IAC-08-E6.1.5

REVIEWING THE NEW SPACE ENTREPRENEURS: ORIGINS, MANAGEMENT, AND INFLUENCE

A.C. Charania* SpaceWorks Commercial, a Division of SpaceWorks Engineering, Inc. (SEI), United States of America (USA) [email protected]

Amaresh Kolliparat Earth2Orbit, LLC, United States of America (USA) [email protected]

ABSTRACT

This paper will review the current generation of “new space” entrepreneurs examining origins, motivations, accompanying strategies, and measures of success (financial and overall influence). This paper will attempt to identify some top level qualitative trends from these “new space” entrepreneurs. Over the last few years, the aerospace industry, particularly but not exclusively in the United States, has seen new entrants. These new companies and the individuals behind them represent a slight shift from the traditional aerospace industrial base. Many of these new companies have matured, from idea to corporation. At this point in the life cycle of companies some relevant observations can be gathered as to which strategies seem to be on the path to success, which strategies were inappropriate, and what the impact of these firms will be on the industry in general. This impact is beyond just financial, and includes the impact of these firms upon world governments and their policies. In addition, this paper compares these “new space” entrepreneurs versus those in other industries.

scale projects. These are projects that require large NOMENCLATURE capital and labor resources that involve both the government and private sector. Specifically, he has IRR Internal Rate of Return stated: LEO Low Earth Orbit NASA National Aeronautics and Space A review of history’s ambitious projects -- those Administration that have garnered an uncommonly large fraction of NPV Net Present Value a nation’s gross domestic product -- demonstrates that only three drivers have been sufficient to create INTRODUCTION them: defense (e.g. Great Wall of China, Manhattan Project, Apollo Project), the promise of economic Astrophysicist Neil deGrasse Tyson, the director of return (e.g. Columbus Voyages, Magellan Voyages, New York's Hayden Planetarium, has previously Tennessee Valley Authority), and the praise of discussed the reasons why humans engage in large power (e.g. Pyramids, Cathedrals, Palaces). For expensive projects that satisfy more than one of ______these criteria, money flows like rivers. The * - President, Senior Member AIAA. Eisenhower Interstate highway system makes a t - Founder and Managing Partner crisp example: conceived in the post WWII era to move materiel and personnel for the defense of the Copyright ©2008 by SpaceWorks Engineering, Inc. (SEI). Published by the IAF, with permission. Released to nation, yet used heavily by commerce. That’s why IAF/IAA/AIAA to publish in all forms. there’s always money for roads [Ref. 1].

1 The exploration and utilization of space with humans attention within the space industry. The attempt here is can be considered one case. For economically mature not to present a comprehensive assessment of all these economics in the modern world (absent reactions to “new space” companies, but to bring out for discussion terrorism or competition with China), defense and several themes that emerge when looking at these praise of power are subordinate to economic returns. companies in totality. This paper will attempt to Tyson’s comments apply to large scale projects but identify some top level qualitative trends. Additionally they are also a good introduction to discussions about some comparisons will be made with these the people and process of recent space “NewSpace” entrepreneurs versus models from other commercialization. industries.

Throughout the recent history of man in space, If one defines the space economy broadly to include enthusiasts have tried to imagine what will be the hardware (launch vehicle, satellites, etc.) and services, ultimate product or service that would revolutionize then space launch is a small component of the space exploration. The goal was always to make the commercial space industry (but an important one dreams in all those pulp novels of ubiquitous space nonetheless). Even so, this paper focuses on many of travel possible. Many waited for the government to the NewSpace companies devoted to development for make it possible for everyone to experience space space launch services. Thus even at the outset the exploration personally and not by proxy through the authors acknowledge the skewed nature of the world’s select cadre of astronauts and cosmonauts; that following narrative wherein most revenue in the space did not happen. In the most recent past, experts industry is generated from services [Ref: the Space predicted that Low Earth Orbit (LEO) constellations Report]. would be the catalyst for a space boom; currently many companies market suborbital as one of The opinions that are expressed here are solely those of the news markets that may usher in a new era of space authors and do not represent any official viewpoint of exploration, one of the only future markets large their respective organizations. enough to sustain high flight rates that may reduce the cost to orbit (or develop high speed global point to point travel). BACKGROUND

