manufactured. Boeing, on the other hand, made everything from the lunar rover back in 1971 to the actual space shuttle orbiter itself. So long time space companies. So here we are in 2006, Boeing and Lockheed. And I think it's important to understand their motivations because then you really get the context for what people thought the space industry was.

Boeing and Lockheed had decided that the one real customer that they were both doing work for, um, was the U S government, but the government didn't have enough business for both of them to justify their massive size. So by combining the manufacturing and research work of the two companies, this would be a cheaper and safer way to get the same stuff out the door. Boeing already had the, the Delta, uh, Lockheed had the Atlas. You know, these existing rocket programs, it kind of sounds like a good idea unless you've heard this story before, um, or a story much like it.

The first thing I want to tell you is you don't need to look any further than the ULA logo to discover that everything was basically designed by committee. Uh, something where ULA had a massive advantage with all the existing contracts that the two companies had. They actively continued to work on the space shuttle program for another five years after this. They, they just had years of knowing how the industry worked, but what they didn't see was that the industry was undergoing this massive change, you know, for one with other potential non U S government customers, there could be this real commercial industry.

Uh, and that was something that the U S had basically lost to nations who could launch stuff cheaper like Russia, China, China. Yeah. China through all that. We haven't talked about China. China was, um, you know, Hey, I think, uh, Vance wrote the Elon Musk book and, uh, when did it come out? Like 2014, 15, maybe? Somewhere in there. 16. Um, at that point in time, you know, it was the, the Russians were still predominant in space, but China was making a push now China, like China and their long March rocket, like, like space today, uh, Ben, correct me if I'm wrong, but is, is a two horse race between SpaceX and China.

And, uh, it's crazy. Yeah. And in a lot of ways. And I think Elon certainly looks at it that way. Um, another thing that I didn't really realize was that, uh, there's this great talk linked in the show notes. Um, it's a relatively under viewed video on YouTube of, uh, Gwynne Shotwell giving a, a small fireside chat to some industry insiders in, um, 2014. And she points out that the U S was competitive in commercial space, sort of in the, up till the eighties or in the eighties, but has basically lost it since then.

And that, that was the case really until, uh, you know, until this reignition of, uh, of a, of a commercial space industry here. So long story short, ULA was completely unsuccessful in capturing a commercial market in the U S you know, if you, if you think about it, it's, it's actually a huge failing on their part. Cause there were tons of commercial satellites starting to go up. You have direct TV who sort of owns and operates tons of satellites in order to, to, um, provide their service.

You have intelligence satellites, you have surveillance, you have research concepts, you have startup companies. David, you mentioned these cube sets, like ULA managed to capture basically zero of this because they were focused on winning contracts from the U S government. And, you know, there's more to blame than U a ULA themselves, uh, international traffic and arms regulations in the nineties sort of built up barriers. But the biggest problem was Boeing and Lockheed Martin just didn't compete anymore.

And so everything got so bloated and expensive when they just combined into one, one big behemoth. And so, you know, you might see the opportunity here. And, uh, you know, if you do, then you are similar to, you know, Elon and Gwen and everyone else who sort of saw this gap and then decided, Hey, we're going to go build a fricking cash cow of a business in the Falcon nine and we're going to go shoot that gap.

Yeah. Really. Ben, you said, I mentioned a minute ago that, um, I think over the life of SpaceX thus far, they've received what, just under $8 billion, uh, from the government. Um, now by our calculation, SpaceX is obviously a private company, but you can tell by their, you know, uh, launches and launch manifests are public. Um, we think based on sticker price for Falcon nine launches of which there's now been over 80, right. Um, that they've done.

Yeah. I think over 86 launches, um, and somewhere around 55 on the future manifest. Yep. And something like 22 of those ish are for government and the dragon program. Um, the rest of it, they've probably made just about that same amount, another $8 billion, give or take in commercial revenue from, you know, other governments launching satellites from commercial satellites from all sorts of stuff. Yeah. I don't, I don't think it's quite that much. I think it's probably about half that, but, um, if the revenue mix will definitely start to skew toward commercial as we sort of, uh, see them fly out their backlog, you know, there's all these committed launches that they have that they haven't launched yet.

Um, that, you know, you're right. I, I don't, I, I definitely don't think it's more than the, um, U S government right now, by the way, private company. So who the heck knows? Um, but if you just sort of add up the sticker price of, uh, you know, 60 million times the number of, uh, of commercial launches that they've sent up, which are probably, I don't know, 40, 50, 60, somewhere in there. Yeah, you're right. You're in the, the single digit billions.

Yeah. So, um, so yeah, it, uh, it all, you know, we'll move kind of quickly. It's funny to move quickly through all the amazing technical and engineering feats that SpaceX has accomplished since then. But I think Ben, you, you hit the nail on the head that like getting this contract, this was the moment that like made the company, uh, getting that initial NASA ISS contract. Real quick before we move on. Cause I know I just threw a bunch of shade and I want to, I always want to make sure I like do right by someone rather than just blasting them on the show.

ULA has since replaced their CEO. Um, they're actually working with blue origin now, um, and designing a new rocket called the Vulcan, um, and hoping to use, uh, or I think they are going to use blue origin, um, engines on there. And so blue is actually commercially selling, um, those engines to, uh, to ULA, which is, is kind of amazing to think. One more digression on ULA here. I can't help but do this. They, the supplier that they have for the engines on, I think it's the Atlas five.

I'll correct myself later if I'm wrong, but they're, they're main, they're basically their competitor to the Falcon, either Falcon nine or Falcon nine heavy. It uses Russian engines. Oh, interesting. And the, this is the main U S government contractor for sending up things like intelligence satellites. And the current iteration of that uses Russian engines of which the Russians have decided for the U S we don't want to keep supplying you those. So they've stopped, like, there's only something like there, there's some number in the single digits or teens of, of those engines in country in the U S that like that, uh, ULA can use.

And so like, I think it's called the RD one 80 is the, it's the Atlas five is the, is the rocket. Like ULA is in this position where the world is closing in on them from every direction. They're running out of the engines that they can use for these launches. Uh, SpaceX is massively undercutting them on price, which we'll talk about here in a moment. And like the, the clock is just ticking with their, basically their one customer looking to them and going, wait, I'm sorry.

In what ways are you better? And so, you know, they're going to try and run out of the house before it burns down with the new Vulcan program and partnering with blue. But, um, you know, I, they're a powerhouse and we'll continue to win contracts for a while, but, uh, you know, they are certainly SpaceX's number one enemy. Yeah, indeed. Well, you know, it's, um, disruptive innovation coming to the launch market. Uh, the, the space shipping market.

