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Shit Elon Says - Transcript - Stanford University Entrepreneurial Thought Leaders

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I'll try to make this as interesting as possible. If you like space, you'll like this talk. My background in brief, I'll talk a little bit Zip2 and Paypal and then mostly about space and what we're doing in space. So, I originally came up California to do energy physics at Stanford, actually. And ended up putting it in '95. And ended up putting that on hold to start Zip2. I'll tell you a little about the four process of exactly what happened there. In '95, it wasn't at all clear that the internet was going to be a big commercial thing. In fact, most of the venture capitalists that I talked to hadn't even heard of the internet which sounds bizarre on Sand Hill Road. But I wanted to do something in there. I though it would be a pretty huge thing. I though it was one of those things that came along once in a very long while. So, I got a deferment at Stanford. And thought I'd give it a couple of quarters. If it didn't workout, which I though it probably wouldn't, then I'd come back at this school. Actually, I talked to my professor. I told him this and he said, well, I don't think you'd be coming back, and that was the last conversation I had with him. The only way to get involved in the internet in '95, that I could think of, was to start a company. Because there weren't a lot of companies to go and work for, apart from Netscape, maybe one or two others. And I don't have any money. So I though we got to make something that's going to return money very, very quickly. So we thought that the media industry would need help converting its content from a print media to electronic. And they clearly have money. So if we could find a way to help them root their media to the internet that would be an obvious way of generating revenue. There was no advertising revenue on the internet at the time. That was really the basis of Zip2. We ended up pulling quite a bit of software for the media industry; primarily, the print media industry. So we had these investors and customers; Hearst Corporation, Knight Ridder, most of the major US print publishers. We brought that up and then we had the opportunity to sell to Compaq in early '99. And basically, took that off for a little over $300 million dollars in cash. That's the currency I highly recommend.

So we had that but I wanted to do something more after Zip2. Immediately post the sale, I'd ordinarily take the time off. I tried to get where the opportunities, this is early '99, remained in the internet. It seemed to me that there hadn't been a lot of innovation in the financial services sector. And when you think about it, money is low bandwidth. You don't need some sort of big infrastructure improvement to do things with it. It's really just an entry in the database. The paper form of money is really only a small percentage of all the money that's out there. It should land itself to innovation on the internet. So, we thought of a couple of different things we could do. One of the things was to combine all of somebody's financial services needs into one website. So, you can have banking, brokerage, insurance and all sorts of things in one place. And that was actually quite a difficult problem to solve. But we solved most of the issues associated with that. Then we had a little feature which took us about a day. That was about an emailed money from one customer to another. You could type in an email address or, actually, any unique identifier and transfer funds or conceivably stocks or mutual funds or whatever from one account holder to another. And if you should try to transfer money to somebody who didn't have an account in the system, it would then forward an email to them saying, hey, why don't you sign up and open an account? Whenever we demonstrate these two sets of features we'd say, this is a feature that took us a lot of effort to do and look how you can see your bank statement and your mutual funds and insurance and all that. It's all in one page and look how convenient that is. And people would go, hmm, and we would say, and by the way, we have this feature where you can enter somebody's email address and transfer his funds, and they go, wow! All right, OK. So we focused the company's business on emailed payments. In the early game going, our company's called There was another company called Confinity which also started out from a different area. They started off with Palm Pilot cryptography and they had as a demo application the ability to beam token payments from one Palm Pilot to another by the infrared port. Then they had a website which was called Paypal where you'd reconcile the beamed payments. And what they found was that the website portion was actually far more interesting to people than Palm Pilot cryptography was. So they started leaning their business in that direction. In early 2000, acquired Confinity and then about a year later, In early 2000,

And that's just an approximate evolution of the company. But Paypal is really a perfect case example of viral marketing like Hotmail was. Where one customer would essential act as a sales person for you by bringing in other customers. So they would send money to a friend and, essentially, recruit that friend into the network. So you had this exponential growth. The more customers you had the faster it grew. It was like bacteria in a Petri dish, it just goes like this S-curve. I ran Paypal for about the first two years of its existence. We launched after year one and by the end of year two, we had a million customers. It gives you a sense of how fast things grow in that scenario. And we didn't have a sales force. We, actually, didn't have a VP of Sales. We didn't have a VP of Marketing. And we didn't spend any money on advertising.

