reviewing the new space entrepreneurs: origins, management ... · −“a social entrepreneur is...

Copyright ©2008, SpaceWorks Commercial, A Division of SpaceWorks Engineering, Inc. (SEI) All Rights Reserved1

Reviewing the New Space Entrepreneurs: Origins, Management, And Influence

Mr. A.C. CharaniaPresident | SpaceWorks Commercial | [email protected] | 1+770.379.8006 | 1+770.379.8001 (Fax)

Mr. Amaresh KolliparaFounder and Managing Partner | Earth2Orbit, LLC | [email protected]

Note: opinions that are expressed here are solely those of authors and do not represent any official viewpoint of their respective organizations

Version A

A Division of SpaceWorks Engineering, Inc. (SEI)

IAC-08-E6.1.559th International Astronautical Congress (IAC), 29 September – 03 October 2008, Glasgow, Scotland, UK


INTRODUCTION


SpaceWorks Commercial is a division within SpaceWorks Engineering, Inc. (SEI) -a leader in advanced space concept design and analysis.

SpaceWorks Commercial deals with commercial and international space ventures.

Presenter

Presentation Notes

Areas of engagement


SAMPLE SPACEWORKS ENGINEERING, INC. (SEI) PROJECTS


BACKGROUND AND MOTIVATIONS


“A review of history’s ambitious projects -- those that have garnered an uncommonly large fraction of a nation’s gross domestic product -- demonstrates that only three drivers have been sufficient to create them: defense (e.g. Great Wall of China, Manhattan Project, Apollo Project), the promise of economic return (e.g. Columbus Voyages, Magellan Voyages, Tennessee Valley Authority), and the praise of power (e.g. Pyramids, Cathedrals, Palaces). −Astrophysicist Neil deGrasse Tyson, director of New York City's Hayden Planetarium


− Perspectives on entrepreneurs − French economist Jean-Baptiste described the entrepreneur as one who

“shifts economic resources out of an area of lower and into an area of higher productivity and greater yield,”

− Austrian economist Joseph Schumpeter states that successful entrepreneurship, he sets off a chain reaction, encouraging other entrepreneurs to iterate upon and ultimately propagate the innovation to the point of “creative destruction,” a state at which the new venture and all its related ventures effectively render existing products, services, and business models obsolete.

− Peter Drucker: “The entrepreneur always searches for change, responds to it, and exploits it as an opportunity,”

− Israel Kirzner, who identifies “alertness” as the entrepreneur’s most important trait

− Entrepreneurship definition [Roger L. Martin and Sally Osberg]−The combination of a context in which an opportunity is

situated, a set of personal characteristics required to identify and pursue this opportunity, and the creation of a particular outcome.

− “The entrepreneur is attracted to this suboptimal equilibrium, seeing embedded in it an opportunity to provide a new solution, product, service, or process”

− Inspired or frustrated

THE ENTREPRENEUR


− What defines the NewSpace industry? − The term has been utilized over the last few years to describe the range of

new, entrepreneurial focused space companies (another term is alt.space).

− One characteristic offered here is that most of the NewSpace companies are those companies that have come in the wake of or offered substantially different products than during the mobile satellite system (MSS) and global satellite telephony ventures of the late 1990s

− These included the firms of Iridium (66 satellites) and Globalstar (48 satellites), both of which eventually went bankrupt, but still exist today after various technical and management restructuring efforts.

− There current generation of companies that make up the NewSpace industry including many launch providers.

− If one defines the space economy broadly to include hardware (launch vehicle, satellites, etc.) and services, then space launch is a small component of the commercial space industry (but an important one nonetheless).

− Even so, this presentation focuses on many of the NewSpace companies devoted to development for space launch services. Thus even at the outset the authors acknowledge the skewed nature of the following narrative wherein most revenue in the space industry is generated from services.

NEWSPACE DEFINITIONS


− AirLaunch LLC − Armadillo Aerospace− Blue Origin − Rocketplane Global − Space Adventures, Inc.− Virgin Galactic− Zero Gravity Corporation − Bigelow Aerospace − Ecliptic Enterprises Corporation− XCOR Aerospace, Inc. − SpaceDev (OTCBB: SPDV)− Transformational Space Corporation − JP Aerospace − Masten Space − Orion Propulsion, Inc− SpaceHab − Orbital Sciences Corporation− Surrey Satellite− ClydeSpace− Innovative Solutions In Space (ISSI)

SAMPLE NEWSPACE COMPANIES


− 1. EMERGING SPACE COMMUNITY IS REAL AND READY TO WORK; AT BEST IT IS THE MOST EFFICIENT PROVIDER, AT A MINIMUM AS AN OFF-RAMP.

