Course

PayPal vs. SpaceX: Different Entrepreneurial Challenges

Stanford University
Course Lectures
  • Career Development
    Elon Musk

    Elon Musk, co-founder, CEO, and chairman of PayPal, shares his background: He was accepted into Stanford but deferred his admission to start an internet company in 1995. His company was zip2 which helped the media industry convert their content to electronic medium. Then, he sold the company for over $300 million and never came back to Stanford.

  • Founding of Paypal
    Elon Musk

    After his company zip2, Musk started exploring other opportunities on the web. He realized that money required low bandwidth and there was not enough innovation in the financial industry. Musk shares how he arrived at the idea of PayPal.

  • Musk talks about how PayPal is a perfect case of viral marketing where one customer acts as a sales person by sending money to a friend and hence recruiting another customer. By the end of the second year, PayPal had a million customers with no sales force and no advertising budget, he says.

  • Musk talks about how PayPal went public in 2002 February. Shortly thereafter a deal with eBay was struck, he says.

  • Early in 2002, Musk started doing some research on space. Every other sector where technology was used had improved dramatically but he did not understand why space exploration not done so. He talks about the idea behind project Mars Oasis and his visits to Moscow to buy a Russian launch. Following his visit he put together a group of experts to study the feasibility of making lower cost launches in the US.

  • Space Travel Today
    Elon Musk

    Musk talks about the problems with space exploration in the US in the 22nd century. The long term plans are to have something cheaper and safer. In Russia, it is safer and cheaper and they have a better track record. They are constrained however by the weakness of the Russian economy. China is expected to launch their first person into space this month, becoming the third country to put a person into the orbit. They have great ambitions and are planning to set up a space station on Mars and eventually sending humans to Mars. In the US, once enterprises enter this space with an entrepreneurial spirit, Musk hopes to see the same growth seen in the internet. Musk talks about efforts that are already in the pipe line.

  • There is quite a lot of capital entering the entrepreneurial space sector, says Musk. He shares some models of competitor vehicles and talks about the differences between them and the SpaceX vehicle. The long term goal is to build human transportation vehicle. He talks about the first SpaceX launch, which will happen in 2004.

  • Musk talks about the common themes between zip2 and PayPal. Both companies had software and internet technology at the heart, were in Palo Alto, CA, took similar approach to growing (building small talented teams), and had a typical silicon valley flat structure. These companies did not worry too much about IP and paperwork - they were focused on building a great product. Often it is better to pick a path and do it than to vacillate on which path to follow, Musk notes.

  • Viral Marketing
    Elon Musk

    The essence of viral marketing is making one customer sell to the other, says Musk. Instances of this include Friendster, hotmail, PayPal. The customer must love the product experience to recommend it, he notes.

  • The space industry has a very complicated regulatory structure and this has been the biggest obstacle, says Musk

  • According to Musk, some causes of the high costs in space exploration are: The energy to launch a rocket into space is very high, all the calculations have to be right and this is very expensive given the low launch rate. His final analysis is that rockets should be a lot cheaper and presently there are a lot of inefficiencies.

  • Musk talks about the difference in the customer base of PayPal and SpaceX: PayPal is a consumer product and SpaceX sells rockets, which have very few customers. SpaceX involves individual selling process and no viral marketing.

  • According to Musk, successful entrepreneur come in all sizes, shapes and flavors. Some things that are important are an obsessive nature with respect to the quality of the product, and really liking what you do, he says.

  • History of SpaceX
    Elon Musk

    Musk talks about how Space X is comprised of 30 people. They outsource all the heavy machining like welding etc. There are no lawyers at SpaceX and Musk explains why.

  • Musk discusses the role that business school can play for an entrepreneur as well as the possibility of learning outside of school. According to him the, the important principle is to be dedicated to learning what you need to know - whether that be in school or empirically.

  • Musk talks about how SpaceX is reducing the cost of launch vehicles. The focus is on every element of the vehicle and this has involved hundreds of small innovations as well as reducing overheads. In the case of PayPal, there were back office relationships that had to be established but everything was done in parallel, thus saving time.

  • Patents and Paypal
    Elon Musk

    PayPal did have a few patents but nothing that really mattered, says Musk. He acknowledges the necessity of patents in certain industries but industries like software, where the lifecycle is rapid do not need IP.

  • Musk thinks that establishing a base on the Moon or on Mars is an enormous opportunity, on a trillion dollar level.

  • Musk talks about the restrictions on space travel due to the government involvement. He shares some examples of these restrictions.

  • Musk talks about how PayPal had a number of offers but they undervalued the companies and so they went public to get an objective valuation of the company. eBay had made a good offer after the IPO, says Musk. Another reason to sell to eBay was the long term risk of losing to the eBay payment platform, he adds.

  • History of Zip2
    Elon Musk

    Musk started by writing some small software over the summer and eventually started talking to some publishing companies who developed interest.

  • Musk talks about how there's no one area where costs were reduced in space travel, rather it was every decision across the board. The focus was on simplicity-and simplicity reduces costs. For example, fewer components means fewer components to repair, and to purchase, as well as to test. The avionics vehicles communicate via ethernet-while not novel, it is unheard of, compared to other systems that use cables, he says. In addition, overhead at a 30 person company is much cheaper than at Lockheed or Boeing, he notes.

  • Musk does not recommend space travel to a first time entrepreneur. It is better to start with something that requires low capital.