In about February of last year, I'm sure you're probably following it, Paypal went public. I think we were the only internet company to go public in the first part of last year. It went off reasonably well. Although, I think we had more SEC rewrites than any company I can imagine. I think we set a record on SEC rewrites. This was right around the end-on time when there was all sorts of corporate scandals. So, they put as through the ringer. Shortly thereafter, about June, July, we struck a deal with eBay, to sell the company to eBay for over $4 billion. But that was when eBay's stock price was about $55 and they hadn't split. So, I guess, in today's dollars we were about $3 billion. So it worked out pretty well.

It happened coincidentally, that in the first part of last year I've been doing just some background research on space. Well, let me talk a bit about that. Essentially, I was trying to figure out why we had not made more progress since Apollo. In the '60's we went in from basically nothing. Nothing ever put anyone into space to putting people on the moon. Developing all the technology from scratch to do that. And yet in the '70's and '80's and the '90's we kind of gone side ways. We're currently in a situation where we can't even put a person into lower earth orbit. That doesn't really gel with all of the other technology sectors out there. The computer that you could have bought in the early '70's would have filled this room and had less computing power than your cell phone. And so just about every sector of technology has improved. Why has this not improved? So I started looking into that. Initially I thought, well, perhaps, it's a question of funding. And that funding can be garnered by really marshalling public support. So one way to get the public excited about space would be to do, maybe, a privately-funded robotic space mission to Mars. So we figured out a mission that would cost about $15 or $20 million which isn't a lot of money but it's about a 10th of what a low-cost NASA mission would be. The idea was called Mars Oasis. Where we'd put a small robotic land rover on the surface of Mars with seeds and dehydrated nutrient gel. They would hydrate upon landing and you'd have plants growing in a Martian radiation, gravity conditions. And you'd also be maintaining, essentially, life support systems on the surface of Mars. And this should be interesting to the public because they tend to respond to precedents and superlatives. This would be the furthest that life has ever traveled and the first life on Mars. So pretty significant. Then when I started looking at launch vehicles; the lowest cost vehicles in US is Boeing's Delta 2 which costs about $50 million. And that's a bit steep for what we're trying to do. So I made three visits to Moscow, to Russia to look at buying a a Russian launch. It's actually pretty interesting going to Moscow to negotiate for a refurbished ICBM. You know, on the range of interesting experiences that's pretty far out there. But we actually did get to a deal. But there were so many complications associated with the deal that I wasn't comfortable with the risk associated with it. So when I got back from the third trip, I thought, well, why is it the Russians can build these low cost launch vehicles? Because it's not like we drive Russian cars, fly Russian planes or have Russian kitchen appliances. 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. So I put together a feasibility study which consisted of engineers that have been involved with all major launch vehicle developments over the last three decades. We iterated over a number of Saturdays beginning of last year to figure out what would be the smartest way to approach this problem of not just launch cost but also launch reliability. And we came up with a default design. And that actually was fortunate timing. That feasibility study finished up right around the time that we agreed to sell Paypal to Ebay. So coincident with that sale, I moved down to LA where there's, actually, the biggest concentration of aerospace industry in the world. It's actually the biggest industry in southern California and much bigger than entertainment and anything else. I was living in Palo Alto for about nine years before that.

