How Innovation Allows Companies to Survive Explosive Product Launches

SpaceX’s Falcon 9 Rocket Explodes During a Static Fire Test

There are companies out there. Large, successful companies, that have been in business for what feels like millions of years. If you could build a time machine and go back to the land of the dinosaurs, I’m about 73.2% sure that you’d witness Kodak and/or Blackberry being incorporated.

And seemingly every year, we witness another one of these “unsinkable” companies go down the drain.  In addition to Kodak and Blackberry, recently we have witnessed the closures of Borders, Blockbuster, and soon to be Yahoo. Until Steve Jobs came back, Apple was on its way to being added to that list. And I’m not sure if Microsoft could have been able to handle too many more years of Steve Ballmer.

Yet last week, SpaceX suffered one of the biggest public failures in recent memory, and nobody is saying a thing about them. This Falcon 9 explosion is arguably worse than any one failure any of the companies mentioned above ever faced. Alright, maybe not Microsoft Vista, but close. The amount of money that literally went up in flames is simply staggering. The rocket itself cost somewhere around $16 million to build, and about $200 thousand to launch. It carrying an AMOS-6 satellite when it went ka-boom that its owner, Spacecom, is reportedly seeking $50 million in repercussions for. And none of that includes any damages SpaceX may need to cover to actual the launch deck.

“In the real world outside economic theory, every business is successful exactly to the extent that it does something others cannot. Monopoly is therefore not a pathology or an exception. Monopoly is the condition of every successful business.” – Peter Thiel, Zero to One

Still, its approaching a week since the incident, and there have been no public executions. No high-ranking official has been asked to resign. Which in some circumstances would be completely justifiable for a company that just lost a $66 million investment. What gives? What makes SpaceX different?

It has to deal with the quote from Peter Thiel above. Companies are only successful to the extent that they can do something others can’t. So, SpaceX, after a plethora of high visibility failures, is still working on the whole space thing. Can anyone else come CLOSE to what they can do? No? Then they have time to figure it out.

That’s what so inspirational about Elon Musk and what he attempts to do with his companies. His goals are nothing short of other worldly. Every company he starts has one goal – change the world for the better. These aren’t small iterations on companies that have come before. He isn’t building a new social media competitor or new dating app. He wants to use SpaceX to send people to Mars. He wants to use Tesla to rid the world of their dependency fossil fuels. He wants to build a HyperLoop because…I don’t know, the man likes his underground roller-coasters.

It’s a theme that Mr. Thiel hits on constantly in his book Zero to One. He argues that, in scenarios where there is perfect competition, a corporation’s profits are basically zero. In there are examples all around that prove this. Airlines haven’t made a profit since AOL made the internet popular. Its tough to make sustained profits in the lawn care industry when any 16 year old with a truck and lawn mower is a potential competitor.

And I have no intention of arguing all the points that Mr. Thiel makes in his book. He does it much more eloquently than I ever could. However, what I thought would be fun to do is to go through the 7 question he suggests that every start up company asks, and we will relate it back to SpaceX to see how they compare. The goal is to get all 7, but you need a bare minimum of 5.

Question 1 – The Engineering Question: Can you create breakthrough technology instead of incremental improvements?

In this case, breakthrough technology is that which is 10x that of your competitors. Has SpaceX done that?

Consider that there are only 15 nations have launched unmanned spacecrafts into orbit. When you talk about private corporations, that number gets much smaller. Mojave Aerospace Ventures, Virgin, UP Aerospace, Orbital Sciences Corporation, Sierra Nevada Corporation and SpaceX are the only four serious competitors in that space (as of the time of this writing). With SpaceX having $10 billion+ in contracts with the United States government, I’d say that gives them the edge currently.

Question 1 – do they possess breakthrough technology? Check!

Question 2 – The Timing Question: Is now the right time to start your business?

The United States isn’t even sending rockets into orbit currently, removing competition from an environment already vacant of strong competition. I’m giving Question 2 a Check! as well.

Question 3 – The Monopoly Question: Are you starting with a big share of a small market?

Again, the United States isn’t launching their own rockets into space anymore. They are now outsourcing their Commercial Resupply Services (CRS) contracts to privately held companies. Looking only at the CRS contracts, SpaceX does not have a monopoly. However, by the end of 2016, NASA will have awarded SpaceX with 20 CRS flight contracts, compared to Orbital’s 10. We will mark this as a halfCheck as it isn’t a monopoly, but when you are pulling in two-thirds of the contracts, you have a clearly sizable lead.

Question 4 – The People Question: Do you have the right team?

Jim Collins argues in his book Good to Great that the most successful organizations first answer their people question, going so far as noting that there were times when organizations would “[hire] outstanding people whenever and wherever they found them, often without any specific job in mind.” They do this because the right people bring not just their experience and knowledge, but their passion and their problem solving capabilities.

Does SpaceX have the right people? Mir Juned Hussain of Yaabot, detailed a few of the corporations successes in his November 2014 article:

  • The first privately funded, liquid-fueled rocket (Falcon 1) to reach orbit (28 September 2008)
  • The first privately funded company to successfully launch (by Falcon 9)
  • Orbit and recover a spacecraft (Dragon) (9 December 2010)
  • The first private company to send a spacecraft (Dragon) to the International Space Station (25 May 2012)
  • The first private company to send a satellite into geosynchronous orbit

Since this article was written, they have also become the first company to land an orbital-class rocket. So, add that to the list.

Right people? Check!

Question 5 – The Distribution Question: Do you have a way to not only create but deliver your product?

They have figured out how to send a rocket to the International Space Station and dock with it. Check!

Question 6 – The Durability Question: Will your market position be defensible 10 and 20 years into the future?

This one is difficult as this is a market that is primed for more competition. However, SpaceX does have a head start, and Mr. Musk has a history of continuing to innovate. The durability question gets a Check! for now, but it is worth a revisit in the future.

Question 7 – The Secret Question: Have you identified a unique opportunity that others don’t see?

I’m not sure if it was an opportunity that others didn’t see. But there clearly aren’t many people brave enough to pursue it. Check!

Why will SpaceX be just fine after the Falcon 9 explosion last week? Because they scored a startling 6.5 out of 7 on Mr. Thiel’s innovation questionnaire. They are a corporate juggernaut continuing to solve issues their company faces and building a better product day by day. A product that very few can compete with. While I’m sure the Falcon 9 explosion was disappointing to everyone at SpaceX, my suggestion to all the entrepreneurs out there: keep an eye on them in the coming weeks and months and years. It will be very interesting to see how they learn from this, and (somehow) produce an even better product.

And entrepreneurs, always remember to think big. Iterative products may make a couple dollars in the short term, but only by shooting for the stars can your company survive an explosive product launch.

NOTE: apologies for the cliche conclusion. Been thinking about those puns this entire article and just couldn’t resist.

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