SpaceX: The Quest for Affordable Space Travel through Reusable Rocketry
With a wildly passionate fan base, first-principles processes, and a robust launch manifest to fund its reusable first-stage rocket program, SpaceX has secured its position as the most competitively operating aerospace company in the world.
Introduction to Elon Musk and SpaceX: Elon Musk, an engineer-turned-engineering business tycoon and Earth’s very own manifestation of Ironman, grew up dreaming of one day setting foot on our distant neighboring planet Mars. One of his current businesses (no, neither the electric car nor solar company) is well on its way to allowing the 44 year-old, South African born entrepreneur to realize his enduring dream, which he intends will occur within about a decade [1]. SpaceX is his true baby, hence his maintaining an estimated 20-30% stake in the company and decision to keep the organization private until it has achieved sustainable human flight to Mars, which enables the firm to focus on its long-term goals rather than more shortsighted quarterly earnings for shareholders [2]. Musk and his team have effectively fine-tuned the company into a figurative lean, efficient, startup-like, and notably nonhierarchical rocket manufacturing and launching machine. SpaceX, as of October 2014, was in fact the world’s largest private producer of rocket engines [3].
It furthermore offers U.S. taxpayers a suggested 75% price reduction compared to the primary incumbent and previous default provider of space launch services–United Launch Alliance–to send objects into low Earth orbit [4,5].
Business Model: The mission of SpaceX is to make significant advancements in rocket and aerospace technology in order to expedite the human colonization of Mars, and more generally human interplanetary travel [6,7]. It provides launch services to both public and private entities with a significant cost advantage over its competitors. SpaceX claims to be cash-flow positive and profitable, having launched around 20 missions since its founding in 2002, and currently listing nearly 50 missions on its launch schedule for the future, which represents almost $5 billion in contracts [8,9].
Operating Model: Perhaps the most valuable element of SpaceX’s operating model is its incredible culture that entices many young engineers into being highly motivated while working at the company. Engineers are passionate and ultimately exercise their ultimate professional potentials for SpaceX, whose mission aligns so well with employee personal values. SpaceX has quite a cult-like following that has resulted in even top talent admitting that they would work at SpaceX if that involves wiping the floors [10]. Having earned both his undergraduate and graduate degrees in engineering at MIT, the author can personally attest to the strong desire of some of the world’s brightest scientists and engineers to work at SpaceX, virtually irrespective of salary/benefits. The company is even thought to pay relatively low salaries to its highly qualified employees, who are known to routinely work 80+ hour weeks in a 40-hour-per-week industry because they truly love what they do [11, 12].
SpaceX’s processes largely benefit from the startup pedigree and applied physics background of its unconventional, science-oriented CEO, who stresses independent thinking grounded in first principles. He effectively inculcates his employees with this form of reasoning (though many engineers already do so naturally through training in physics and fundamental truths) that deviates from what Musk calls “thinking by analogy,” or acting based on ideas, processes, products, etc. that are already observable in our surroundings [13]. Elon stresses instead bounding one’s imagination and decision-making only by physical laws, and especially not social constructs or potentially arbitrary industry norms. This primary tenet at the company has driven significant innovation and cost-reduction over just a few years, in addition to continued demand by top talent to continue working at the company.
The company has a very flat organizational structure in which its employees are enabled to exercise the utmost levels of autonomy, and consequently deliver to the best of their abilities. Elon Musk, worth over $10 billion and CEO of two companies, sits in a corner of a large, open room without any real features distinguishing his work area from his hundreds of employees in the same room, who are busy CADing parts, dreaming up new ideas for advanced propulsive devices, and of course hiring top talent [14, 15]. Employees are encouraged to collaborate and be completely open (and thus sometimes adversarial) in their thoughts to all other members of the SpaceX team, including Elon himself. This flat structure contributes to SpaceX’s powerful culture of openness, autonomy, and first-principles derivation of both truth and untruth.
