SpaceX: A First Principles Company

SpaceX is using first principles to lower costs to launch rockets into space with the end goal of making human life multi-planetary.

Why haven’t we witnessed an alien encounter?

Space X CEO Elon Musk ascribes to the theory its because before any aliens out there can develop interstellar travel technology, mass extinction events (asteroid strikes, biological epidemics, black holes, possible nuclear wars in humanity’s case etc…) occur that wipe out evolving species. That’s the premise behind Space X’s start and their CEO’s belief that to preserve the light of human consciousness, our species must become multi-planetary. But to become multi-planetary, Musk argues the economics of space travel must be sound, and for the economics of space travel to work, the cost of launching things (to include humans) into space must become inexpensive, an order of magnitude cheaper than it what it currently costs.

spacex-launch

The business model of SpaceX is simple. Space X creates and captures value by charging customers to launch things into outer space. They are able to capture more customers by driving down launch costs. There is a lot of opportunity in space but it is costly to put something out there and only the largest telecommunications companies and government agencies can pay to launch satellites, experiments, or people into space. In 2010 NASA was paying roughly $380 million per launch. Currently, when you watch a rocket launch something into space, that rocket is disposed of and can’t be used again. Musk often relates it to the idea of having to throw away a 747 airplane after every trip. If this was the case, a one way ticket from Boston to Shanghai on a 747 would cost $500,000. No one would pay, and no one would travel via airplanes. Space X advertises a roughly $60 million launch price, but believes it can cut that price by an order of magnitude if it can develop reusable rockets. How were they able to cut launch costs and why do they think can cut the price even more? Their operating model enables these cost cuts and is founded on the ideas of first principles.

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The definition of first principles, (as defined by Google), “is a basic, foundational proposition or assumption that cannot be deduced from any other proposition or assumption.” When applied to engineering and rocket manufacturing, it forced Musk to ask, what is the commodity price of the raw materials required to build a rocket? And what he discovered was that the price of raw materials to include rocket fuel was ~2% of the average rocket cost. Musk and the Space X engineering team use first principles thinking to solve problems. They don’t look at what the competition is doing, they boil problems down to their simplest elements and build solutions from there. First principles logic is what has led to Space X conducting all manufacturing in house, 3D printing many elements of their rockets, and has allowed them to win significant launch contracts from entrenched competition. First principles allows them to drive costs down which is in line with their business model. In turn, their business model forces them to use first principles thinking which improves performance. The alignment between their operating and business model is allowing them to lower costs when compared to any of their competitors and disrupt a slow moving space industry.

References:
http://www.spacex.com
http://aeon.co/magazine/technology/the-elon-musk-interview-on-mars/ (highly recommend reading)
http://www.businessinsider.com/elon-musk-first-principles-2015-1
http://99u.com/articles/25075/run-your-meeting-like-a-boss-lessons-from-mayer-musk-and-jobs

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6 thoughts on “SpaceX: A First Principles Company

  1. I love the work of SpaceX and actually think that it has the potential to be one of the more interesting companies of the next generation. It sounds like Elon has the goal of ultimately using SpaceX to explore space, but it will be interesting to see if, and how, he is able to balance that goal with the goal of making the industry profitable. It would be great to see further partnership between SpaceX and NASA as a way to make both of them better and more efficient. NASA’s shift toward unmanned aircraft, while cheaper, just doesn’t have the same wow factor that it used to. It would be great to see an organization out there that once again challenges what we can accomplish as a species. I hope that SpaceX can figure this out to really ramp up our exploration of space. Great choice for a company to look at! Hopefully they can keep up the good work and continue to innovate.

  2. It was great to read about the idea of first principles and SpaceX’s commitment to a full stacked approach which is not surprisingly consistent with Elon’s strategy at Tesla to control all aspects of the production process. It’s also interesting to consider the role launch contracts play in protecting SpaceX’s position moving forward if/when competitors respond to their approach.

  3. Hi Brandon, thanks for this article! I didn’t know SpaceX, but I’ve always been very interested in space and the universe, so I really enjoyed this post.
    It’s very interesting the “first principles logic” that SpaceX is applying in the aerospace industry. I think it has a lot in common with the design thinking processes that we’ve learned in class. This also demonstrates that it’s possible to be disruptive and to create new ways of doing things in virtually any industry by re-thinking from scratch and not just relying on the given, general assumptions. Thinking out of the box.
    I also liked to learn that SpaceX is using 3D printing, since I believe 3D printing is going to change the world in the next decades. It’s great to know that there are companies already applying this technology in such a sophisticated sector as the aerospace industry.

  4. The concept of “first principles” is very interesting. When taking on “big” problems like space travel, I would imagine this approach can be very effective. At what point do you think SpaceX will relinquish control of specific aspects of the project – such as outsourcing navigation technology or rocket design? I realize Elon likes to maximize control over the projects he takes on, but for something like this to scale to his ultimate goal of allowing humans to become multi-planetary, he may have to share portions of the value chain. I wonder put part of the value chain Elon views as being the most valuable over the long-term and how that affects his investment decisions today? Obviously they’re focused on perfecting the launch sequence and enabling the recovery of the rocket system at this initial stage of development. In the longer term, will this be where SpaceX hopes to play, or will it be in space travel itself? As compared to automobiles and Tesla’s initiatives there, it will be interesting to see what synergies Elon attempts to realize.

  5. Interesting read. Is there a difference from “first principles” to starting from a blank slate? Seems similar to re-engineering a process in order to lower costs. I wonder what the drawbacks are? With such tangible benefits as reducing project costs hundred of millions of dollars, why haven’t other companies ascribed to this philosophy? Hopefully SpaceX will succeed and we’ll all be able to learn something from their journey. Cheers.

  6. Great post Brandon. Elon Musk is a genius. Using first principles to build a rocket is basically like going to the drawing board and solving a problem from scratch. It is what a child, who just learnt a new concept, would do if she wasn’t aware of the solutions already out there.
    I wonder if they patent their technology to keep their competitive advantage or they plan to make it open source like they did with Tesla (http://www.forbes.com/sites/briansolomon/2014/06/12/tesla-goes-open-source-elon-musk-releases-patents-to-good-faith-use/) ? Either way, they are disrupting the industry in a way that no one has before!

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