Whatever the case may be in the actual future, Definitions financially constrained governments may not be the ultimate guarantor of sustained space exploration. There have been multiple attempts to define However, the government may still be able to enable entrepreneurship. Some particular attempts include the (and is enabling) some of this progress even given its following [Ref 2]: sometimes constraining approaches to commerce (taxes and regulation). This is happening now in a few case ƒ French economist Jean-Baptiste described the instances including where NASA is attempting to entrepreneur as one who “shifts economic accelerate the development of space launch services of resources out of an area of lower and into an logistic supplies to the International area of higher productivity and greater yield,” (ISS), the Commercial Orbital Transportation Services ƒ Austrian economist Joseph Schumpeter states (COTS). In face, the history of civilization on Earth has that successful entrepreneurship, he sets off a examples of government assisted industries chain reaction, encouraging other transforming into viable and competitive commercial entrepreneurs to iterate upon and ultimately marketplaces (e.g. railroads, the Internet). propagate the innovation to the point of “creative destruction,” a state at which the Over the last few years there have been various new venture and all its related ventures companies that have emerged within the aerospace effectively render existing products, services, industry. They can be distinguished, or distinguish and business models obsolete. themselves, as different from “traditional” aerospace ƒ Peter Drucker: “The entrepreneur always companies, whether through their vision, personnel, searches for change, responds to it, and funding, timelines, products, or overall objectives. exploits it as an opportunity,” ƒ Israel Kirzner, who identifies “alertness” as the This paper will present some observations about some entrepreneur’s most important trait of recent entrepreneurial companies that have generated

2 Martin and Osberg aggregate these opinions into their Musk from Paypal), (Jeff Bezos of definition of entrepreneurship: “The combination of a Amazon.com), SpaceDev, Xcor, Microcosm, context in which an opportunity is situated, a set of (John Carmack of id Software), personal characteristics required to identify and pursue Rocketplane Global. Additionally, this opportunity, and the creation of a particular (Robert Bigelow) is in development of inflatable on- outcome…The entrepreneur is attracted to this orbit modules based upon NASA-licensed technology. suboptimal equilibrium, seeing embedded in it an There are also reduced gravity flights being offered by opportunity to provide a new solution, product, service, Zero Gravity Corporation. has sent or process.” [Ref 2]. These individuals are inspired or paying customers to the International Space Station frustrated at the current situation. (ISS) and has proposed using a modified vehicle with a new propulsion stage for a round trip flight to NewSpace the moon with one crew and two paying passengers for an individual ticket prices of $100M per passenger. What defines the NewSpace industry? The term has Space Exploration Technologies (SpaceX) is been utilized over the last few years to describe the developing new cargo launch vehicles with potential range of new, entrepreneurial focused companies ambitions for crew launch capability. This has included (another term is alt.space). One characteristic offered two new engine developments and three new facility here is that the NewSpace companies are those developments for approximately $100M on investor companies that have come in the wake of the mobile funds ($200M+ of NASA funds). In order to serve the satellite system (MSS) and global satellite telephony sub-orbital space tourism market, , in ventures of the late 1990s [Ref 3]. These included the combination with Scaled Composites, is developing a firms of Iridium (66 satellites) and Globalstar (48 larger follow-on vehicle to the Ansari X-Prize winning satellites), both of which eventually went bankrupt, but SpaceShipOne design. This is in addition to other still exist today after various technical and management companies who are developing their own concepts for restructuring efforts. The current generation of this market, namely Rocketplane Global, Blue Origin, companies that make up the NewSpace industry Xcor Aerospace, and Armadillo Aerospace. Separate include many launch providers. Table 4 lists many of from NASA’s VSE (human exploration vision) and the the companies. traditional aerospace industrial base, there are innovative new groups pursuing multiple space services Table 4. Sample “NewSpace Companies” using a myriad of approaches seeking not only Characterisic Value government but purely commercial customers (e.g. sub- Bigelow Aerospace SpaceDev, Inc. orbital and orbital tourism). Odyssey Moon Limited Ecliptic Enterprises Orbital Outfitters Armadillo Aerospace Recent Catalyst Air Launch LLC JP Aerospace Xcor Rocketplane Global The Ansari X-Prize, won in 2004 by the Mojave Masten Space Systems SpaceX Aerospace Ventures (consisting of Burt Rutan’s Scaled Blue Origin Virgin Galactic Composites and Paul Allen) may be viewed by future Surrey Satellite Orbital Sciences historians as a watershed event in the history of space Corporation commercialization. By actually providing evidence of ClydeSpace Innovative Solutions In the emerging commercial space community’s Space (ISSI) capabilities to perform, it has opened the eyes of both AxelSpace Transformational Space Corporation the lay public and government space program Orion Propulsion SpaceHab managers. The Ansari X-Prize was some form of catalyst to many of the companies that participated. Many of the NewSpace companies currently in There are currently multiple start-up companies existence were not yet formed or only barely formed at competing for the small-satellite launch market and or this point. Obviously, the Ansari X-Prize did not sub-orbital tourism market in a post X-Prize motivate all these NewSpace companies, but it can be environment. For example, the emerging launch vehicle looked upon as a major signal of the NewSpace wave. / space tourism companies currently include: Virgin The public relations value of this event to investors Galactic (Richard Branson of Virgin), Scaled may have been underrated. The success of the winning Composites, , SpaceX (Elon team demonstrated a real value to other investors (specifically Richard Branson of the Virgin Group).

