When the cost of time is greater than the cost of cost
A couple years ago I was invited to a small dinner in SF and ended up sitting next to an early engineer at SpaceX. I had been (and still am) astonished what SpaceX had accomplished so quickly, so throughout the evening I tried to get the inside scoop: What made SpaceX special? Was there something in the water at Hawthorne? Why did they succeed where others had failed?
The engineer told me a story with a lesson I still haven’t forgotten.
In the early days of SpaceX, the core engineering team was experimenting with a bunch of rocket engine variations and narrowing down the designs. A rocket can’t do much without the engine and SpaceX needed to have incredibly reliable engines that could be reignited multiple times — no small feat!
During development these test engines were really expensive to build and often would explode on the test stand. (“To design a new engine you need to explode a lot of them,” he told me.) At that time SpaceX had limited cash, so this engineer planned to first build a few quarter-scale prototypes of his new design. It seemed like an obvious win since they would cost 10x less to build and only slow down the launch date by an extra month. The cost savings would be worth it.
The engineer took his plan to Elon Musk (his boss) and expected the go-ahead, but instead he got a very different reaction.
Elon explained that every single month they delayed launching would end-up causing tens of millions in lost revenue on the books within a few years. Looking at the future projected revenue, this engineer’s “money-saving” plan made no sense. Time was the more valuable resource.
He told the engineer to build and test the expensive full-scale engine and save that month of time. He said, “The cost of time is greater than the cost of cost.”
I’ve thought about this story a lot the past couple years and especially how it stands against the typical startup mantras. Accelerators and VCs firms always say to release early and often, use the lean startup model, run short experiments, etc. to preserve optionality so you can pivot.
But lean startup has a killer blind spot. Taking small steps (i.e. prototypes) may feel like you are making progress, but can actually distract from overcoming the real obstacles in the way of success. This is amplified tremendously in industries with exponential growth where the majority of revenue is not recognized until a much later date. When you factor in this total future cash flow, it turns out the most impactful non-fungible resource is time.
Elon figured this out and pushed the engineers at SpaceX to make bigger bets. Today SpaceX is so successful it has over $1B in flight contracts and backlogged launches. Missing a month now costs them millions.
Sometimes, the cost of time is greater than the cost of cost.
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