SpaceX

[0] Dude, you got to get on Starlink.

[1] I know, I know.

[2] Can't wait.

[3] Fix up this latency in a heartbeat.

[4] Seriously.

[5] Welcome to Season 6, Episode 7 of Acquired, the podcast about great technology companies and the stories behind them.

[6] I'm Ben Gilbert.

[7] I'm David Rosenthal.

[8] And we are your hosts.

[9] Today, we are talking about SpaceX, the company that will this very week be attempting to launch humans into space as a private company and make the United States.

[10] states a space -faring nation for the first time since the end of the space shuttle program, which unbelievably was it a decade ago.

[11] David, how crazy is it that it's already been a decade since the end of the shuttle program?

[12] And also how crazy is it that we haven't sent humans to space as the U .S. since then?

[13] So crazy.

[14] I remember when that happened, just like how disappointing that was, which makes what's about to happen so exciting.

[15] Yeah, because I mean, there was no date set for when it was going to start again.

[16] We decided, okay, the shuttle program's coming to the end.

[17] You know, it was expensive.

[18] It was dangerous and it had its mishaps.

[19] And there's plans for stuff that's coming next, but there wasn't, there was no date.

[20] There was no plan.

[21] There was no mission.

[22] And so now here we are, almost a full, a full 10 years later.

[23] With a date, a plan, and a mission, which we'll get into you.

[24] All right.

[25] So listeners, here's the things that I knew about SpaceX.

[26] more or less before we started researching.

[27] They're the first private company ever to launch a rocket to orbit, recover it, and reuse it.

[28] 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.

[29] Pretty unbelievable.

[30] They're, of course, led by the controversial genius, Elon Musk, or I should say genius entrepreneur.

[31] And, of course, he has a plan many would argue a credible plan of getting a million human beings to live on Mars.

[32] But until I dove into this mountain of research, I didn't understand the company's truly amazing business model, the winds of change going on around the company in the space industry at just this moment in time, or really how they were actually going to be able to pull any of this off.

[33] So what is the business?

[34] Who pays them?

[35] And for what?

[36] And what's with all these satellites that they've been launching recently.

[37] So today, David and I are going to dive into all of that in full, gory detail.

[38] Yeah, we are.

[39] Well, a few announcements before we get into it.

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[51] Great way to get to know so many of you.

[52] Okay, listeners, now is a great time to thank one of our big partners here at Acquired, ServiceNow.

[53] Yes.

[54] Service Now is the AI platform for business transformation, helping automate processes, improve service delivery, and increase efficiency.

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[69] And when you get in touch, just tell them Ben and David sent you.

[70] Thanks, Service Now.

[71] And now, David, over to you to take us into SpaceX.

[72] Wow.

[73] Where to even start?

[74] Well, the place to start, listeners, if you haven't already go back and listen to our Tesla episode, which was now a couple years ago, which is just crazy.

[75] Man, we got to revisit that because a lifetime has happened to Tesla since we recorded that episode.

[76] But in that, we talk obviously a lot about Elon and his background, him as a person, some of the crazy things that happened to him that have turned him and his personality into the unique brew, the unique blend vintage that it is.

[77] But just to, by quick way of background, to catch everyone back up on it.

[78] So Elon obviously was born in South Africa.

[79] 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.

[80] And he wanted none of it.

[81] He wanted to come to the U .S. He thought America was the land of opportunity.

[82] He thought it was where things could happen.

[83] He was particularly interested in space and sci -fi and making the future, the present.

[84] And so he basically, at age 17, hitchhiked his way from South Africa to Canada, lands in Canada, and then ends up going to the University of Pennsylvania.

[85] From there, he makes his way out to Silicon Valley.

[86] He starts two very successful internet companies, one of which was a little company called PayPal.

[87] And somehow, in true Elon fashion, managed to get himself ousted as CEO of these two internet companies at least three and potentially four times, which is pretty impressive, given that it's only two companies.

[88] This is X .com and then, I'm sorry, before this, this is Zip2, and then X .com, which merged in to become PayPal.

[89] Yep.

[90] First company, Zip2, got ousted as CEO.

[91] Second company, X .com, his employees staged a coup.

[92] 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.

[93] Then the board removed him again.

[94] So all of this happened.

[95] Before you start your rocket company, have all these experiences to form you and then see what happens.

[96] Let's just play that experiment out.

[97] Exactly.

[98] Well, so this unique brew of life experiences for this man who's only 29 years old, He decides after in October of 2000 being ousted for the final time from the newly merged PayPal that he's had enough.

[99] He is done with Silicon Valley.

[100] He's hanging up his spurs.

[101] 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 two sale earnings and a large amount of that from his equity in PayPal and a silver McLaren.

[102] F1.

[103] Oh, by the way, we didn't talk about this in the Tesla episode.

[104] Did you know, Ben, that he and Peter Thiel were driving, said McLaren F1, up Sand Hill Road to go meet with Sequoia Capital one day.

[105] Peter asked him what this thing could do.

[106] Elon said, essentially, hold my beer.

[107] And they end up spinning it around, completely totaling it, being an amazing stroke of fate that they do not die.

[108] And then they end up going to the meat.

[109] 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 uh that uh that's like almost to um they got they got away with their lives i mean this is elan we're talking about here um so a lot of this history comes from the great great ashley vance uh biography of elon appropriately titled Elon musk because what else are you going to title a biography like that um and uh and Ashley writes to take this into SpaceX now.

[110] And so the stage, Ashley writes about what is going on with SpaceX.

[111] He says, with SpaceX, Musk is battling the giants of the U .S. military industrial complex, including Lockheed Martin and Boeing.

[112] He's also battling nations, most notably Russia and China.

[113] And then shortly after he has a quote from Milan, he says, my family fears that the Russians will assassinate me. Man, and you thought online banking was rough.

[114] No kidding.

[115] And, and, And how do you think about Elon at this point in time?

[116] Like, is he a, 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?

[117] Or what's...

[118] Are you referring to Jeff Bezos?

[119] No, I'm referring to the litany of people who have started a rocket company, bought one rocket, crashed it, and given up.

[120] I mean, there's, like, people who have started all sorts of companies.

[121] have then gone and done this as their second act when they, you know, have a god complex.

[122] And, uh, yeah, there's, it's interesting that you all, almost always it's, it's, uh, well, always it's men that do this.

[123] He was like little boys growing up wanting to be astronauts, make a bunch of money, then decide to go create some spaceships as they toys.

[124] And that's what everybody thought Elon was doing here, including all of his friends, which we'll get into now.

[125] So it's October 2000.

[126] him.

[127] He's just been ousted.

[128] He's decided he's leaving Silicon Valley for good, like literally like metaphorically leaving, but also physically leaving.

[129] He's going to move to Los Angeles because space is now what he's going to do with the rest of his life.

[130] And the aerospace industry is primarily headquartered in the Los Angeles area.

[131] And so he's going to move there.

[132] He's going to make connections and he's going to figure out, figure out what's next for him.

[133] And kind of amazingly through all this, this also says a lot about Elon.

[134] Despite having been housed from PayPal twice.

[135] He remains really, retains really good relationships with, uh, with all the team there, including Peter and Max and, um, you know, all the PayPal Mafia and rule off.

[136] And so one weekend, PayPal is starting to really take off at this point.

[137] They're not public yet, but they're starting to figure things out.

[138] The whole team, including Elon, goes to Vegas for a weekend.

[139] And Kevin Hartz, uh, who was an early angel investor in the company, is interviewed in in Vance's book, and he talks about that they are sitting, he says, we're all hanging out and this cabana at the Hard Rock Cafe.

[140] And Elon is there reading some obscure Soviet rocket manual that was all moldy and looked like he had bought it on eBay.

[141] He was studying it and talking openly about space travel and changing the world.

[142] So this is like, everybody's like, okay, man, this guy has like gone off his rocker.

[143] Yeah, and he's not sort of like hiring someone to go do this for him and saying, put my name on it.

[144] Like, I'm going to flash way forward.

[145] to today, but he's the, he's effectively, and maybe even entitled the chief engineer.

[146] I believe he is entitled, the chief engineer.

[147] Yeah.

[148] Like, I think I've heard the NASA director refer to him as chief engineer of SpaceX, Elon Musk.

[149] 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.

[150] Um, I don't want my question from a moment ago to linger too long feeling like I'm mischaracterizing him.