Anyway, so I'll just talk broadly about space and where things are today. Obviously, U.S. government manned exploration is not in a great place. The three remaining shuttles are grounded. It looks like first flight might only be a year from now, if that. And we've got a vehicle that is incredibly expensive and really quite dangerous. For reasons mentioned there, it's got a side-mounted crew compartment, so if there's an explosion, that's basically instant death. You've got solid rocket boosters, which, once you ignite them you can't turn them off. And there's something fundamentally dangerous by pre-mixing your fuel and oxidizer, I think. And then you've got wings and control surfaces. When you re-enter, you've got to maintain a precise angle at attack. Even a momentary variance in that can break the whole vehicle apart. And then, of course, you've got no escape system, so if anything does go wrong, you're toast. And then you've got a cost that is really pretty hard to fathom. The shuttle program, when you add up all the pieces, is about $4 billion a year. And so you can divide $4 billion by the number of flights and that will tell you what the cost is. And if there's, say, four flights a year, which there haven't been for a while, then you're talking about $1 billion of flight. The plans in the immediate future, we've got to continue building the space station. So we're going to keep flying the shuttle, but I think it's probably going to be the minimum number of shuttle flights that we need to launch. The long-term plans are the Orbital Space Plane. I say 'plane' in quotes because one of the options is a capsule, so it should be called maybe orbital space thing. But the basic idea is to have something that's hopefully a little cheaper and a lot safer than the space shuttle. So in particular it's going to have an escape system. So if something does go wrong you can abort to safety. The downside is that it's still--while it might be a little cheaper, it's still going to be pretty darn expensive. The estimated cost per flight of Orbital Space Plane is somewhere in the region of $300 to $400 million a flight. And of that amount, just $200 million alone goes to Boeing for the Delta 4-Heavy expendable booster. It's a $15-billion development effort and expected to be completed in nine or 10 years. Now typically, things have not been under budget and under time, so it's unlikely, I think, given historical precedent that it will stay within $15 billion end of 2012 timeline. And a bit about what's going on elsewhere in the world. In Russia, the Soyuz is our only access to space station. It's considerably cheaper, considerably safer. The Soyuz has a very good track record. The crew is top-mounted. It has an escape system. There are no wings or control surfaces to go wrong. Overall, it's a pretty good system. And the estimated cost is about $60 million of flight, which is an order of magnitude less than the space shuttle. The thing that constrains them obviously is the weakness of the Russian economy. It's very hard for them to embark on ambitious programs with an economy the size of Belgium. So China is probably the most interesting thing that's going on in space. This month, China is expected to launch their first person into space. It will make them only the third country ever to put someone in orbit. And they've put a lot of money and effort into this program. If anything serves as a spur for human space exploration, it is likely to be China's ambitions in space, and hopefully a sense in America that we want to at least keep up with China. And they have grand ambitions beyond just low-Earth orbit. They're planning on setting up a space station, putting a base on Mars, and eventually sending humans to Mars. So what's happening in the U.S. that I think might ultimately surpass all of that stuff is entrepreneurial space activities, where things are led by the spirit of free enterprise. And I think there's perhaps an analogy here where 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 in the beginning, and then once we can bring sort of commercial free enterprise sector into it, then we can see the dramatic acceleration that we saw in the internet. So there are several serious launch efforts underway. I'll talk about each one. There's Burt Rutan of Scaled Composites. Burt Rutan is one of the world's foremost aircraft designers and he's developed a suborbital vehicle that they're actually flying out of Mojave. And this is an X Prize-class vehicle. There's John Carmack, who wrote Quake and Doom. He's probably one of the best software engineers in the world--one of the best engineers that I know, period. And he's developing a vertical type of landing vehicle. Jeff Bezos, who I understand was here last week, is a huge space advocate. And to my understanding he intends to spend something in the order of a billion dollars over the next 20 years on space exploration. And then my company, SpaceX. And I think within the next several years, these entrepreneurial efforts will actually be what drives space exploration.