So it was ended 20, 2008 when SpaceX gets the, um, the contract from NASA for the ISS resupply pretty quickly within 18 months, they have a successful test flight of the Falcon nine, which again, they'd already been working on. And then, uh, so that was June, 2010. And then only six months after that in December, 2010, they have a successful test flight of the Falcon nine plus the dragon capsule, which they've engineered from scratch, you know, in house at SpaceX.

And it takes a little while longer after that, but on May 22nd, 2012, the first real dragon mission reaches the ISS. They do the first of the 12 resupply missions. And this is just incredible. I mean, I remember this happening, like a private company has made a, not just a rocket, but an entire spacecraft and operated it and sent it to the ISS. You know, again, like Elon said, um, with the first, uh, with the first successful Falcon one launch, like this is the stuff that countries do not companies.

And here's SpaceX, um, you know, doing it, uh, it's just, uh, just crazy. Yeah. And, and to layer onto that, the reason it's called dragon is, uh, uh, Elon named it after, uh, the Peter, Paul and Mary song puff the magic dragon, where basically it was to, to give the finger to everyone who said he could never do it. And, you know, you're, you're sort of chasing the dragon, um, and saying, look, here it is. I did it.

Yeah. And I think the, um, I think the ISS, as they were, they were pulling in the dragon said something like, uh, Houston, we've caught ourselves a dragon here, something like that. We've got a dragon by the tail. Um, then the next year in 2013 to what we were talking about, about using these, you know, all of the technology they built for the government, uh, in the commercial sector in September, 2013, the first commercial Falcon nine launch takes place.

They launched several Canadian satellites, um, up into orbit. You know, less, uh, just about a year later. And, uh, in then in 2014, so they complete six Falcon nine launches, uh, in 2014 in 2015, they complete seven Falcon nine launches, including the first successful test of a new program with NASA for the crew dragon, which is what's going to happen on Wednesday. The first step towards what's going to happen here, um, takes place in 2015. And then at the very end of 2015, this is the other big, big thing we want to talk about.

The one more thing, they land a rocket. Do you remember when this happened? Just a holy, holy God moment. I just, I, it it is, it is so unnatural. I remember thinking that when it was happening, it was like this moment of sci-fi. Yeah. I was, uh, I was traveling cause it was over the holidays. It was like late December. Yeah, it was. Of, uh, 2015. That's right. It was right after we started acquired.

Yeah. And it was, uh, it was on the drone ship. And so, uh, no, it was first was on land. Uh, the drone ship first was on land. Yep. Yep. So they had to do the boost back burn to, uh, they were, they had done several attempts. So here's, here's how it goes down. So all the way back in 2011, Elon and the team had started thinking about this and it was the analogy we talked about earlier.

Like it's crazy that you would build these massively expensive things and then drop them in the ocean. The analogy they use is every time you fly a 747 from New York to London, just throw it away afterwards. Imagine how expensive airline tickets would be if that were the case. So they started working on the technology in 2011, um, to land rockets and people think this is impossible. Like the laws of physics people think won't allow it.

And, uh, so they called the program grasshopper. And then in March, 2013, then grasshopper, they're, they're just sending these, building these short rockets, shooting them up, not into space or anywhere near space. And they're just trying to land them. They've land their first grasshopper in 2013. And then Ben, what you might be thinking of in 2014, in one of those Falcon nine launches, they're like, they're pretty quickly getting this tech into production. They try and land in April, 2014, 14, a Falcon nine, um, rocket on, on a drone ship, uh, and it falls over.

That one blew up. Yeah. That blows up. It got really close though. Got really close. Yeah. Uh, then the second attempt, January, 2015, that fails. The third attempt fails. It's just like the first, uh, getting that first Falcon one up. And then finally the fourth attempt was, uh, was on land. Cause it's, it's much easier to do it on, on, on the ocean. Like the, you know, it's on the ocean. Like the ship is bobbing up and down and moving around.

Um, they successfully land the first, uh, the first time on, on land in December, 2015. Then they have two more fails in the ocean. And then in April, 2016, they successfully land the 23rd Falcon nine launch on a drone ship, um, followed by a second successful landing. Of course. I still love you. Drone ship. Yep. Yeah. This is, that's right. It was on land. It's, it's interesting thinking about this cause the way that SpaceX lands these look, looks really unnatural.

Like if you, I remember, um, watching, uh, the first blue origin rocket that went to space and came down and successfully landed back on earth, which they actually beat SpaceX too. So SpaceX was doing the grasshopper stuff first, but blue origin flew a rocket, not to orbit, but above a hundred kilometers above the earth. I mean, that's a, it's the formal definition of space. So I think it's the Carmen line. I don't know exactly how to pronounce it, but yeah.

Um, and you know, SpaceX sort of was the first then to beat them to that big milestone of, of getting to orbit and then landing back down. But if you watch like blue origins rocket do this, it, it sort of seems more natural. They sort of decelerate and then it lands kind of gently. And the way that it works for SpaceX in the industry, the way they sort of refer to it is as the hover slam or in a much less delicate way of referring to it.

People call it a suicide burn where basically what they do is they put just one of the nine engines that, you know, they turn one of those nine engines on. And even at the minimum thrust from one of those nine, if you just leave it burning, it will decelerate the rocket and then it will go back the other direction. Like these are just, those Raptors are so crazy powerful. The, and I should mention too, the Raptors are flying today have twice the thrust of the Raptors they started with, um, in the original Falcon nine.

So like their iteration, I think it's the, I think it's still the Merlins, the Raptors are the engines for the starship. Oh, you're right. Okay, cool. I was referring to the wrong thing. Yes. The Merlins have gotten, um, twice as, as performance. So anyway, they, they turned just one of the Merlin engines on as it's sort of decelerating. And the reason they call it the hover slam is it comes in so fast and then just at the exact right time, like they have unbelievable sensors on this rocket.

They can, uh, fire it at minimum, you know, the minimum amount of thrust just in time for it to decelerate and, and hit basically, you know, zero miles per hour, zero, zero meters per second, right as it's setting down. And so it's this like magic trick every time they, they, they pull it off of, uh, unbelievable sensors and unbelievable precision over when they're firing that, that engine at minimum thrust. Yeah. Incredible. Um, so now of course the point of all of this, right, is that you're going to reuse the rockets.

Um, so in 2017, they have the first successful Falcon nine reuse in March of 2017. Um, and 2017 was just a banner year for SpaceX, 18 successful launches, no failures, and they landed every single one of them, except the few that they were, that was the end of the useful life of the rocket where they were planning not to land them. Yeah. Coming out, coming out of 2015, this is a company that is firing on all cylinders, like perfect product market fit on the business side, iterating super fast, launching all their R and D stuff actually into production super fast.

