Rocket Billionaires

by Tim Fernholz

  “That’s when Elon came on the scene,” Garvey says. “I have it in my notebook when Jim Cantrell called me. He goes, ‘Hey, Garv, we’ve got another dot-com guy who’s interested in doing space.’”

  5

  Friday Afternoon Space Club

  Launch is sexy in that it’s really cool, but it’s not financially very sexy.

  —Jim Cantrell

  Musk ran into Cantrell, Garvey, and Mueller because of his interest in funding a splashy Martian science mission. Garvey agreed to bring Musk out to the desert, to witness firsthand some of the demonstrations being put together and to meet the pro-am rocketeers—to see “the alternative to Big Space,” as he put it. The visits would be an opportunity to sound out Musk about his ideas and give him a taste of what was possible. The engineers loaned him aerospace textbooks, and he bought others himself, reading them while hanging out at Los Angeles bars. The internet guy wanted to become a rocket man.

  Musk’s ad hoc space-brain trust, looking for the cheapest way to put life on Mars, had an idea: why not purchase some surplus Russian rockets for the mission? Cantrell had spent a decade working with the Russian space program, finding peaceful ways for it to financially exploit its rocket expertise as the country struggled with its transition to a free market economy. At the end of the Cold War, as the Soviet government and economy collapsed, there were fears that Russian rocket expertise and matériel would leak out of the country to the highest bidder, giving authoritarian countries access to advanced weaponry, particularly missiles capable of delivering nuclear weapons between continents.

  This led Western governments to encourage US space contractors to tap into Russian supply chains. Lockheed Martin formed a joint venture with the Russian state rocket company to fly commercial satellites on Soyuz rockets, while Arianespace, the European space champion, purchased Soyuz rockets for its own launch operations. Lockheed also used a rocket engine designed and manufactured in Russia, the RD-180, in the Atlas V rocket it built for the EELV program. This was not a downgrade: no Western manufacturer had been able to match the simplicity and performance of the RD-180, which had been designed in the isolation of the Iron Curtain. Visiting Americans described engineers using blueprints instead of computer records, but the Russians had their own advantages, including advanced techniques for working with titanium and a grimly efficient outlook on safety. “Workers must be careful; nevertheless, we have replacements,” a Russian executive told a visiting American shocked by workers clambering around enormous rocket construction bays without harnesses.

  In 2002, as Musk was looking for cheap rockets, he traveled to Russia with Cantrell, now his Russian sherpa; a college friend and fellow entrepreneur named Adeo Ressi, who told Cantrell he was frankly concerned about Musk’s state of mind; and Michael Griffin. Griffin was a polymath, with multiple advanced degrees in aerospace engineering, physics, and management; he had been a leader in the Reagan-era “Star Wars” defense program, run NASA’s exploration directorate, and been a key executive at the space company Orbital Sciences. He also shared Musk’s passion for solar system colonization: “The single overarching goal of human spaceflight is the human settlement of the solar system and eventually beyond,” he would tell Congress in 2003. “I can think of no lesser purpose sufficient to justify the difficulty of the enterprise, and no greater purpose is possible.”

  The Russian approach to doing business—long, early lunches that mixed roundabout inquiries about rocket performance with shots of vodka and sausages—didn’t agree with Musk’s brisk style of negotiation. Musk’s name and merely multi-million-dollar net worth apparently meant little to the officials he met, who treated him and his team with disdain. The Russians asked $8 million apiece for each of three decommissioned ballistic missiles, and they ignored Musk’s attempts to negotiate them down to a lower number. The space philanthropist had earmarked $20 million of his fortune for this effort, and the Russians were not going to change their stance. Spending the bulk of his cash on launch vehicles, even before modifying them to fit an as-yet-undesigned spacecraft full of plants and mice, would mean the end of Musk’s project then and there. Musk’s conversations with other commercial rocket makers had made clear that surplus ICBMs were the cheapest option, and yet they were not cheap enough.

  Musk’s space destiny would not be realized through his philanthropy. Giving away money was no way to get to space. He was still, at heart, an engineer and a salesman. His education in rocketry—garnered from books with titles like Aerothermodynamics of Gas Turbine and Rocket Propulsion—had given birth to an idea: the problem was not the lack of enthusiasm and funding for space exploration. The problem was the rockets themselves.

  On their flight out of Moscow, Musk showed Cantrell and Griffin a spreadsheet on his computer—a document that would become an artifact of SpaceX’s founding. Musk had put together an analysis of the costs of developing, manufacturing, and launching rockets, and convinced himself that a new company could make a small rocket to carry modest cargoes into space, at a cost much lower than anything he had found during his search of the market. Over the months ahead, Musk and his team spent Saturday workshops building out that spreadsheet into a business plan.

  “The Mars thing was about increasing public motivation,” he would tell me later of his stunt. “But motivation doesn’t matter if there’s no way to go. If you’re just banging at a brick wall, nothing will happen. The cost of access to space was increasing with each passing year. If there’s not some attempt to make a significant impact on rocket technology and reduce the cost of access to space and improve the reliability, ultimately it wouldn’t matter. No amount of motivation would do anything.”

