Acquired - SpaceX

0:00Dude, you gotta get on Starlink. I know, I know. Can't wait. Fix up this latency in a heartbeat. Seriously. Welcome to season six, episode seven 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.

0:31Today, 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 space-faring 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 US since then?

0:58So 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 that it has mishaps. And there's plans for stuff that's coming next, but there wasn't.

1:24There was no date, there was no plan, there was no mission. And so now here we are, almost a full ten 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. 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. And of course, he has a plan, many would argue a credible plan of getting a million human beings to live on Mars.

2:18Until 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. Well, a few announcements before we get into it. If you love acquired and you want more, you can become an acquired limited partner.

2:58Our 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?

3:25So, if you want to join, you can get access by clicking the link in the show notes or going to glow.fm slash acquired and all subscriptions come with a seven day free trial. And also come with access to our monthly LP calls that we've started doing, which I don't know about you, Ben, but they are super fun. Super fun. We've had a lot of awesome LPs joining us. Super great chat and just like an amazing reminder of the incredible people that listen to this show and our LPs.

3:54I can't wait for the next one. Great way to get to know so many of you. All right listeners. Now is a great time to talk about a new partner of ours here on Acquired. LaGora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, What if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review where you.

4:47drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagores Bed here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

5:07And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves when they have a head-to-head pilot with their top competitor they win 70% of the time LaGora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries and crazily they went from one million to a hundred million in ARR in about 18 months truly insane numbers and that is the real test

5:59Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time 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 logora.com slash acquired and just tell them that Ben and David sent you. And now David, over to you, to take us into 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 of 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

6:58him 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 to know about it. He wanted to come to the US. He thought America was the land of opportunity and 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.

7:47Lansing 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. 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 there's only two companies.

8:16This is x.com, and then, I'm sorry, before this, this is zip two, and then x.com, which merged in to become PayPal. Yep. First company, zip two, got asked to the CEO. Second company, x.com, his employee 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 would become PayPal. Then the board removed him again.

8:45So 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 outstead for the final time from the newly merged PayPal that he's had enough.

9:10He's 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 zip to sale earnings and a large amount of that from his equity in PayPal and a silver McLaren.

9:29F1 oh by the way we didn't talk about this in the Tesla episode did you know Ben that he and Peter Tiel were driving said McLaren F1 up Sandhill 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 totalling it being an amazing stroke of faith 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 it's like almost to they got 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 gonna?

10:24title of biography like that. And Ashley writes to take this into SpaceX now, and so the state actually writes about what is going on with SpaceX. He says with SpaceX, Musk is battling the giants of the US military industrial complex, including Lockheed Martin and Boeing. He's also battling nations.

10:47Most notably, Russia and China. And then shortly after his 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 like 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 You're referring to Jeff Bezos? I'm referring to the litany of people who have started a rocket company bought one rocket crashed it and give it 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 it's interesting. You almost always it's it's well

11:40Always it's men that do this is like little boys grow enough want to be astronauts make a bunch of money then decide to go Create some spaceships as they toys and that's what everybody thought Elon was doing here And 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 his primarily headquartered in Los Angeles area. And so he's going to move there. He's going to make connections and he's going to figure out 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

12:34Peter and Max and all the PayPal Mafia and Rulof. 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.

12:56is 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, okay, man, this guy has gone off his rocker. Yeah, and he's not sort of hiring someone to go do this forum and saying, put my name on it.

13:26I'm gonna 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 engineer. Yeah, like I think I've heard the NASA direct to refer to him as chief engineer of SpaceX Elon Musk like he was a sponge like a 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

14:15Online payments were sort of this brief exit from the highway before he got back on to go and 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 LA 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 in 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

15:08the Mars Society, this is their charter. So he makes $100,000 donation to the Mars Society. He joins the board and he starts meeting all of these aerospace people in LA. And not just in LA, of course, back up in Silicon Valley, there's NASA's Jet Propulsion Lab in Mountain View. And so Elon, he's mostly down in LA, 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 LA and Palo Alto. And he's just kind of like there's no agenda, but 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.

16:06and the idea behind a Mars Oasis is that they're gonna buy a rocket and they're gonna put a plant on it. And they're also gonna put a robot on it and they're gonna 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...

16:33The 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 they 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 moon that this would be a live video feed of a plant growing on Mars and we beam it back over the internet onto a comm site and Spire the people of the world to explore space with this Love it

17:33Love it. Sounds great. So the purpose being inspiration, a little bit of a philanthropy stunt. Maybe even some kind of performance art project. Not to foreshadow what's going on in Elon's life today. But yeah, that's kind of the idea. There's one problem, though. And nobody in the group in the salon group is really willing to tell Elon. 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 Zip 2. His first company'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 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.

18:32Right. He could he will end up being with $200 million 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 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, $300 million. So Musk though, he's very 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 a 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 days in Russia at this point to 2001.

19:31Yeah, we're now in 2001 and Musk's idea is he's gonna go over there and he's gonna buy an intercontinental ballistic missile. Because the Soviet Union has disintegrated, 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 a. That's right. Didn't he have some sort of like shady, not shady, but a connection like 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 US through more appropriate channels, like if you could actually get your hands on one, I think it's something like $65 million. Like 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.

20:28into a rocket. This is like, you know, cue the James Bond villain theme. So he goes over there. 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 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.

21:24This 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 Musk asks 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 Okay, 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, he's used to dealing with the Russians here Just like 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

22:15pretty empty these days. Coronavirus is going to have a very private meeting. So, Cancel runs out of conference room in the Delta lounge at the Salt Lake City Airport. And they mean they end up hitting it off. And Cancel's like, oh, okay, like, I mean, this guy's something, but he's not totally crazy. And so, he says, he agrees, he says, okay, I'll go back to Russia with you. And I think I can help you buy a rocket.

22:41So at this point, Elon's friends all basically try and stage an intervention. They create like a compilation video of rockets blowing up. 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 Reci, who started the fund.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 keep tabs on Elon.

23:10So the three of them, Cantrell, Elon, Ressie, 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 gonna name Mike Griffin, who they get introduced to. I was able to see it. Mike Griffin wins. Ben's face right now. We'll come back to Mike Griffin later in the episode. My God, I have Mike Griffin.

23:36Listeners 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 gonna be a thing like just wait just wait listeners. There's gonna 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 to see how one would go about buying an ICBM from Russia. Yeah, I mean, they 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 Incutel, 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.

24:31So, you know, who knows why Mike was coming with them? You know, again, he's coming from the government. He's coming from a keep-tab. Maybe he's keeping tabs on everything that's going on here. So, he comes along and...

24:41It basically goes as you would expect listeners. They meet with much 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 red flags off there for everybody just in the get-go there. And then you know the 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

25:39get 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.

25:49Yeah, 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 bad kashats, 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. But this is the last group to be with. I think has either two or three rockets. He offers them eight million for, for the two of them. And they're like, yeah, how about eight million?

26:18each 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 awful 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 recap dollars real quick just so everyone has a because dollars are going to be an important thread through this.

26:52Through this whole story, not just because this is an expensive endeavor, but because 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 which didn't happen yet. So he's got 20 million total now, but you know, he'll eventually have 170 million and so that number that I quoted, buying a rocket like this from a US company that manufactured, it's like $65 million. So, you know, he's trying to buy him for $8 million for two of them in Russia. So 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 that would have been what it cost him. And he couldn't, you know, even if you were willing to put all his money into this, he couldn't do the $65 million launch, because that's just the launch, like, you know, then you gotta, like,

27:51Get the stuff there, you got to build the robot, you got to set up all this stuff. I'm sorry, that's 65 million that I'm quoting you 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 a rocket. 2001. Yeah, who can you just go and say, hey, I want to, yeah. Well, imagine if there were a company that did that.

28:20And 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 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.

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30:23So okay, so back to February, 2002 in Moscow. They leave the meeting this this motley crew they get on the airplane and They you know head back to to the US on the plane and Control talks about this he says Whenever you get on a plane in Moscow, particularly in February, heading back 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, they're veterans here. They call over the drink cart and they start celebrating, getting out. Meanwhile, Elon's sitting in front of them and he's just like furiously typing away on his laptop silent. They can't figure out what's going on.