The the company’s technology, facilities, and manufacturing processes are state-of-the art, such as the solid-state friction-stir welding process used to join sections of aluminum sheets to create the outer shell of SpaceX’s famous Falcon 9 rocket [16,17].
The firm operates with a host of processes designed to minimize the cost of flight both initially, and especially post-first flight. Virtually all engineering and manufacturing functions are conducted under the same roof in Hawthorne, California. The company is known for its pursuit of consistent first-stage rocket recovery after launch, which would reduce the cost of access to space by virtually “a factor of a hundred” [18]. This program is currently well underway.
SpaceX can be characterized as highly vertically integrated, as it assembles or manufactures upwards of 70% of the Falcon 9 rocket components in-house at its Hawthorne production facility [19]. Where possible, the company purchases standard commercial components deemed adequate for the purpose of achieving launch into low Earth orbit (LEO), and avoids buying strictly high-margin, specialized components like its key competitor ULA, which thereby arguably produces rockets built to perform beyond the specifications of their LEO missions [20]. For example, Musk shares in his biography that his company reduced the cost of an on-board radio from the industry-standard $100,000 to $5,000 by building it in-house and to spec [21].
In summary: Through an engineering-oriented culture and nonhierarchical organizational structure that motivates employees to perform at capacity, a program devoted to creating reusable rockets to significantly decrease the cost of multiple missions to LEO, and a highly efficient, state-of-the art facility that employees lean processes in a tailored approach, SpaceX has become the highest-value player in aerospace rocket manufacturing, and is well on its way to realizing its mission to send a human to Mars in the 2020s.
References:
[1] http://www.cnet.com/news/elon-musks-mars-vision-is-bigger-than-you-thought/
[2] http://www.usatoday.com/story/money/cars/2015/06/09/elon-musk-mars-spacex/28768361/
[3] http://www.spacex.com/news/2014/10/16/spacex-completes-100th-merlin-1d-engine
[4] http://qz.com/365033/spacexs-only-competitor-needs-russias-help-to-survive/
[7] http://www.spacex.com/about
[8] http://www.spacex.com/about
[9] http://www.spacex.com/missions
[10] http://www.inc.com/business-insider/what-it-s-like-to-be-an-intern-at-spacex.html
[11] https://www.glassdoor.com/Reviews/Space-Exploration-Technologies-Reviews-E40371.htm
[12] http://www.parabolicarc.com/2014/08/12/spacex-faces-lawsuit-pay-working-conditions/
[13] http://www.businessinsider.com/elon-musk-first-principles-2015-1
[14] https://www.youtube.com/watch?v=yFbrK_sRV9Q
[15] http://www.forbes.com/profile/elon-musk/
[16] http://www.popularmechanics.com/space/rockets/g768/inside-spacex-we-visit-the-companys-california-headquarters/?slide=7
[17] http://www.spacex.com/news/2013/03/26/falcon-9-structure
[18] http://www.spacex.com/news/2013/03/31/reusability-key-making-human-life-multi-planetary
[19] http://www.spacex.com/news/2013/09/24/production-spacex
[20] SpaceX employee (2015, December 9). Telephone interview.
[21] Vance, A. (2015). Elon Musk: Tesla, SpaceX, and the quest for a fantastic future. New York, NY: Ecco, an imprint of HarperCollinsPublishers.
Do you foresee any challenges in SpaceX’s organizational structure as it grows? Will it still be able to maintain its very flat structure?
Robert, I think you are hitting on the key issue with which SpaceX is currently wrestling as it realizes that there always is a transition from startup mode to a sustainable model in which complexity has grown and standard operating procedures/processes must be embraced and adopted for the purposes of both efficiency and product integrity. The company has, based on my conversations with several employees there, maintained relatively loose (if any) controls over its employee work methods, leading ultimately to great flexibility potentially at the cost of robustness, uniformity among operations practices. I thus foresee SpaceX taking on a bit more structure insofar as SOPs are established and enforced by the appropriate team members.