  Thus, Musk proposed starting a new company to build these rockets and lower the cost of access to space: Space Exploration Technologies Corporation. The US firms with the technical capacity for the task of space exploration were not, in his judgment, fundamentally interested in making a proper business of doing so, thanks largely to their reliance on government business. “It’s not like we drive Russian cars, fly Russian planes, or have Russian kitchen appliances,” Musk said later. “When was the last time we bought something Russian which wasn’t vodka? I think the US is a pretty competitive place and we should be able to build a cost-efficient launch vehicle.”

  Zubrin, who led the Mars Society, was not impressed, now that Mars had been put on the back burner. His impression was of something like another BlastOff: “The techies end up spending the rich guy’s money for two years, and then the rich guy gets bored and shuts the thing down.” Yet that missed what set Musk’s approach apart: he was not sold on this idea by his coterie of engineering advisers, who had recommended buying available technology. He sold it to them, after analyzing the bloated costs of the existing launch-vehicle market and by examining the physics of putting a rocket in space. Unlike BlastOff, which settled on its moon mission before finding a way to pay for it, Musk’s new company identified and pinpointed the existing, and underserved, market for his rockets: people with payloads too small to launch economically on the big, government-designed rockets that still dominated the business. Musk never lost his Martian obsession, but he was pragmatic about how he got there.

  His plan—and his quick ascent up the rocket learning curve—changed the minds of engineers who had previously seen Musk as a playboy with free cash. Zip2 and PayPal had not succeeded just because of technological innovation; it was their focus on viral marketing that had allowed them to quickly accumulate a dominant share of customers in their fledgling markets. Musk was seen as a visionary, for his early recognition of the internet’s potential as a medium for commerce—and as a top-notch salesman. Now, having spent months with Musk arguing design trade-offs, costs, and performance levels, the engineers were starting to see him as a technical leader, too.

  “Visionaries who get a lot of press are great, [but] they aren’t the people who get something done,” Garvey told me later. “I’d rather be dealing with the rocket test
s out in the desert.” But now, in Musk, he saw a kindred spirit. It didn’t hurt that the entrepreneur was receptive to Garvey’s ideas about how to break into the rocket business. “My point was . . . if you just spend on a payload that goes to Mars, you’re not going to change things. At the end of the day, it’s still going to cost the same amount, and how many people can afford to send a payload to Mars? But if you introduce low-cost launch, now you’re changing the equation.”

  Besides backing the goal, Garvey saw something else in Musk that seemed to distinguish him from both Big Space and other high-net-worth dabblers. Musk embraced risk. At the time, Garvey was collaborating with a team at UC Santa Cruz on a new kind of propulsion technology known as an aerospike engine; Mueller, the TRW engineer who built rocket engines in his garage, was a technical adviser. This was another attempt to one-up the industry establishment: the theory behind the aerospike was decades old, but it had never been tested on a rocket. Their engine would launch a rocket in 2003, the first time the technology had been demonstrated in flight.

  A key challenge in designing a rocket is how they travel through many different environments in the course of a mission—starting from sea level, where atmospheric pressure supports human life, up through the high winds of the upper atmosphere, and into the empty vacuum of space—enduring not just changes in pressure but also a range of temperatures, from ultra-high to ultra-low. Creating one machine that can excel in every situation is extremely difficult—and thus very costly.

  This challenge is made manifest in rocket engines, which typically shoot hot gases out of a bell-shaped nozzle that directs the thrust. The engine bell is optimized to be efficient at a given air pressure, but because only a single air pressure profile can be chosen, the engine isn’t always performing at top capacity as it travels into space. An aerospike engine would instead fire the hot gases along a spike projecting from the bottom of the rocket. Hypothetically, this would create a “virtual bell” that adapts to changing conditions as the rocket flies, more efficiently using limited fuel to produce thrust and allowing a rocket to carry less liquid oxygen, and thus more cargo.

  One day, Mueller and Garvey were working on the project out at the Reaction Research Society’s test site in the Mojave Desert. As was his habit, Musk came out to kibitz about rockets and to observe the action; at that point, the three men were developing the concepts for what would be SpaceX’s first launch vehicle. The new engine was mounted on the test stand—a secure steel framework bolted into a concrete foundation that would prevent the engine from taking off willy-nilly into the desert scrub. After taking up position a safe distance away, the observers ignited the engine. It took just a hundred milliseconds for the prototype to explode, taking the test stand with it in a burst of flame as the observers looked on.

  “Elon, you better get used to this,” Garvey warned the prospective space entrepreneur. Rocketry is hard, he told him, and it comes with many expensive setbacks. They’d need to delay further testing for weeks, until they rebuilt the stand. Musk simply turned to Mueller and said, “Tom, make sure we build two stands.”

  Garvey saw Musk’s response as a good approach to the risks that come with building rockets. At a big contractor or at NASA, the response might have been: We can’t have a failure like this, so let’s spend time and money ensuring that the prototype doesn’t explode during testing. Traditionally, these kinds of precautions take time and can defeat the purpose of testing itself.