31:11I'm about halfway through the flight. He turns 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 out of his, it must have been Excel. Like Google sheets didn't exist at this point. He's got this Excel doc. And it's like a hyper detailed.

31:38spec she 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 so 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 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, Hughes of course being Howard Hughes back in the day speaking of billionaires who started rocket companies indeed 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 most impressive

32:36rocket engine engineer in the world. And Musk had gotten in touch with him and met him and started asking him all these questions about how rocket engines work and what needs to go into building a rocket. And he'd helped him put together the spreadsheet. So it was pretty damn good. So they get back to the US and then basically a whole chain of events gets kicked off that ends up in SpaceX and tomorrow an American company launching people into space. Yeah, another 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.

33:1620 or 30 different sources that are in the show notes where you can go and read more about this. I want to say this was originally from a SpaceX engineer, but 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 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 you've heard you hear about anything in this industry, contracts awarded, cost of a mission, NASA's budget, which by the way, in the last 20 years has gone from about 1% of our federal budget down to about half a percent. It was as high as 5% in 1969 at the high of the space race. So it's just interesting to think about that. The question of the US government budget.

34:13By the way, that's correct. That's something the entire federal government. Yes. But so it's immensely expensive, almost to the point where it's you can't even discern between the millions and the billions. And 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 you're not gonna get it all the way down to 2% of what that rocket costs, but 2% being sort of like the hard materials, I'm not someone who's in an industrial's job, but I have to imagine that in most manufacturing businesses, the actual hard materials are much more than 2% of the final sticker price of whatever balls off the line. Yeah, the bomb versus the MSRP. Totally, and this is Elon.

35:10Elon studied physics and under your ad in addition to business. He is a physicist and this is the question. He asks himself, he's like, 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. And so this is what he's putting together in spreadsheet. So they touch down back in the US and basically at the same time, PayPal finally goes public. And right after, so even They were the first, we talked about this with rule off in our adapting episode with with real off at Sequoia who was at the time the CFO PayPal. They broke, you know, they were the one bright spot in the, in the dot com, you know, the Russian, Russian like dot 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

36:08gesture. This isn't just an inspirational thing I want to do. I can actually disrupt this industry. I want to build a company. I can take all of this cost blow that's happened in this industry, use my spreadsheet, use my connections, and do this for real. So he gathers up. They walk up the plane, he gets Cantrell, he gets Griffin, he gets Muller, the literal of the rocket scientist, and again, name Chris Thompson, who is an aerospace engineer at Boeing.

36:36And he says, let's do this. Let's start a company. Non-profit is dead. I'm going to start this. I'm going to fund this all myself. Paper, I was a liquid public currency. The lock up 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 Stravel and gotten introduced to the electric car scene. So at this point, he's he's thinking all in.

37:06The one person who everybody's in except for for Mike Griffin. He lives on these coast. You know, he's the former Inky-Tel 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 do this. And that ends up being a very good thing for Spaces X that he did not do that as we will see.

37:32I'm like learning in real time for you on this episode. I had it's a very good thing for SpaceX that. Very good thing for SpaceX and the world that he did not do that. Everyone else, though, is in. Cantrell's 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.

38:00stock currency. He has $180 million plus in straight up cash that 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.

38:25I'm putting my entire fortune into this. I will fund it all myself. Yep. It's mine. And the super interesting thing is, you know, Ben, we were talking about this, we were texting about this all told over the life of SpaceX. I think Elon has only put in about $100 million into the company versus Bezos at Blue Origin puts in a billion dollars a year. And so many other people that have entered into the space industry.

38:52Just become money pets. That's a good. Let's plant that seed 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 what 35 billion dollar valuation today and has over three billion dollars invested in it. Yeah. From not much of which is secondary. Yeah. Oh, interesting. Good point. Yeah. I think much of which is secondary.

39:18Okay. Well, the point I want to drive home here is 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 going to freaking Mars. We're figuring this Mars thing out, and we're going to start by lighten a one engine candle on fire, and we're going to figure out how to take baby steps here. So, that part is figured out.

39:47The 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 run 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 may well one day run a business on that.

40:17And 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 missing puzzle piece that sort of comes along that lobbies for SpaceX to do that is not yet in place yet. Yeah. Well, so the business plan for this new company, and again, he was very insistent. This is now a company.

40:46is that he's seen all this cosplay 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 gonna 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 rest of the stuff together. Him work with contractors. 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.

41:37Yeah, yeah, horizontally integrated company. Yeah, exactly. Exactly. So the plan is this is what they're gonna do. They're gonna build the engine and they're gonna start launching in September of 2003. It is now July 2001. Yeah, that's that was some wish for you on the classic classic. Yeah, classic. May have been the first the beginning of the longtime line because in software, you know, you can ship that fast.

42:06little harder and hardware. We should also say like there's a 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 build 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 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 gonna name this first rocket the Falcon 1 after the Millennium Falcon, of course. And since the rocket is named Falcon and the key is the engine, they're gonna name the engine Merlin, which is a type of

43:06a 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, which powered all of the, most of the British air fleet during World War II and the Battle of Britain and was like storied for being its power and reliability and, you know, helping The Allies win the war. That threw me for an SEO loop because I was I was searching for information on the Merlin and 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.

44:02Okay, so they get to work building the Falcon and the Merlin and working with all of these, you know, the network of contractors and suppliers being, you know, horizontal, horizontally integrated company. And they pretty quickly find that it's not just Boeing and Lockheed and everybody who is subject to cost-blowed and time-blowed.

44:23projects scope bloat in this industry. It's all the contractors all the way down. So Elon starts asking questions that 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 a crazy recursive loop where yeah, it's everything. So Elon, of course, starts asking questions and people in this industry aren't really used Questions being asked of them and he starts figuring out that some of these components whether it's you know 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

45:10either in-house, fab them in-house, or use off the shelf consumer grade electronics and computers for 1% or less of the cost that these contracts are quoting them. So he says, all right, screw it. We're not just like Tesla. We're not going to take the Detroit approach to this. We're going to vertically integrate. We're going to make 90% plus of this rocket in our own factories.

45:38which is wild. I mean, the SpaceX sort of coily talks about how raw material rolls in one side of the factory and rockets roll out the other side. And they almost like talk about it. Well, minerals show up on the left side and rockets, it's not quite that. They do have a network of suppliers. I think the number is 3,000 suppliers and 1,100 that supply them product every week. But the way to think about it is those suppliers are just sort of like way lower level, like they're more the raw material, you know, think about sheet metal and wiring rather than fully assembled, you know, motherboards and, you know, fuselages. This is like, it's kind of a crazy undertaking because really in business, the theory is only take your core competency in-house and outsource everything else, outsource everything they can be commodity, but

46:33there 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 margin margin margin and as a Someone who we will talk about here shortly brings up 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, let's think about who the end customers were in the space market

47:30Mostly, you know, pre-SpaceX, well, even now post-SpaceX. They're governments, you know, primarily the US 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...

47:50Ever as an investor or an operator encounter a situation where there is a cost plus contract as a way of doing business You need to either if you're an entrepreneur disrupt them as soon as possible over your investor Run the other way because with a cost plus literally it's you get a There's the cost of what it cost 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, that's a great point, David. And I think, you know, it's ambitious, but it still seems silly that this is a company that is both best in class at, you know, creating motherboards.

48:43For this purpose and best-in-class at writing software and best-in-class at creating rocket engines or you know top three in-class or creating rocket engines It's like an insane and I'm operating those rockets and 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 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, you know, highly rapidly growing markets, and all the folks...

49:35that he 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 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. You know, and where, whereas it was just governments and big satellite companies that were launching big stuff into space. There's gonna be small sats and cube sats and now like everybody, there's gonna be this massive opening of the market. Kind of like there was with PCs and cell phones and that's who SpaceX is gonna 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 a few billion smartphones out there and we can massively bring down the cost of

50:33the really innovative stuff that goes into creating something that fits between your hands outstretched. Yeah, and it really amazed me doing the research. We've all heard this story about space and small satellites in recent years with the venture funding in the space, but this was the story even back in 2002, 2003. That's true. That's a fair point. This is five years before the iPhone, and eight, nine years before smartphones had scale.