Excellent article! You really made it clear that SpaceX is able to drive down costs through its culture of designing through first principles (e.g. designing on-board radio in-house, rather than relying on industry-standard). It seems like SpaceX has been successful largely because of its inspiring CEO, Elon Musk. I doubt many other CEOs could attract talent and sustain this engineer-driven culture. I’m hopeful that they will be able to figure out first-stage rocket recovery. Maybe they should take some notes from Blue Origin (Jeff Bezos’ aerospace company), who seem to be ahead of SpaceX in developing this technology (see: http://bgr.com/2015/12/12/rocket-scientists-cheering-blue-origin/).
I think you’re right about the working for Elon–truly a leader as a beacon (from LEAD). It really helps to have the rare combination of acute businessman and saavy scientist at the helm. It’s finally someone these young engineers can relate to! As far as SpaceX’s progress on landing of the first stage: SpaceX has already successfully landed a rocket after launch (see https://www.youtube.com/watch?v=9ZDkItO-0a4). This is similar to Blue Origin’s recent achievement. SpaceX is taking a much risker, bolder action in attempting to demonstrate a landing on a barge bobbing out in the ocean (first attempt here: https://www.youtube.com/watch?v=WcfJLNj6ujQ). This is likely for safety to demonstrate exacting precision. Furthermore, B.O.’s rocket seems to be quite a bit shorter and wider (and therefore more stable upon landing), so I don’t really consider it an apples-to-apples comparison. It’s great though that other well-funded players are entering the market.
Great evaluation of SpaceX’s inner workings, Ian. I couldn’t help but think that Elon certainly fits the mold of “Leader as a beacon” from our LEAD frameworks too. Back to TOM though: Particularly thought-provoking were your comments on SpaceX’s culture of innovation, especially the fact that “Elon stresses instead bounding one’s imagination and decision-making only by physical laws, and especially not social constructs or potentially arbitrary industry norms.” Since SpaceX essentially started from scratch, I assume it has been easy to eschew industry norms. With such a capital intensive business, however, I imagine sunk costs become more and more difficult to ignore and abandon over time. I hope SpaceX’s pace of growth and innovation continues and that we get the chance to watch a mission to Mars in our lifetime.
I think even with a capital intensive business like SpaceX, you can maintain lean operations throughout the product and company lifecycles. I’m not sure what you mean by “ignoring sunk costs,” as sunk costs are to be ignored, but I feel that the company does well in efficiently allocating resources and reducing waste during production.
Loved your article, Ian! I am a big fan of Elon (and would happily swipe the floor to work for him). It was very interesting to note that you mentioned ‘engineering-driven’ culture and flat organization structure as the core operating model. We always think of operating model as a set of processes, but interesting to note on how culture directly affect the outcome for a company.
Anish, this was also my reaction upon reading the article. However, I’m now thinking about operations in terms of the different characteristics of successful manufacturing versus innovation/R&D. It makes sense that the organisational structure and culture impact the degree of free thinking and collaboration for innovation, which I hadn’t factored into my thinking on operational models previously.
Great article Ian! I’m a big fan of aerospace and space tourism in particular.
It is interesting to see how SpaceX succeeds in attracting talents: I am wondering whether they will be able to maintain their competitive advantage going forward. Do you believe that competition from Blue Origin and other players like Virgin or Bigelow is a threat? It seems that a lot of players in this field have either canceled or postponed their projects over the last 4 years so do you believe that sending a human to Mars in the 2020s is realistic?
OK… I might sound a little bit skeptical but I would really love to go to space with SpaceX before I’m too old 🙂
Remi, I think the more attention in the private space industry, the better. Same thing goes for electric cars. NASA is underfunded, and private interest in the opportunity that space provides is well under its potential. Further, dissemination of innovation and collaboration on the challenging projects devoted to reusable rocketry, tiny satellites, and human missions to Mars will benefit all players in the industry. Yes, government contracts are important. But imagine a future where Uncle Sam isn’t the first one we look to for pitching in space-related money. Being an aerospace engineer, I can tell you that a mission to Mars is entirely possible. What is takes is the same thing we were able to achieve in the 1960s (!!) when we set foot on the Moon–public support and adequate funding. Space is actually very predictable–with no air resistance, a precise understanding of orbital dynamics and gravitational fields, and even with enormous amounts of radiation, we already know exactly how to land humans on Mars with a high probability of success. It’s more of: what happens when they get there, and how do we sustain periodic launches for support? Heck, with half-a-million, you’ll very likely be able to make it happen in your lifetime. Just support the cause!