Like they're, they're, they're flying out their backlog at remarkable pace. Like it is, it's just impressive. Totally. Um, the next year in 2018, they hit their 50th successful Falcon nine launch. They have 21 total launches in 2018, including the Falcon heavy, which, uh, is an adapted. I mean, folks have probably seen this and watch videos, but like, it is amazing. So this is three Falcon nine rockets wired together for 27 total engines burning, um, that can bring up, you know, an incredible amount of payload and these guys, and what they do is all three rockets go up and then they all land.

And, um, is honestly like watching a magic trick. Like it's like a ballet. Anyone, anyone that watched the, uh, uh, SpaceX fly Tesla's, um, uh, Elon's Tesla roadster up with the star man in it, like this was on a Falcon heavy. And then exactly that ballet of the two come down simultaneously land next to each other on pads on land. The third sort of main booster then goes and lands on the drone ship, which, um, actually that one ended up, uh, tipping over.

And that one's a lot harder to do because that one's, um, it's especially reinforced, uh, to be able to hold onto the other two boosters. Right. Yeah. Which apparently in the block five, which is the most recent and I think final version of Falcon nine. Yeah. That they've actually figured out a way to, um, to sort of fix that problem and they're going to be able to, I suppose, catch them much more easily out in the drone ship.

But yeah. So that brings us to now there, there are a couple of things where we're not talking about here that we might mention, uh, at the end of the episode, but, um, in less than, uh, 48 hours now, the plan is, uh, one of these Falcon nines is going to have a manned crew capsule dragon on it and we're going to be sending astronauts up to the international space station. It's so funny. I'm saying we, like it's, you know, like it's us, like the company.

Yeah. Like I know we're a little bit of a U S centric show, but like, my gosh, for a U S company to fly, you know, U S astronauts up to the ISS is, is, uh, you know, it's compelling. It's cool. Yeah. And, um, it is. So this goes back to in September, 2014, NASA bid out a $2.6 billion contract to, to do this. This was the point of, you know, uh, all of Griffin's work to re-architect how NASA operated with, um, with their suppliers, uh, for a private company to fly humans to the ISS and, uh, and SpaceX wins it.

So they last year in 2019, a big key step in this is they completed the first autonomous, uh, ISS docking with a drag dragon capsule. So it was a crew capsule. Uh, there were no people on it. It was just cargo. It was like a little stuffed animal. I think that, uh, that then the ISS astronauts went in there and showed and waved to the camera and held up the stuffed animal. That's amazing. Of a globe, I think.

Yeah. Ah, um, and on Wednesday, May 27th, scheduled to bring U S astronauts, Bob Behnken and Colonel Doug Hurley up to the ISS. Yeah. It's, it's, it's, it's astoundingly cool. I mean, it's just what a time to be alive. Yeah. So the items that people might think about in SpaceX that we haven't dove into here, cause, um, we might talk about a little bit, but there's so much to talk about. Obviously, uh, are obviously Starlink, their own small satellite communications, broadband communications, internet network that they're developing.

Um, the star ship, which is the future Ben, you alluded to this. They're going to be retiring the Falcon program and the dragon program and, uh, merging everything into one giant spacecraft, the starship, which will eventually go to Mars thing rocket of some sort, the spaceship or the starship, the starship. Yeah. Which I wish was still called the BFR. I know. So cool. Um, they've had a successful engine test for that. So that work is well underway on that.

And, uh, and then there's the little thing called the boring company. Yeah. Which, uh, I think is something like, like it ended up spinning out and SpaceX is a minority investor along with Elon. Yep. So Elon owns about 90% of the company, I believe maybe a little less SpaceX on 6%. Uh, and then there's the employee. Oh, the employees are the other minority. Yeah. Yeah. Wow. So there we have it. SpaceX as of May 25th, 2020.

Yep. Well, I do think before moving out of history and facts here, because we're sort of ending history and facts with the events that are happening Wednesday, it is worth talking about this particular contract. Um, because you, a skeptic could say something like, there's, there's lots of interesting skeptics of, of SpaceX, but one skepticism could be, why is it so impressive what they're doing? Like other countries have been flying people up to the ISS forever. Like, you know, get, get, get off your high horse and get less excited.

So what? It's a private company instead of a government. So what? They maybe spend a little bit less money. Like, not that this is easy to do, but like, there's plenty of other people that could do it. Well, NASA doesn't sole source crap. Like NASA always awards multiple contracts because like this stuff is super hard. And the second person or the second company that, that got this same contract was Boeing and Boeing has built a thing, um, to produce, you know, uh, it's basically their version of the dragon called the star liner.

But in December of last year, it launched a test to dock with the ISS, um, and it ended veering off course and they did manage to get it home, but basically scrubbed the mission in order to do it. Uh, and, uh, and Boeing took a $410 million write down on earnings last quarter, um, as they prepare for NASA to potentially ask them to run another full test, do another full launch of the exact same thing, you know, which is actually quite telling that for Boeing, that's a $400 million expense because for, for SpaceX, that would be somewhere between a 60 and a hundred million dollar expense.

Um, but well, maybe that's not fair because there's more reusability. Anyway, the, the, the point that I want to make there is like, this could be Boeing, you know, later this week, but it's not, it's SpaceX and they, they managed to do it, you know, better, faster, cheaper, faster, safer, more reliable. Yeah. And so fingers crossed everything goes well, but, uh, it's, uh, you know, you, you can throw shade at Elon and whatever way that you want or at this company in whatever way that you want, but you can't argue with results.

Yeah. Um, should we talk about narratives? Yeah. Yeah. Let's do it. Well, um, I think there's at least three vectors that I can think of around, uh, bull and bear here. Uh, one is around Elon himself by people, you know, the, you could call him the savior or you can call him, um, an ego maniacal sort of work you to the bone, um, words we can't say on this show. So David, any, any sort of like color that you want to add to narratives on Elon?

I mean, what else could we add? Uh, it is interesting though. Like again, until really until doing recording this episode now, I hadn't, I'd obviously thought, you know, SpaceX and Tesla are at very different situations. But, um, but I think the Elon factor, the Elon randomness factor in SpaceX is just so much less than in Tesla, you know, probably one because he has Gwen, uh, but then also too, because the company, at least Tesla, I think isn't a very good place now, but you know, six months ago, Tesla was not in a very good place.

Um, and SpaceX is, so there's just kind of less, uh, even though SpaceX is in many ways in a more, um, politically sensitive position, uh, than, than Tesla, like there's just kind of less for one person to mess up right now. Yeah. Yeah. I mean, it's also a private company, which is nice because if you, if you could tune out all the noise around Tesla stock and only focus on the more intrinsic stuff, like I think there'd be a lot less narratives period, uh, 90% less narrative around Tesla and, uh, you know, SpaceX has that.