So a little about each one. That's a picture of the Burt Rutan effort. It's called the White Knight. It's the carrier plane and then SpaceShipOne is the thing that's held in the belly there. And this project is supposedly funded by Paul Allen. So despite all the capitals -- I should make that point -- a lot of capital that's entering this entrepreneurial space sector as well, the only problem I could think of this architecture is that it's not really scalable for something that would get to orbit. This is pretty good for sub-orbital but it actually needs to change for orbital vehicle. And there's John Carmack's effort. He's a little irreverent. This is from his website. His vehicle is a vertical take off and landing vehicle. He's made really incredible progress for somebody who has no background in aerospace engineering. And he's also kind of doing it all himself, with him and three buddies. And I think they will make something that works. You can check out their website, Armadillo Aerospace. It's pretty interesting stuff. But in order to get into orbit, this would require a substantial improvement in the mass efficiency and the engine efficiency, and probably be a two-stage vehicle. Jeff Bezos, who I'm sure almost everyone here has heard of. He is a pretty huge fan of space and in fact, his high school valedictorian speech was about the necessity of humanity expanding to other planets. So it's pretty important to him, from what I understand. This is our effort. We're spending quite a bit more than the three prior entities that I mentioned. In some cases, probably in the order of magnitude or more, because what we are doing is we make an order of magnitude more difficult. If we're building an orbital launch vehicle, that's a two-stage, very high efficiency engines, very high mass efficiency launch vehicle. And it's targeted to the satellite delivery market. So our perch is really to make this a solid sound physics. And it's predicated on a strategic plan on a known market, something that we know for a fact exists, which is the need to put small to medium-sized satellites into orbit. So that's what we are going after initially. And then with that as a kind of a revenue base, we will move into the human transportation market. The long-term aims of the company are definitely human transportation. I think a smart strategy is to first go for cargo delivery, essentially, satellite delivery. And our eventual upgrade path is to build the successor to the Saturn V or a super-heavy lift vehicle that could be used for setting up a moon base or doing the Mars mission. That's the Holy Grail objective. On the upper right there, you could see a test-firing of our engine. And on the lower right, you could see the upper stage attempt. This is an engine test of our main engine, which is called Merlin. And that generates about roughly 75,000 pounds of thrust. At sea level. This is our upper stage engine. That's about it. That's about 75 per pounds thrust in a vacuum. And this is an accelerated version of our launch sequence. The first launch would be from the Space-6 Launch Complex at Vandenberg Air Force Base in approximately March of next year, basically early next year. And we will be applying a Navy satellite, a Navy communications satellite. So it's notable because often, launch vehicle companies are not able to get a paying customer on their first flight. But we've been able to do that. This is also the Falcon development at SpaceX. It's the fastest launch vehicle development in history, including war time. That's actually Vandenberg Air Force Base, which is about two hours away from Sta. Barbara.

Common themes between Zip2 and Paypal? Well, I guess, both of them involved software as the heart of the technology. Even though Zip2 was servicing the media sector. And obviously, Paypal was servicing the financial sector. The heart of it was really software and internet related stuff. So, certainly that's a huge commonality. They're both in Palo Alto, where I live. I think we took a similar approach to building both companies. Which was to have a small group of very talented people and keep it small. I think Paypal had, at it's height, probably 30 engineers for a system that, I would say, is more sophisticated than the Federal Reserve clearing system. I'm pretty sure it is actually because the Federal Reserve clearing system sucks. So, what else is there? Generally, I think the way both Zip2 and Paypal operated was, it was really your canonical Silicon Valley start up. You know, pretty flat hierarchy, everybody had it, roughly, some like you. And anyone could talk to anyone. We have to go for the best idea when's as oppose to a person proposing the idea winning because they are who they are. Even though there are times when I thought that should have been the way it could. Obviously, everyone was an equity stake holder. If there were two paths that, let's say, we had to choose through one thing or the other. And one wasn't obviously better than the other. Then rather spend a lot of time trying to figure out which one was slightly better, we would just pick one and do it. Sometimes we'd be wrong. And we'd pick ourselves from our path. But often it's better to pick a path and do it than to just vacillate endlessly on a choice. We didn't worry too much about intellectual property, paperwork or legal stuff. We were really very focused on building the best product that we possibly could. Both Zip2 and Paypal were very product-focused companies. We were incredibly obsessive about how do we evoke something that is really going to be the best possible customer experience. And that was a far more effective selling tool than having a giant sales force or thinking of marketing gimmicks or twelve-step processes or whatever.

I'm not super familiar with Friendster. I mean the essence of viral marketing is do you have something where one customer is going to sell to another customer without you having to do anything. There are lots of instances of that, Friendster might be one. Obviously, Hotmail was one. PayPal was one. eBay was one. In a situation like that, going back to what I said about product, a product matters incredibly because if you're going to recommend something to somebody, you got to really love the product experience; otherwise, you're not going to recommend it because you don't want to burn your friend.