  When he was still at McDonnell Douglas, Garvey had worked on a project to develop lightweight, high-pressure vessels made of carbon fiber that could hold ultra-chilled rocket propellants. He pitched the company on building a dozen small prototypes to test on cheap rockets for initial evaluations of different designs. Instead, the project managers chose to make one enormous tank the way NASA wanted it made. This technology deviled the space industry for years as engineers sought to safely cut weight from the vital plumbing of the rocket; tank failures led to the cancellation of entire rocket programs. Garvey, working with a company called Microcosm, flew the first high-pressure composite tank containing chilled liquid oxygen in one of his rockets, out in the desert.

  This aversion to failure desperately reduced innovation in the aerospace industry. But a different approach was common in Silicon Valley. Software engineers rejected the so-called waterfall style of project management common in more industrial settings, where product requirements are outlined, developed, tested, and implemented in rigid succession. Instead, under rubrics like “agile” engineering, developers would gradually build out the software, testing it as they went and updating requirements in the face of challenges. This is the origin of the “fail fast” ethos associated with risk-taking digital entrepreneurs: once you figure out what doesn’t work, it’s easier to figure out what does.

  These approaches, however, don’t always lend themselves easily to physical manufacturing, where the cost of materials and machining adds up faster than the hours of software engineers making virtual products. But many in the aerospace industry saw endless requirements and a lack of experimentation as problems that needed fixing. That was especially true as the amount of software inside the rocket, and used to build it, increased. For Garvey, Musk’s ability to account for failure—indeed, to expect it—showed a healthier attitude toward building rockets than that of his former managers at McDonnell Douglas.

  NASA and the prime contractors had come by their risk aversion honestly: it had everything to do with flying humans in space. NASA gift shops sell T-shirts emblazoned with the phrase FAILURE IS NOT AN OPTION. The quote is often attributed to the legendary flight director Gene Kranz, who led the round-the-clock engineering scramble that allowed the space agency to bring home the three astronauts on the Apollo 13 moon mission after a liquid oxygen tank exploded, nearly leaving them lost in space. The phrase is apocryphal; it was actually used by another NASA flight controller who was being interviewed by the writers of the Oscar-nominated movie directed by Ron Howard. But it accurately captured the refusal of the NASA crew to give up on their endangered comrades flying hundreds of thousands of miles from home and their relentless pursuit of technical excellence.

  “Flying people in space is a very, very risky business; for that reason, we only fly volunteers,” Griffin told me in 2017. “But consider this: in the first fifty years of US spaceflight history, from 1961 to 2011, the US would fly six Mercury missions, ten Gemini missions, eleven Apollo missions, three Skylab missions, one Apollo-Soyuz mission, and 135 space shuttle missions, we would put people on the moon six times, and we would put up two space stations . . . All of that, in fifty years, and we would lose three crews, one in a ground test accident and two in flight. Anybody who knew anything about the development of practical aviation would say, ‘What? Only three?’”

  The agency’s critics would argue that this attitude has permeated well beyond a refusal to abandon their comrades in their hour of need. The expectation of perfection reflects an institution that sets the highest standards, which the US space agency sets out to be. But, drifting down to technical departments that depend on delivering success to win funding from Congress, an aversion to mistakes becomes an obstacle to taking the risks that bring real innovation. “The most expensive way to run a program is doing so in a fashion that ensures you’ll never break a piece of hardware,” Griffin told me.

  And, as any investor will tell you, without risk there is little reward.

  “I thought maybe we had a 10 percent chance of doing anything—of even getting a rocket to orbit,” Musk would say of his company when it opened its doors in April 2002. Luke Nosek, who helped build PayPal with Musk and later joined the rocket company’s board of directors, underscored the doubts of the time: “So many of his friends advised him not to do SpaceX.” Yet Musk’s pitch to become a rocket maker was somewhat similar to those for his other companies.

  “Just as DARPA served as the initial impetus for the internet and underwrote a lot of the costs of developing
the internet in the beginning, it may be the case that NASA has essentially done the same thing by spending the money to build sort of fundamental technologies,” Musk told a classroom full of budding entrepreneurs at Stanford a year after SpaceX’s inception. “Once we can bring the sort of commercial, free enterprise sector into it, then we can see the dramatic acceleration that we saw in the internet.”

  The initial team, besides Musk, included Cantrell, Mueller, and Chris Thompson, another Boeing engineer who flew rockets with Garvey in Mojave. Two other early employees came from Microcosm, the small space company that built the first composite tank that launched. One, an assertive engineer with sales experience, was Gwynne Shotwell; she was put in charge of business development when Cantrell left in the year after the company was founded. The other, a craggy German named Hans Koenigsmann, would become the company’s chief engineer. At the time, the company consisted of little more than “a carpet and a mariachi band” that played when a dozen new employees inaugurated a new office in the Los Angeles suburb of El Segundo, in the backyard of the big prime contractors.

  A few months later, the start-up had one other important advantage: capital. The online retailer eBay, which was battling Amazon to be the internet’s top purveyor of goods, purchased PayPal for $1.5 billion, just months after it had gone public. Musk’s share of the proceeds was massive, and he immediately committed $100 million of his own money to SpaceX. Overnight, it had become the best-funded space start-up in existence.