And they also have the benefit of, um, you know, long, long-term commitments with agencies and, and governments that can always come through on that cash. And so to the extent that they can deliver, um, you know, they have guaranteed stable, predictable revenue. The only thing that's not predictable is, you know, when are you going to crash a stage one into a drone ship and have to take a, you know, multi dozen, if not a hundred million dollar write-off.

But, you know, that's, uh, that's the hard part that comes with the guaranteed contractual revenue. Um, the other narrative that I think is important to highlight. So that one, the Elon one is one that everyone outside of aerospace talks about. The one that's more internally debated is around reusability. And so a lot of the SpaceX bears will tell you that's total BS that, um, those things are reusable. It's total BS that even if they are reusable, that it's cost efficient.

In fact, some of these people include CEOs of competing companies who, when someone flags the point, well, SpaceX is able to do this cheaper because they've done this, performed this miracle of engineering, of reusing the rockets. Um, they'll say things like, well, you don't know their cost structure. You don't know that it's actually cheaper. And, um, examples exist in the past of, um, the solid rocket boosters, for example, on the, um, the space shuttle, those white ones on either side of the big red tank.

Those would fall back down to the ocean and then they would, they would be refurbished and then those would launch again. So this sort of thing theoretically has happened, but the difference is with things like that, um, the order of magnitude, it's probably an order of magnitude more expensive where they basically cycle out every part, scrub it clean, um, and then send it back up. And SpaceX is iterating toward, you know, this is the bull case on reusability, um, being able to just give a one or a two day inspection, uh, on the rockets and then, uh, and then send them back without replacing anything and only needing to replace things maybe every 10 times or so that you send it up.

And right now, I think the maximum that they've, they've sent, um, a rocket back up or a stage one backup has been three times. But, you know, uh, there are very, very real cost savings, uh, that, that, uh, that you have here from, you know, not having to produce a, I don't know what the cost of goods sold are on a Falcon 9, but 20, $30 million rocket every single time. And, um, you know, I, I think in the coming years, we'll see if SpaceX is actually able to get to the milestone of, um, you just need to give it a once over, uh, and, and 48 hours, you can fly it again.

But, um, there's, there's massive debate over whether the reusability actually provides the type of savings that SpaceX claims. Yeah. Yeah. Um, should we move on to, uh, what would have happened otherwise? Yeah, let's do it. Where do you even start here? There's like, there's so many moments where this all could have gone off the rails. Uh, I mean, I think the biggest one is what if, uh, what if NASA hadn't sort of changed their, their tune on how we bid stuff out?

Yeah. I mean, I think without that, the small set market just, you know, I think it probably will, like, like we said, will materialize in the future and it is materializing now, but during the time period that SpaceX needed it to, it just wasn't going to. Yeah. And this is actually, I think a big point related to, um, we didn't really talk about Starlink at all in this episode thus far, but, um, I think one of the reasons besides Starlink and providing satellite internet access being a big market and attractive in and of its own that SpaceX decided to launch this division internally was to stimulate, um, the small set market and demand for it.

Like now they are going to be their own first and best customer for small sets. And, uh, the, um, the ride share program that they launched where, you know, when they're sending up big stuff, having, having space available for, for little sats as well. Yeah. I want to give a little bit of detail on both of those things that you just described now that we've sort of, uh, we've tipped our hand a little bit. So for people who don't know what Starlink is, which is me probably two months ago and mostly me even a week ago, uh, SpaceX is going to put 1200 satellites up in low earth orbit around the earth.

I'm sorry, 12,000 satellites, uh, low earth orbit. So way, way, way closer than the direct TV satellite that needs to be out in geosynchronous, which is, I don't know, it's 22,000 miles away. Like these things are on the order of, uh, 200 ish mile, miles away. So, you know, it takes a rocket to get it up there, but you know, it's, uh, it's, it's not, it's not as far away as, uh, as the old stuff is, or as, as a lot of the, um, fixed geosynchronous stuff.

So SpaceX is going to launch these, these, uh, 12,000 satellites and, um, they are all going to have line of sight to each other and they are all going to, uh, be able to provide broadband internet anywhere on earth at any time to anyone in a cost effective way. And the way that it works is, is kind of a miracle. The fact that all of them have this line of sight to each other and can communicate in high bandwidth between one another, it means that the latency can be way less.

So since they're way closer right now, the problem with using satellite internet is it has to round trip all the way out 22,000 miles and back. And even at the speed of light, that's still time. And so you're getting, you know, dog crap, slow speeds on, uh, on satellite internet. And if you have a whole bunch of them pretty close here and they can all communicate with each other, it's kind of okay if there's not a single same one above you all the time, as long as there's something above you all the time and they can communicate with each other, you can kind of see how this- This is the, uh, the wifi mesh network of, uh, satellite broadband.

Totally. It's genius. And so you might think, my gosh, that's so many satellites that must be really far in the future. Well, they launch 60 at a time and they've done this, I think three times now. Like they literally stack them real tight. They jam 60 of them in a fairing in a nose cone of a, of a Falcon nine and they shoot them up and they all sort of make a little string in the sky and they, they go right behind each other and it works.

Like Elon Musk has sent a tweet from, from Starlink internet. Oh, no way. I haven't seen that. He has. He tweeted something like, I'm tweeting this from Starlink. And then he replied to himself a minute later and was like, got it. And, uh, you know, it's, it's these publicity sense, but like that you can see turning into this very interesting owned and operated business where they can be, you know, there's a huge fixed cost to send them up there.

It's, uh, you know, to them, uh, the cost, it, it would cost me $62 million to send something up on a Falcon nine, but, and it would cost the government something like 90 million cause they have additional regulatory stuff. But for SpaceX, I don't know what their costs are. Call it 40 million. Um, so it's that sort of big fixed cost investment to get them up there, but they can run a profitable business and we can all, or a lot of people get their internet from Starlink and that can be a cash machine that then can bankroll future endeavors.

So they're not just getting paid every launch, but they can get paid in perpetuity for a subscription to something that's already in the sky. So I know I'm dipping all over the place here in analysis and business model. And, but I, when you dip into sky Starlink there, I think it's important to sort of like what the heck that is and how real it could be and how soon it could be, you know, two, three, four years before that, that starts to be meaningful.

Yeah. Yeah. I mean, it's like the satellites are already up there. Yeah, totally. And they've got competitors there too. Amazon's got project Kuiper and SoftBank funded a company called one web. That's, that's, uh, that's doing it, but, um, yeah, it's, it's futuristic stuff. That's actually happening now. Well, and SpaceX has the, you know, back to the vertical integration, like they have the advantage of, you know, their, it benefits all sides of the business. A, they're building this business internally.