[151] Elon is absolutely not a eccentric billionaire who now decided to get into space because there's nothing else to do.

[152] This is sort of the plan all along.

[153] And online payments were sort of this brief exit from the highway before he got back on to go and really run at this big problem.

[154] Yeah.

[155] Well, it was a way to get all of these resources.

[156] So when he landed, Down in LA, he gets hooked up with a nonprofit organization called the Mars Society.

[157] And Elon's been percolating on Mars.

[158] He talks about, when he first started thinking about all this, he goes to the NASA website.

[159] And he's expecting on the NASA website to find, you know, all sorts of great plans about the future and exploring space.

[160] And in particularly Mars, like, makes sense that people should go explore Mars.

[161] We've been to the moon.

[162] And there's nothing there.

[163] And so he gets really disillusioned.

[164] He's like, I kind of want to make, like, I've got some resources.

[165] I want to make a grand gesture.

[166] He's not thinking about a company.

[167] He's not thinking about a business.

[168] He's thinking about something to inspire people to get back into space exploration.

[169] So the Mars Society, this is their charter.

[170] So he makes $100 ,000 donation to the Mars Society.

[171] He joins the board and he starts meeting all of these aerospace people in L .A. And not just in L .A., of course, back up in Silicon Valley, there's NASA's Jet Propulsion Lab in Mountain View.

[172] And so Elon, he's mostly down in L .A., but he's going back and forth and he starts organizing these Saturday salons, he calls them, where he's just getting together industry leaders in aerospace and at JPL, both in L .A. and Palo Alto.

[173] 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.

[174] He's, you know, a dot -com rich guy.

[175] And he wants to make a gesture.

[176] and like what could be done on the order of kind of $10 to $20 million.

[177] So they start to coalesce the group on this idea of building a quote -unquote Mars oasis.

[178] And the idea behind a Mars oasis is that they're going to buy a rocket and they're going to put a plant on it.

[179] And they're also going to put a robot on it.

[180] And they're going to shoot this rocket to Mars.

[181] And when it lands on Mars, I can't remember if the Mars rover, had landed at this point.

[182] I think so was a thing.

[183] The lander that was the one that I remember was a really big deal that I think found ice.

[184] Yeah, I remember that.

[185] The Mars Phoenix lander was somewhere like 2008.

[186] And so that hadn't happened yet.

[187] But I think the rover had.

[188] Yeah, I think the rover was there.

[189] Anyway, it wasn't like, I mean, it was kind of crazy.

[190] obviously everything about this is crazy but you know you could sort of piece together how you could string along somebody that this could happen so they were going to put this there and then the idea was that the robot was going to create a greenhouse and then was going to put the plant in the greenhouse and let the plant grow on Mars and then the robot would have a camera and it would have video feed and kind of like the you know the whole earth picture that the first Apollo astronauts took of the earth from the moon that this would be a live video feed of a plant growing on Mars and beam it back over the internet onto a dot -com site and inspire the people of the world to explore space with this.

[191] Love it.

[192] Love it.

[193] Sounds great.

[194] So the purpose being sort of like inspiration, a little bit of like a philanthropy stunt.

[195] Maybe even like a, you know, some kind of performance art project not to foreshadow what's going on in Elon's life today.

[196] But yeah, that's kind of, that's kind of the idea.

[197] There's one problem, though, and nobody in the group and the salon group is really willing to tell Elon, you know, he's thinking he's got, you know, probably 10 -ish million left over from the sale that he made.

[198] He made about 20, I think 22 million from the sale of Zip2, his first company, he's probably got about 10 million left over.

[199] He thinks he can probably scrape together, maybe 20 million, maybe take some loans out against his PayPal equity.

[200] That's his budget for this.

[201] And David, earlier, you had said that number, 200.

[202] hundred million.

[203] That obviously would come later when he did get liquid on those PayPal shares.

[204] Now he's only got sort of this 10 to 20 million from their first company.

[205] Right.

[206] He's, you know, he could, he will end up being with $200 million in liquidity.

[207] But at this moment, uh, it's all tied up in PayPal.

[208] So the thing that none of these space experts want to tell him is that like, he's off by an order of magnitude on the cost of this thing.

[209] And, uh, 10, 20 million isn't going to cut it.

[210] You're needed more 100, 200.

[211] million, three hundred million dollars.

[212] So Musk, though, like he's very, you know, he's singular in his focus.

[213] And so he keeps pushing forward on this.

[214] And he comes up with this idea.

[215] I think this was his idea that the way he was going to make this happen was he was getting to get a deal on a rocket by instead of using a, you know, purpose built space launching a rocket, he was going to go over to Russia.

[216] And remember this point.

[217] not that far removed from the, um, you know, dissolution of the Soviet Union.

[218] Like, it's kind of the wild west days in Russia at this point.

[219] Right.

[220] It's like 1989 to 2001.

[221] Like, yeah.

[222] We're, we're, we're now in 2001.

[223] And Musk's idea is he's going to go over there and he's going to buy an intercontinental ballistic missile because the Soviet Union has disintegrated.

[224] And you can like kind of do that in Russia these days.

[225] 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 that's right didn't he have some sort of like shady not shady but a connection like in there's somebody who had to sort of like help him figure we're about to get into this we should also contextualize here uh I think to be able to actually buy one of these in the US through more appropriate channels like if if you could actually get your hands on one I think it's something like 65 million dollars like the the reason to sort of look elsewhere is there's no way you're getting one here for any reasonable amount.

[226] Yep.

[227] He thinks he's going to get a deal by buying a missile and converting it into a rocket.

[228] This is like, you know, cue the James Bond, you know, villain theme here.

[229] So he goes over there.

[230] He hears, well, he hears from his network that there's a guy who can maybe make this happen.

[231] And that guy's name is Jim Cantrell.

[232] And so Jim lived in Utah.

[233] He's an American.

[234] And he had worked for NASA and also the French Space Agency.

[235] and ended up doing a lot of actually like super classified collaborative missile defense projects with the Russians.

[236] 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.

[237] So he knows the Russians pretty well.

[238] So he tells the story.

[239] One day he's in Utah, he's driving.

[240] He gets a call on his cell phone and he says, this is in Vance's book.

[241] This guy in a funny accent said, I really need to talk to you.

[242] I am a billionaire.

[243] This is Elon, by the way.

[244] Elon is not a billionaire at this point.

[245] I am going to start a space program.

[246] And Musk finally refuses to give Cantrell his cell phone number.

[247] And Musk made the call from his fax machine line.

[248] He's like starting to get paranoid about what this is going to entail to go try and buy a missile.

[249] So Musk asks Cantrell to, if there's an airport near where he is and if he could meet the next day.

[250] and Cantrell says my red flag started going off and then 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 It's actually really smart I mean he's used to deal 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 pretty empty these days Coronavirus is going to have a very private meeting So Cantrell rents out a conference room in the Delta Lounge at the Salt Lake City Airport.

[251] And they mean they end up hitting it off.

[252] And Cantrell's like, oh, okay.

[253] Like, I mean, this guy's something, but he's not totally crazy.

[254] And so he agrees.

[255] He says, okay, I'll go back to Russia with you.

[256] And I think I can help you buy a rocket.

[257] So at this point, Elon's friends all basically try and stage an intervention.

[258] They create like a compilation video of rockets blowing up.

[259] up, you know, they come up with all the stories.

[260] Ben, you were mentioning of everybody who's lost all their money doing this.

[261] He goes forward, but one of his best friends from college, Adeo Resi, who started thefunded .com and Founder Institute is not great entrepreneur in his own right.

[262] He says, I'm going to come with you.

[263] Like, he's like, the friends must have like nominated him to kind of keep tabs on Elon.

[264] So the three of them, Cantrell, Elon, Resi, and one other guy end up going to Russia and making a pilgrimage to try and do this.

[265] The other guy who goes with them is a guy named Mike Griffin, who they get introduced to.

[266] Wait, Mike Griffin went on no way.

[267] We'll come back to Mike Griffin later in the episode.

[268] My God, I have Mike Griffin listeners in my notes.

[269] I won't tell you where or what his title was, but wow, it's the same Mike Griffin.

[270] Yeah, Ben and I were talking before the show and I was like, all right.

[271] All right.

[272] There's going to be a thing.

[273] Like, just wait.

[274] Just wait, listeners.

[275] There's going to be a thing about Mike.

[276] Wait, so what's Mike's role in this?

[277] So he comes over to just be part of this, what's the right word?