The hurdles entering the space industry, well, it is a very complicated regulatory structure. As you might imagine, when somebody tries to build an orbital launch vehicle which is not really all that distinguishable from an ICBM, there's a lot of regulation and there probably should be because you don't want to launch something and end up hitting LA where I live. So probably the regulatory stuff was very difficult. The environmental approvals certainly have proven very difficult much more so than we expected. I mean here in Silicon Valley, what I came to appreciate is in Silicon Valley you live in a libertarian paradise. There is almost no regulation. What can be very frustrating is that regulation is often irrational; it doesn't make any sense but you've got somebody there who's simply executing a set of rules independent of where those rules make sense and you can try to convince them that rules don't make sense and they won't listen to you. So probably regulation is the most annoying thing. I would say overall though, I'm very pleased because I think we've had a very smooth development process and on the whole, I can't complain at all.

Why is it so expensive to send something into space? Well, let me tell you what makes a rocket hard. The energy in the blasting required to get into orbit is so substantial that compared to, say, a car or even a plane, you have almost no margin to play with. Typically, a launch vehicle will get about 2% of it's lift off mass to orbit. And that's the case for Falcon. So if you can only get 2% of what your rocket weighs, to begin with, to orbit. If you're wrong by 2%, you're not going to get anything to orbit. You know, come crying down at the Pacific for it. That means all of your calculations have to be right. If you miss calculate something. You get an answer wrong. It blows up. And it's very expensive trying to get all your answers right. And then double checking if they're right. And testing them all and doing as much as you can on the ground. I think that's a lot of what makes rockets expensive. The low launch rate, typically, is also what makes rockets expensive. If you had thousands of flights a year then it would be a lot cheaper. Or it's a bit of a chicken and egg. Because it needs to be cheaper in order to have thousands of flights a year. But at the end of the day, in the final analysis, I would say, that rockets really should be a lot cheaper than they are today. And I think the way they're bought, the way they're operated is just very inefficiently. And I think with Space X and Falcon we're going to show that that's the case. Our vehicle will sell for about $6 million a flight. Our nearest competitor is the Pegasus from Orbital Sciences which is about $25 million a flight. And that has less capability than our rocket. So Falcon will represent a pretty substantial breakthrough on the cost backs of space.

Can you talk a little bit about difference in the customer base you have targeted in SpaceX that enforces experiences with PayPal how much challenge that presents? Yes. The customer base with SpaceX is dramatically different obviously from PayPal. PayPal is a consumer product whereas SpaceX we're selling rockets and the number of people who want to buy rockets is quite small. If anyone here has explained to everyone a rocket, I'd be glad to sell it to him. So it's much more of an individual selling process. There's a great deal more thought that goes to any purchase of a launch, much more so that signing up a PayPal account which doesn't really cost you much, and there's not a lot of viral marketing that's going to happen with a rocket I suspect. I'm hoping but I'm not counting on it.

I think successful entrepreneurs probably come in all sizes, shapes and flavors. I'm not sure there's any one particular thing. For me, some of the things I've described already I think are very important. I think really an obsessive nature with respect to the quality of the product is very important and so being an obsessive compulsive is a good thing in this context. Really liking what you do, whatever area that you get into, even if you're the best of the best, there's always a chance of failure so I think it's important that you really like whatever you're doing. If you don't like it, life is too short. I'd say also, if you like what you're doing, you think about it even when you're not working. It's something that your mind is drawn to and if you don't like it, you just really can't make it work I think.

SpaceX is about 30 people and what we do internally in SpaceX is we do all of the design analysis, integration of hardware, testing and then launch operations. But a lot of the heavy manpower stuff like welding together our primary structure, the heavy machining and so forth that we outsource, so we'd be a much larger company if we did all that internally. So you had another part to your question? Just lawyers... Actually we don't have any lawyers. The regulatory stuff that we deal with is very technical. It's really a lot like trying to get an airplane certified with the FAA. We're just getting a rocket certified. I wish we could offload it to some lawyers. They wouldn't know what the heck to do, so.