3 These types of successes will be needed every so often in the near future to continue to interest both investors 4. BUY, DO NOT DEVELOP. NASA should not and customers. develop ETO launch services but buy where appropriate. NASA may have to reexamine its PERSPECTIVES OF THE NEWSPACE preference for owning and operating systems. This does COMMUNITY not preclude pure technology development for future RLVs to X-vehicles (which may be encouraged) or There are certain perspectives on commercialization development of large, heavy lift services which may that these companies possess. A few years ago, one of not be available from the commercial industry by itself. the authors led a series of workshops to examine what LEO access is one of the primary market opportunities drives these companies. Some of the perceptions that in the near term for space commercialization. Cargo were attributed to the NewSpace Community are launch (and specifically propellant supply) and crew described herein [Ref 4]. transfer are important capabilities the commercial space community can provide in terms of LEO access. There 1. EMERGING SPACE COMMUNITY IS REAL is interest from multiple commercial entities AND READY TO WORK; AT BEST IT IS THE (traditional and non-traditional alike) and government MOST EFFICIENT PROVIDER, AT A MINIMUM should not interfere in this development. AS AN OFF-RAMP. A mistaken perception of relative risk should not preclude use of the emerging 5. MANAGE PRIZES APPROPRIATELY. The commercial space community (or “new space”) in government should continue the use of prizes but be exploration activities. There is a perception that NASA careful in their applicability. Prizes may be limited in still views the companies in this community as non- terms of applicability to longer term, large-scale robotic credible. Space is risky and there may be a need to have and human exploration goals. Prizes are better suited both critical and non-critical paths for exploration. As for more near term goals (such as near earth, LEO seen by their multiple new initiatives, the emerging activities). Prizes for activities with excessive risk will space community may have a very legitimate role to not be attractive for commercial companies. play in these non-critical paths as potential off-ramps for development. These firms offer the government 6. OTHER SERVICES BEYOND TOURISM. efficiency, something quite at odds with the traditional Telecommunications and ground services may be aerospace contracting process. There may even be a immediate areas of additional commercialization need to review the nature of government exploration, beyond sub-orbital and orbital tourism. currently managed as a program rather than nurturing an industry. More specific areas of involvement should 7. BRIDGE BUILDING BETWEEN EMERGING be identified for the “new space” community. The AND TRADITIONAL SPACE. The government government should engage this community and involve should encourage partnerships between the them in future procurement activities. emerging/“new space” community and the traditional aerospace industrial base. 2. DON’T JUST ENGAGE, BUT LEARN HOW TO ENGAGE. Bureaucracy and inconsistency (i.e. 8. BUSINESS IS INTERNATIONAL, SPACE IS changing requirements, non fixed-priced contracts, etc.) INTERNATIONAL. The government, along with are large barriers to commercial sector involvement industry, should reexamine existing International with the government. Allowing commercial industry Traffic In Arms (ITAR) regulations. Partnerships freedom to design a solution may be important. between multiple companies (non-aerospace/aerospace, small/large, domestic/foreign etc.) will be important in 3. NASA HAS A LEGITIMATE ROLE TO PLAY. the future. NASA’s historical role may still be applicable today and it has core missions that the commercial industry 9. BASIC TECHNOLOGY RESEARCH. The more cannot replicate (i.e. planetary exploration). NASA can appropriate technologies for the government to fund are still act as a champion for exploration in general. those fundamental, enabling technologies that affect the NASA could also utilize commercial expertise in the major design disciplines (power, propulsion, and promotion of the VSE (e.g. ISS crew/cargo support). structures). The precise organizational structure of NASA (realignment, re-branding, etc.) may also be up for 10. MORE FOCUSED DIALOGUE. This type of evaluation. dialogue is a valuable activity and should go forward.