[278] Like, emissary entourage, maybe, to just kind of, you know, make introductions and meet with people.

[279] See how one would go about buying an ICBM from Russia.

[280] Yeah, I mean, you could call it an ICBM.

[281] You could call it a rocket to get to space, which is what, you know, the intention here is.

[282] So Mike, he had worked at NASA earlier in his career.

[283] year.

[284] 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.

[285] So, you know, who knows why Mike was coming with them.

[286] You know, again, he's coming from the government.

[287] He's coming from Incutel.

[288] Maybe he's keeping tabs on everything that's going on here.

[289] So he comes along.

[290] And it basically goes as you would expect listeners.

[291] They meet with a much Russians, you know, Cantrell and maybe, maybe Mike sets, set up some meetings.

[292] And they kind of go like this, you know, Vance describes a bunch of them in the book.

[293] You know, they walk in, they sit down.

[294] There's a lot of, you know, the first thing that happens, of course, is vodka shots.

[295] And Vance talks about one meeting where they do, everybody in the room does vodka shots and the Russians are toasting to America.

[296] And that, that probably should set, you know, some red flags off there for everybody just in the get -go there.

[297] And then, you know, they chat for a while.

[298] They're not really talking about anything related to buying a missile.

[299] Lunch is served.

[300] You know, a couple hours go by.

[301] And then finally they get around to like, so the purpose of your visit.

[302] And for anyone who's ever met with any of Elon's companies, let alone Elon himself, like this is not how you get to have a meeting with someone at SpaceX.

[303] It's quick.

[304] It's to the point.

[305] It's how fast.

[306] Give me really good reasons for.

[307] everything and let's move on.

[308] And, like, Elon is the personification of that type of meeting.

[309] Yep.

[310] So he starts getting really frustrated by all these meetings.

[311] And finally, you know, by the end, he's, he's had enough of this kind of Russian way of doing things.

[312] And he just starts coming out, like, right after the vodka shots.

[313] Like, I want to buy, I want to buy rockets.

[314] You know, here's my offer.

[315] And he's, he's calculated, he's willing to offer the meeting with one group, this is the last group they meet with.

[316] I think as either two or three rockets.

[317] He offers them eight million for um for the two of them and they're like yeah how about eight million each each and uh they needless to say they don't come to a deal so everybody leaves the meeting by the way they're there in the middle of moscow and russian winter which is obviously pretty depressing i've been in moscow in february and it is like uh it is like freeze your face off cold so it is it is literally February 2002 when this is happening.

[318] Wow, yeah.

[319] So let's recap dollars real quick, just so everyone has a, because dollars are going to be an important thread through this, through 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?

[320] So Elon's basically got 170 million from PayPal of post -tax dollars.

[321] Once the acquisition happens, Which is not for another five months.

[322] It didn't happen yet.

[323] So he's got 20 million total now.

[324] But, you know, he'll eventually have 170 million.

[325] And so that number that I quoted, buying a rocket like this from a U .S. company that manufacturer, it's like $65 million.

[326] So, you know, he's trying to buy him for $8 million for two of them in Russia.

[327] So to keep those sort of relative dollar amounts in your head.

[328] Of course, the deal blows up.

[329] he doesn't actually end up buying them.

[330] But that would have been what it cost him.

[331] And he couldn't, you know, even if he were willing to put all his money into this, he couldn't do the $65 million launch because that's just the launch.

[332] Like, you know, then you got to like get the stuff there.

[333] You got to build the robot.

[334] You got to set up all this stuff.

[335] I'm sorry.

[336] That's $65 million that I'm quoting you was literally to buy a rocket from.

[337] Oh, interesting.

[338] Yes.

[339] I didn't realize that you couldn't even, I guess you couldn't at that point in time just walk up and like reserve a. launch spot on a rocket you had to actually buy the rocket yeah who who who can you just go and say hey I want to yeah well imagine if there were a company that did that and and also I take that back I think such a concept did exist but I think it would have cost you 150 million to 500 million quoting some of my numbers that we're going to sort of bust out later in our future cost comparisons wow wow so okay so back to February 2002 in Moscow they leave the meeting, this motley crew, they get on the airplane and they, you know, head back to to the U .S. on the plane.

[340] And Cantrell talks about this.

[341] 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.

[342] It's like, my God, I made it.

[343] So he and Griffin, you know, they're veterans here.

[344] They, you know, they're veterans here.

[345] you know, call over the drink cart and they start, you know, celebrating, getting out.

[346] Meanwhile, Elon's sitting in front of them.

[347] And he's just like furiously typing away on his laptop silent.

[348] They can't, you know, figure out what's going on.

[349] And about halfway through the flight, he turns to them and he says, hey, guys, I think we can build this rocket ourselves.

[350] And then he hands them the laptop.

[351] And they look at it and they're just like dumbfounded.

[352] Elon has this spreadsheet on his laptop.

[353] I don't know if it must have been Excel.

[354] Like Google Sheets didn't exist at this point.

[355] He's got this Excel doc.

[356] And it's like a hyper -detailed spec sheet with costs and all the materials needed to build a rocket.

[357] Not necessarily a rocket that would get them to Mars, but it's like, you know, it's real.

[358] And so they're stunned and they say, how did you build?

[359] this.

[360] Well, it turns out Elon had been reading a lot of Soviet rocket manuals.

[361] And he had also met as part of this kind of group of advisors he'd been putting together.

[362] He met this guy named Tom Mueller.

[363] And Tom had worked at Hughes Aviation.

[364] He was, of course, being Howard Hughes back in the day.

[365] Speaking of billionaires who started rocket companies.

[366] Indeed.

[367] And then we've onto TRW space, and he was kind of known in the industry as a real savant about engines, like probably the best, most impressive rocket engine engineer in the world.

[368] 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, you know, go into building a rocket.

[369] And he had helped him put together this spreadsheet.

[370] So it was, it was pretty damn good.

[371] So they get back to the U .S. And then basically a whole chain of events gets kicked off that ends up in SpaceX.

[372] And tomorrow, an American company launching people into space.

[373] Yeah.

[374] Another, just to keep the dollars thread going, I think it was, I can't remember exactly which of the sources it is.

[375] David and I have 20 or 30 different sources that are in the show notes where you can go and read, read more about this.

[376] I want to say this was originally from a SpaceX engineer, but pointed out, if you calculate the cost of goods sold for aerospace grade aluminum alloys plus some titanium copper and carbon fiber on the open commodities market, it's about 2 % of what rockets cost.

[377] And I want to plant that seed because the question in your mind throughout all of this should be, why is this expensive?

[378] Like, obviously this is expensive.

[379] It's almost unfathomably expensive.

[380] When you hear about anything in this industry, contracts awarded, cost of emission, 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.

[381] It was as high as 5 % in 1969 at the height of the space race.

[382] So just interesting to think about that.

[383] The question of the U .S. government budget, by the way.

[384] Yes, that's correct.

[385] That's up the entire federal government, yes.

[386] But so it's immensely expensive, almost to the point where it's, you can't even discern between the millions and the billions.

[387] 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?

[388] And of course, you can't make a rocket just by throwing commodities at a wall.

[389] So you're not going to get it all the way down to 2 % of what that rocket costs.

[390] 2 % being sort of like the hard materials.

[391] 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 rolls off the line.

[392] Yeah, the bomb versus the MSRP.

[393] Totally.

[394] Well, and this is, you know, Elon studied physics in undergrad in addition to business.

[395] You know, he is a physicist, and this is the question.

[396] he asked himself he's like you know yeah like this is hard but at the end of the day these are atoms and like you know it's a bunch of gas in a tube right like that that's what a rocket is and so this is what he's putting together in the spreadsheet so they touched 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 with Roloff in our adapting episode with with Roloff at Sequoia who was at the time the CFO of PayPal they broke, you know, they were the one bright spot in the, in the dot -com, you know, the Russian -like dot -com winter.

[397] The stock pops 55 % right after the IPO.

[398] So Elon sees this.

[399] He's got this spreadsheet.

[400] And something clicks in his mind.

[401] And he says, you know what?

[402] This isn't just a gesture.

[403] This isn't just an inspirational thing I want to do.

[404] I can actually disrupt this industry.

[405] I want to build a company.

[406] I can take, you know, all of this cost blow that's happened in this industry, use my spreadsheet, use my connections, and do this for real.

[407] So he gathers up, you know, they walk up the plane.