How did the Wharton degree help? I think for instance teachers with a lot of the terminology, introduces you to concepts that you would otherwise, there's terminology there's something to be said for that, introduces you to concepts you would otherwise have to learn empirically. I mean I think you can learn whatever you need to do to start a successful business either in school or out of school. A school in theory should help accelerate that process and I think oftentimes it does. It can be an efficient learning process, perhaps more efficient than empirically learning lessons. I mean there are examples of successful entrepreneurs who never graduated high school and there are those that have PhDs. So I think the important principle is to be dedicated to learning what you need to know, whether that is in school or empirically.

Well, I should point out that Falcon, our first vehicle, doesn't really have the same capability as either the Chinese, the Russian or the space shuttle vehicles that I mentioned. Falcon would be in the light class of launch vehicles, whereas the space shuttle would be a heavy-class launch vehicle so it's not quite apples to apples comparison. However, the right comparison would be Falcon compared to the Pegasus from Orbital Sciences. Falcon is six million; the Pegasus is 25 million. The way we've gotten our prices low, our cost low is we've really focused on every element of the launch vehicle. There's really no one silver bullet that has been responsible for a substantial portion of the cost savings. It's been really hundreds of small innovations and improvements, and so we've done improvements in the propulsion system, the structure, the avionics and the launch operations as well as maintain a very low overhead organization. When you add up all the things we've done in those areas, that allows us to produce the launch vehicle at $6 million. As far as PayPal, there were a lot of back-office relationships that we needed to establish and to attach to various heterogeneous data sources. We needed to attach to the credit card system for processing credit cards. We needed to attach to the Federal Reserve System for doing electronic funds transfers. We needed to attach to various fraud databases to run fraud checks. There was a lot that we had to interface with. That took a while. It all came together I think roughly simultaneously. I mean developing the software and having it ready for the general public reasonably coincided with us being able to conclude those deals and interface with the outside vendors, and all that took about a year. I think one thing that's important is to try not to serialize dependencies, so if you can put as many elements in parallel as possible. A lot of things have a gestation period and there's really nothing you can do to accelerate; I mean it's very hard to accelerate that gestation period. So if you can have all those things gestating in parallel then that is one way to substantially accelerate your timeline. I think people tend to serialize things too much.

We did do a few patents on the PayPal system although nothing that ever actually mattered. Our patents are mostly useful in a defensive situation rather than offensive. It can be very difficult actually to offensively prosecute a patent. I think in certain industries like pharmaceuticals and so forth, patents can be incredibly important. In software, particularly when you've got a very rapid lifecycle where you're sure you got a patent but now it's redundant so who cares. It's less relevant when you got a raid lifecycle.

There are a couple of things that I think are pretty bogus. One is space mining, another is space solar power. I mean if you calculate how much it costs to bring either the photons from space solar power back to earth or the raw material back to earth, the economics don't make sense. They just can't close the economic case. It's probably off by three order of magnitude. So I think probably the biggest thing that could happen is if we decide to establish a base on the Moon or a base on Mars and particularly, if we attempt to make a self-sustaining base, self-sustaining civilization on the Moon or Mars, that is an enormous opportunity on probably the trillion-dollar level because then you have basically interplanetary commerce going on. I think that's pretty huge, but it's not going to be space solar power; it's not going to be space mining I think.

Let's see. The government, maybe we're being spied upon, I don't know, but certainly there are some restrictions which are really annoying; such as the fact we're only allowed to employ people who have at least a green card or a citizen of the US. We're not allowed to employ anyone who does not have permanent residency in the U.S. If they can't throw you in jail, they won't let you work on rocket stuff. If we talk to any foreign nationals, we need a technology transfer agreement or something like that for the State Department. Our second launch is actually a non-US governmental launch and it has taken us six months to get the State Department approval just to engage in a contract discussion with them. So that is problematic.