51:02people 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. The big market there. And so at this point, SpaceX makes a critical, critical hire. The venue we were all leading to earlier. A woman named Gwen shot well. And Gwen is just an incredible force in nature in every dimension. Today, she is the president and CEO of SpaceX and runs most of SpaceX at the time. It 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, which she had in Elon's world is a good thing. And

51:52So Gwen started in the automotive industry, earlier in her career, but then moved into the space industry and she says, wait a minute, guys. So everything around the company was architected to sell to this emerging market of small satellites. 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.

52:20She said, I think it's like 70 feet tall. Does that sound right? It's like, it's not. Call exactly. When you think about walking up to a rocket and marveling at sort of this, this skyscraper struck like that's not what the Falcon 1 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.

52:40I mean, compared to like a Saturn V or something, like this is just a little bean chute. And so Gwen says, you know, yeah, like let's go pursue, you know, try and sell to these small seconds. 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, 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 rockets and these launch operations that they need. 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 Gwen importantly spent a decade at

53:36at 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, flowed it around, knew like what the different total addressable markets were. Like, I think Elon probably didn't have a pie chart on his computer of sort of like segments in the TAM for sending stuff to space. Like, Gwyn lived in that pie chart and She was the second tab at the model. Yes. And when we were alluding earlier to, of course, my comment on Gwen with the sort of benefits of and cost savings of vertical integration, but also to the sort of dual business model 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.

54:32Yeah, like proof of concept of the Falcon 1. 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. But the engineers are like, what are we doing? This is crazy. This is like just showmanship, but it works. They get the attention of DC. That's crazy. And I think I remember two is something like it's a more shiny, nice, idealized rocket than the one they were actually designing.

55:00But it had the space. I still go on it. Yep, so meanwhile the Tom and the team are working away at building the Maryland and the rocket and of course the original Well, so the original 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 to player as the first customer, but the Department of Defense has a, they're starting to experiment with launching smaller satellites. And so they want to say, they say, like, okay, we'll take a flyer on you guys. We'll put up a small satellite. You've never set a rocket to space. Like, let's take our satellite and we'll put that right there in the nose cone in the fairing of your, of your, of your, of your rockets. So, so they do, um, they believe they're going to launch out of Vandenberg Air Force Base, uh, just North LA in California.

55:54But typical bureaucratic red tape also because there's some competitors that may or may not also have some launches going on at Bandaburg at the time may have forced them out. They have to go find another site so they scour the world. They find an abandoned, not abandoned but a not currently used space in the Pacific Ocean between Hawaii and Guam and the co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-co-

56:46If you work for SpaceX at this time and you have to go out there, here's how you do it. So, you take a five-hour flight from LAX to Hawaii, you stay overnight, you catch the 7AM flight to the Marshall Islands, which of course makes several stops and then the...

57:00that area of the Pacific because you don't just have a every day 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. Also sadly, a place where we tested lots of weapons 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 Olamic Islands. 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 do your job, which is top.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. They

57:57Initially, I 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 1. 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, you know, experimental small set. And it's fairing. It has its payload.

58:27that gets blown out of the racket ends up falling through the roof of the building of the launch facility there. Mostly ends up surviving. I realize that. Yeah, a lot of the racket ends up getting blown into the ocean, but Elon notes in his postmortem from the event.

58:47It is perhaps worth noting that 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.

59:09into the flight. The first stage of the rocket had separated the Merlin engine, did its job fantastically. The second stage kicks in the Kestrel, the smaller Kestrel engine, and that's going to take the rocket and the payload up into orbit. Everybody's cheering, high-fiving. Then, as it says, actually says in the book, it starts to wiggle. I can also imagine this must have been so demoralizing.

59:38So, two things I want to point out here. One is, and I remember 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 do your best, but you don't...

1:00:03What 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 it was either the fuel or some kind of fuel and was like sloshing around causing it to spin or causing it to spin. It was that everything functioned perfectly as it was going up because the fuel tank was mostly full.

1:00:31But then when it got to the second stage in the fuel tank was getting down towards empty, and there was all this empty space in there, it started sloshing around in the body of the rocket, and that started wiggling and moving around in a circle, and then eventually, it sloshed so much that there was an air bubble, and the air bubble got into the engine and it exploded, up almost into orbit.

1:00:57God, that just must have been so demoralizing. Especially after just having the last year, yeah. Whole year. Yeah, I think this is a good place to just do all systems go on our terminology here. Because listeners, as you know, David and I, neither of us are in the aerospace, but I'd say no enough to be dangerous here. So it's worth just articulating some of the terminology we're using and what are these rockets. So the things that's the big main body of the rocket.

1:01:28I'm going to work my way out from the bottom is called the first stage. And this is where all that liquid fuel is that gets it up, not all the way to orbit, maybe all the way to orbit. It basically gets it off the ground. It gets it through the thick atmosphere of the close to the Earth, and it sets it off on its more horizontal journey to start orbiting. And of course, the engines are sort of the...

1:01:54attached to that or in this case in the Falcon 1, 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. Nowadays, it can land than it couldn't and, you know, splashes down. Just casually dropped that. Yeah. Nowadays, it can land. Doesn't it feel barbaric? Like Okay, I was thinking about this the other day. Some of SpaceX's competitors have rockets that the first stage, when they come down, they splash down into the ocean and they're useless. Doesn't that feel barbaric? Like, it was mirrors 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.

1:02:41It'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. Yeah, it feels like I just like finished a La Croix and then threw it directly in a trash can. It's like the, you know that scene in, in Mad Man, I think it's in the first season maybe, where...

1:03:00the draper family is out on a picnic in a park and they just yes and they just dump all the trash dump all then they pick up the blanket and just kind of shake it and all of it just gets fed and they just walk off like happy family I take it back this is like finishing your now gene water bottle and then throwing it in the trash it's like it's amazing how your perspective changes but anyway 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, this is the part that does something out in space. This has another engine on it. David, you mentioned the Kestrel engine. That's the smaller engine that's sort of better for little maneuverability out in space because these Merlin and then later the, what's the current, remind me the Raptor.

1:03:44Yeah, 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- Big freaking baseball bat. Yeah, yeah, it's the Falcon Punch. And so you've got this, you know, smaller stage that has a single, you know, smaller engine on it.

1:04:04That'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 a payload that is contained within, I think the right way to say it is within a fairing, maybe within fairings, but basically the fairing splits into two, 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.

1:04:28The other configuration is that it could have a capsule on there. That would be a spacecraft that, you know, humans could operate one day, who knows. And so that's sort of 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 at least in SpaceX's case because it's a relatively straightforward design.

1:04:55It's good to just sort of keep 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 and then right at the last minute, it failed. So they're under turret. Classic Elon fashion. He says, not only are we go for number three, we're go for So this is the Falcon 1, which was both the first and one engine, one Merlin engine. They had been Tom Muller's genius. He and Elon had been thinking about, this isn't just one, this is a modular system. And you could have multiple of these engines put together.

1:05:43and build bigger rockets with the same engines. And so the idea initially was they were going to have the Falcon 1 and then the Falcon 5, which was going to have five railing engines and then the Falcon 9 with nine railing engines. Elon says, not only are we undeterred by the second failure, we're going to go full steam ahead with trial number three, try number three with the Falcon 1. I'm killing the Falcon 5 to green light the Falcon 9.

1:06:09All systems go development on that while we haven't even launched the Falcon 1. Now there was a big reason away. He did that, which we've been building after the whole episode. But when we add eight more in an octo web around that engine, it will really work. It will really work. And to be fair, the first stage did work. So that second launch was a success by some measure, although they never could have delivered whatever payload wasn't on the second stage and going into space. Yep.

1:06:37So, the third try again takes them a year to the summer of 2008 when they are finally ready to give the third try at the Falcon 1 launch from the island to go. The first attempt on August 2nd, 2008, they have to abort the launch of T-0 seconds, but 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 before the first stage is even finished. Elon only has so much money. I know. I know. It's just like, it's crazy. So Elon is what put, so we said a total of 100 million into SpaceX. I think he said at some point that that was enough.

