Hi Fintech futurists --

Political unrest and calls for change across the world continue. Many of us do not know how to be advocates, nor parse our assumptions about "how protests should be" from the structural inequity that caused the current situation. Allow me to highlight again last week's writing on Black Lives Matter.

On Friday, we also published a fantastic conversation about digital wallets and neobanks, focusing specifically on the economics of how Square's Cash App is outperforming Venmo, and why payment models are undervalued, with ARK Invest here.

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This week I discuss SpaceX, and its Dragon rocket carrying American astronauts to the International Space Station for the first time in 9 years. The 20 year old company is a testament to the incredible iron will and absolute insanity of the most visionary capitalist alive -- Elon Musk. We walk through various attributes of the company and recent launch to derive lessons for the financial industry and the entrepreneurs rebuilding it.

Long Take

Elon Musk is complicated. His life is one of extremes -- swinging from bankruptcy to massive success, family to playboy, compliance to law breaker, trolling to leadership. Let's pause to admire that from which we can learn. A lesson in human nature, ingenuity, and vision. Let's talk about SpaceX.

Musk founded SpaceX in 2002, and it has always been connected to his personal ambition for inter-planetary space travel and to put a human settlement on Mars. Imagine the ego and hubris to hold this goal! Imagine the will-power and strength to get it done! The key insight that many others have shared about Musk's personality is that he is able to break down any problem to "first principles" and reconstruct a modern, unusual answer. From PayPal, to Tesla, to SpaceX, to the Boring Company, each is a new answer to a large fundamental societal need. Check out this great interview series from Wait But Why on the subject.

If you haven't been watching, SpaceX just delivered a rocket with astronauts to the International Space Station. This is notable for a number of reasons. First, the public US space program has slowed down since the Space Shuttle was decommissioned in 2011, with the Russian Soyuz spacecraft serving as the go-to-vehicle since. Second, SpaceX has already set a number of private company records, including being the first 20 year-old business supplying NASA with its primary space faring capability for the foreseeable future.

As competition with China over global technology heats up, it is also the West's most likely bet for commercial research and development. Space is not a pointless adventure. It is our GPS system (without which there would be no Uber, Lyft, or Deliveroo), satellite mapping (without which there would be no Google Maps), and if Musk has his was way with Starlink, a space-bound high-speed Internet system. And while China commits billions upon billions of national budget to artificial intelligence, blockchain, and other frontier tech infrastructure, the US relies primarily on the capital markets for solutions. Few people in global history have Musk's ability to use capital markets to address issues on the scale of humanity.

The Illusion of Digital Transformation

I want to give you a sense of the meme that has been floating around social media associated with the launch of the rocket. Let's call it -- "Digital Transformation".

In the top image, you see the physical buttons and dials from the Apollo rocket. Its 1960s aesthetic is both endearing and overwhelming. There is a crude physicality of piloting this craft, a turning of the gears in a gigantic industrial machine. The Space Shuttle incorporates screens and displays, but the immense manual complexity remains. Finally, we have the SpaceX Dragon. Its controls are distilled into a single, sleek visual display running on a Linux operating system. The computer has three backups, a fourth system running on another OS, and a manual override. But here, it just looks like a luxury car.

I have seen many people compare this to how neobanks or roboadvisors have re-imagined the financial industry. Instead of some large arcane manual process, there is a slick touch-screen interface that is designed for simplicity and user experience. Instead of using ink and faxes and phones, you just scan your face and connect to the hivemind. Let's put a pin in this comment and move onto the next exhibit.

The above picture shows you different conceptions of what a space crew should look like. The entirely utilitarian, baggy orange suits create a stark contrast to the minimalist, uniform treatment of Star Trek. The SpaceX astronauts on the bottom left look like race car drivers or science fiction characters, communicating power, speed, and futurism. That should come as no surprise, given that the concept for the suits was created by a Hollywood costumer designer from the movies "The Avengers", "X-men II", and "The Fantastic Four".

The suits are no less functional than their historic predecessors. But unlike them, they communicate an accessibility to space -- and a coolness factor -- that was missing in the past. Instead of being foreign and suffocating, space becomes just another road along which the human race will travel.

