Home Computer Science Technological Entrepreneurship: Technology-Driven vs Market-Driven Innovation
Case Aims: To illustrate how entrepreneurial success breeds even stronger entrepreneurial self-confidence
In 1995, Elon Musk, a South African by birth but now an American citizen, started Zip2, a web software company, along with his brother, Kimbal, their father supplying the start-up capital of $28,000. COMPAQ acquired Zip2 for $307 million in cash and $34 million in stock options in 1999. Musk received $22 million from the sale. Using $10 million of the funds he received from the sale, in March 1999 Musk co-founded X.com, an online financial services and e-mail payment company. One year later, the company merged with Confinity which had developed an online money transfer service called PayPal. The merged operation was renamed PayPal in 2001. After Musk left the company in October 2002, PayPal was acquired by eBay for $1.5 billion in stock. As the company's largest shareholder, owning 11.7 % of PayPal's shares, Musk received $165 million (Lubove 2003).
These successes permitted Musk to entertain his entrepreneurial dream of becoming involved in space research, his ultimate aim being eventually to create a settlement on the planet Mars (Williamson 2014). Having visited Moscow to determine the cost of purchasing rockets from the Russians, Musk decided he could start a company that could build much more affordable rockets. He estimated that by applying vertical integration and a modular approach to software engineering, it would eventually be possible to reduce launch prices by a factor of ten and still enjoy a 70 per cent gross margin in renting out this capacity to others. This resulted in Musk founding his new entrepreneurial venture, SpaceX, which has the long-term goal of creating a spacefaring civilization (Kluger 2012).
Musk is chief executive officer (CEO) and chief technology officer (CTO) of the company, which is based in Hawthorne, California. SpaceX develops and manufactures space launch vehicles with a focus on advancing the state of rocket technology. Within seven years, SpaceX designed the family of Falcon launch vehicles and the Dragon multi-purpose spacecraft. In September 2009, SpaceX's Falcon rocket became the first privately funded
liquid-fuelled vehicle to put a satellite into Earth orbit (Knapp 2012). SpaceX was awarded a contract from NASA in 2006 to develop and test a new launch vehicle to transport cargo to the International Space Station (ISS). This was followed by a NASA contract on 23 December 2008 for 12 flights of the Falcon 9 rocket and Dragon spacecraft to replace the cargo transport function of the Space Shuttle upon its retirement in 2011. In 2012, the SpaceX Dragon vehicle docked with the ISS making history as the first commercial company to launch and dock a vehicle on the Station. SpaceX is both the largest private producer of rocket motors in the world, and holder of the record for highest thrust-to-weight ratio for any known rocket motor. However, any development based upon new technology is likely to hit unexpected problems, and such has been the case for SpaceX. SpaceX's attempt at pioneering reusable rockets did not go as planned. A soft landing went wrong when the rocket ran out of hydraulic fluid minutes before landing, causing it to lose control and come in just short of the floating landing platform. This was followed on the seventh ISS resupply mission by the Falcon 9 rocket exploding in mid-flight. The explosion also destroyed the Dragon supply vehicle which was being carried aloft on the rocket (Knapp 2016).
Musk's other passion is to develop solutions to the growing problem of global warming (Stringham et al. 2015). Hence his interest in the Tesla car company which was founded by Martin Eberhard and Marc Tarpenning. Their aim was to utilise the IT industry's deep understanding of the technology associated with lithium batteries to produce an electric car. Musk became an investor in February 2004 and joined the Tesla board of directors as the new chairman (Muller 2013). Initially intending to avoid involvement in day-to-day operations, his perception of the technological and managerial weaknesses within the company's senior management team caused Musk to assume leadership of the company as the new CEO. Tesla's first product was the electric sports car, the Tesla Roadster. Subsequently the company developed and launched their four-door Model S sedan. As part of its focus on expanding the company's product range, Tesla also sells electric powertrain systems to companies such as Daimler, Mercedes and Toyota.
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