− A mistaken perception of relative risk should not preclude use of the emerging commercial space community (or “new space”) in exploration activities. These firms offer the government efficiency, something quite at odds with the traditional aerospace contracting process.

− 2. DON’T JUST ENGAGE, BUT LEARN HOW TO ENGAGE.− Bureaucracy and inconsistency (i.e. changing requirements, non fixed-priced contracts, etc.) are large

barriers to commercial sector involvement with the government. − 3. NASA HAS A LEGITIMATE ROLE TO PLAY.

− NASA can still act as a champion for exploration in general. NASA could also utilize commercial expertise in the promotion of the VSE (e.g. ISS crew/cargo support).

− 4. BUY, DO NOT DEVELOP. − NASA should not develop ETO launch services but buy where appropriate.

− 5. MANAGE PRIZES APPROPRIATELY. − The government should continue the use of prizes but be careful in their applicability. Prizes for

activities with excessive risk will not be attractive for commercial companies.− 6. OTHER SERVICES BEYOND TOURISM.

− Telecommunications and ground services may be immediate areas of additional commercialization beyond sub-orbital and orbital tourism.

− 7. BRIDGE BUILDING BETWEEN EMERGING AND TRADITIONAL SPACE. − he government should encourage partnerships between the emerging/“new space” community and

the traditional aerospace industrial base.− 8. BUSINESS IS INTERNATIONAL, SPACE IS INTERNATIONAL.

− The government, along with industry, should reexamine existing International Traffic In Arms (ITAR) regulations.

− 9. BASIC TECHNOLOGY RESEARCH. − The more appropriate technologies for the government to fund are those fundamental, enabling

technologies that affect the major design disciplines (power, propulsion, and structures). − 10. MORE FOCUSED DIALOGUE.

− This type of dialogue is a valuable activity and should go forward, yet with a broad variety of voices and with facilitated discussions.

SOME PERSPECTIVES OF THE NEWSPACE COMMUNITYSource: EDS Workshops Summary Report, SpaceWorks Engineering, 2005


− “A social entrepreneur is someone who recognizes a social problem and uses entrepreneurial principles to organize, create, and manage a venture to make social change” [Wikipedia]

− Whereas a business entrepreneur typically measures performance in profit and return, a social entrepreneur assesses success in terms of the impact s/he has on society. While social entrepreneurs often work through nonprofits and citizen groups, many work in the private and governmental sectors.

− “If we can be one of the companies that makes it possible for humans to become a multi-planetary species, that would be the Holy Grail. It sounds a bit crazy but it's going to happen, and only if people build the means to do so. We're making progress toward a greater philosophical goal while building a sound business.”

− Elon Musk, SpaceX

THE NEWSPACE ENTREPRENEUR AS A SOCIAL ENTREPRENEUR?


OBSERVATIONS


NOW: GLOBAL SPACE ACTIVITY (2007, FROM THE SPACE REPORT)

Source: The Space Report 2008: The Authoritative Guide to Global Space Activity, http://www.thespacereport.org/


Sustained out-year activity in 2008 forecast

2008 Non-Geosynchronous Orbits Commercial Space Transportation Forecast, John Sloan, Federal Aviation Administration, Office of Commercial Space Transportation,

May 16, 2008.

NEXT: MIS-FORECASTING THE FUTURE

Historical Launches and Forecast 2008-2017


−Lack of general knowledge in the aerospace industry of economics

−Lack of understanding of cost field relative to performance arena, economics/Financials different than cost (or cost-benefit)

−Lack of basic business knowledge of current people in the industry (versus Nanotech and Biotech)

−Example of themes within recent U.S. Space Investment Summits (SIS), in comparison with other investment summits in other industries

−Grasping for inappropriate analogies−Using the airline industry as an example may not be most

appropriate, may have some applicability in terms of government support (different elasticities, competitive structure, etc.)

−Some NewSpace entrepreneurs have less of the above problems−Possess better business knowledge−Have understand of alternative analogies to apply new models

EDUCATION OF THE ROCKET SCIENTIST


− "I've never invested in any airline…I'm an airline manager. I don't invest in airlines. And I always said to the employees of American, 'This is not an appropriate investment. It's a great place to work and it's a great company that does important work. But airlines are not an investment.'" [since the airline deregulation of the 1970s, some 150 airlines have gone out of business.] "A lot of people came into the airline business. Most of them promptly exited, minus their money,”

− Robert Crandall, former president and chairman of American Airlines

− "The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down. The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.

