SpaceX: the closest Elon Musk bankruptcy story

It began as a dream to take mice and plants to Mars and ended up as the first private company to carry NASA astronauts to the International Space Station. And, along the way, it survived many crashes and an almost inevitable financial extinction. 

We talk about SpaceX, and today, we dive deep into its history, filled with crazy anecdotes and valuable lessons, to see where the company aims to be soon.  

So let's get started with SpaceX in this episode of Company Forensics.

Beginnings

You and your buddies are flying to Moscow to buy a refurbished Intercontinental Ballistic Missile or ICBM. 

Hold up. Did you know buying used ICBMs was a thing? 

Anyways, you have one goal: to buy a used ICBM and get closer to your purpose of sending mice and plants to Mars. That's right. You heard it right: mice and plants, on Mars.  

But the sellers look at you, think you're a rookie, and spit on you, literally. Well, that's what happened to Elon Musk in 2001.

But he wasn't done. 

One year later, he returned with more talent and, most importantly, more cash, a lot more. This time, the sellers didn't spit on him and, instead, drank vodka to begin the negotiations. And Musk was serious about business: he wanted not one ICBM but three. His offer, however, came up short, so again, they mocked him. 

Pissed off, Musk stormed out of the building and went straight back to the airport. On the flight, he turned to his team and came up with an idea: "Guys, I think we can build the rocket ourselves."

Back then, Musk wasn't known for weird pickup trucks and a Tony Stark vibe. Instead, he was a young dotcom millionaire, having made a fortune by selling companies like PayPal.

The fortune he made was now a steppingstone for his obsession: space. With millions in his bank account, he could finally pursue his dreams in a way only he could. For example, he crashed Mars Society dinners and donated hundreds of thousands of dollars to the organization.

In these dinners, pretty much a who's who of rich people obsessed with space, he told everybody about his idea to create a mars greenhouse or maybe even send mice to mars and bring them back, with offspring included. These were crazy thoughts, but there was one idea that stood out: he wanted space travel to be cheap.

SpaceX is born

With his goals clear, Musk founded Space Explorations Technologies, SpaceX, for short, in El Segundo, California, in 2002. Here's a quirky fact for you: SpaceX's location was so massive Musk could drive straight up to his desk in his silver McLaren. Ah, the millionaire's life. 

But he also structured the place for complete integration. He, and the engineering department, worked side to side with the construction department. Musk even unloaded cargo himself, so he could learn all the details of what people were doing.

Musk had also concluded that SpaceX could build 85% or more of a rocket in-house, which would help them free themselves from having to deal with vendors, with their higher costs and longer production times. 

During these first stages, some called Musk a lunatic while others stepped in to defend him, but it's understandable why people doubted him. When he announced their first rocket, the Falcon 1 (a tribute to the Millennium Falcon), he announced it would carry a 1400-pound load for $7 million when the competition was about $30 million.

The first launch would be in November 2003, just fifteen months after founding the company. He even hinted of a trip to Mars by the end of the decade. Ambitious, to say the least.  

Musk, however, had a dependable team around him to back up his talk. He hired young, talented individuals with similar determination, such as Tom Mueller, an aerospace engineer who became one of the founding employees at SpaceX. He led the development of the Merlin engine, used in the Falcon rockets. 

And this team was relentless. One story goes that SpaceX needed a turbopump. A company like Boeing would take five years and $100 million to produce said pump. But Musk and Mueller managed to get a supplier to build one in 13 months, for just $1 million. 

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SpaceX also wanted to shake the industry altogether, according to expert Chad Anderson. In 2004, Musk protested a contract NASA gave to a defunct company called Kistler Aerospace, as no other company had a chance to participate. The Government sided with SpaceX, further opening the doors for private space transport. 

But the promised 2003 launch hit bumpy roads. The engine design was taking longer than expected, with rising costs, and Musk had consumed himself in yet another massive project called Tesla, you might have heard of it. 