B, they're giving more, um, they're stimulating more demand for launches of which they are the primary provider. It's going to lead to more launches, more vertical integration cost comes down farther. And then, you know, the flywheel is just going to keep spinning. A hundred percent, a hundred percent. And you mentioned ride share too, which is a funny word to use in space, but it's a thing that they put on their website in the last year or so, where, by the way, you can put in a credit card, uh, to, to, for them to take a deposit on this and it's, they will charge your credit card, but you can basically pay as little as a million dollars to hitch a

ride. So it's exactly what you said, David. You're sending a big satellite up, take my little one up too. You can go to the website and you can say, I want, um, I want to send up something that's 100 kilograms by 2024. And, uh, like quote me. And it is the craziest. I didn't realize they take orders. So this is like the equivalent of an Apple pay down payment on a Tesla on the website. Absolutely. Do you know if, uh, if Shopify, uh, powers it like Tesla, that would be amazing.

That's a good question. The design is pretty similar between the Tesla website and the SpaceX website. Yeah. I wonder if it is Shopify. Um, yeah. Like just because I don't want to talk about this twice, I'm going to pull forward my, my, um, my playbook thing now about, uh, about the pricing there. It is a massive disruption to the entire aerospace ecosystem that SpaceX has a pricing page. Like it is the craziest thing that you can go to, to there, there's the ride share thing, but then there's also like literally just a PDF that you can click and pull up.

And it's like, do you want a Falcon nine? It's $62 million. Do you want a Falcon heavy? It's, it's more expensive and I don't know what it is, but this has never been an industry with price transparency. And by bringing that, it is, it is just like, you know, it freaks everyone in the industry out for them to be that transparent. Um, plus the Uber pool. Right. Right. Okay. So, uh, that was what would have happened.

Otherwise I dipped us into playbook. Um, let's keep going. If, if, if someone wanted to do something like this, what is the playbook they should run? And, uh, what are some of the themes that we noticed here? Ooh, oh man. Well, okay. I'll run through some of the ones I jotted down quickly. One, I started thinking, doing the research about like, what would, what would, what would Hamilton Helmer say about like, what is SpaceX's does SpaceX have power?

If so, what is it? And I think the right one, I think this is basically what we've been banging the drum on all episode is they came out with counter positioning, like the, uh, the vertical integration and the whole approach that they've taken, um, with price transparency and everything to the industry. If UAL and other competitors matched that, it would destroy their whole organizational structure and business model. Um, so there's no way they can match it, but I think there's another interesting thing here and I'm not quite sure.

I'm not quite sure if this is a power or how many other like industries this is applicable to, but I started thinking about vertical integration and in so many industries you see going from the disruption happen when you go from vertical to horizontal, like this is what happened in the PC industry. Um, you know, and, and I started thinking about why, and I think it's often when, if you think about like when computing was vertically integrated in the deck days, it was when you had mainframes and you had pretty few units shipped, like at a very high price for each of them.

That's like when it makes sense to vertically integrate. And then as volumes grow and you get a lot more units shipped and goes up and price goes down, then horizontal integration makes more sense because you can be more nimble. You can define layers of the stack where there's more power versus another, and you can, uh, have more profitability and outsource commodity parts. Um, what's interesting here is that you had this industry structure where you had an extremely small N number of units shipped, like number of rocket launches around the world was extremely small.

And yet you had these because of the way most of it being government business, you had these like horizontally integrated players that were competing within it. SpaceX came in and said like, Oh no, no, no. There's actually like an anti-scale economy here. Uh, we should be vertically integrated. And like, I, I can't think of any other markets that exist like that, where you have like a really small number, but you have this bizarrely horizontalized industry. But it just struck me that like, this was like a major key to how SpaceX, uh, was able to disrupt it.

That's interesting. Cause in some ways I'm trying to think if the analogy holds in the other direction, like Apple has, has Apple vertically integrated the iPhone? They've it's well, they started it vertically integrated. Oh boy. I think there's actually a great tech repost on the fact that this is not vertically integrated, that they, they do make, they make the things that they view as differentiable to tightly couple. So like CPUs, um, the OS. And actually interesting.

They don't make them. They design them. That's true. So they, then they outsource thousands of, right. Right. They have in a lot of ways really outs. I mean, if anything, Apple is kind of like the Detroit on your manufacturer model where like they design it, they make the core engine and then they have a ton of suppliers for all the other parts. Yep. Yep. But they have so much power over those suppliers that they're able to squeeze margins on those.

Yep. Whereas there was nobody squeezing margins in aerospace. Everybody was happy to let their downstream partners have fat margins. Yep. Yep. Yep. Cause again, from the Lockheed's, the Boeing's perspectives, the higher, the total price, the better, the more money they made. Cause they were just getting a straight percentage. Yeah. So interesting. It's funny. I didn't articulate it quite the same way you had, but I tried to write out like the bullet points of the business model, which was like one get paid exorbitant fees, but not as exorbitant as everyone else for every launch.

NASA is willing to pay this because the old world competitors had crazy high cross structures and importantly, no reusability. Hasn't been important yet, but will be. And so what I, I think their gross margin positive on every launch now on the first try, even without reuse, I'm not totally sure, but that's what, what, um, some estimates suggest. So then two is take those profits to fund the development of more reusability and more lower cost systems. Three, make even more margin from doing that and getting paid for those contract launches of satellites, et cetera.

Four, enjoy these fat margins while everyone else is trying to catch up to reusability and trying to vertically integrate or squeeze all their suppliers. And as a data point here, you know, SpaceX charges less than their competitors, but obviously well above their, their cost basis. Um, if they're actually able to harvest all this margin there, they would have been giving away by vertically integrating. Um, the data point is that Falcon nine missions, even to the U S government with, with the additional 30 million in Costco for under a hundred million dollars and ULA is contract.

That was, I can't remember which one, but basically has all of the launches at 400 million. And so like, there's just so much margin in there. So then, then component five, use the funds from these fat margins to fund their own owned and operated businesses like Starlink or like the, the Mars stuff that I think we'll talk about here. Where basically SpaceX themselves will be able to charge for, for those owned assets on an indefinite basis.

Like they're able to like bootstrap the production of rockets using NASA and then bootstrap their, their owned and operated business with all this margin that everyone let them play with. It's like this two-step bootstrap. Yeah. Yeah. It's pretty awesome. Um, a couple of the quick ones I want to hit on, uh, one, um, we've alluded to this. Blue Origin a little bit on this and, um, that's probably another episode for another day, but I just, you know, with different strategies, different approaches, but it strikes me as interesting back to the whole, you know, um, fun analogy I use was mo money, mo problems.