[408] He gets Cantrell.

[409] He gets Griffin.

[410] He gets smaller.

[411] The rockets, you know, literally the rocket scientist.

[412] And a guy named Chris Thompson, who is an aerospace engineer at Boeing.

[413] And he says, let's do this.

[414] Let's start a company.

[415] Nonprofit is dead.

[416] I'm going to start this.

[417] I'm going to fund this all myself.

[418] PayPal is a liquid public currency.

[419] The lock up.

[420] up will be over soon.

[421] I can get out, exit my stock, and I'm willing to go all in on this.

[422] Almost all in.

[423] Almost all in.

[424] Greater than half in.

[425] Greater than half in.

[426] Now, he hasn't yet met J .B. Stravall and gotten introduced to the electric car scene.

[427] Uh, so at this point, he's, he's thinking all in.

[428] Um, the one person who everybody's in except for, for Mike Griffin, uh, he lives on the East Coast, you know, he's the former Enkutel guy.

[429] He says, you know, look, guys, I'm a little farther on in my career.

[430] I'm a little more senior.

[431] You know, this is all a great adventure.

[432] Best of luck.

[433] I'm rooting for you, but I'm not going to move out to California and do this.

[434] And that ends up being a very good thing for Space X that he did not do that, as we will see.

[435] I'm like learning in real time for you on this episode.

[436] I had, it's a very good thing for SpaceX that this is how it shook out.

[437] Very good thing for SpaceX and the world that he did not do that.

[438] Everyone else, though, is in.

[439] Cantrell's in for a few months.

[440] He ends up, leaving a few months later.

[441] But in June 2002, they officially incorporate space exploration technologies.

[442] And then the very next month, in July 2002, eBay buys PayPal for one and a half billion dollars.

[443] And Elon now doesn't just have a liquid public stock currency.

[444] He has $180 million plus in straight up cash that he gets out of PayPal.

[445] 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.

[446] This is going to be his life's work, his next company.

[447] He says, I don't want any, any chance that anyone could kick me out here ever again.

[448] I'm not taking on any outside investors.

[449] I'm putting my entire fortune into this.

[450] I will fund it all myself.

[451] It's mine.

[452] And the super interesting thing is, you know, Ben, we were talking about this.

[453] We were texting about this.

[454] All told over the life of SpaceX, I think Elon has only put in about $100 million into the company.

[455] versus Bezos at Blue Origin puts in a billion dollars a year.

[456] And so many other, you know, people that have entered into the space industry just become money pets.

[457] That's a good, let's plant that seed because, yes, SpaceX is very revenue funded instead of sort of equity funded.

[458] Of course, it's very equity funded too.

[459] This is a company that has a, what, $35 billion valuation today and has over $3 billion invested in it from not.

[460] Much of which is secondary.

[461] side of Elon.

[462] Oh, interesting.

[463] Good point.

[464] Yeah, I think much of which is secondary.

[465] tell.

[466] The thing that is known is, we're going to freaking Mars.

[467] Like, we're figuring this Mars thing out, and we're going to start by lighten a one -engine candle on fire, and, like, we're going to, we're going to figure out how to, you know, take baby steps here.

[468] So that part is figured out.

[469] The part that's not figured out is what you'll find in the very first paragraph of the Wikipedia entry on SpaceX, which is this sentence.

[470] They are an American aerospace manufacturer and space transportation services company.

[471] It is very, very important to understand SpaceX today is both of those things, and they are different.

[472] They are a company that makes stuff for aerospace and may well one day run a business on that.

[473] And then they also have this business where they're basically a logistics company to ship stuff up to space.

[474] And that latter business funds the former business.

[475] 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.

[476] Yeah.

[477] Well, so the business plan for this new company, and again, Elon is very insistent, this is now a company, is that he's seen all this cost blow in the industry.

[478] He thinks they can do much better.

[479] And he realizes really the hard part about launching things into.

[480] to space is the engine of the rocket.

[481] And he has the best rocket engine engineer in the world, Tom Mueller, working for him.

[482] They're going to build their engine completely in -house.

[483] And then the idea is that the initial initial idea is they're going to go to third -party suppliers and commodity folks and get all the, all the rest of the stuff together and work with contractors, kind of like, you can imagine the business plan, ironically, is sort of like the traditional Detroit automotive companies where they make the engine.

[484] and they make the finished products, but everything in between the engine and the final car comes from a whole network of suppliers.

[485] Yeah, a horizontally integrated company.

[486] Yeah, exactly, exactly.

[487] So the plan is, this is what they're going to do.

[488] They're going to build the engine, and they're going to start launching in September 2003.

[489] It is now July 2001.

[490] Yeah, that was some wishful Elon thinking.

[491] Classic.

[492] It may have been the first, the beginning of the Elon timeline, because in software, you know, you can ship that fast.

[493] A little harder in hardware.

[494] We should also say, like, there's a, and this I think is from the Ashley Vance book as well.

[495] Like, the way that Elon calculates these deadlines is, like, he thinks about it about literally how long would.

[496] He sort of, like, builds a Gant chart in his head.

[497] And then he tries to compress all the minutes together.

[498] And then he also tries to apply a speed.

[499] 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 Gant 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 going to name this first rocket the Falcon one after the Millennium Falcon of course um And since the rocket is named Falcon, and the key is the engine, they're going to name the engine Merlin, which is a type of, a type of falcon.

[500] 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 in the Battle of Britain and was like storied for being its power and reliability and, you know, helping the Allies win the war.

[501] 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.

[502] And I was like, what the I thought SpaceX always made their own engines.

[503] Wouldn't that be funny if Rolls -Royce made the SpaceX engines?

[504] That would be the ultimate irony based on where the company would end up today.

[505] sort of strategy and principles.

[506] I know.

[507] I know.

[508] Okay, so they get to work building the Falcon and the Merlin, working with all of these, you know, the network of contractors and suppliers being, you know, a horizontal integrated company.

[509] And they pretty quickly find that it's not just Boeing and Lockheed and everybody who is subject to cost bloat and time bloat and project scope bloat in this industry.

[510] it's all the contractors all the way down.

[511] So Elon starts asking questions of these guys pretty quickly.

[512] And this isn't just like two levels of contractors.

[513] It's not like, well, I'll sub it out to Boeing and then they'll sub it out to someone.

[514] This is like, like it's turtles all the way down type thing.

[515] Like there's this crazy recursive loop where, yeah.

[516] It's everywhere.

[517] So Elon, of course, starts asking questions and people in this industry aren't really used to questions being asked to them.

[518] And he starts figuring out.

[519] some of these components, whether it's, you know, part of the shelf or the fuel tank on the rocket or some of the avionics components that contractors are charging hundred thousand, multiple hundreds of thousands of dollars apiece, that they can just manufacture them either in -house, fab them in -house or use off -the -shelf, you know, consumer -grade electronics and computers for, you know, one percent or less of the cost that, uh, that these contractors are quoting them.

[520] So he says, all right, screw.

[521] we're not, just like Tesla, we're not going to take the Detroit, you know, approach to this.

[522] We're going to vertically integrate.

[523] We're going to make 90 % plus of this rocket in our own factories.

[524] Which is wild.

[525] I mean, SpaceX sort of coily talks about how raw material rolls in one side of the factory and rockets roll out the other side.

[526] And they almost like talk about it like, well, minerals show up on the left side and rocket It's not quite that.

[527] They do have a network of suppliers.

[528] I think the number is 3 ,000 suppliers and 1 ,100 that supply them product every week.

[529] But the way to think about it is those suppliers are just sort of like way lower level.

[530] Like they're more the raw, you know, material.

[531] You know, think about sheet metal and wiring rather than fully assembled, you know, motherboards and, you know, fuselages.

[532] This is like, it's kind of a crazy undertaking because really in business.

[533] the the theory is only take your core competency in -house and outsource everything else, outsource everything that can be commodity.

[534] But there were so few players in this industry and so, like, such limited number of customers on the demand side that, like, there was a very specific way that it was done.

[535] And that way just involved this wild scattering of subcontractors, each of which had to make their own product profit margin.

[536] And so you end up with this stacked like margin, margin, margin, margin.

[537] And as someone who we will talk about here shortly brings up in a speech, her quote is, it's exponential G &A that you get when you have multiple layers of integration.

[538] And I've never heard someone describe it so aptly that, of course, this is exponential.

[539] Because every time somebody needs to make their 30 % or whatever it is, that's on the previous person's.

