Why some commercial companies are more successful?

[mgfitter]

I was wondering if some of the experts here might be able to share their thoughts and insights on the question of why some of the commercial companies have been more successful than others?

What do the pro's here on NSF think are the biggest factors that make the greatest difference? Budget? Staffing levels? Technology selection? QA? Vertical integration (business)? Politics?

And could I ask each person to explain WHY?

-MG.

[nadreck]

I was wondering if some of the experts here might be able to share their thoughts and insights on the question of why some of the commercial companies have been more successful than others?

What do the pro's here on NSF think are the biggest factors that make the greatest difference? Budget? Staffing levels? Technology selection? QA? Vertical integration (business)? Politics?

And could I ask each person to explain WHY?

-MG.

All those have some effect, I think corporate culture makes a bigger difference, as does luck, not the "toss heads 32 times in a row" luck, but the luck in early successes being parleyed into a moat that protects the profitability of the company and making competing against it much more difficult than it was to set up the company. One companies moat is another companies barrier to entry.

[Coastal Ron]

The most important thing is to understand what your customer wants, and then give it to them.

If you can't find a customer that's willing to pay you money for a product or service, then you don't have a company - regardless the staffing levels or technology.

Next you also have to understand how to make decisions on how you will deliver the product or service, and that's when the staffing and technology part comes in.  Those are important too, but #1 is having something customers are going to willingly give you money for.

[Rebel44]

When I look at story of SpaceX, they got following things:
*luck (got NASA contract just as they were about to be bankrupt)

*Smart management decisions like making almost whole rocket inhouse allowed them to control the cost)

*Flexibility - they changed course of the company several times (abandonment of Falcon 1 etc.) when there was a good reason for the change.

*Inspiring both employees and people outside the company (Company target being making humans multiplanetary species is much more motivating, than company target of increasing profit of shareholders of tax-dodging company).

there are many other reasons, why some companies succeed and some fail.

[meekGee]

There's also this bit about how clever the leader is.

Musk is uniquely clever.  He turned a lot of common wisdom on its head, and was right about it.

You can have a company that's doing all the right things from a corporate point of view, but from a purely technical PoV, chooses the wrong direction - and it will lose.

[Impaler]

#1 Factor:  Adequate Capitalization

Most businesses of ANY kind fail because they burn through all seed money before reaching a sustainable revenue stream.  People are generally too optimistic about how quickly revenue can grow when a new business venture is begun.  Most of the ultimate success of failure is present at the start and not due to failure in execution of the business plan.

[jongoff]

#1 Factor:  Adequate Capitalization

Most businesses of ANY kind fail because they burn through all seed money before reaching a sustainable revenue stream.  People are generally too optimistic about how quickly revenue can grow when a new business venture is begun.  Most of the ultimate success of failure is present at the start and not due to failure in execution of the business plan.

I agree that this matters a lot, at least in the early phases. In my company's case we started it with almost no seed money to burn through (less than $10k), so we've had to bootstrap from there to get the company to a point where we could try raising money to go after a product (hopefully soon). I definitely wouldn't recommend that approach to anyone who doesn't have a really high stress tolerance.

But I'd also say that in addition to money, picking the right corner of the industry to focus on, a problem that can be profitably solved within an amount of money you can realistically access, and making good decisions all matter too.

~Jon

[Robotbeat]

Yeah, capitalization helps a lot (it's critical), but you can always say a company failed because they ran out of money. That doesn't really explain why they failed. Like Jon said, even a small amount of starting capital can be enough for a company which is competent and clever and picks the right problems to solve and customers to go after.

SpaceX was well-capitalized, but that wasn't all. They starte off with something they could actually accomplish given their starting capital: small launch using fairly basic kerolox engines. Beal Aerospace was much more ambitious at first (perhaps with similar initial capitalization?) but never succeeded.

[Oli]

What determines success? If you look at return on investment, I doubt any of the prominent new space companies can already be considered a success.

SpaceX was well-capitalized, but that wasn't all.

It's a lot. If they'd had to pay 10%+ on bank loans they probably would have failed.

[Robotbeat]

What determines success? If you look at return on investment, I doubt any of the prominent new space companies can already be considered a success.

SpaceX was well-capitalized, but that wasn't all.

It's a lot. If they had to pay 10%+ on their bank loans it probably would have failed.

Yeah, if they were dumb enough to put it all on their credit card, they probably wouldn't be smart enough to build an orbital rocket.

[rayleighscatter]

What determines success? If you look at return on investment, I doubt any of the prominent new space companies can already be considered a success.

SpaceX was well-capitalized, but that wasn't all.

It's a lot. If they had to pay 10%+ on their bank loans it probably would have failed.

Yeah, if they were dumb enough to put it all on their credit card, they probably wouldn't be smart enough to build an orbital rocket.