4 When workshops such as this are conducted, a broad understanding of cost field relative to performance variety of voices should be sought. This includes the arena with the understanding that economic/financial emerging entrepreneurial community, non-aerospace analysis is different than cost (or cost-benefit). There is related organizations, and the international community. a lack of basic business knowledge of current people in Future workshops should rely less on stand-alone the industry (versus Nanotech and Biotech). A recent presentations and more on facilitated group discussions example is the series of U.S. Space Investment that include different types of consensus building Summits (SIS), These have been vary educational activities. summits that bring together investors and businesses. However, there has been a tremendous amount of The “NewSpace” Entrepreneur as a Social fundamental economic education that has had to be Entrepreneur developed in these meetings since the businesses that attend within the space community seem to have a lack The motivations of the NewSpace entrepreneurs can be of knowledge of NewSpace financing. In addition, viewed through a slightly different perspective. Many many NewSpace companies grasp for perhaps of them have non-financial objectives that make up inappropriate analogies. Using the airline industry as an their overall evaluation criteria. There may be a need to example may not be most appropriate. This analogy recognize the social entrepreneurship elements within may have some applicability in terms of government some of the NewSpace community. A definition of support or initial formation but in other respects may social entrepreneurship includes: not be the most appropriate (different elasticities, competitive structure, etc.). Specific quotes from some A social entrepreneur is someone who recognizes a within that industry reflect that idea: social problem and uses entrepreneurial principles to organize, create, and manage a venture to make “I've never invested in any airline…I'm an airline social change…Whereas a business entrepreneur manager. I don't invest in airlines. And I always typically measures performance in profit and return, said to the employees of American, 'This is not an a social entrepreneur assesses success in terms of appropriate investment. It's a great place to work the impact s/he has on society. While social and it's a great company that does important work. entrepreneurs often work through nonprofits and But airlines are not an investment.'" [since the citizen groups, many work in the private and airline deregulation of the 1970s, some 150 airlines governmental sectors [Ref 5]. have gone out of business.] "A lot of people came into the airline business. Most of them promptly Elon Musk, the head of SpaceX perhaps has indicated exited, minus their money”- Robert Crandall, such characteristics, perhaps similar to those of social former president and chairman of American entrepreneur such as Grameen Bank developer Dr. Airlines [Ref 7]. Muhammad Yunus (developer of the microfinance concept). This is based upon comments such as the "The worst sort of business is one that grows following: rapidly, requires significant capital to engender the growth, and then earns little or no money. Think If we can be one of the companies that makes it airlines. Here a durable competitive advantage has possible for humans to become a multi-planetary proven elusive ever since the days of the Wright species, that would be the Holy Grail. It sounds a Brothers. Indeed, if a farsighted capitalist had been bit crazy but it's going to happen, and only if people present at Kitty Hawk, he would have done his build the means to do so. We're making progress successors a huge favor by shooting Orville down. toward a greater philosophical goal while building a The airline industry’s demand for capital ever since sound business [Ref 6]. that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by Such comments indicate the non-financial motivations growth when they should have been repelled by it.” of some of the NewSpace entrepreneurs. - Warren Buffett, February 2007 annual letter to the stockholders of Berkshire Hathaway [Ref 8]. The Education of the Rocket Scientist Some NewSpace entrepreneurs have less of the above problems. They possess better business knowledge and There is a lack of general knowledge in the aerospace have an understanding of alternative analogies to apply industry of economics. Specifically there is a lack of

5 new models. This many times is due to the fact that provided the industry with an early customer and they originally are not from this industry. source of operating revenue.