[540] 30 % or whatever it is.

[541] And I bet it's a lot higher than 30.

[542] Yeah.

[543] Well, and let's think about who the end customers were in the space market, mostly, you know, pre -SpaceX, well, and even now post -Space they were governments, you know, primarily the U .S. government, but also other governments around the world.

[544] 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.

[545] If you ever as an investor or an operator encounter a situation where there is a cost plus contract as a way of doing business.

[546] You need to either, if you're an entrepreneur, disrupt them as soon as possible or if you're an investor, run the other way.

[547] Because with a cost plus, literally it's you get a, there's the cost of what it costs to make something.

[548] And then the contractor makes a percentage profit on the cost.

[549] 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.

[550] Like, it's nuts.

[551] Yeah, it's a great point, David.

[552] 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 for this purpose and best in class at writing software and best in class at creating rocket engines or, you know, top three in class at creating rocket engines.

[553] it's like an insane number of core competencies.

[554] Right.

[555] That's the other thing is they, yeah, they are the operator of the final product.

[556] Yeah, they vertically integrate everything.

[557] 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.

[558] Yeah.

[559] So, okay, so what's the business model for all this?

[560] Like, what's the target market?

[561] So Elon, you know, he comes from the, this internet industry, you know, new, you know, PayPal, some of the new markets, lots of demand, you know, highly rapidly growing markets.

[562] And all the folks that he's surrounded himself with who are instrumental at SpaceX, they're all the, these are the bleeding edge of the bleeding edge folks in the space industry, the people who like Boeing and Lockheed aren't moving past enough for them.

[563] So they think there's this concept in the space industry at the time and how, been for many, many years that small satellites are going to take over.

[564] And there's going to be this big democratization of the space market, you know, and whereas it was just governments and big satellite companies that were launching big stuff into space, there's going to be small sats and cube sats.

[565] And now like everybody, there's going to be this massive opening of the market, kind of like there was with PCs and cell phones.

[566] And that's who SpaceX is going to try and serve exactly like PCs and cell phones like if you think about it the reason that a lot of these cubesats can do what they do is because we've got you know a few billion smartphones out there and we can massively bring down the cost of of you know the really innovative stuff that goes into creating something that you know fits between your hands outstretched yeah and it uh it really amazed me doing the research we've all heard this story about um space and small satellites in recent years with the venture funding in the space.

[567] But this was the story even back in 2002, 2003.

[568] That's true.

[569] That's a fair point.

[570] This is five years before the iPhone.

[571] Yeah.

[572] You know, eight, nine years before smartphones had scale.

[573] People were always thinking this.

[574] And, you know, I think it will materialize in the future.

[575] But the reality is it didn't quite materialize for a long time, a big market there.

[576] And so at this point, SpaceX makes a critical, critical higher that Ben, you were alluding to earlier, a woman named Gwen Shotwell.

[577] And Gwen is just an incredible force of nature in every dimension.

[578] Today, she is the president and COO of SpaceX and runs most of SpaceX at the time.

[579] It runs most of SpaceX today.

[580] At the time, she was the first salesperson.

[581] And so she had come, actually, interestingly...

[582] Vice president of business development, David.

[583] Don't call it sales.

[584] Oh, it was sales.

[585] Which, you know, in Elon's world is a good thing.

[586] And so Gwen started in the automotive industry earlier in her career, but then moved into the space industry.

[587] And she says, hey, wait a minute, guys.

[588] So everything around the company was architected to sell to this emerging market of small satellites.

[589] Like the Falcon, the Merlin engine was incredible.

[590] It was the most highly efficient rocket engine ever built.

[591] but the falcon one using one of these engines was a pretty small rocket and could get just small satellites up.

[592] I think it was like 70 feet tall.

[593] Does that sound right?

[594] It's like it's not...

[595] I can't recall exactly.

[596] When you think about walking up to a rocket and marveling at sort of this skyscraper structure, like that's not what the Falcon one was.

[597] 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.

[598] No. I mean, compared to like a Saturn or something like this is this is just a little bean shoot um and uh so gwen says you know yeah like let's go pursue you know try and sell to these small side guys but honestly the market like she knows the market and she says it's not there but i think you guys are i think she's the one he says this you guys are missing something the big players the governments uh the big satellite guys the department of defense NASA they're also interesting stadium what you're doing like they don't like it that they are paying so much money for all of these uh rockets and these launch uh operations that they need uh you know if we can prove to them that we can actually do this we can get some money out of the big boys and yeah and and and and and and importantly spent a decade at um at the aerospace corporation and microcosm so she sort of like knew the way that this industry did business and sort of knew the way that money flow around floated around knew like what the different total addressable markets were like I think Elon probably didn't have a pie chart uh on his computer of sort of like segments in the tam for sending stuff to space like Gwynn lived in that pie chart and um she was the second tab of the model yes and when we were alluding earlier to, of course, my comment on Gwen with the sort of benefits 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.

[599] She sort of is the force behind, hey, we're a shipping company, and that's going to fund the rest of this operation.

[600] Yeah, like proof of concept of the Falcon One.

[601] Let's load it up on a truck and let's take it to Washington, D .C., and just park it in front of the...

[602] I think it was in front of the FAA, not the petting on.

[603] But the engineers are like, what are we doing?

[604] This is crazy.

[605] This is like just showmanship.

[606] But it works.

[607] They get the attention of D .C. That's crazy.

[608] And I think I remember, too, is something like it's a more shiny, nice, idealized rocket than the one they were actually designing.

[609] But it had the SpaceX logo on it.

[610] Yep.

[611] So meanwhile, Tom and the team are working away at building the Maryland and the rocket.

[612] And, of course, the original, well, so the original goal was to fly in 2003 that gets pushed to 2004.

[613] And then finally in 2005, they're ready to go.

[614] And Gwen has managed to land not a small satellite deployer as the first customer, but the Department of Defense as a, they're starting to experiment with launching smaller satellites.

[615] And so they want to say, they say like, okay, we'll take a flyer on you guys.

[616] We'll put up a small satellite with you guys.

[617] You've never set a rocket to space.

[618] like let's take our satellite and we'll put that right there in the nose cone and the faring of your of your of your of your rocket so so they do um they believe they're going to launch out of vandenberg air force base uh just north l a in in california but uh typical bureaucratic red tape also because um uh there's some competitors that may or may not also have some launches going on at vandenberg at the time may have forced them out they have to go find another site so they scour the world, they find an abandoned, not abandoned, but an not currently used space in the Pacific Ocean between Hawaii and Guam and the Coagalian Islands, or Quaj, which is part of the Marshall Islands.

[619] Yeah, I think it's the Quadulent Atoll.

[620] The Quadulent Atoll.

[621] And they basically, they ship the rocket.

[622] They ship the company out there.

[623] They say, like, all right, we're going to set up a rocket launch site there.

[624] Yeah.

[625] All right.

[626] Well, let's talk about this.

[627] So the launch site is on Omalek Island in the Quadulent Atoll.

[628] And so if you work for SpaceX at this time and you have to go out there, here's how you do it.

[629] So you take a five -hour flight from L .A .X to Hawaii.

[630] You stay overnight.

[631] You catch the 7 a .m. flight to the Marshall Islands, which of course makes several stops in that area of the Pacific because you're not, you don't just have a every day back and forth single shot to the Marshall Islands.

[632] is like a place where, in fact, I think my high school guidance counselor went on the Peace Corps there.

[633] Like this is a remote, remote location.

[634] Also, sadly, a place where we tested lots of weapons in World War II, and I'm sure many other times.

[635] So then you get to the Marshall Islands.

[636] You then have another hour -long boat ride to actually get to Olamec Island.

[637] 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 times.

[638] zones all over the place just to do your job, which is top 0 .1 % in terms of cognitive requirement to do that job.

[639] Yeah.

[640] 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.

[641] They initially think they can launch in November 2005.

[642] There's a valve problem.

[643] The launch gets canceled.

[644] It takes them until March of 2006 until they get all systems go again.

[645] They ignite the Falcon 1.

[646] It takes off.

[647] It starts climbing.

[648] Everybody's going nuts.

[649] And about 25 seconds in, it blows up.

[650] And remember, it has the Department of Defense, you know, experimental small set and it's fairing as its payload.

[651] That gets blown out of the rocket, ends up falling through the roof of the building a of the launch facility there.

[652] Mostly ends up surviving.