Not every business can start as a billionaire's plaything. Some actually have to start from nothing and build up.

[Robotbeat]

What determines success? If you look at return on investment, I doubt any of the prominent new space companies can already be considered a success.

SpaceX was well-capitalized, but that wasn't all.

It's a lot. If they had to pay 10%+ on their bank loans it probably would have failed.

Yeah, if they were dumb enough to put it all on their credit card, they probably wouldn't be smart enough to build an orbital rocket.

Not every business can start as a billionaire's plaything. Some actually have to start from nothing and build up.

Of course. But 1) Musk wasn't a billionaire and 2) having a billionaire's backing is not sufficient to ensure success. Blue Origin is well-heeled but miles behind SpaceX. But Blue Origin looks like a big success compared to other billionaire-backed ventures. Andrew Beal is a billionaire with much more money than Musk, but Beal Aerospace failed. And witness Stratolaunch. Neat plane, but it may never launch anything. Actually, I'd say that being a billionaire's "plaything" is likely to mean you don't go very far compared to if the backer if full-in and needs the company to succeed.

So I'd say one of the main determinants of success is whether the company is hungry, whether they /need/ to succeed. And sometimes being well-capitalized can actually undermine that. In SpaceX's case, that didn't happen because Musk had poured all his assets into SpaceX (and Tesla) and at one point had essentially no liquid assets. He was as "hungry" as every business that starts from scratch. (Although he had excellent Silicon Valley connections.)

So having to start from nothing and have your founder be hungry might be better than being a billionaire's mere plaything.

[rayleighscatter]

What determines success? If you look at return on investment, I doubt any of the prominent new space companies can already be considered a success.

SpaceX was well-capitalized, but that wasn't all.

It's a lot. If they had to pay 10%+ on their bank loans it probably would have failed.

Yeah, if they were dumb enough to put it all on their credit card, they probably wouldn't be smart enough to build an orbital rocket.

Not every business can start as a billionaire's plaything. Some actually have to start from nothing and build up.

Of course. But 1) Musk wasn't a billionaire and 2) having a billionaire's backing is not sufficient to ensure success. Blue Origin is well-heeled but miles behind SpaceX. Andrew Beal is a billionaire with much more money than Musk, but Beal Aerospace failed. And witness Stratolaunch. Neat plane, but it may never launch anything. Actually, I'd say that being a billionaire's "plaything" is likely to mean you don't go very far compared to if the backer if full-in and needs the company to succeed.

So I'd say one of the main determinants of success is whether the company is hungry, whether they /need/ to succeed. And sometimes being well-capitalized can actually undermine that. In SpaceX's case, that didn't happen because Musk had poured all his assets into SpaceX (and Tesla) and at one point had essentially no liquid assets. He was as "hungry" as every business that starts from scratch.

So having to start from nothing and have your founder be hungry may in fact be better than being a billionaire's mere plaything.

All of which doesn't address my point that most companies actually start using loans which was refuting your earlier opinion that using loans is "dumb."

[Robotbeat]

Not what I said. Using loans isn't dumb. Using loans with interest rate of 10%+ is dumb*. Original context is everything.

_{Unless you /plan/ on going bankrupt.}

[edkyle99]

Capital is key, always, but so is good engineering. 

Consider the company that occupied McGregor before SpaceX.  Beal Aerospace.  Andrew Beal had capital, and lots of it.  He flung it at a giant pressure-fed rocket that would have used giant ablative engines burning hydrogen peroxide and kerosene.  Composite tanks and structures were also part of the plan.  Six tonnes to GTO.  All of it was bold and interesting, but the engineering may have fallen short.  Beal tested a battleship version of his giant, 800 Klbf engine, but that was only an upper stage engine.  The first stage engine would have needed to produce 3,000 Klbf thrust, requiring massive additional development money just as the commercial launch market was collapsing.

SpaceX, basically, made better engineering choices from the outset.  The key first choice was to go with a smaller turbopump engine (derived in part from an already-existing experimental engine) using conventional propellants.  Southern California had plenty of ex-rocket engineers from shuttered or declining rocket factories who already knew this technology inside-out.  Turbopump engines could be clustered, which could not be done with pressure fed engines.  Aluminum tanks were used, eliminating the challenge of developing an unproven technology.  And so on. 

Kistler was an example of a company with a non-standard idea that made the engineering challenges more difficult, but that also had funding issues.

Amroc had some money, but was also trying to develop new technology (hybrid motors).

Roton had no money and a crazy idea.

And so on.

You could go all the way back to Orbital Sciences to find another commercial launch company that succeeded in large part because it made sound choices that both stayed within the bounds of the proven and within the bounds of its available funding. 