Historical Precedent for Government Intervention Henry Ford is well known for instituting industrial and Its Relation to the Space Industry. mass production, but he was also a key figure in the development of an automotive infrastructure to sustain Examination of other industries, specifically his products. Ford was a leader in the campaign for transportation, reveals that the U.S. government has better roads, which eventually led to a massive historically offered extensive incentives or direct government-sponsored, U.S. highway system that is investment to encourage speculation — and even still the envy of the world. Also central to Ford’s ensure success — in areas it perceived to be of business philosophy was his belief that the people who emerging strategic importance. If the government made the cars ought to be able to afford one views safe, reliable, and cost-effective space travel to themselves, so he increased the minimum wage at his be of such import, then the past may serve as a plants to expand his own market. Ford worked roadmap for future government investment. Four problems of supply and demand in tandem and, through historical precedents briefly examined here include: a federally supported transportation infrastructure and railroads, automobiles, airlines, and expendable launch price-accessible products, transformed American vehicles. Each of these examples demonstrates society. substantial and purposeful government support of the industry through concessions of public goods, loan After successfully using aviation technology in World guarantees, infrastructure development, vehicle War I, the U.S. government found an important acquisition, technology development, anchor tenancies, peacetime role for aviation: delivering mail. Within or some combination of the above. months of the U.S. Army launching an experimental program in 1918, airmail service became the domain of Western expansion in the late 1850’s led the U.S. the U.S. Post Office Department. Eventually, government to initiate the Federal Land Grant Program. commercial interests, seeing the potential for new This program funded commercial railroad companies to revenues, cooperated with Congress to pass the Air build along certain routes (eventually reaching 18,738 Mail Act of 1925. The Act made the carriage of mail by miles of track) and gave them usable land around the air a private operation under a system of competitive tracks to be publicly sold and used to further finance bidding, inspiring owners of aircraft and investors to railways. In return, railroad companies provided start up profitable air carrier services. The Airmail Act transportation for government troops and goods at one- of 1930 changed the method by which airmail contracts half the normal fare. The Pacific Railroad Act of 1862 were awarded, favoring large aircraft and stimulating authorized railroad construction companies to receive carriers to fill extra space with paying passengers. government bonds (proxies for low interest loans, During World War II, several airlines expanded their repaid at maturity in thirty years, at a rate of six percent fleets — and their profits — by providing interest) for every mile of track laid. However, this transportation to the military. The Federal Airport Act mechanism did not enable companies to finance the of 1946 brought federal responsibility and participation initial construction costs, so the government provided a in the further construction of airports through the cash-redeemable asset: ten square miles of land for Federal Aid Airport Program, which initially provided each mile of track completed. By 1864, even subsidy annual funding of $75 million for airport construction bonds and land grants were deemed insufficient. The and improvements. Pacific Railroad Act of 1864 doubled land grants (to twenty square miles on each side of the track) for each Modern commercial expendable launch vehicles have mile of track laid and allowed each company to issue their heritage in military ballistic missiles. Examples its own bonds to match those of the government, include both the modern Delta (derived from effectively doubling the amount of available capital. McDonnell’s Thor Intermediate Range Ballistic Missile Altogether, 45 million acres of land were given away, - IRBM) and Atlas (began as the first U.S. with government funding reaching $60 million Intercontinental Ballistic Missile - ICBM) launch compared to only $4 million in private capital. To help vehicles. At the same time as the Atlas was being support the early financial success of the developing developed as an ICBM, the Air Force began supplying railroad industry, the government also awarded mail the vehicles to the National Aeronautics and Space contracts to commercial railway companies and thus Administration (NASA) for space applications. Additionally, the government built launch sites for