1:07:28for three or four, and I'm quoting the weight, but why he's for two urban here, which is great, which is three or four launches. Right. But that's cool because, you know, hey, like, like, he's deep into this. He said, they're going to do this hell or high water. He's put 100 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. This is summer of 2008. One, Elon has now, summer of 2018, he takes over his CEO of Tesla and he's pumped almost all of the rest of his money into Tesla. 70 million. 70 million. And two, even brothers, he's about to collapse and the world is about the financial world is about to go nuts. So good luck raising money. 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?

1:08:25He 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 and Peter's partners at Founders Fund and says, Yeah, I didn't want to raise capital outside capital, but I guess I'm going to do it from anybody. I'll do it from you guys. 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 Payton. No, I don't think it was. Founders fund in the summer of 2008, invest $20 million into the company. That is enough to very quickly turn around for a fourth

1:09:07And what would be final attempt to first do the first successful launch of a Falcon 1, the very next month in September 2008, the same month that Lehman Brothers went under, they finally succeed in a launch.

1:09:22And it's crazy. They only have a dummy payload. At this point in time, the only customer that trust them that Gwen has been able to wrestle up is, I believe, the Malaysian government, I think, to launch a communications satellite. The Malaysian government. Until 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 let you take us up. But 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.

1:09:52Yeah. And revenue for these Falcon 1 launches was pretty low. It was something like $7 million. Like $7 million. Yeah. Oh, wow. So that's even nice. The initial price was $7 million. I don't know if they'd raised it by this point in time. Well, they only ever did five launches at the Falcon 1. So they did. They couldn't climb too high. So they finally succeed. 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.

1:10:21A 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. Not to be fair, he has 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.

1:10:51I'm gonna have a really great party tonight. I don't know about you guys. So Elon. Was he on the quage? Like, or do you know where? I believe he was there. Yep. Okay.

1:11:04Because this was it. Like, everything was writing on this. And he had taken out a loan against his SpaceX. He was about to take out a loan against the SpaceX stock to fund Tesla at this point. Yeah. I mean, that's that's a whole another 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 July 2009, they did do a fifth launch of the Falcon 1 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.

1:11:34the real business model here, which is the Falcon 9 and government contracts. Yep. And again, the real business model of the space shipping company. We're still very far from the, hey, we, 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. And so remember a little bit ago when Elon and Gwen put the model of the Falcon rocket into DC and started querying favor there. And remember all the way back to that trip to Russia where the guy Mike Griffith was along for the ride. Well, guess who's headed NASA at this point? Mike Griffith. Mike Griffith. Just incredible.

1:12:27And he was a Bush administration appointee if I remember right indeed he was indeed he wasn't then I believe he if he resigned of amicably when when the Obama administration took over So this is right at the end of his tenure like literally the 11th hour we're talking here at the end of December 2008 and through presumably through Mike and other context Gwen and Elon had found out that NASA was gonna 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, reflecting back now understanding who the NASA Administrator was at the time.

1:13:24makes 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. I do want to give a little bit of context to listeners on sort of what a big shift this was in space policy. Like if you think about the Apollo missions, like...

1:13:49NASA would design something, it was the NASA engineers, and then they would bid out these sort of subcontracts to different people. And 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...

1:14:07Over many more decades then sort of getting compounded things get more expensive 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 we will pay you to do that for us. Whoever can do it cheapest and best. Yeah. That's all we're asking here. That's a staggering shift in policy that enabled this to actually happen. The nuts and bolts of it are cots, the commercial orbital transportation services that later led to other contracts for both

1:15:02cargo to go to the ISS, and people to go to the ISS. But this is what they call a space act agreement, which is sort of like a contract where the, you know, that NASA's done a ton of these over the years, but this time frame we're talking about, this oh, six, oh, eight time frame is when they really started to use them to say, hey, can one of you be a shipping company for us? And we'll fund you helping to build your UPS trucks and figure out how to design those. But then you get a big contract for doing the shipping for us.

1:15:32And you may know this more than me. Was Mike kind of the architect of this huge change in policy for NASA? He was, I don't think the architect, but it was definitely under his watch and 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 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 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 1. So back, remember when Elon canceled the Falcon 5 and said we're going straight to the Falcon 9.

1:16:24This 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 currently like 2008 is winding down, or 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 for like the January 1st 2009 payroll on December 23rd, two days before Christmas.

1:16:53They get the news from NASA. They have one, the two companies get the contract, split the contract, SpaceX gets a big part of it. $1.6 billion payment from NASA to fund. I think it was 12 missions, cargo missions up to the ISS. And it's just like...

1:17:14game changer remember they were charging you know 10 million dollars on the order of that for like a space for a Falcon 1 launch you know this is this is 1.6 billion dollars for 12 missions just completely changes the company so at this point then Elon does a whole bunch of stuff he also as he's quoted in the Ashley Vance book as he says it's like the flipping and he doesn't say flipping matrix 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 he he's an investor in a company called Everdream 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

1:18:06SpaceX, surviving him with SpaceX at this point, completely set up to transform from these rag tag guys are launching 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. Completely incredible.

1:18:24It's worth, you know, you say if 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 funding secured. Yeah, I mean, it would be nice if the 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, but they were kind of out of the woods at this point. They didn't have the constant near death experience after this that Tesla would have. SpaceX is a company that very, very quickly grew from this rag tag bunch of guys that smelled bad and were also being in a room in the quage.

1:19:20to suddenly having guaranteed revenue if they could come through on some promises, so they staffed up aggressively. They got huge and they turned into a grown-up company. Of course, they kept a lot of their same culture. Elon famously has these weird interviews that he did for the whole first thousand people and all the engineers after that. It's a very different company that's still aggressive on vertical integration.

1:19:49a lot of the same principles, but they weren't on the verge of dying constantly, the way that we described Tesla in that in the last episode. Yeah, this is the moment when it's all a step-changed at this moment. And again, I think it was all the way back to going and saying, no, no, we got to go, this is the market. We got to go after these contracts and then having Mike as head in NASA and having this come through.

1:20:17Yeah, so the other thing. So now they got to make the Falcon 9 work. But again, because Tom had Mueller designed this modular fashion, they know the Merlin engine works now. And the Castrol, the second stage engines, it's a lot easier, even like you said, been stringing together in Octo Web, which is the configuration that they have them in together. But it's a lot easier to go from that to building a whole brand new engine to take up.

1:20:44rocket the size of the Falcon 9. The other thing they have to do though is they have to make a capsule to go on top of it. So they're not just taking satellites up. They got to take a spaceship up. No, an unmanned spaceship to bring cargo to the ISS, but a spaceship nonetheless. And so they didn't know to poke funny here from it. In the way, but why article one of the best lines is When he's describing the thing that I did with each component of this the 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 gonna go at the other part of that post where you know, of course these things all look like Back to childhood. Yeah, yeah

1:21:34I 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, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part. Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making.

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1:22:56billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, Go check out servicenow.com slash acquired and tell them that Ben and David sent you. 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 a great thing about

1:23:49NASA as 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 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...

1:24:11or 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 do as much as SpaceX has done without actually having a customer on the end of every rocket, it'd be impossibly hard.

1:24:37takes 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...

1:25:27some 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 numbers about four billion. So it is 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, it's actually, you know, I didn't thought about this till down to where we're recording the episode.

1:26:25I suppose you could listen to everything we just said and say, wow, what a case of cronism. This dude, Mike was on the initial trip to Russia with Elon and then he's had a NASA and of course they get the contract. I don't think that's what's going on here at all. This is a combination of several people, all the folks at SpaceX and Elon.

1:26:48Mike at NASA, lots of other people in the government and the DOD is 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. And build a real industry.

1:27:16Yeah, 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, in the one hand, you could say, hey, come on, that's a 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 congressmen who represented districts where there was a sub sub sub contractor and they were winning on sort of bureaucracy to be able to win those contracts. But yeah, it's a great example of a growing pie.

1:28:12So 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. They're 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 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 gonna keep going. You know, these things are funded by the military and NASA and

1:29:12all the stops were pulled out for reliability and performance. We talked about how it's very subcontractor driven here. If you were a sub subcontractor and you could make your things slightly more reliable or slightly more performant, even if that's not totally necessary for that practical purpose for that mission, you do it anyway to win the bid. 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 Intel made much more powerful chips for computers, but notoriously lost in smartphones. But those chips were hotter, they were bigger, and they were more expensive, which is fine when we all had dust tops.