− Warren Buffett, February 2007 annual letter to the stockholders of Berkshire Hathaway

THE AIRLINE INDUSTRY: PERHAPS NOT A GOOD MODEL?


−Within the aerospace community (and here we refer to those involved in the launch business rather than the services business), entrepreneurs generally fail to realize that they are attempting to create businesses rather than what I would refer to as “technological indulgences”.

−These indulgences seek to develop “cool” technologies versus sustainable businesses.

−This illustrates some repeated problems of space entrepreneurs, the failure to execute on the business plan, the failure to deliver a product or service, and the failure to stop a technical person's habit of becoming enamored with the next "cool" thing you are not working on, versus the current "cool" thing you are on.

ADDICTION IDENTIFICATION: TECHNOLOGICAL INDULGENCES


− In Newspace, a large scale commercial success which has not only proven a new technology, but also demonstrated a substantial return on investment has not occurred.

−Nevertheless, a simple comparison to the biotechnology example may suggest that it might take time

− In 1973, several years before the founding of Genentech, the concept of recombinant DNA was proven

− 20 years prior, the theoretical assertion that genetic engineering and recombinant DNA techniques might be possible was born after Watson and Crick’s discovery of DNA structure

− It took more than 26 years from the development of a theory and six years from a proven concept for modern biotechnology to begin its true path towards commercial viability.

−The timeframes in the Newspace industry may be even longer due to large capital costs in many of the Newspace sectors

BIOTECH ANALOGY


− Industries have to start somewhere. The timeframes from inception to commercial viability may take several years.

− In most instances, investors took a bet on a team and technology. This bet, if successful, has led to a broader growth in the industry.

−A large success usually attracts broader interest and investment to the industry as a whole.

−We may be in the extremely early stages of the Newspace industry.

−A success, even though it may be short-lived for one company, can be beneficial for industry growth.

THEMES FROM BIOTECH ANALOGY


−Space Exploration Technologies (SpaceX)−Spent approximately $100M of CEO’s own money [Musk]−Received over $200M dollars so far (out of $278M for COTS Phase 1)− $100M IDIQ launch services contract from USAF

−Scaled Composites−History of development for final government customers−Leveraged for commercial use

BROADCAST AS A LIBERTARIAN, PRACTICE AS A PRAGMATIST

Source: http://www.scaled.com/projects/index.html

Scaled Composites Project List on Corporate Website

Indicates project whose funding or ultimate destination was the government


−Prior Era Knowledge−Pintle engine (SpaceX)−Suborbital itself (X-15 inspiration to SS1)

−Technology advances, more with less people−CFD in place of wind tunnel (Scaled Composites)−Smallsats (Surrey, Clydespace)

−The Power and Irrelevance of Geography−Location of companies (Mojave California = Silicon Valley) and

spaceports−Human capital (international workforce)− ITAR (U.S.)−Small companies working together regionally and globally

OTHER FACTORS AFFECTING NEWSPACE


− Need more moments of clarity within the aerospace industry− 2010-2012 may be years for those successes− More X-prize type successes− Investors/public were not ready for Ansari X-Prize flight

− Demand estimation could be better and now more knowledgeable− Payload and People

− Update of Futron Zogby survey − Additional complementary companies emerging

− Orbital Outfitters (U.S.): pressure suite for sub-orbital tourism− Innovative Solutions In Space (Netherlands): Cubesat launch integrator

− In-Sourcing Versus Outsourcing− SpaceX model versus RpK

− Failure may affect multiple space market niches, (i.e. beyond several suborbital space tourism companies) but companies across the vertical and horizontal components of the industry

− What is the role outside the U.S.? (FAA regulatory framework adopted abroad?)− Global spaceport interest is a proxy for the global distribution of wealth− We need to await outcome of next few years to determine legitimacy of

Newspace− Sustainable sub-orbital tourism after the “pioneers” fly (transition to payload or

orbital?)− In U.S.: COTS Phase 2 (and Capability D-Human transport) services

FINAL THOUGHTS


w w w . s e i . a e r o

SpaceWorks CommercialA Division of SpaceWorks Engineering, Inc. (SEI)

1200 Ashwood Parkway | Suite 506 | Atlanta, GA 30338-4747 U.S.A.Phone: 1+770.379.8000 | Fax: 1+770.379.8001www.sei.aero | E-mail: [email protected]

reviewing the new space entrepreneurs: origins, management ... · −“a social entrepreneur is...

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