We had several offers actually from a number of different entities for Paypal and in fact the close we got to IPO, the more offers we got but we always felt that those undervalued the company and subsequently when we went public, I think the public markets kind of indicated the value of the company. That's one of the good things about public markets. It's that they're an objective valuer of companies. When you're a private company it's very hard to say how much you're worth because you have to basically think of some metric. Are you going to go for multiple of future earnings? Are you going to go off something of revenue? What are your comparables going to be? There are all sorts of questions. It's really up for debate what sort of value your company is. When you're public, it's what the market says you're worth, that's what you're worth. Yes. eBay made a number of offers prior to going public that would substantially blow the value once we went post public and that kind of cleared up the disagreement and then we sold them. What else? Actually you had a second part to the question. I'm just wondering if you were concerned on getting any traction to a solution. Yes. eBay had initially Billpoint and then there was eBay Payments and it was a really pretty tough long running battle of Paypal versus eBay's payment system. It was certainly very challenging. I think there were times when it felt like we were trying to win a land war on Asia and they kind of set the ground rules or trying to beat Microsoft in their own operating system. It's really pretty hard. That took a lot of our effort to actually beat eBay on their own system. One of the long-term risks certainly for the company was that eBay would one day prevail and one way to retire that risk obviously was to sell to eBay.

Writing software during the summer of '95. Trying to make useful things happen on the internet. I wrote something that allowed you to keep maps and directions on the internet and something that allowed you to do online manipulation of content; kind of a really advanced blogging system. Then we started talking to small newspapers and media companies and so forth. We started getting some interest. I mean, half of the time it'd be like watch the internet, you in Silicon Valley. But then occasionally, somebody would buy it and we get a little bit of money from them. There were, basically, only six of us. There were myself, my brother, who I convince to come down from Canada; and a friend of my Mom's. And then three sales people we hired on contingency by putting an ad in a newspaper. But things were pretty tough in the early going. I didn't have any money. In fact, I had negative money. I had huge student debts. In fact, I couldn't afford a place to stay and an office. So I rented an office instead. Because, actually, I got a cheaper office than I could get a place to stay. I just slept on the futon and shouted the YMCA on Paige Mullen. It was the best shape I've ever been. There was shower work out and you're good to go. There was an ISP on the floor below us. Just like a little tiny ISP. And we'd draw a hole through the floor and connect to the main cable. That gave us our internet connectivity like a hundred bucks a month. So we had just an absurdly tiny burn rate. And we also had a really tiny revenue screen. But we actually had more revenue than we had expenses. So when we went and talked to VP's we could actually say we had positive cash flow. That helps, I think.

Well, like I said, there's no silver bullet that I can point to as to why our vehicle is a lot cheaper. We're really focused on reducing the cost across the board. I mean one thing, our overhead in a 30-person company is in order of magnitude less than it is in Lockheed or Boeing just for starters. So even if we did everything the same in both the same launch vehicles, we'd be conservatively cheaper. Every decision we've made has been with consideration to simplicity and the reason for simplicity is because that both improves reliability as well as reduce your costs. If you've got fewer components that's fewer components to go wrong and fewer components to buy. I think a fairly significant innovation in our airframe which is semiprecious stabilized monocoque with variable skin thickness and a common bulkhead, if you know what that means. I'll need a diagram to explain at all but the net result is that it's very cheap and it's very mass efficient and I think easy to test and quite reliable. Our avionic system, I'll give you another example, we use an Ethernet on the vehicle to communicate. That may not sound like a great innovation but it is in launch vehicles. All the other launch vehicles communicate in the vehicle by these serial cables that run the entire length of the vehicle, so you've got these giant copper bundles as thick as your arm running up and down the vehicle. It makes it heavy, it makes it expensive. So there are things like that which when you add them all up, it makes a huge difference.

No. That's a good question. No, I would not. I think SpaceX, this is advanced entrepreneuring. I can't tell you how many people have said that the fastest way to make a small fortune in the aerospace industry is to start with a large one so hopefully that doesn't work out. I think space is a tough one for first-time entrepreneurs. You're better off starting with something that requires low capital and space is a high-capital effort. Sorry. Last question?

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