[653] Oh, I didn't realize that.

[654] Yeah, a lot of the rocket ends up getting blown into the ocean.

[655] But Elon notes in his post -mortem from the event, it is perhaps worth noting that those launch companies that succeeded also took their lumps along the way.

[656] SpaceX is in this for the long haul.

[657] And come hell or high water, we are going to make this work.

[658] So they're not deterred.

[659] It takes them another year.

[660] to attempt a second launch, March 2007.

[661] This time they make it three minutes into the flight.

[662] The first stage of the rocket had separated.

[663] The Merlin engine did its job fantastically.

[664] The second stage kicks in the Kestrel, the smaller Kestrel engine, and that it's going to take the rocket in the payload up into orbit.

[665] Everybody's cheering, high -fiving.

[666] Then, as it says, as Ashley says in the book, it starts to wiggle.

[667] And I can also imagine this must have been so demoralizing.

[668] So two things I want to point out here.

[669] One is, and I remember thinking about this the first time I watched Apollo 13 when I was a kid.

[670] 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.

[671] And so you do.

[672] And you run computer simulations and, you know, you do your best, but you don't, what if you didn't think of, like, just one force that's going to be acting at one point during the journey?

[673] 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 coolant was like sloshing around, causing it to spin.

[674] It was that everything functioned perfectly as it was going up because the fuel tank was mostly full, but then when it got to the second stage and the fuel tank was getting down towards empty and there was all this empty space in there, it started sloshing around in and in the body of the rocket.

[675] And that started, started it wiggling and moving around in a circle.

[676] And then eventually it sloshed so much that there was an air bubble.

[677] And the air bubble got into the engine and it exploded up almost into orbit.

[678] God, that just must have been so demoral.

[679] I mean, to be a...

[680] Especially after just having the last year, yeah.

[681] A whole year.

[682] Yeah, I think it's, this is a good place to like just, just do a, all systems go on, on our terminology here because listeners, as you know, David and I, neither of us are in the aerospace, but I'd say, know enough to be dangerous here.

[683] So it's worth just articulating some of the terminology we're using and what are these rockets.

[684] So the things that, that's the big main body of the rocket.

[685] I'm going to work my way out from the, bottom is called the first stage.

[686] 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.

[687] It basically gets it off the ground.

[688] It gets it through the thick atmosphere of the close to the earth, and it sets it off on its sort of more horizontal journey to start orbiting.

[689] And of course, the engines are sort of attached to that, or in this case, in the Falcon one, just the one Merlin engine.

[690] 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 then it couldn't and and you know splashes down somewhere just casually dropped that yeah nowadays it can land doesn't it 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 then they're useless doesn't that feel barbaric like It was mirror a few years ago where it was the most amazing thing in the world that, oh, my God, we vertically oriented a rocket and that we can sort of like clean it up and then we can use it again.

[691] And now you're like, wait, wait, wait, I'm sorry, it's just wasted.

[692] It's just like you can never, it's just trash.

[693] Like, it feels like you just threw.

[694] It's at the bottom of the ocean.

[695] Yeah.

[696] Yeah, it feels like I just like finished a LeCroix and then threw it directly in a trash can.

[697] It's like the, you know that scene in Madman.

[698] I think it's in the first season.

[699] maybe where um the draper family is out on a picnic in a park and they just yes and they just dump all the trash they dump all that they pick up the blanket and just kind of shake it and all of it just gets and then they just walk off like happy family i take it back this is like finishing your now gene water bottle and then throwing it in the trash it's like it's amazing how your perspective changes but anyway i i digress so we uh so we've got through that first stage then you've the second stage of the rocket or um you know the this is the part that does something out in space this has another engine on it david you just mentioned the kestrel engine that's the smaller engine that's sort of better for little maneuverability out in space because these uh merlin and then later the um what's the current remind me the oh uh raptor yeah the raptor these are powerful freaking engines like if you're going to go try and dock it against something that's going to create a problem and so you big freaking baseball bat yeah yeah yeah It's the falcon punch.

[700] And so you've got this, you know, smaller stage that has a single, you know, smaller engine on it.

[701] So that's the second stage that we're going to talk about.

[702] It does stuff in space.

[703] Then there's one more thing on top.

[704] And that can be one of two different things.

[705] One is a payload that is contained within, I think the right way to say it is within a faring.

[706] I think so.

[707] Or maybe within farings.

[708] But basically the faring splits into two, those things fall back toward Earth.

[709] And then it's got something in there.

[710] got, for example, a satellite or a bunch of satellites in there.

[711] The other configuration is that it could have a capsule on there.

[712] That would be a spacecraft that, you know, humans could operate one day.

[713] Who knows?

[714] 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.

[715] But it's, at least in SpaceX's case, because it's a relatively straightforward design.

[716] design.

[717] It's good to just sort of keep it in mind so you can go, oh, okay, and follow along.

[718] Yep.

[719] Yep.

[720] So they were so close.

[721] They were so close to actually doing this being the first private company ever to launch a satellite into orbit.

[722] And then right at the last minute, it failed.

[723] So they're undeterred.

[724] In a classic Elon fashion, he says, not only are we go for number three, we're gopher.

[725] So this is the Falcon 1, which was both the first and one engine, one Merlin engine.

[726] They had been, Tom Mueller's genius, he and Elon had been thinking about this isn't just one of, this is a modular system.

[727] And you could, you can have multiple of these engines put together and build bigger rockets with the same engines.

[728] 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 Merlin engines.

[729] and then the Falcon 9 with nine Maryland engines.

[730] 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.

[731] I'm killing the Falcon 5 to green light the Falcon 9.

[732] All systems go development on that while we haven't even launched the Falcon 1.

[733] Now there was a big reason why he did that, which we've been building up for the whole episode.

[734] But when we add eight more and an octo web around that, engine, it will really work.

[735] It will really work.

[736] And to be fair, the first stage did work.

[737] So that second launch was a success by some measure, although they never could have delivered whatever payload was, you know, on the second stage and going into space.

[738] Yep.

[739] So with a 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 One launch from the island to go.

[740] the first attempt on August 2nd, 2008, they have to abort the launch at T minus zero seconds, but they've got a launch window, the weather's cooperating, and they're going to try again on the same day.

[741] They go later on that same day.

[742] It all starts working well again.

[743] And then there's another failure before the first stage is even finished.

[744] And Elon only has so much money.

[745] I know.

[746] I know.

[747] It's just like, it's crazy.

[748] So Elon is, what, put, so we said a total of $100 million into SpaceX.

[749] I think he said at some point that that was enough for three or four.

[750] And I'm quoting the wait but why.

[751] Or four urban here, which is great, which is three or four launches.

[752] Right.

[753] But that's cool because, you know, hey, look, like he's deep into this.

[754] He said they're going to do this hell or high water.

[755] He's put $100 million in, but he made like close to $200 from PayPal, right?

[756] So like he's good for it, right?

[757] No, he's not.

[758] because this is 2008 and two things that just happened.

[759] This is summer of 2008.

[760] One, Elon has now, summer of 2008, he takes over as CEO of Tesla and he's pumped almost all of the rest of his money into Tesla.

[761] 70 million.

[762] 70 million.

[763] And two, Lehman Brothers is about to collapse and the world is about to, the financial world is about to go nuts.

[764] So good luck raising money.

[765] So internally, like he keeps it cool.

[766] head to the company and externally, but internally he is like freaking out.

[767] So what does he do?

[768] He calls up his old friends from PayPal who are now at Founders Fund.

[769] Hey, remember that time we were into McLaren?

[770] Yeah.

[771] He calls up Peter and Peter's partners at Founders Fund and says, yeah, I didn't want to raise outside capital.

[772] But I guess if I'm going to do it from anybody, I'll do it from you guys.

[773] Peter, you replace me as CEO.

[774] once, so there's no way you would do it again.

[775] Yeah, right.

[776] Well, I don't think that was Peter's choice to replace him at Payton.

[777] No, I don't think it was.

[778] And so Founders Fund in the summer of 2008 invest $20 million into the company.

[779] That is enough to very quickly turn around for a fourth and what would be final attempt to do the first successful launch of a Falcon 1 the very next month in September 2008, the same month that Lehman Brothers went under.

[780] They finally succeed in a launch.

[781] And it's crazy.

[782] They only have a dummy payload.

[783] 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 communication satellite.

[784] And that was not until the next one.

[785] Yes.