Like Bezos is putting a billion dollars a year into Blue Origin. Bezos is selling a billion dollars in Amazon stock that could be used for funding. For Blue Origin. But, uh, certainly a lot more than a hundred million dollars has gone in, in terms of equity funding into Blue Origin. It's interesting though, like SpaceX in terms of equity funding has raised so much less money. And Elon from the beginning was focused on this is going to be a revenue generating profitable business.

And so on the one hand, you'd think naively like, oh, they have so much fewer resources, but it's, I think it's in many ways, precisely because of that resource constraint and having to build this profitable business that they've figured out how to disrupt the industry. And accomplished so much. And it's just like, that's just such a theme. Like we see all the time in, on this show and in startups, right. Is like, sometimes you think when you're out of the gate, like you see these companies raise tons of money and like think they're going to, you know, clear out the industry and have all the success, but it ends up hurting them because like, they're not forced to, they're not forced to build a real business.

Yeah. I hadn't really thought about it in those terms. And then the last, last one just related to that, you know, man is Elon across, across SpaceX and Tesla. is he just like the living embodiment of you know the nasim taleb uh skin in the game uh you know um actually i'm like this guy like absolutely put his money where his mouth is and you can say many things about elon but um you know he's been quoted on so many occasions saying like if either tesla or spacex goes bankrupt i will personally go bankrupt and that is as it should be and the number of near-death moments they've had and pulled through like if that weren't the case if he were like you know i'll be fine i'll still have my mclaren if this goes back up like would

they have had the fortitude and he had the fortitude to to pull through like i don't know i do think so i think you're reversing the chicken and the egg there but that's why it's a chicken or the egg thing like the way that i would think about this is like um elon's drive to make this thing a success is the reason like it's not any monetary skin in the game he i mean he cares if he goes bankrupt but not really like if he really cared about not going bankrupt then he wouldn't have doubly leveraged himself across two companies so like clearly the thing he cares about is succeeding in this mission and that is what drove him to put all of his money in it's not like he's like locked into

succeeding now because of the fact that he's so invested yeah but he definitely burned the bridges behind him yes yes there's no way for him to uh i mean now there's a way out because there's just he still owns probably 40 something percent of spacex and there's so much equity value there that you know um yeah he he there's there's a way out for tesla purely by by elon getting out of spacex yep at this point and it's such a good business i mean truly like making making 100 100 million bucks a pop if you can do that twice a month um i yeah especially if you can reuse those rockets yeah all right sorry go for it go for your themes yeah yeah now i've got a couple of fun ones so um

i want to talk about a different type of vertical integration um this which is uh uh spacex assembles their rockets horizontally and most other companies assemble their rockets vertically and uh as you can imagine when you lay them on the ground and you build them that way you don't have to take really expensive crazy hydraulic machines and move around you know you don't have to construct a skyscraper around your rocket and this is a i'm i'm using this as an example but it's super illustrative of how spacex problem solved every single component of building their company in a cash constrained environment into finding a more innovative more inexpensive way of doing something and like uh i think elon has this interesting quote where he's like yeah actually

the russians i don't know if it's elon or gwyn but the russians actually manufacture them on the ground most of these u.s companies actually manufacture them vertically but um the the number that gwyn cites is that uh she says uh spacex's rocket factory is 50 cents a square foot and if you vertically integrate your rocket no pun intended um stand it up and and assemble it that way uh space ends up effectively costing you 12 to 18 dollars a square foot because you're you're moving people up and down to build these rockets way the heck up in space and it's it's just like it's just a great illustration of the incredible constraints that spacex was under that no other player that's ever reached the scale that they're at has been under yeah man that's crazy that's such

that's like uh so it's more than an order of magnitude difference in the cost absolutely and like why the f wouldn't you do that then absolutely it's really amazing um the other one that we talked about is sort of new market needs so they they sort of built a this isn't a this is from the elon musk book but um they built a honda accord instead of building the ferrari and everyone else thought only ferraris would would be wanted but it turned out there's an emerging market for accords uh which is unexpected and cool to see and i think will be the the we'll see the innovation compound now that we're having all these cube sets and things like that up there much faster than we saw with um only

shipping a hubble up once a decade yeah well and it turns out even the people who drive ferraris or mclarens um you know uh they don't want to drive those every day right and then at some point you know uh tesla did spacex did exactly the same thing tesla did which is like hey we know how to make accords really cheap so now we're also going to make a really cheap ferrari yeah and uh sorry existing ferrari people but you're also going to want ours i was looking at this the other day what is um the performance model 3 which granted is still a very expensive car it's like a 55 000 60 000 yeah right still way too excited yeah base not gonna buy one but um yeah but but the you know

for call it let's say 60 000 you can get zero to 60 time what it's down like three below three now like oh i don't know something like that yeah for like you used to have to spend a couple hundred thousand to get that you know yep that's a great point all right my last this is my last i think it's my last playbook here is customer diversification so they are not reliant on one customer or even one type of customer they have all these different sectors they have defense so within the government they have defense and they have civil so nasa's resupply and human contracts um but and the defense they have these air force contracts among other things um and then they've got the commercial

business with telecom with media um and so it's it's at this point it's a robust and diversified business that is just that was not true in space largely before now and it's uh um it's it's going to be defensible for them and it's going to help them weather storms in different markets yeah it's interesting well we're going to get to we'll get to this in grading in a minute so i'll hold off but the question is like okay so how big is this market going to get but all right uh yes let's hold for grading uh lastly the thing that i want to point out i think as of may 2019 elon owned 54 of spacex and so they they did just raise something like 550 million since then but like

holy god did that guy hold on to equity in his company he managed to he is elon is a master of many things you know he's the chief engineer he's uh you know he's lots of things he is a master of of raising capital well i mean it's interesting right he didn't raise guy he put his own capital in but then i think what's what's interesting is um so we didn't talk about this in history and facts but after they got the nasa contract and after the successful falcon 9 and dragon after the successful dragon rendezvousing with the iss i think there was a lot of pressure internally from employees for the company to go public because they were like like look we just hit this massive step change in valuation

and like we've been killing ourselves here we want some liquidity um and elon actually wrote a memo an email to the company with the reasons why he thought like they should like going public isn't as good as you think you know and he's lived through all this at tesla um but in the wake of that they started doing these regular um fundraisers but i believe most some of the capital may even primary but i believe most of it was secondary for employee to buy out the employees interesting liquidity and i think elon was pretty outspoken about this said like this is like i'm gonna do this this is gonna be a much better solution for spacex we won't have to be a public company we can get employee liquidity

we've got this massive long-term vision of getting to mars like um right yeah so i i actually don't think that the money was raised for the company mostly interesting well that that speaks even uh better to the profile of the business than that you know they've been able to to fund with at least uh gross margin profit dollars rather than funding the business with uh with all new equity capital um yeah i don't think spacex is a profitable business but i do think they're profitable on a unit basis well and uh i believe gwen has said they have they have operated profitably in certain years huh wow i mean i'm sure they're not now now that all the r&d is happening in uh both starlink well i mean