1:30:07And SpaceX, being like these armchips, especially early on, and having this toy rocket with the Falcon 1, 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.

1:30:31But 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 disruptive innovation here. Yeah, looking like, I mean, the Falcon 1 definitely looks like a toy to a lot of people in the industry.

1:30:44Right, absolutely. You don't look at the Falcon 1 and say, well, there are just a few years away from resupplying the ISS and probably sending people up to it too. It's just not your natural inclination there. But David, as you were mentioning, 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, commercial space sort of developing. So getting back to United Launch Alliance, who I mentioned there, and I think they're important to understand in the context of this story.

1:31:13So Lockheed Martin and Boeing had both been longtime government contractors. They built amazing things to their credit, still built amazing things. And a few examples Lockheed made that big orange tank on the space shuttle that we all know and as 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 in some ways the SpaceX rockets aren't as beautiful and don't just seeing space to me the way that shuttle designed it. They also made the Hubble telescope and the Mars lander. So, you know, the Phoenix. So, lots of 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

1:32:08get 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 was the US 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 Delta Lockheed had the Atlas, you know, these existing rocket programs.

1:32:38It kind of sounds like a good idea unless you've heard this story before 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. Something where the 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 just had years of knowing how the industry worked.

1:33:05What they didn't see was that the industry was undergoing this massive change, you know, for one, with other potential non-US government customers, there could be this real commercial industry. And that was something that the US had basically lost to nations who could launch stuff cheaper, like Russia, China. Russia and China, yeah. China, we haven't talked about China. China was, you know, I think Vance wrote the Elon Musk book and went to come out like 2014-15 maybe.

1:33:34No, 16. At that point in time, you know, the Russians were still predominant in space, but China was making a push. Now China, like China and their long march rocket, like space today have been correct me if I'm wrong, but is a two horse race between SpaceX and China? And it's crazy. Yeah, and in a lot of ways, and I think Elon certainly looks it at that way.

1:34:04Another thing that I didn't really realize was that there's this great talk linked in the show notes. It's a relatively under viewed video on YouTube of Gwen Shotwell giving a small fireside chat to some industry insiders in 2014. And she points out that the US was competitive in commercial space sort of in the up till the 80s or in the 80s, but it has basically lost it since then. And that was the case really until this re-ignition of a commercial space industry here. So long story short, ULA was completely unsuccessful in capturing a commercial market in the US. If you think about it, it's actually...

1:34:47a huge failing on their part, because 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 provide their service. You have intelligence satellites, you have surveillance, you have research concepts, you have startup companies. David, you mentioned these CubeSats, like ULA managed to capture basically zero of this because they were focused on winning contracts from the US government.

1:35:11There's more to blame than ULA themselves. International traffic and arms regulations in the 90s 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 big behemoth. And so you might see the opportunity here. And if you do, then you are similar to Elon and Gwen and everyone else who sort of saw this gap and then decided, hey, we're going to go build a freaking cash cow of a business in the Falcon 9 and we're going to go shoot that gap. Yeah. Well, Ben, you said I mentioned a minute ago that I think over the life of SpaceX thus far, they've received what just under $8 billion from the government. Now by our calculation, SpaceX is obviously a private company, but you can tell by their, you know,

1:36:09launches and launch manifest Republic. We think based on sticker price for Falcon 9 launches, of which they've now been over 80, right, that they've done. Yeah, I think over 86 launches and somewhere around 55 on the future manifest Yep, and something like 22 of those issue for government and the dragon program The rest of it. They've probably made just about that same amount another eight billion dollars 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 If the revenue mix will definitely start to skew toward commercial as we sort of See them fly out their backlog. You know, there's all these committed launches that they have that they haven't launched yet that

1:37:01You know, you're right. I don't, I definitely don't think it's more than the US government right now. By the way, private company, so who the heck knows. But if you just sort of add up the sticker price of, you know, 60 million times the number 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 single digit billions. Yeah. So, um, So yeah, 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 hit the nail on the head to like getting this contract. This was the moment that like made the company getting that initial NASA ISS contract real quick before we move on because I know I just threw a bunch of shade and I wanted. 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.

1:37:58They're actually working with Blue Origin now and designing a new rocket called the Vulcan and hoping to use, I think they are going to use Blue Origin engines on there. And so Blue is actually commercially selling those engines to ULA, which is kind of amazing to take. 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 V, I'll correct myself later if I'm wrong, but they're basically their competitor to the Falcon, either Falcon 9 or Falcon 9 Heavy. It uses Russian engines. Oh, interesting. And this is the main US 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 US

1:38:54we don't wanna keep supplying you with those. So they've stopped. There's only something, there's some number in the single digits or teens of those engines in country in the US that ULA can use. And so I think it's called the RD180, it's the Atlas V is the rocket. 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. SpaceX is massively undercutting them on price, which we'll talk about here in a moment. And like the clock is just ticking with their, basically, their one customer looking to them and going, wait, I'm sorry, what ways are you better? And so 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, you know,

1:39:49There are powerhouse and we'll continue to win contracts for a while, but they are certainly SpaceX's number one enemy. Indeed. Well, it's disruptive innovation coming to the launch market. The space shipping market. So it was end of 2020, 2008, when SpaceX gets the contract from NASA for the ISS resupply.

1:40:14pretty quickly within 18 months, they have a successful test flight of the Falcon 9, which again, they'd already been working on. And then, so that was June 2010. And then only six months after that in December of 2010, they have a successful test flight of the Falcon 9 plus the Dragon capsule, which they've engineered from scratch, you know, in house, its basics. And it takes a little while longer after that, but on May 22, 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, with the first successful Falcon 1 launch, like, this is the stuff that countries do, not companies said, here's SpaceX.

1:41:13You know, doing it is just crazy. Yeah. And Delayra, the reason it's called Dragon is Elon named it after the Peter Paul and Mary song, Puff the Magic Dragon, where basically it was to give the finger to everyone who said he could never do it. And you know, you're sort of chasing the dragon and saying, look, here it is. I did it. Yeah. And I think the...

1:41:38I think the ISS, as they were pulling in the dragon, said something like, Houston, we've got ourselves a dragon here, something like that. We've got a dragon by the tail. Then the next year in 2013, to what we were talking about about using these, all of the technology they built for the government in the commercial sector, in September 2013, the first commercial Falcon 9 launch takes place. They launch several Canadian satellites up into orbit, just about a year later.

1:42:08And then in 2014, so they complete six Falcon 9 launches in 2014. In 2015, they complete seven Falcon 9 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 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, it is so unnatural. I remember thinking that when it was happening, it was like this moment of sci-fi. Yeah, I was,

1:43:03I was traveling because it was over the holidays. It was like late December. Yeah, it was of 2015. This week, we was right after we started acquired. Yeah. And it was, it was on the drone ship. And so, uh, no, it was, first was on land, uh, the drone ship. The first was on land. First was on land. Yep. Yep. So they had to do the boost backburn to they were, they had done several attempts. So here's, here's how it goes down. So all the way back in 2011.

1:43:32Elon 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, 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 to land rockets. And people think this is impossible. Like the laws of physics people think won't allow it.

1:44:00and so they call the program Grasshopper, and then in March 2013, they in Grasshopper, 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 bend what you might be thinking of in 2014, and one of those Falcon 9 launches, they're pretty quickly getting this tech into production, they try and land in April 2014, a Falcon 9.

1:44:29Rocket on a drone ship, and it falls over. That one blew up, yeah. It got really close though. Got really close, yeah. Then the second attempt, January 2015, that fails. The third attempt fails. It's just like the first, getting that first Falcon 1 up, and then finally the fourth attempt was on land, because it's much easier to do it on the ocean, like the ocean, like the ship is bobbing up and down and moving around.