Great article! The story of Sapce X with cult-like culture and a very flat organizational structure remind me that of Valve in LEAD class. It seems these are the common characteristics of companies which succeed in attracting top engineers and creating innovation.
Oh believe me, engineers love autonomy at work, and anyone worth his salt will make it a priority to let the innovative juices fly when managing them. That’s not to say some level of structure (so as to keep efforts tied to business goals) is unappreciated–it just has to be done with an aura of creativity, limitless possibility, and soft boundaries. Recall Valve 🙂
Great stuff, Ian. My question relates to scalability; do you think their current structure will enable them to grow beyond niche-level flights? I think it makes perfect sense from an innovation and R&D perspective as a growing company, but it may need to evolve as their own technology matures and creates a real industry.
Alek, that’s a fair question, and I think that since their facility is so lean, SpaceX should be able to scale quite a bit before it needs to adopt some type of highly structured assembly-line approach. I suspect that it’s going to be a while before that happens and SpaceX sells Falcon 9s to a multitude of customers. Right now they want to go to Mars, and they’re going to make that happen one mission at a time.
Great post Ian. I feel I have a much better understanding why SpaceX is such a special company. I wonder though, as the company becomes even bigger and more successful, if the engineers will start demand higher salaries and benefits and how that will affect the company?
Dino, likely. I’m under the impression that virtually all employees have been compensated with some level of equity in SpaceX, which SpaceX repurchases internally once it has vested, as the firm does not intend to IPO for quite some time and employees don’t have forever to cash in. So that’s a plus for some and may make up for lesser wages. However, given the immense flexibility, opportunity, and excitement with which engineers and scientists at SpaceX are able to conduct their daily business, and my understanding of what engineer’s care about personally, I wouldn’t be surprised if the company can “get away” with paying lower wages. However, they have been known to take it a bit too far on occasion, leading to at least two employee wage-related lawsuits (http://www.bloomberg.com/news/articles/2014-08-13/musk-s-spacex-sued-by-workers-over-unpaid-wages-firings and http://www.theverge.com/2015/10/21/9583422/spacex-class-action-lawsuit-elon-musk).
Ian great post! My question for you is whether you believe SpaceX’s history of underpaying for top talent is sustainable throughout an economic recession or a temporary dip in performance? Also, do you think the operating model is strong enough to hold in the future if Musk leaves to dedicate more of his time to another project?
Hey Griff, your first question is well-taken. As with strong followings of successful sports teams, enthusiasm for SpaceX is likely to dwindle should the company continue to experience mission failure. In such a case, the company’s prestige and industry leadership are prone to faltering, necessitating an increase in monetary compensation. I dearly hope that SpaceX succeeds in its upcoming mission next month. http://www.orlandosentinel.com/news/space/go-for-launch/os-spacex-launch-of-noaa-satellite-set-20151216-post.html
I see your point about Musk leading as a beacon, and how contingent SpaceX’s following is on the man’s presence. What someone quite familiar with Elon would explain is that SpaceX is his most precious baby, with Tesla following closely behind. While he may hand over the reins of Tesla at some point (when he finds someone qualified enough), he’ll absolutely never leave SpaceX. Too much of his personal passions and desire for human interplanetary travel revolve around the firm’s success, and there’s no way anyone’s convincing him that somebody else can lead the firm as well as he. If in the distant future after SpaceX goes public he is somehow pressured out of the helm, at that point I suspect the company will be on autopilot and won’t require Musk’s affiliation in order to entice top talent to join his rocket party.