first of all they lose money every time they launch a start do a starlink launch because that could have made them 90 million bucks from someone else and they've estimated it's going to take 10 billion dollars in capital to get that all whoa built it up crazy and then the other thing they're they're spending tons of money on is the r&d for the the starship yep so um but yeah interesting that those are mostly secondaries all right uh value creation and value capture so i'm going to be very brief on this this is a two-part segment that we usually do the first part covering um of all the value that they created in the world did they do an effective job of capturing it uh people who do a good job of this

are google people who do a bad job of this are craigslist um and then the second piece you know did they actually do value creation in the world uh at all or did they maybe either destroy value like we've talked about on many episodes with softbank backed companies um or did they uh perhaps just shift value from one person's pockets to another person's pockets i think it's just like an absolute no-brainer that it was new value creation in the world enabling new markets accelerating markets uh and they're doing a bang-up job capturing value from it yeah totally a little a little opaque because they're a private company to know on part one but it seems like yes but oh my god if there were ever a no-brainer on part two like you said on this show like

there is no reasonable argument i mean i'm sure there's some arguments but like to my mind there's no reasonable argument to be made that like spacex did not like having it exist is not good for the world you know right all right listeners now is a great time to talk about one of our favorite companies statzig yes long time acquired partner there is a reason why the best product teams at companies like open ai and notion atlassian figma rippling bricks and more rely on statzig whether they are iterating on their core product features or shipping ai-powered experiences at scale yep in the crazy speed of today's ai world shipping fast is just table stakes now it's basically trivial to build and deploy your app constantly the real

advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next whether it's a feature tweak a pricing change a performance improvement or an ai update like a model change or prompt adjustment they're not relying on instinct they're measuring what actually moved engagement retention and ultimately revenue and as more teams build with ai that learning loop becomes even more important building with llms introduces non-determinism into your product experience the same input doesn't always produce the same output and behavior can shift in subtle ways in real world use so doing offline evals will give you part of the picture but you can really only understand the impact once your product is live with real users and then you

can measure how their behavior actually changes it's very different than the way that you would ship features in a pre-ai world where you knew exactly what the software was going to do in production yeah exactly so this is where stats it comes in it brings experimentation feature flags and product analytics into one unified system so teams can ship safely test rigorously and directly link what they changed to how users actually behaved the result is a tighter feedback loop and learning that compounds over time so you don't just ship more you ship better so if you want to make learning your competitive advantage whether you're building new ai experiences or just evolving your existing core product go to statsig.com acquired to get started all right grading so there's never been a transaction which is

normally what we would grade if you're new to the show the way this section works is big company buys little company we grade in hindsight how good of a use of capital was it for big company to buy a little company was it as good as instagram or as bad as aol uh and um you know issue a letter grade the way that we do that in this world where there hasn't been a transaction yet is talk about what would an a plus b or uh you know what would an f be and maybe what would a c look like um and in this case because i don't think we're talking about it ipoing or you know somebody um buying them i think

we're basically just going to talk about what does a an end state look like for this company in each of these um in each of these scenarios and uh david you asked the question earlier which i wish i could reach through zoom and and slap you for which is well really help come on how big is the market and then it's called foreshadowing like sure we could talk about a market for how many of the people without broadband would pay for broadband um and sure we could talk about both the commercial and the government markets for launching satellites but how big is the entire mars economy going to be in 2300 you know like there there is some future where the what we're talking about here is the gdp of mars and the gdp of mars with a productive capacity

of a million people on it and i know i sound like a nut job for throwing that out but like that is elon musk's a plus case here is like that's the whole goal of this thing yeah yeah well so okay is that do you want to say more do you want me to jump in i'm painting that's the a plus here like it is nothing shy of we figure out a multi-step process to get people to mars reliably cheaply safely and build a society and economy there yep well now the interesting thing though is so usually when we do this it's so funny with spacex the usual rules don't apply we we provide a um a time frame a time

horizon of like five years that's fair so the interesting thing about spacex versus i think a lot of other new age space companies not all of them by any means but certainly there have been many new age space companies in the past several years that have had a similar a plus case of like something like the mars economy or like um you know planetary resources right now like we're you know gas stations in space uh mining mining asteroids um the problem with those companies was it was it was a it was a binary yeah we get to that a plus in some far future state there's nothing along the way what's amazing that elon and spacex have done is they've stair-stepped up to it it's

like oh well okay first we're going to become a you know um uh we're gonna build rockets and then we're gonna become essentially a space shipping company well and then we're gonna be a satellite company and uh provide internet uh satellite broadband well then we're gonna spin off the boring company because actually if we're gonna be on mars like we need tunnels to live on mars so we're gonna need that anyway and actually that's useful on earth okay then we're gonna supply the iss and we're gonna do uh uh we're gonna do um the dragon program with nasa and it's like every step along that like you can hit an a plus in each kind of five-year time horizon yeah that's a fair point i also

shouldn't have said 2300 i said that because i couldn't think of the timeline is to actually get a million people up there but like it's much sooner but yeah you're right like the the there are there are potentially incremental a pluses i don't know what the the i actually should know this but don't what the goal of starlink is is how much internet do we intend to provide to how many people and at what price like there's some there's some um business case for like uh just operating starlink is a really good business to be in and might be a 30 billion dollar enterprise value thing on its own i don't know if that's true i suspect it's not but well we we what they might be i mean it might be

more we know that they expect to put 10 billion dollars worth of capex into it um both from that's capex funded by cash flow from other projects within spacex they have raised a lot of the primary capital that they've raised recently has been four starlink um so i don't know i mean like would you would it be reasonable to put 10 billion dollars of capex into something if you didn't think you could generate 30 plus billion in in revenue out of it yeah that's a good point i haven't seen the pitch deck but i'm sure it says something like that yeah uh not to mention you know they'll they'll continue to um they'll continue to sort of pull away i think in the launch market um and and uh um

i mean falcon 9 is just a workhorse and a and a and an amazing business of of doing these launches and so for the next three four years until they really have uh starship humming um if they can actually take up to a month there's there's uh you know they'll do what is what's uh 60 million times um times 24 is uh 1.4 billion a year in revenue just from the um the falcon 9 launches so i don't i don't know what kind of multiple you want to apply to that or if we should figure out actually what the ebitda margin is and do it that way but um yeah it's good business all right should we move to the uh