6 these vehicles as well as purchasing fixed numbers of on Genentech. Two years after founding, the company launches per year, practices that continue today. developed synthetic human insulin, the first major commercial product of the industry. Four years after its Clearly, in the past, the U.S. government has invested founding, the company went public in the United States broadly and significantly to support promising and spearheaded the growth of the industry. transportation industries. Investments have included Genentech’s success fostered investments in other providing development costs (through the sale of land biotech startups and throughout the 1980s, the industry or building missiles), paying for infrastructure grew. “The Genentech moment” increased the development (highway construction, airmail and fighter perception of viability and credibility amongst plane contracts, and launch sites), favorable-term loans, investors, academics, and entrepreneurs which aided in anchor tenancies, etc. There is no reason to expect that the growth of the industry. future transportation industries will not require similar levels of investment to ensure their success. In comparison, it can be argued that the “Genentech moment” has not occurred in the NewSpace industry. Analogies to NewSpace Industrial Development A large scale commercial success which has not only proven a new technology, but also demonstrated a Entrepreneurial movements have been occurring for substantial return on investment has not occurred. many years in a variety of industries. These Nevertheless, a simple comparison to the movements have focused on various technologies, biotechnology example may suggest that it might take some of which have become commercially viable on a time: in 1973, several years before the founding of grand scale. Some of the most notable and successful Genentech, the concept of recombinant DNA was areas of focus for entrepreneurs (in order of emergence) proven. 20 years prior, the theoretical assertion that are semiconductors, personal computing, genetic engineering and recombinant DNA techniques biotechnology, software, Internet applications, and might be possible was born after Watson and Crick’s renewable energy. (The degree to which the renewable discovery of DNA structure. It took more than 26 energy industry has become successful is debatable by years from the development of a theory and six years some). Although the technologies and businesses being from a proven concept for modern biotechnology to developed in the NewSpace movement cannot be begin its true path towards commercial viability. The directly compared to those of the list above, it is a timeframes in the NewSpace industry may be even long potentially useful exercise to compare NewSpace to due to large capital costs in many of the NewSpace other industries which have progressed from sectors. Furthermore, some may argue that the target entrepreneurial phases to large-scale commercial market for the NewSpace industry is much smaller than viability. the target market was for biotechnology in the early 1980s. This assertion also may lead us to believe that The similarities between the entrepreneurial movement commercial viability for NewSpace may take some in biotechnology of the late 1970s and early 1980s, the time. However, similar to the biotechnology example, Internet application movement of the early-to-mid a proven success in the NewSpace industry may benefit 1990s, and the NewSpace movement are quite the industry as a whole through better perception, plentiful. Although the underlying technologies, and as credibility, and demonstrable viability. a result the underlying businesses, are different, these entrepreneurial movements have experienced similar The Internet application industry may prove to be a growth paths. good comparison to the NewSpace industry as well. The Internet industry had its beginnings as a U.S. The modern biotechnology industry began through the government effort, much like the broader space efforts of several investors, entrepreneurs, and industry. In the mid-1970s the Defense Advanced academics that developed a process to synthetically Research Projects Agency (DARPA) began manufacture human proteins in bacteria. The investigating computer communication transmission biotechnology industry’s notable moment occurred through “packets.” Capitalizing on this early work, in when Genentech was founded with seed funding from the early 1990s, several teams developed compelling the prominent venture capital firm Kleiner Perkins user interfaces that intended to attract and enable a Caufield & Byers in 1976. Although it was generally critical mass of commercial Internet users. acknowledged that the main biotechnology process of recombinant DNA technology was at least 10 years Netscape was the company that emerged ahead of other from commercial viability, an educated bet was made user interfaces entities and after initial backing from