1:44:58They successfully land the first time 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 9 launch on a drone ship, followed by a second successful landing. Of course, I still love you, drone ship. Yep. Yeah, that's right. It was on land. It's interesting thinking about this, because the way that SpaceX lands these looks looks really unnatural like if you I remember a lot watching the first blue origin Rocket that went to space and came down and successfully landed Back on earth which they actually beat SpaceX to so SpaceX was doing the grasshopper stuff first but blorge and 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. Yeah, but yeah and

1:45:57you know, SpaceX sort of was the first then to beat them to that big milestone of getting to orbit and then landing back down. But if you watch like Blue origins rocket do this 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 refer to it is as the hoverslam 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 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

1:46:45And I should mention too, the Raptors are flying today have twice the thrust of the Raptors they started with in the original Falcon 9. So like their iteration, I think it's, I think it's still the Merlin's. The Raptors are the engines for the Starship. Oh, you're right. Okay. Cool. I was referring to the wrong thing. Yes. The Merlin's have gotten twice as performance. So Anyway, they turn just one of the murl engines on as it's sort of decelerating and the reason they call it the hoverslam is it comes in so fast and then just at the exact right time like they have unbelievable sensors on this rocket they can fire it at minimum, you know, the minimum amount of thrust just in time for it to decelerate and hit

1:47:31basically zero miles per hour, zero meters per second, right as it's setting down. And so it's this like magic trick every time they pull it off of unbelievable sensors and unbelievable precision over when they're firing that engine at minimum thrust. Yeah, incredible. So now of course, the point of all of this is that you're going to reuse the rockets. So in 2017, They have the first successful Falcon 9 reuse in March of 2017. 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 the end of the useful life of the rocket where they were planning not to land them. Yeah, coming out of 2015, this is a company that is firing on all cylinders. Like

1:48:26perfect product market fit on the business side, iterating super fast, launching all their R&D stuff actually into production super fast. They're flying out their backlog at remarkable pace. It's just impressive. Totally. The next year in 2018, they hit their 50th successful Falcon 9 launch. They have 21 total launches in 2018, including the Falcon Heavy, which is an adapted, I mean, folks have probably seen this in watch videos, but like, it is amazing. So it's just three Falcon 9 rockets wired together for 27 total engines burning. That can bring up, you know, an incredible amount of payload. And these guys, and what they do is all three rockets go up.

1:49:18And then they all land and he's honestly like watching a magic trick like it's like a ballet anyone that watch the Space X fly Tesla's Elon's Tesla Roadster up with the Starman and 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 Actually that one ended up tipping over and that one's a lot harder to do because that one's It's especially reinforced to be able to hold on to the other two free stays right Yeah, which apparently in the block five, which is the most recent and I think final version of Falcon 9, yeah, they've actually figured out a way 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. So that brings us to now. There are a couple of things we're not talking about here that we might mention at the end of the episode, but in less than 48 hours now, the plan is

1:50:25One of these Falcon 9s 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 it's people. I like the company. Yeah. Like I know we're a little bit of a US-centric show, but like my gosh, for a US company to fly, you know, US astronauts up to the ISS is, you know, it's compelling. It's cool.

1:50:53Yeah, and it is so this goes back to in September 2014 NASA bit out a 2.6 billion dollar contract to to do this. This was the point of you know all of Griffin's work to rearchitect how NASA operated with with their suppliers for a private company to fly humans to the ISS and SpaceX wins it. So they last year in 2019 a big key step in this is they completed the first autonomous a ISS docking with a dragon capsule. So it was a crew capsule. There were no people on it. It was just cargo. It was like a little stuffed animal, I think, that then the ISS astronauts went in there and showed and waved to the camera and held up the stuffed animal. That's amazing. I'm a globe, I think. Yeah. And on Wednesday, May 27th, scheduled to bring US astronauts Bob Bankin and Colonel Doug Hurley up to the ISS. Yeah. It's, it's, it's,

1:51:53It'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 because we might talk about a little bit, but there's so much to talk about. Obviously, our obviously starlink, their own small satellite communications, broadband communications internet network that they're developing, the Starship, which is the future venue alluded to this, they're going to be retiring the Falcon Program and the Dragon Program and merging everything into one giant spacecraft, the Starship, which will eventually go to Mars. I think rocket of some sort, the spaceship or the Starship. Which I wish was still called the BFR. I know. So cool. They've had a successful engine test for that, so that work is well underway on that. And then there's the little thing called the boring company.

1:52:51Yeah, which I think is something 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 owns 6% and then there's the employee. Oh, the employees are the other minority. Yeah. Yeah. Wow. 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, because a skeptic could say something like, there's lots of interesting skeptics of SpaceX, but one skepticism could be, why is it so impressive what they're doing? Other countries have been flying people up to the ISS forever.

1:53:53Get 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 to produce, you know, it's basically their version of the dragon called the Starliner. But in December of last year, it launched a test to dock with the ISS. I'm going to end up veering off course. And they did manage to get it home, but basically scrubbed the mission in order to do it.

1:54:38and Boeing took a $410 million write down on earnings last quarter as they prepare for NASA to potentially ask them to run another full test, do another full launch of the exact same thing, which is actually quite telling that for Boeing, that's a $400 million expense because for SpaceX, that would be somewhere between a $60 million and $100 million expense. But, well, maybe that's not fair because there's more reusability. Anyway, 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 manage to do it, you know, better, faster, safer, more reliable. Yeah. And so fingers crossed everything goes well, but it's, you know, you can throw shade at Elon and whatever way that you want or at this company and whatever way that you want, but you can't argue with results. Yeah.

1:55:37Should we talk about narratives? Yeah, yeah, let's do it. Well, I think there's at least three vectors that I can think of around bull and bear here. One is around Elon himself by people, you know, that you could call him the savior or you can call him an ego maniacal sort of work you to the bone. Words we can't say on this show.

1:56:10David, any sort of like color that you want to add to narratives on Elon? I mean, what else could we add? 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 in very different situations, but, but I think the Elon factor.

1:56:36The Elon randomness factor in SpaceX is just so much less than in Tesla, you know, probably one because he has Gwen, but then also two because the company at least Tesla I think is in a very good place now, but you know six months ago Tesla was not in a very good place and SpaceX is so there's just kind of less Even though SpaceX is in many ways in a more politically sensitive position, then then 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 90% less narrative around Tesla and You know SpaceX has that and they also have the benefit of

1:57:32you know, long, long term commitments with agencies and governments that can always come through on that cash. And so to the extent that they can deliver, 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 $100 million right off. But, you know, that's that's the hard part that comes with the guaranteed contractual revenue. 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 those things are reusable.

1:58:26It'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. They'll say things like, well, you don't know their cost structure. You don't know that it's actually cheaper. Examples exist in the past of the solid rocket boosters, for example, on the 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 be refurbished and then those would launch again. So this sort of thing theoretically has happened, but the difference is with things like that.

1:59:10the order of magnitude, it's probably an order of magnitude more expensive where they basically cycle out every part, scrub it clean, and then send it back up. And SpaceX is iterating toward, you know, this is the bull case on reusability, being able to just give a one or a two day inspection on the rockets 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 sent a rocket back up or a stage one, it back up has been three times. But, you know, there are very, very real cost savings that you have here from, you know, not having to produce, I don't know what the cost of goods sold are on a Falcon 9, but $20, $30 million rocket every single time.

1:59:58I think in the coming years we'll see a SpaceX is actually able to get to the milestone of you just need to give it a once over, and 48 hours you can fly it again, but there's massive debate over whether the reusability actually provides the type of savings that SpaceX claims. Yeah. Should we move on to what would happen to 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.

2:00:28I mean, I think the biggest one is, what if NASA hadn't sort of changed their tune on how we bid stuff out? Yeah, I mean, I think without that, the small sat market just, you know, I think it probably will, 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 we didn't really talk about Starlink at all in this episode thus far, but 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's basically excited to launch this division internally was to stimulate the small set.

2:01:22market and demand for it. Like now they are going to be their own first and best customer for small sats and the 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 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, SpaceX is going to put 1200 satellites up in low earth orbit around the earth. I'm sorry, 12,000 satellites, low earth orbit. So way, way, way closer than the direct TV satellite, there 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 200 miles away. So, you know, takes a rocket to get it up there. But, you know, it's not as far away as the old stuff is or as a lot of the

2:02:22fixed geosynchronous stuff. So, Spaces is going to launch these 12,000 satellites and they are all going to have line of sight to each other. and they are all going to 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 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,

2:03:03That's still time. And so you're getting dog crap slow speeds 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. This is the Wi-Fi mesh network of a satellite broadband.