He was investing millions into SpaceX and also invested $70 million into Tesla, after which he ended up as CEO. So now, he had two companies with visionary ideas but a thirst for funding. Musk has repeatedly stated that both projects almost collapsed on themselves.  

SpaceX didn't make the original 2003 deadline, but this didn't deter Musk. He sent the entire team to an island in the Pacific, which previously used for missile testing, to prepare for the launch. But each time they tried to send Falcon 1 to space, new technical issues came up, so it was back to the drawing board. It wasn't until March 24, 2006, that conditions seemed adequate for the first Falcon test flight. 

And so, Falcon 1 flew to the heavens. Things were going great. Until 33 seconds after liftoff, when the engine failed, and the rocket stumbled to the ground, crashing into a fireball.

But Musk was determined to have another launch in six months, even if the rest of the crew felt it would be too soon. Keep in mind, SpaceX needed to get going as fast as possible. 

So, he had a team working on getting Falcon 1 up and running again. Then he assigned another team to work on Falcon 9, a possible replacement for the aging space shuttle program. And, meanwhile, he was bidding to become a supplier for NASA flights, all of this without one successful launch. 

It's important to highlight that, by then, SpaceX received seed money coming from the Commercial Orbital Transportations Services (COTS) from NASA. The funding was initially $278 million. Eventually, it would reach a total of $396 million, but it wasn't for Falcon;  instead, it's objective was to help in the development of the Falcon 9 project and the Dragon Capsule.

Falcon 1 was having a tough time getting off the ground; the second and third launches failed, and all the while, Musk kept injecting funds both to Tesla and SpaceX.

The need for money

Falcon 1 eventually did fly. But it wasn't easy. By the fourth, and first successful launch, SpaceX had almost no money and hurried so much, the first-stage component still needed improvement and disintegrated upon reentry. 

By the time Falcon 1 made its successful maiden flight, SpaceX needed a lot of money, so did Tesla. Sources say Tesla was burning about $4 million a month and, Musk has said, in retrospect, that he almost came down to choosing one of the two, either Tesla or SpaceX.

The successful Falcon 1 launch did put SpaceX on the map when it came to investors. After all, it was the first private liquid-fuel rocket to enter orbit. But, it was 2008, and the recession hit hard. Both companies were depleting their funds, and it came down to the wire as Musk had just a couple of hundred thousand dollars to spare. 

It came down to the wire. SpaceX caught a big breather when they landed a new contract with NASA to provide a launch platform for space cargo, for a healthy $1.6 BN. As for Tesla, Musk managed to gain a new round of funding with $40 million. When? December 23, 2008, just days before bankruptcy. Quite a Christmas gift.

Now, all he had to do was make his rockets work. Easy, right?

As for Falcon 1, it had its second, and final, successful launch in July 2009. Now, SpaceX focused its attention on the newer and larger Falcon 9. The first noticeable trait: it had not one, but nine Merlin engines. But this was a much more ambitious program: Falcon 9 would be able to carry the most cargo of any spacecraft.  

But it didn't end there. Along with Falcon 9, SpaceX worked on the Dragon Capsule, to carry cargo to the ISS. If they accomplished this, they would achieve yet another first in the industry.  

At least, it seemed like the lessons learned from Falcon 1 were of great help. Eleven months after the final Falcon 1 flight, in June 2010, Falcon 9 successfully launched and placed a mockup of the Dragon capsule in orbit. Then, in December of that year, it launched a second time with an operational Dragon capsule. 

Not perfect, though, as on both occasions, the boosters disintegrated in reentry. But the company kept going; by 2012, its Dragon capsule docked with the ISS, making it the first commercial spacecraft to do so.

SpaceX now meant business. Before the launch of the Dragon capsule, its valuation was at about $2.4 billion. After the success, the value jumped to $4.8BN.

Then, they landed a contract to be part of the Commercial Crew Program, with NASA, and develop a crew capsule for the next generation of US human capabilities.