[786] Well, the Malaysian government didn't even trust them enough that it wasn't going to blow up.

[787] So they said, all right, we'll let you take us up.

[788] But on this one, you got to put a dummy payload on there.

[789] And like, if this works, then you're going to do another one and you're going to take our actual satellite up.

[790] Yeah.

[791] And revenue for these Falcon 1 launches was pretty low.

[792] It was something like $10 ,000, $12 million.

[793] Yeah.

[794] Oh, wow.

[795] So that's even...

[796] The initial price was $7 million.

[797] I don't know if they'd raised it by this point in time.

[798] Well, they only ever did five launches at the Falcon 1, so...

[799] They did.

[800] Couldn't have climbed too high.

[801] So they finally succeed.

[802] Elon gives a speech afterwards.

[803] In classic Elon, he says, well, that was freaking awesome.

[804] there are a lot of people who thought we couldn't do it a lot actually but as the saying goes the fourth time is the charm right there are only a handful of countries on earth that have done this it's normally a country thing not a company thing my mind is kind of frazzled so it's hard for me to say anything but man that was definitely one of the greatest days in my life now to be fair he has a family and five kids and so yes one of but like classic Elon I think probably for most people here, too.

[805] We showed people we can do it.

[806] This is just the first step of many.

[807] I'm going to have a really great party tonight.

[808] I don't know about you guys.

[809] So, Elon.

[810] Was he on the quodge?

[811] Like, or do you know where?

[812] I believe he was there.

[813] Yep.

[814] Okay.

[815] Because this was it.

[816] Like, everything was writing on this.

[817] And he had taken out a loan against his SpaceX, or he was about to take out a loan against his SpaceX stock to fund Tesla at this point.

[818] Yeah.

[819] I mean, that's, that's a whole number.

[820] another story.

[821] I suppose that's worth telling here too.

[822] Well, we'll get into that in one sec. But the code on this is that finally in July 2009, they did do a fifth launch of the Falcon 1 to get the actual Malaysian satellite up into orbit.

[823] But by this point in time, they had already moved on to what was going to be the real business model here, which is the Falcon 9 and government contracts.

[824] Yep.

[825] And again, the real business model of the space shipping company.

[826] We're still very far from the, hey, we own a rocket and we're our own internal customer.

[827] Like, we also own things that we're sort of operating in space.

[828] We're very much, hey, we're a shipping company.

[829] We're a shipping company, indeed.

[830] So remember a little bit ago when Elon and Gwen put the model of the Falcon Rocket into D .C. and started, you know, carrying favor there.

[831] And remember all the way back to that trip to Russia where the guy Mike Griffin was along for the ride.

[832] Well, guess who's head of NASA at this point?

[833] Mike Griffin.

[834] Mike Griffin.

[835] Just incredible.

[836] And he was a Bush administration appointee, if I remember, right?

[837] Indeed, he was.

[838] Indeed, he was.

[839] And then I believe he resigned amicably when the Obama administration took over.

[840] So this is right under the end of his tenure.

[841] Like, literally the 11th hour, we're talking here, at the end of, of December 2008.

[842] And presumably through Mike in other contexts, Gwen and Elon had found out that NASA was going to bid out a resupply contract, a new resupply contract for the International Space Station.

[843] And this is going to be a big, big contract.

[844] And NASA was maybe open to a new entrant in the space potentially taking on this contract.

[845] Yeah.

[846] I mean, reflecting back now understanding who the NASA administrator was at the time makes a lot of sense how incredibly fast SpaceX was able to build and be awarded this contract.

[847] I'm sure they went through all the proper review and everything, but that relationship has to help.

[848] I do want to give a little bit of context to listeners on sort of what a big shift this was in space space.

[849] policy.

[850] Like, if you think about the Apollo missions, like, NASA would design something.

[851] It was the NASA engineers, and then they would bid out these sort of subcontracts to different people.

[852] And, like, ultimately, it was a NASA owned and operated vehicle that they paid enormous amounts of money to someone else to build, and then they'd run their own missions on it.

[853] And this is, you know, over many more decades than sort of getting compounded, things get more expensive.

[854] They're bidding out more and more and more.

[855] If you're, you know, Northrop Grumman or Lockheed Martin, like, you then have subcontractors under you and on and on.

[856] 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.

[857] And like, we will pay you to do that for us.

[858] Whoever can do it cheapest and best.

[859] Yeah.

[860] Like, that's, that's, that's all we're asking here.

[861] And that's like a staggering shift in policy that enabled this to actually happen.

[862] The nuts and bolts of it are cots, the commercial orbital transportation services that later led to other contracts for both cargo to go to the ISS and people to go to the ISS.

[863] But this is what they call a space act agreement, which is sort of like a contract where the, you know, NASA has done a ton of these over the years.

[864] But this, this timeframe we're talking about this 0 -608 timeframe is when they really started to use them to say, hey, can, uh, want to you be a shipping company for us?

[865] Um, and, and we'll, uh, we'll fund you helping to build your UPS trucks and figure out how to design those.

[866] Um, but then you get a big contract for doing the shipping for us.

[867] And you may know this more than me. I was, was Mike kind of the architect of this huge change in policy for NASA?

[868] Uh, he was, I don't think the architect, but it was definitely under his watch and a big, a big shift for sort of the industry that he's sort of credited with kicking off.

[869] Yeah.

[870] I mean, this is, this is so huge and incredibly visionary.

[871] I mean, without this change in the way NASA operated, like, there'd be no SpaceX.

[872] There'd be no, none of all the innovation that's happened in space.

[873] Like, it's incredible.

[874] So the thing is, you know, for SpaceX to bid on this contract, they got to be able to get that stuff, like a lot of stuff up to the ISS, that means you need a lot more than the Falcon 1.

[875] So back, remember when Elon canceled the Falcon 5 and said, we're going straight to the Falcon 9, this is what it was all about.

[876] They needed the 9 to be able to get up to the ISS and bring enough stuff up there.

[877] So this is crazy, like 2008 is winding down.

[878] We're in December 2008, like Elon is literally running on fumes.

[879] Like he's not going to be able to make payroll at either Tesla or SpaceX.

[880] for like the January 1st, 2009 payroll on December 23rd, two days before Christmas, they get the news from NASA.

[881] They have one.

[882] They're two winners, two companies get the contract, split the contract.

[883] SpaceX gets a big part of it.

[884] $1 .6 billion payment from NASA to fund.

[885] I think it was 12 missions, cargo missions up to the ISS.

[886] And it's just like game change.

[887] I remember they were charging, you know, $10 million on the order of that for like a space for a Falcon One launch.

[888] You know, this is, this is $1 .6 billion for 12 missions.

[889] Just completely changes the company.

[890] So at this point then Elon does a whole bunch of stuff.

[891] He also has, he's quoted in the Ashley Vance book as he says, it's like the flipping and he doesn't say flipping matrix.

[892] the moves, the financial moves that he was making to stay alive at this point.

[893] So this contract comes in.

[894] He takes out a loan against his SpaceX shares.

[895] Unreal.

[896] He's an investor in a company called Everdream, which is a hosting company, gets acquired.

[897] He gets liquidity from that.

[898] And he's able, like, he's able somehow to make it out of this with both Tesla and SpaceX surviving him with SpaceX at this point, like completely set up to to transform from these rag -tag guys are launching, you know, rockets from an island in the Pacific to like, no, we're going to Cape Canaveral.

[899] We're launching out of the Kennedy Space Center.

[900] Yeah.

[901] Completely incredible.

[902] It's worth, you know, you say they make it out alive by the skin of their teeth and it was a near -death experience.

[903] That will continue to happen for Tesla over and over and over again in the coming years.

[904] I mean, like 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.

[905] all watch them go through.

[906] Funding secured.

[907] Yeah, I mean, it would be nice if you weren't triggering SEC investigations, like that would make it easier.

[908] 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.

[909] They didn't have the constant near -death experience after this that Tesla would have.

[910] SpaceX is a company that very, very quickly grew from this rag -tag bunch of guys that smelled bad and we're all sleeping in a room in the quodge to suddenly having guaranteed revenue if they could come through on some promises.

[911] So they staffed up aggressively.

[912] They got huge and they turned into a grown -up company.

[913] And of course, they kept a lot of their same culture.

[914] I mean, Elon famously has these weird interviews that he did for the whole first thousand people and all the engineers.

[915] years after that and, you know, it's a very different company that's still aggressive on vertical integration that's still, you know, a lot of the same principles.