2:03:28Totally 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 Falcon 9 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 the way 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 I was like, got it. And you know, 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, you know, to them, the cost.

2:04:21it would cost me $62 million to send something up on a Falcon 9, but it would cost the government something like 90 million because they have additional regulatory stuff. But for SpaceX, I don't know what their costs are, call it 40 million. 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.

2:04:51for 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. But 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 starts to be meaningful. Yeah. Yeah. I mean, it's like the satellites are already up there. Yeah.

2:05:17Totally, and they've got competitors there too. Amazon's got Project Kuiper and Softbank funded a company called OneWeb that's doing it. But yeah, it's futuristic stuff that's actually out of town. Well, and SpaceX has the, you know, back to the vertical integration, like they have the advantage of, you know, their benefits all sides of the business, either building this business internally, be they're giving more 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 the flywheel's just going to keep spinning. 100%.

2:05:58100% and you mentioned ride share to 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 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 to you can go to the website and you can say I want I want to send up something that's 100 kilograms by 2024. And, 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 if Shopify powers it, like Tesla, that would be amazing. That would be a good question. The design is pretty similar between the Tesla website and the SpaceX website. Yeah. I want to finish Shopify.

2:06:54Yeah, like just because I don't want to talk about this twice I'm gonna pull forward my my Playbook thing now about 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 you can go to 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?

2:07:24a Falcon 9, it's $62 million. Do you want a Falcon Heavy? 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 just like, you know, it freaks everyone in the industry out for them to be that transparent. Plus the Uber pool. Right. Right. Okay. So that was what would have happened otherwise. I dipped us into playbook.

2:07:54Let's keep going. If someone wanted to do something like this, what is the playbook they should run, and what are some of the themes that we noticed here? 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 Hamilton help me say about like, what is SpaceX's, does SpaceX have power? If so, what is it?

2:08:22And 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 vertical integration and the whole approach that they've taken 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. Totally. 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 pat or or how many other like industries this is applicable to. But I started thinking about vertical integration and in so many industries you see

2:09:06Going from the disruption happened when you go from vertical to horizontal like this is what happened in the PC industry You know, and I start to think 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 and agree And then as volumes grow and you get a lot more unit 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 Have more profitability and outsource commodity parts

2:09:51What's interesting here is that you had this industry structure where you had an extremely small and 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, there's actually like an anti-scale economy here we should be vertically integrated and like 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 struck me that like this was like a major key to house-based X was able to disrupt it. It's interesting because in some ways I'm trying to think if the analogy holds in the other direction like Apple has

2:10:48Has Apple vertically integrated the iPhone? 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 do make the things that they view as differentiable to...

2:11:11tightly a couple, so like CPUs, the OS. And actually interesting, they don't make them. They design them. That's true. But then they outsource thousands of right? 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.

2:11:39But they have so much power over those suppliers that they're able to squeeze margins on those. Yeah. Whereas there was nobody squeezing margins and aerospace. Everybody was happy to let their downstream partners have fat margins. Yeah. Yeah. Yeah. Because again, from the Lockheeds, the Boeing's perspectives, the higher the total price, the better the more money they made because they would just get a street percentage. Yeah. So interesting.

2:12:06It'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's willing to pay this because the old world competitors had crazy high-cost structures, and importantly, no reusability. Hasn't been important yet, but will be. And so what I think there grows margin positive on every launch now, on the first try, even without reuse. I'm not totally sure, but that's what So, estimates suggest that two is take those profits to fund the development of more usability and more lower cost systems, three make even more margin from doing that and getting paid for those contract launches of satellites, et cetera.

2:12:52For, 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, SpaceX charges less than their competitors, but obviously well above their cost basis. If they're actually able to harvest all this margin there, they would have been giving away by vertically integrating. The data point is that Falcon 9 missions even to the US government.

2:13:18with the additional 30 million in Costco for $100 million. 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 Mars stuff that I think we'll talk about here. We're basically SpaceX themselves will be able to charge for those owned assets on an indefinite basis. They're able to bootstrap the production of rockets using NASA and then bootstrap 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. A couple of the quick ones I want to hit on. We've alluded to Blue Origin a little bit on this.

2:14:16That'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, fun and algae. I use it as mo money, mo problems. Like, Basis is putting a billion dollars a year into Blue Origin. Basis is selling a billion dollars in Amazon stock that could be used for funding. Right. For Blurge. But 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 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 Accomplish so much and it's just like that's just such a theme like

2:15:13We see all the time on this show and in startups, right? Sometimes you think when you're out of the gate, you see these companies raise tons of money and think they're going to clear out the industry and have all the success. But it ends up hurting them because they're not forced to build a real business. Yeah, I hadn't really thought about it in those terms.

2:15:40And 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 Naseem to live skin in the game. You know, actually, I'm like, this guy like absolutely put his money where his mouth is. And you can say, many things about Elon, but 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 bankrupt. Like would they have had the fortitude and he had the fortitude to pull through? Like, I don't know.

2:16:36I 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. The way that I would think about this is like Elon's drive to make this thing a success is the reason like it's not any monetary skin in the game. 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 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, 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, yeah.

2:17:29He, 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 a hundred, hundred 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.

2:17:50Sorry, go for your themes. Yeah, yeah, yeah. Now I've got a couple of fun ones. So I want to talk about a different type of vertical integration which is SpaceX assembles their rockets horizontally and most other companies assemble their rockets vertically. And 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 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

2:18:44I think Elon has this interesting quote where he's like, yeah, actually the Russians, I don't know if it's Elon or Gwen, but the Russians actually manufacture them on the ground. Most of these US companies actually manufacture them vertically, but the number that Gwen cites is that she says SpaceX's rocket factory is $0.50 a square foot.

2:19:04and if you vertically integrate your rocket, no pun intended, stand it up and assemble it that way. Space ends up effectively costing you $12 to $18 a square foot because you're moving people up and down to build these rockets way the heck up in space. And 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 a, that's like a, 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.

2:19:51The other one that we talked about is sort of new market needs. So they sort of built a, this is from the Elon Musk book, but they built a Honda Accord instead of building a Ferrari. When everyone else thought only Ferrari's would be wanted, but it turned out there's an emerging market for Accords, which is unexpected and cool to see and I think will be the...

2:20:13We'll see the innovation compound now that we're having all these CubeSats and things like that up there much faster than we saw with only shipping a Hubble up once a decade. Yeah. Well, it turns out even the people who drive for our ease are McLaren's. You know, they don't want to drive those every day. Right. And then at some point, you know, Tesla did a 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. And sorry, existing Ferrari people, but you're also going to want ours. I was looking at this the other day. What is the performance model three, which granted is still a very expensive car. It's like a 55,000, 60,000. Yeah, right. Still way too. It's like, yeah, basically not going to buy. But yeah, but but the, you know, for

2:21:09Call it, let's say $60,000, you can get zero to 60 time. What, it's down like three below three now? Like, that was 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 is my last playbook here is customer diversification.

2:21:32So they are not relying on one customer, or even one type of customer. They have all these different sectors. So within the government, they have defense, and they have civil. So NASA's resupply in human contracts. But, and the defense, they have these Air Force contracts, among other things. And then they've got the commercial business with telecom, with media. And so it's at this point, it's a robust and diversified business that is just, that was not true in space largely before now.

2:22:01It's it's gonna be defensible for that man. It's gonna help them weather storms in different markets. Yeah Well, we're gonna get to we'll get to this in grading in a minute so hold off but The question is like okay, so how big is this market gonna get but All right Yes, let's hope for grading yep Lastly, the thing that I want to point out, I think as of May 2019, Elon owned 54% of SpaceX. And so 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, you know, he's lots of things. He is a master of raising capital. Well,

2:22:50I mean, it's interesting where he didn't raise a guy, he put his own capital in. But then I think what's interesting is, so we didn't talk about this in history in fact, but after they got the NASA contract and after the successful Falcon 9 and Dragon, after the successful Dragon run reviewing with the ISS, I think there was a lot of pressure internally from employees for the company to go public.