 - Ed Kyle

[Coastal Ron]

I agree that this matters a lot, at least in the early phases. In my company's case we started it with almost no seed money to burn through (less than $10k), so we've had to bootstrap from there to get the company to a point where we could try raising money to go after a product (hopefully soon). I definitely wouldn't recommend that approach to anyone who doesn't have a really high stress tolerance.

I would suggest that having a real or perceived lack of full capitalization is a good thing, since that forces everyone to review their needs and be innovative in how they meet them.

For SpaceX, I remember that they were able to acquire a number of infrastructure assets for pennies on the dollar, helping to stretch their early budget.  And it looks like they still try to pick up bargains where they can.

But I'd also say that in addition to money, picking the right corner of the industry to focus on, a problem that can be profitably solved within an amount of money you can realistically access, and making good decisions all matter too.

Well said.  It's that tricky combination of finding the underserved part of the market, plus the underserved part of the market that can be addressed within the capabilities you have.  Which means you have to not only understand your customer very well, but yourself (i.e. your company) too.

And fortuitous coincidence, for both good and bad, is always an unplanned component...

[meekGee]

Capital is key, always, but so is good engineering. 

Consider the company that occupied McGregor before SpaceX.  Beal Aerospace.  Andrew Beal had capital, and lots of it.  He flung it at a giant pressure-fed rocket that would have used giant ablative engines burning hydrogen peroxide and kerosene.  Composite tanks and structures were also part of the plan.  Six tonnes to GTO.  All of it was bold and interesting, but the engineering may have fallen short.  Beal tested a battleship version of his giant, 800 Klbf engine, but that was only an upper stage engine.  The first stage engine would have needed to produce 3,000 Klbf thrust, requiring massive additional development money just as the commercial launch market was collapsing.

SpaceX, basically, made better engineering choices from the outset.  The key first choice was to go with a smaller turbopump engine (derived in part from an already-existing experimental engine) using conventional propellants.  Southern California had plenty of ex-rocket engineers from shuttered or declining rocket factories who already knew this technology inside-out.  Turbopump engines could be clustered, which could not be done with pressure fed engines.  Aluminum tanks were used, eliminating the challenge of developing an unproven technology.  And so on. 

Kistler was an example of a company with a non-standard idea that made the engineering challenges more difficult, but that also had funding issues.

Amroc had some money, but was also trying to develop new technology (hybrid motors).

Roton had no money and a crazy idea.

And so on.

You could go all the way back to Orbital Sciences to find another commercial launch company that succeeded in large part because it made sound choices that both stayed within the bounds of the proven and within the bounds of its available funding. 

 - Ed Kyle

Very much so.

Having funds to work with is necessary, but is the LEAST of what made SpaceX successful.   Many other companies before it (and after it) had money, so clearly that's not what makes SpaceX unique.   Engineering choices, and business choices - all correct in retrospect - that made a difference:

- Start with an expendable rocket (and not a reusable suborbital system)
- Scale up from F1 to F5 to F9 with the same engine
- Vertical design and manufacturing integration
- Kero/Lox, then change to Metha/Lox
- VTVL and capsule
- Flight testing reusability using revenue flights
- Having a substantial goal beyond financial survival
- Design and operate your own comm constellation
- Emphasis on per-kg cost, to the extreme extent of allowing a large penalty for RTLS
- Barges as either an intermediate step and a means to catch center FH cores.  Simple barges.

So many places where bad decisions can lead you astray.  Which brings us to point #11:
- Keeping the plans agile while keeping an eye on the goal.

[Danderman]

#1 Factor:  Adequate Capitalization

Most businesses of ANY kind fail because they burn through all seed money before reaching a sustainable revenue stream.  People are generally too optimistic about how quickly revenue can grow when a new business venture is begun.  Most of the ultimate success of failure is present at the start and not due to failure in execution of the business plan.

Another way of looking at this is to get to revenue quickly, which is what Nanoracks did.

Most startups don't have the cash up front to develop their system to the point where they can get to revenue, and so are dependent on downstream investors. This is a bad thing because the  initial investors want to get a bigger share of the equity since they bear the greatest risk, but they are totally dependent on the downstream investors, who want a big piece since the enterprise depends on them.

[Nomadd]

 In Musk's case, success was determined by the equivalent of a butterfly sneeze. Tesla and SpaceX were both a Planck constant from going under in 2008 before a few investors bailed them out. Don't count out luck. He didn't build his companies or go from broke to being worth $13 billion in seven years by luck, but he did need it to survive.

[Rebel44]

In Musk's case, success was determined by the equivalent of a butterfly sneeze. Tesla and SpaceX were both a Planck constant from going under in 2008 before a few investors bailed them out. Don't count out luck. He didn't build his companies or go from broke to being worth $13 billion in seven years by luck, but he did need it to survive.

SpaceX was saved by NASA contract.