[916] But like, they weren't on the verge of dying constantly the way that we described Tesla in that last episode.

[917] Yeah, this is the moment when it, like, it's all a step change at this moment.

[918] And again, like, I think it was all the way back to Gwen saying, like, no, no, we got to go, like, this is the market.

[919] We got to go after.

[920] these contracts and then having Mike as head of NASA and like having this come through.

[921] Yeah.

[922] So the other thing, so now they got to make the Falcon 9 work.

[923] But again, because Tom had Mueller designed this modular in a modular fashion, like they know the Merlin engine works now and the Kestrel second stage engines.

[924] It's a lot easier.

[925] Even like you said, Ben, with stringing together an octo web, which is the configuration that they have them in together.

[926] But it's a lot easier to go from, you know, that to building a whole brand new engine to take up a rocket the size of the Falcon 9.

[927] The other thing they have to do, though, is they have to make a capsule to go on top of it.

[928] So they're not just taking satellites up.

[929] They got to take a spaceship up, now an unmanned spaceship to bring cargo to the ISS, but a spaceship nonetheless.

[930] And so they...

[931] That would have poke funny hear from it.

[932] in the wait but why article one of the best lines is uh when he's describing the thing that i did with each component of this the rocket he's like and of course the thing that sits on top is a spacecraft or if you're nine a spaceship yeah that's right oh i thought you were going to go at the other part of that post where um you know of course these things all look like uh back to childhood Phalluses.

[933] Yeah.

[934] For sure.

[935] I mean, basically we're all nine years old, you know, with everything that's happening here.

[936] For sure.

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[956] Well, is it worth talking about a little bit of context around the space industry around them at this point?

[957] Yeah, go for it.

[958] Yeah.

[959] So I alluded earlier that, you know, SpaceX has been heavily revenue funded and, you know, lots of that by NASA.

[960] There's a great publication, which is the great thing about NASA is it's a government agency.

[961] So everything's public.

[962] So there's this audit.

[963] It's called Audit of Commercial Resupply Services to the International Space Station.

[964] And this is published in 2018.

[965] that has this great diagram of, you know, money that flowed to different companies, SpaceX, Boeing, Orbital, Sierra Nevada, others, and what it flowed for, all the different programs, be it commercial crew or shipping people up.

[966] And SpaceX has received $7 .7 billion in contracts from NASA for launches, which is astounding.

[967] compared to a company that would be trying to sort of do as much as SpaceX has done without actually having a customer on the end of every rocket, it'd be impossibly hard.

[968] I mean, it would take so much more capital and it would change your priorities.

[969] 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.

[970] 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.

[971] And so, you know, NASA's been responsible for $7 .7 billion of that.

[972] The other thing that NASA has put in money for, which has been really interesting, is when you mentioned the spaceship, David, which would ultimately be called the dragon capsule, developing the sum total, the Falcon 9, which we're about to go into the story of, and the dragon, that cost about $400 million of NASA's money and about $450 million of SpaceX's money to go and develop that.

[973] 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?

[974] And it basically, what they find is the number's about $4 billion.

[975] Wow.

[976] So it is one -tenth the cost.

[977] Absolutely.

[978] 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.

[979] Yeah, it's actually, you know, I hadn't thought about this till down to we're recording the episode.

[980] I suppose you could listen to everything we just said and say, wow, what a case of cronyism.

[981] Like, you know, this dude, Mike was on the initial trip to Russia with Elon and then he's head of NASA and like, of course they get the contract.

[982] I don't think that's what's going on here at all.

[983] Like, this is a combination of several people, all the folks at SpaceX and Elon, Mike at NASA, lots of other people in the government and the DOD, coming together and saying, like, the industry needs to, like, innovation has died and progress has died in this industry.

[984] And we need to change the way it works.

[985] And if we can do that, you know, maybe we can get people excited in recording podcasts about a space launch again.

[986] And here we are.

[987] And build a real industry.

[988] Yeah, I mean, this is an actual great example of sort of a win -win, where, you know, they're able to enable a company to bootstrap itself by, you know, SpaceX now owns and operates rockets that NASA is not paying them for, and missions that NASA is not paying them for.

[989] So, you know, in the one hand, you could say, hey, come on, that's, that's a taxpayer money that's now going to allow this company to generate profits and enterprise value all on their own.

[990] Well, it's a win -win because it costs the taxpayers a lot less to get these these missions done.

[991] And I think it's just this really interesting example where, I don't know, who loses here?

[992] Probably just the congressman who represented districts where there was a sub -sub -sub -sub - contractor and they were, you know, winning on sort of bureaucracy to be able to win those contracts.

[993] But yeah, it's a great example of a growing pie.

[994] So this is probably a good time to give a little context on the industry around SpaceX, because they're not the only people that NASA is trusting to go and send stuff up.

[995] They're awarding contracts to other people.

[996] They're a big incumbents.

[997] So what the heck?

[998] This startup isn't just going to come in and win the one point, whatever billion dollar contract and everybody else goes home.

[999] And, you know, that's not how this is going to play out.

[1000] So what's happening in the industry around them?

[1001] 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.

[1002] So that's the only thing that we know that it costs.

[1003] So we're just going to keep going.

[1004] you know, these things are funded by the military and NASA, and all the stops were pulled out for reliability and performance.

[1005] And, you know, we talked about how it's very subcontractor -driven here.

[1006] So the, if you were a sub -sub -sub -contractor and you could make your thing slightly more reliable or slightly more performant, even if that's not totally necessary for that, you know, practical purpose for that mission, you know, you do it anyway to kind of win the bid.

[1007] And so you can almost think of these existing space incumbents, like United Launch Alliance, who will go into detail on, as sort of the Intel of this world and Intel today, where SpaceX is a lot more like the arm.

[1008] And the reason I draw this comparison is, you know, Intel made much more powerful chips for computers, but notoriously lost in smartphones.

[1009] But, you know, those chips were hotter, they were bigger and they were more expensive, which is fine when we all had desktops.

[1010] And SpaceX being like these arm chips, you know, especially early on and having this, you know, sort of toy rocket with the Falcon One worked under a very different set of requirements.

[1011] 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.

[1012] Especially because they controlled the whole stack.

[1013] Right, exactly.

[1014] But initially, it didn't seem very useful for anything.

[1015] I, I, I, I don't know for sure, but this feels like it could be a case of disruptive innovation here.

[1016] Yeah, I mean, the Falcon One definitely looked like a toy to do a lot of people in the industry.

[1017] Right, absolutely.

[1018] You don't look at the Falcon One and say, well, they're just a few years away from resupplying the ISS and probably sending people up to it too.

[1019] Like, it's just not your natural inclination there.

[1020] But David, as you were mentioning, like the design requirements around a lot of the other stuff that they would send up in the meantime was totally changed with these small satellites, CubeSats, commercial space sort of developing.

[1021] 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.

[1022] So Lockheed Martin and Boeing had both been longtime government contractors.

[1023] They built amazing things to their credit, still build amazing things.

[1024] And a few examples, Lockheed made that big orange tank on the space shuttle that we all know and it's iconic.

[1025] And I think still one of the most elegant, you know, when you see the space shuttle launch videos, that still to me is this romantic version of space that in some ways the SpaceX rockets aren't as beautiful and don't just sing space to me the way that that shuttle design did.

[1026] They also made the Hubble telescope and the Mars lander, so the Phoenix, so lots of really storied stuff that they manufactured.

[1027] Boeing, on the other hand, made everything from the lunar rover back in 1971 to the actual space shuttle orbiter itself, so longtime space companies.

[1028] So here we are in 2006, Boeing and Lockheed, and I think it's important to understand their motivations, because then you really get the context for what people thought the space industry was.

[1029] Boeing and Lockheed had decided that the one real customer that they were both doing work for was the U .S. government, but the government didn't have enough business for both of them to justify their massive size.

[1030] 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.

[1031] Boeing already had the Delta, Lockheed had the Atlas, these existing rocket programs.

[1032] It kind of sounds like a good idea, unless you've heard this story before or a story much like it.

[1033] 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.

[1034] Something where ULA had a massive advantage with all the existing contracts that the two companies had.

[1035] they actively continued to work on the space shuttle program for another five years after this.

[1036] They just had years of knowing how the industry worked.

[1037] But what they didn't see was that the industry was undergoing this massive change, you know, for one, with other potential non -U

[1038].S.

[1039] government