2:23:14because 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. 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 here all this Tesla. But in the wake of that, they started doing these regular fundraisers. But I believe most of some of the capital made in primary, but I believe most of it was secondary for employee, liquidity. And I think Elon was pretty outspoken about this. Like, this is like, I'm going to do this. This is going to 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, yeah, so I actually don't think that the money was raised for the

2:24:12company mostly. Interesting. Well, that speaks even better to the profile of the business than that they've been able to fund with at least gross margin profit dollars rather than funding the business with all new equity capital. Yeah, I don't think SpaceX is a profitable business, but I do think they're profitable on a unit basis. And I believe Gwen has said 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 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 in capital to get that all built and easy. And then the other thing they're, they're spending tons of money on is the R&D for the, the Starship. Yep. So.

2:25:13But yeah, interesting that those are mostly secondaries. All right, value creation and value capture. So I'm gonna be very brief on this. This is a two part segment that we usually do, the first part covering of all the value that they created in the world that they do an effective job of capturing it. People who do a good job with this are Google, people who do a bad job with this are Craigslist. And then the second piece, you know, Did they actually do value creation in the world at all? Or did they maybe either destroy value, like we've talked about on many episodes with soft bank backed companies? Or did they 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, and they're doing a bang up job capturing value from it. Yeah, totally.

2:26:12a little opaque because of their 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.

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2:27:40All 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 a 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?

2:28:00issue of 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 what would an FB, and maybe what would a C look like. And in this case, because I don't think we're talking about it IPO-ing or somebody buying them, I think we're basically just going to talk about what does an end state look like for this company in each of these scenarios.

2:28:25And David, you asked the question earlier, which I wish I could reach through Zoom and slap you for, which is, come on, how big is the market? And it's called foreshadowing. Like, sure, we could talk about a market for how many of the people without broadband would pay for broadband. 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 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 throwing that out, but like that is Elon Musk's a plus case here is like

2:29:22That'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. Yeah. Well, now the interesting thing though is... So usually when we do this, it's so funny with...

2:29:49SpaceX, the usual rules don't apply. We provide 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 you know planetary resources right or like we're you know gas stations in space mining mining asteroids. 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 Space X have done is they've stair stepped up to it is like oh well okay first we're going to become a you know

2:30:46We're going to build brackets and then we're going to become essentially a space shipping company Well, and then we're going to be a satellite company and provide internet probably a satellite broadband Well, then we're going to spin off the boring company because actually if we're going to be on Mars like we need tunnels to live on Mars So we need that anyway and actually that's useful on earth Okay, then we're going to supply the ISS and we're going to do We're going to do 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 as to actually get a million people up there. But like, it's much sooner. But yeah, you're right. There are potentially incremental A pluses. I don't know what the...

2:31:34I 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 end at what price? There's some business case for just operating Starlink is a really good business to be in and might be a $30 billion enterprise value thing on its own. I don't know if that's true. I suspect it's not. Well, they might be more. We know that they expect to put $10 billion worth of CapEx into it. 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 for Starlink. So I don't know. I mean, would it be reasonable to put $10 billion to CapEx into something if you didn't think you could generate $30 plus billion in revenue out of it?

2:32:32Yeah, that's a good point. I haven't seen the pitch deck, but I'm sure it says something like that. Not to mention, you know, they'll continue to sort of pull away, I think, in the launch market. And I mean, Falcon 9 is just a workhorse and an amazing business of doing these launches. And so for the next...

2:32:59three, four years until they really have Starship humming. If they can actually take up to a month, there's, there's, you know, they'll do what is what's 60 million times times 24 is 1.4 billion a year in revenue just from the Falcon 9 launches. So 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 yeah, it's good business. All right. So maybe to the F case. Yeah, I mean, there's some F cases that I don't want to say, so I'm not going to. But one would be that factors outside of SpaceX's control cause

2:33:58more than one launch to go poorly or in fact an important launch to go poorly and basically make it so that they don't get orders anymore. This business is incredibly bit brand dependent in a way that other businesses that are not this high risk are not. And I think it would be very their revenue could go to zero much more easily than other businesses because of that risk factor.

2:34:27Yeah, it's interesting though. I mean, at the same time, that risk factor, 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. And in fact, there have been terrible, you know, accidents in the history of the industry made by governments. Yeah, but we canceled the shuttle program.

2:34:57Right. But was that that wasn't because of 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 face that particular case, but it's a good point. I mean, like, you know, as Elon makes the point, we've made the points several times on this episode. Typically, this stuff is the domain of countries, not companies.

2:35:24And 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 foreign governments aren't able to do business with American companies. I mean, the risk factors that would go on this company's X one are just at such a bigger scale than you would ever see in most 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 greeting 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 does that actually mean? There's a lot of questions they're gonna have to figure out. Is SpaceX the government of...

2:36:16Mars. I was wondering is this a company or is this a country or is this like, we're starting to sound like pretty, pretty sci-fi dystopian future here. I mean, like if Columbus makes it to the US, 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. I mean, again, this sounds sort of crazy, but you know, Elon talks about this that this is sort of 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. You know, if this happens, there will be a new world and like, well, who owns that world?

2:37:16If you've thought about this question, or you know the answer to this question, please reach out, join us in the acquired Slack, acquired.fm-slash-slack, or email us at acquiredfm.gmail.com. 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 certainly lots of sci-fi geeks. So yeah, I think we'd love to think more about this with folks.

2:37:47I suspect this won't be our last space facet 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. I think among much great content I've been consuming during quarantine from books to both fiction and nonfiction to podcast, 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 growing up, watching, you know, I remember being a kid and watching a lot of those games on TV.

2:38:42especially the 98 run for the balls. 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. So, so great. I enjoyed every single second of it. I want episode three. I'm I'm I'm already all the best parts are spoiled because I saw all the memes, but I am.

2:39:05still looking for a differential. Oh, yeah, the memes are just the Isaiah Thomas meme that I met all the criteria. I don't know why. Yeah, why wasn't was not selected. So good. 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 it is a five year old talk by Michael Malbuson. Um, this one at Google, uh, for his I think BookTour is 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

2:39:46games of skill and games of luck and every 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 app. Yeah, yeah, it's at the the paradox skill, right? Yeah, and it's so interesting and like if you're interested in if you're a sports fan or if you're an investor or if you compete in anything at the highest level It is wildly clarifying to watch this and and and understand sort of what game you're in

2:40:42And I can't recommend it enough. So good. And you read a book about this, right? Same title. Yeah, and with the same title. And yeah, I think it was I should go back and reread that or at least rewatch the video. I remember being fantastic. It's awesome. It's awesome. Well, before before our usual sort of wrap up here, we have one more kind of fun announcement. And That is that David and I are going to be speaking at an aerospace industry conference in November called Ascend. It's something that, you know, obviously based on both of us getting to go deep on the research here, I'd call ourselves aerospace novices.

2:41:30but curious and love diving into this stuff. And we were fortunate enough to get to attend and do some talks at ascend. And so 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 into a space adjacent industry, ascend should be a great event. Hopefully we'll get to do it in person, but folks should check it out. And we'll put a link in the show notes if that tickles your fancy. Yeah, I can't wait for it. Really hope it'll be in person and it'll be such a great, you know, in many ways I think this time has for us it acquired personally and for many of our listeners too, you know, forced us to grow and obviously adapt, but you know, folks may know we used to do all of our episodes with guests in person. We would fly to go see our guests, obviously we haven't been doing that now, but which is

2:42:29on the one hand being great, but on the other hand, you know, I miss it. And it just be great to hope that happens in person be there together and just have our community together. Yeah, for sure. Well, one, I mean, one talk I'm really excited for is Jim Brittenstein, who's a NASA's administrator who was sort of overseeing everything about what's what's going to be happening this week. He'll be speaking there. And it's a lot of, you know, it's it's a sort of high up as the the sort of folks go in the aerospace industry. And one other person who I'm sure will be a fascinating one to hear is the president and CEO of ULA 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 sort of navigating, you know, SpaceX and other competitors. So all right, that's a send, check it out, ascend.events.

2:43:24If 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 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 top right hand corner there. And that way we can shoot you know when we post something new.

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2:44:05free trial. If you just want to hang out and chat, you should join the Slack. We've got over 4,000 people in there talking about different topics of company building, news of the day, acquisitions, and discussing previous episodes. So I'm sure we'll be chatting in there after we drop this episode. With that, we will see you next time. We'll see you next time.