What Musk knows, and what many Fintechs naturally understand, is that brand and story matters. This is why he shot a Tesla into the sun. To be a troll, to have a sense of humor, to laugh at the absurd tragedy of human nature -- these are all a single strand of DNA. How can a person like this not bristle at the Securities and Exchange Commission regulating him on Twitter?

Before moving on, however, let's appreciate that Musk delivers on his marketing. Unlike most Fintech founders, who are still talking about building some Amazon supermarket of finance while Amazon actually builds that supermarket, Musk builds proof that sears his stories and humor into our minds. Who has ever touched Finance with this approach, other than perhaps Richard Branson's Virgin Money or Capital One? Who has done the impossible as a contrived joke, only to top that joke year after year? Not Wells Fargo. Not Bank of America. Not Morgan Stanley.

If you can laugh about the existential danger to the human race (i.e., we must move to Mars before we blow up the planet), why can't you laugh about our naive resource allocation mechanisms? Are our financial lives any less absurd?

Escaping Innovation Theater

Look. Marketing and design are great. But they are not digital transformation. They are the noise attracting monkeys to the banana tree. They are what faceless corporations have to do to empathize with and relate to human customers. They should be symptoms for something much deeper, not just innovation theater of workshops and social media influencer articles (I'm guilty!). Show the underlying change. Show a different way to make the thing. Burn down what you have to make it anew.

This image above is the one that actually matters. This right here is actual digital transformation.

The cost of delivering payloads has fallen from $20,000 per kilogram with the Space Shuttle program to $2,000 with SpaceX. One of the core innovations is the design of a reusable rocket, which can land on a platform without exploding after its trip to orbit. As a result, the variable cost of each launch has fallen from $500 million to $50 million, while delivering the same payload. On the fixed cost side of the equation, SpaceX also outperforms -- developing the Falcon rocket for $400 million, with NASA estimating that a similar program funded by the government would have cost $4 billion.

Musk is able to deliver the same result for 90% less upfront cost, and 90% less ongoing cost.

That 90% is deadweight loss. It is a bureaucratic waste of resources that comes with supporting only existing vendors, believing that the way things are done is how they should be done, and that institutional relationships are more important than innovative solutions. It is the inability to swallow the sunk costs of a 40 year old core banking system and replace it from scratch. It is the disconnect between a mobile first generation that wants all financial services in simple packaging in real time, and an investment management industry built on complexity to primarily service high-net-worth clients. It is the gap between a government body that protects consumers by creating principle-based rules asking brokers to be fiduciaries, and a quilt of regulators captured by their various sectors focused on enforcing the status quo.

Takeaways for the Financial Services sector

If you are reading this, chances are you are an entrepreneur, investor, or operator in the Fintech space. Like all of us, you want to make money from some creative angle or approach to the age old problems of paying, saving, and investing. Maybe you are watching Tink expand its open banking APIs, or Revolut bundle together new features into an app with 12 million users.

Cool stuff. Great user experience on that space shuttle!

My advice is to ask the following question -- is what you are doing able to deliver the same result as our prior system for 90% less upfront cost, and 90% less ongoing cost?

Or are you involved in hyping up the same old thing with a new interface?

I am not throwing shade on Tink and Revolut. Both companies have accomplished a meaningful customer impact, and re-positioned the perception of banking. Yet if we ever want to get out of incrementalist thinking, delivering 20% improvements to financial middleware, we need to think bigger. We need to start with some massive existential human need, and design a solution for the next century with tools made in 2020.

If dozens of other companies are tackling the same problem as you after their $5 million pre-Seed round, it's probably not a problem worth your time. Pick something bigger. Do something harder. Breathe in more deeply. For example, it may not be easy to rebuild a global financial system from scratch out of Ethereum, but it’s worth a try.

Not all of us have the experience of Musk's multi-million exits: $20 million from Zip2 in his 20s, $180 million from PayPayl in his 30s, and billions since. Not all of us have his Icarus-like confidence and self-control. But we can all aim a little bit higher.

Choose to build a functional business, instead of making a short-term trade on hot venture trends. Market timing is harder than you think. And just because you work in finance doesn't mean you need to work on financialization. Owning an asset for yield, or editing the work of others by trading in the capital markets can be well-compensated activity. It accounts for the wealth of a meaningful percentage of self-made billionaires.

But even more valuable is to be the artist, the builder, the visionary. Pick up the shovel and start digging.

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Long Take: What can Fintech learn from Elon …

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