This is very exciting indeed, Johan, and thank you for fabulous simulation! I added a GIF video to your post of the historic event. The press release and details from Blue Origin itself about their New Shepard space vehicle can be found at: Blue origin makes historic rocket landing. Now I would like to ask you something about your simulation.
Isn't this inverted pendulum problem in essence - for all stages of the rocket ?
If yes, then your challenge item in the post "Design a better control system" - does it concern the inverted pendulum part?
Can control systems Wolfram Language tools be used somehow, see for example Stabilized Inverted Pendulum or is it not necessary and everything is built in in System Modeler ?
I your setup, is there any simulation of external force - random perturbation - trying destabilize the rocket ?