You see, after the cancellation of the shuttle program, NASA relied on the Russian space program to ferry astronauts to the ISS, at the sum of $80 million per astronaut. Not a bad deal for Russia. But NASA desperately needed another option.  

And SpaceX now became a commercially viable space transportation company. By the end of 2012, it had 40 launches. In its 10-year history, the Falcon 9 has launched 89 times with a 97.8% success rate, one of the highest in the world.  

SpaceX was so big that even another giant, Google, ended up investing in it, as part of a funding round with Fidelity totaling $1bn for 8.33%, valuing the company at $12 BN. The biggest internet company joining a space transport company sounds like space domination to me.

Breaking the norm 

SpaceX has always aimed to be the cheapest company in space transport. It can manage this through strategies like reusing components, mainly the boosters. Check out the Grasshopper tests; they're cool. Also, manufacturing most components in-house allowed SpaceX more control over costs, further lowering them. 

But the strive for reusability comes at a cost, a mental one that is. Max Vozoff, a former employee at SpaceX, recalls that this obsession drove engineers insane and that, "we could've had Falcon 1 in orbit two years earlier than we did if Elon had just given up on first stage reusability."

But then, check out what he says: "(Elon) he forces them to do what's hard. And I admire that about him."

Well, it did work. Eventually, SpaceX managed to land the Falcon 9 first stage component, which is big news because it can drive the price further downward. 

But, let's go back a bit: why is NASA so expensive? 

Musk's view on it is exciting and harsh. He believes the contracting system guarantees manufacturers some profit, even if they exceed the advertised price. Shareholders want to make money, and a cheaper option for NASA means less income for them. So, Boeing and Lockheed maximize costs on the verge of cancellation. 

Of course, Boeing and Lockheed have rejected his comments. 

But, he's somewhat right. The United Launch Alliance (ULA) estimated a cost of $400 million per launch, and the European Arianne program costs $137 million. SpaceX, on the other hand, has offered launches ranging from $50 to $60 million. 

Now, what does this all mean? SpaceX forced the entire industry to rethink itself. ULA aims to redo its business model; the European Space Agency filed for more subsidies and now looks to lower costs; meanwhile, countries like China are rushing to create their cheap-yet-efficient rockets. 

And, unlike the past, SpaceX has proved its worth as of late. In the first quarter of 2020 alone, the company launched as much cargo as China, Russia, and the European Efforts combined. 

But, of course, it doesn't stop here. SpaceX continued with the development of the Falcon Heavy, a bigger version, capable of more cargo; the Starlink satellite system, a network of 12 000 satellites to provide internet all over the world; and the Starship, a reusable space shuttle which would lower the cost to about $2 million per launch.  

And yes, the Starship engine did blow up. But, this isn't new to SpaceX. In fact, due to the recent success, Musk has accelerated Starship's development. It seems the Moon is closer than we thought. 

The now and the future

Our attention shifts towards the now, just days ago, when two astronauts in really cool suits took to space in the Crew Dragon reusable spacecraft, the crew version of the original dragon vehicle. Douglas Hurley and Robert Behnken took off on May 30, amidst these weird times. The entire world watched as Dragon blasted to space, giving us hope for a better tomorrow. Even if some used it as a political opportunity.

Those two became part of the first-ever commercial space flight to place a crew in orbit successfully. Add another notch to the list. But you can tell this is only the beginning. Musk has been clear from the start: he wants to reach Mars. 

Now, SpaceX proved that it's possible. They are Wright Brothers of commercial space travel. But other companies are catching up, with the likes of Jeff Bezos, from Amazon, with the Blue Origin project. So, we are witnessing the second space race. 

There's even talk of the first tourist flight involving a Japanese millionaire, and of course, Musk said yes. 

SpaceX has failed in the past. It probably will continue to make mistakes, but one can only ask: where will they go next?