Total Cost of Failure (TCF)

I recently saw a LinkedIn post from a gentleman named Oscar L. Martin. In it, he compared the efficiency and cost-effectiveness of Elon Musk’s SpaceX to NASA’s. Mr. Martin wrote:

Elon Musk proved the problem with space was not technological but institutional … NASA prefers to expend $40B after 15 years in known tech for a flawless first launch, to $4B for 10 de-risk launches in 5 years in evolving tech.

In the same post, Mr. Martin hyperlinked an article by one Brian Wang, in which Mr. Wang embedded a YouTube video by Dr. Robert Zubrin. Mr. Wang wrote:

Orbital SpaceX Starship working by 2024 will mean a Saturn V rocket capacity at 1% of the cost.

If you’re wondering how or why any of that could be true, wonder no more.

Name That Tune

There are three reasons for which the performance of a SpaceX will outpace the performance of a NASA every time:

1. Bureaucracy
2. Government
3. Lack of innovation.

Bureaucracies can be counted on to pursue three other things exclusively and without fail:

1. Control
2. Growth
3. The operational status quo.

Those three things are more prevalent in government and government-agency bureaucracies than they are in any other institutions because there’s no accountability. Consequently, there’s neither desire nor reason to innovate.

It is hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong. (Thomas Sowell)

We have no such luxury in business, industry, the private sector, and the market. If we’re wrong — if we fail — the price we pay is high and inescapable.

We Don’t Have to Fail

One of the most common expressions in many business discussions is total cost of ownership (TCO). According to Wikipedia:

Total cost of ownership (TCO) is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or service. It is a management accounting concept that can be used in full cost accounting or even ecological economics where it includes social costs.

Given the breadth of that definition, we might just well add opportunity cost (for unidentified ideas) and the cost of failure (that might result from long histories of unidentified ideas that might have led to new products, services, or business models).

But with purpose, discipline, transparency, and a commitment to making innovation systemic, systematic, and sustainable, the risks of lost opportunity and failure can be effectively mitigated and dramatically reduced.

Given the choice between TCO and TCF, take TCO.

If you take TCF, you won’t own anything.