f case f yeah i mean there's some f cases that i i don't want to say so i'm not going to um uh but one would be that factors outside of uh spacex's control uh cause more than one launch uh to to go poorly or in fact an important launch to go poorly uh and and basically make it so that they don't get orders anymore um this business is incredibly brand dependent in a way that uh um other businesses that are not this high risk are not and uh i think it would be very uh their revenue could go to zero much more easily than than other businesses because of that risk factor yeah it's interesting though i mean at the same time that risk well because a private company has

never really been doing this kind of stuff before but that risk factor has always existed in this industry like this is a dangerous industry um and in fact there have been terrible you know accidents in the history um you know of of the industry made by governments um yeah but we i mean we canceled the shuttle program right but was that that wasn't because of um the columbia was it i don't know for sure feels like a compounding factor though that it was both expensive and unsafe yeah yeah for sure well hopefully we don't uh face that particular case but but it's a good point i mean like you know as elon makes the point and we've made the point several times on this episode typically this stuff

is the domain of countries not companies um and so there might be all sorts of unforeseen factors that pop up here totally yeah you could have governmental problems i mean you could have problems where uh foreign governments aren't able to do business with american companies i mean the risk factors that would go on this company's x1 are just at such a bigger scale than you would ever see in in most uh for most companies yeah well so here's one i mean i guess this is a sort of a um f scenario well i think kind of is an interesting lens through which to look through grading here which is if they're ultimately successful in everything that they're talking about here

and they get a million people to mars what is what does that actually mean like there's a lot of questions they're gonna have to get figured out like is spacex like the government of mars like i was wondering like is this a company or is this a country or is this like we're starting to sound like pretty uh pretty sci-fi uh dystopian future here i mean like if columbus makes it to the u.s does the dutch east india company own north america or does like columbus the spanish government you know it's a good question yeah um over time whoever has the army that's able to conquer it probably owns it yeah i mean just looking at history as a as a guide

yeah um i mean again this sounds sort of crazy but i you know elon talks about this that this is sort of um he hopes the same type of analogy with mars is like you know it's been 300 plus years since there was a new world um you know if this happens there will be a new world and like well who owns that world yeah if you've thought about this question or you know the answer to this question um please reach out join us in the in the acquired slack acquired.fm slash slack or email us at acquiredfm at gmail.com um this goes with everything else in the episode too i'm sure there's lots of people here who are more sort of aerospace native than we are and and certainly lots of sci-fi geeks so

um yeah i think we'd love to to think more about this with uh with folks yeah i suspect this won't be our last uh space facts episode too yeah or space episode broadly yeah totally all right carve outs let's do it it's been a while since we've had a carve out yeah so much good stuff been going on uh i think among much great content i've been consuming during quarantine from books to both fiction and non-fiction to um uh podcasts to uh um to tv shows to movies i think the last dance takes the cake for me i wrapped it up earlier this week have you finished it yet i haven't yet oh it's so good so good just like especially like you know growing up watching you know i remember being a kid and watching a lot of

those games on tv um especially the 98 run uh for the bulls uh and then like just getting this super deep behind the scenes you know look at all of it and the portrait not just of jordan but of everybody on that team um so so great i enjoyed every single second of it i want episode three i'm i'm i already all the best parts are spoiled because i saw all the memes but i am still looking forward to finishing the memes are just the isaiah thomas meme that i met all the i met all the criteria i don't know why yeah why wasn't was not selected so great that's right so good um mine uh mine is i i think there's some chance that

this may have already been a carve out because i've recommended this so many times to different people but as a five-year-old talk by michael malbison um this one at google uh for his i think book tour or at least just discussing the book untangling skill and luck the success equation and it is one of the best hours you could spend with your time where he lays out games of skill and games of luck and every or most things are both and understanding where a lot of the different sports that you love or games that you love are on that continuum and also thinking about competitions in your life of what's more skill based and what's more luck based and doing this

really analytical and theoretical analysis of it that is just a privilege to watch because he uncovers weird paradoxes like this one the more skill and activity requires the more luck will play a role in the outcome yeah what's that the the paradox of skill right it's good yeah and it's so interesting and like if you're interested in if you're a sports fan uh or if you're an investor or if you compete in anything at the highest level um it is wildly clarifying to watch this and and uh and understand sort of um what game you're in and i i can't recommend it enough so good and uh you wrote a book uh about this right um same title yeah and with the same title and um yeah i think it was i should go back and

reread that or at least re-watch the video i remember it being fantastic it's awesome it's awesome um well before before our usual sort of wrap up here uh we have one more um kind of fun announcement uh and uh that is that david and i are going to be speaking at an aerospace industry conference in november called ascend uh that's uh uh something that um you know obviously based on both of us getting to go deep on the research here uh i'd call ourselves um aerospace novices but uh but curious and and uh love diving into this stuff um and uh and we were fortunate enough to to get to attend and um and do some talks uh at ascend and so if if you're like us where this stuff is interesting

to you or you think space may be the future or you're interested in getting um um getting into a space adjacent industry ascend uh should be a great event um hopefully we'll get to do it in person but um folks should check it out and uh we'll put a link in the show notes if if that uh tickles your fancy yeah i can't wait for it really hope it'll be in person to be such a great um you know in many ways i think this time has uh for us it acquired us personally um and for many of our listeners too you know forced us to grow and obviously adapt but uh you know folks may know we we used to do all of our episodes uh with guests in person we would fly to go see our guests and

obviously we haven't been doing that now but uh which is on the one hand been great but on the other hand you know i miss it and it'd just be great to to hope that happens in person be there together and um and just have our community together yeah for sure well one i mean one talk i'm really excited for is uh jim uh bridenstein who's uh nasa's administrator who was sort of overseeing um everything about what's what's going to be happening this week um he'll be speaking there and it's a lot of uh you know it's it's uh as sort of high up as the um the sort of folks go in in the aerospace industry and uh you know one one other person who i'm sure will be a fascinating one to hear is the

the um president and ceo of ula is uh is going to be there and so for all the shade i just threw i think it'll be really interesting to hear how they're they're sort of navigating um you know spacex and other competitive threats seriously all right that's ascend check it out ascend.events uh if you aren't subscribed and you're new to the show and you like what you hear you totally should you can subscribe to us in any uh any podcast client or we are now sending out new episodes via email and so you can subscribe to that on our website at acquired.fm either in the footer or in the the top right hand corner there um and uh and that way we can we can shoot you a

note when we post something new um if you want to become a limited partner subscribing gets you access to our bonus show and uh as mentioned the lp calls where we get to interact with all of you which will be super fun and uh to listen you can click the link in the show notes or go to glow.fm slash acquired and all new listeners get a seven day free trial um if you just want to hang out and uh and chat you should join the slack we've got over 4 000 people in there talking about uh different topics of company building news of the day acquisitions um and discussing previous episodes so i'm sure we'll be uh chatting in there uh after we drop this episode with that we will see you next time

see you next time you