7 Kleiner Perkins Caufield & Byers, Netscape went Rocketplane was initially incorporated to provide sub- public in 1995. It is generally accepted that the orbital space tourism services (as a major competitor to subsequent success of the stock helped fuel the Virgin Galactic). As the company evolved, exponential growth of the commercial Internet Rocketplane decided to acquire Kistler aerospace. industry. However the success may have been short- Kistler, formulated as a low earth orbit payload launch lived. Soon after the IPO, the company started to service, was an entirely different space business compete against Microsoft: it has lost market share ever (technologies, timelines, and customers). However, the since. Potentially, success for an early NewSpace personnel within Rocketplane stated there were company may be short-lived as well; however, the potential synergies. industry as a whole may benefit for years to come. This illustrates some repeated problems of space Demonstrable successes have fueled industry entrepreneurs, the failure to execute on the business development for many years. Genentech and Netscape plan, the failure to deliver a product or service, and the helped bring interest and investment into their failure to stop a technical person's habit of becoming respective industries. In the NewSpace industry, where enamored with the next "cool" thing you are not will these success stories come from? What NewSpace working on, versus the current "cool" thing you are. sectors will the successes need to occur in for any The leaders of Rocketplane fell into the trap of being industry-wide effect? enamored by the half billion dollars of COTS money for an entirely different market. Rocketplane consisted These two industry comparisons have brought forward of some personnel with space experience, but with five important themes. (1) Industries have to start many personnel that possessed airplane experience. To somewhere. The timeframes from inception to assume such a management and technical team could commercial viability may take several years. (2) In easily transition to development and operation of two most instances, investors took a bet on a team and different major space projects is questionable. technology. This bet, if successful, has led to a broader Ultimately, RPK only received some initial investment growth in the industry. (3) A large success usually from COTS, could not raise sufficient matching capital, attracts broader interest and investment to the industry lodged a protest with the government, ultimately lost, as a whole. (4) We may be in the extremely early and then did a major redesign of their sub-orbital stages of the NewSpace industry. (5) A success, even vehicle (where now many relevant leaders of the though it may be short-lived for one company, can be Rocketplane Global sub-orbital effort were let go). beneficial for industry growth. Rocketplane was diverted in its attention from focusing on their core initial product (sub-orbital tourism), their SELECTED OBSERVATIONS ON NEWSPACE competitor (VG) kept focus on the ultimate prize (and customers). There is little doubt in this author’s mind Addiction Identification: Technological Indulgences that that focus of Rocketplane to acquire Kistler aerospace distracted the technical and management The context of this commentary is prior to the team (to not only write the COTS proposal but to announcement by NASA of the winner of the COTS manage it as well), jeopardized their relationship with phase 1 rebid. In light of the upcoming announcement the State of Oklahoma (which gave them the initial and the recent GAO decision on Rocketplane-Kistler’s investment sources), diverted millions of dollars in the protest that NASA’s Phase 1 COTS activity was COTS budget versus a more credible bidder (see the improper due to the use of Space Act agreements rather teams now competing for the COTS rebid), and may than a procurement contract, let us look back and have ultimately delayed the redesign of the consider the RPK business strategy. Rocketplane vehicle (as the COTS effort was faltering, the redesign was proceeding from external Specifically, let us examine the strategy of integrating observations). It is difficult enough to develop one new Rocketplane and Kistler, an issue that always bothered space business, but to add a dissimilar space business in this author. Within the aerospace community (and here the middle of developing another seems in retrospect to we refer to those involved in the launch business rather have been too much to organize and manage than the services business), entrepreneurs generally fail effectively. This is not an indictment of the personnel, to realize that they are attempting to create businesses but an observation of one particular corporate strategy rather than what I would refer to as “technological that ultimately may have been flawed. indulgences”. These indulgences seek to develop “cool” technologies versus sustainable businesses.

8 Broadcast as a Libertarian, Practice as a Pragmatist CONCLUSIONS

There is another aspect of the way in which some of Some other broad conclusions and observations about these companies and some of their external advocates the recent way of NewSpace entrants include the portray these companies. The impression many of these following; advocates generate is that this is a new age where commercial space will finally explode on to the scene. ƒ Need more moments of clarity within the This leaves the impression that commercial space aerospace industry means fully commercially funded and backed. For o 2010-2012 may be years for those example with Space Exploration Technologies successes (SpaceX), the CEO has invested approximately $100M o More X-prize type successes of their own monies while receiving over $200M o Investors/public were not ready for dollars as of October 2008 (out of $278M for COTS Ansari X-Prize flight Phase 1). In addition, SpaceX has received a $100M ƒ Demand estimation could be better and now IDIQ launch services contract from USAF for launch more knowledgeable services. Another example is Scaled Composites. Their o Payload and People impressive achievement in the Anasri X-Prize is based ƒ Update of Futron Zogby upon their technical expertise; developed through survey government (including military) funding over the years. ƒ Additional complementary companies emerging o Orbital Outfitters (U.S.): pressure Other Observations suite for sub-orbital tourism o Innovative Solutions In Space There is also a reliance on prior era knowledge (Netherlands): Cubesat launch developed through the years of aerospace technology integrator development from the 1950s until the 1980s. Examples ƒ In-Sourcing Versus Outsourcing include the pintle rocket engine technology SpaceX o SpaceX model versus RpK initially examined for their rocket engines or even ƒ Failure may affect multiple space market niches, suborbital transport itself with the X-15 as an (i.e. beyond several suborbital space tourism inspiration to Scaled Composites for the development companies) but companies across the vertical of SpaceShipOne. These advances also allow firms to and horizontal components of the industry do more with less people. Other examples include the ƒ What is the role outside the U.S.? (FAA use of CFD in place of wind tunnel data (Scaled regulatory framework adopted abroad?) Composites) or the rise of small satellite companies ƒ Global spaceport interest is a proxy for the (Surrey, Clydespace, AxelSpace) all over the world. global distribution of wealth ƒ We need to await outcome of next few years to There are also interesting aspects related to the determine legitimacy of NewSpace simultaneous power and irrelevance of geography. For o Sustainable sub-orbital tourism after example, location can become important as a hub of the “pioneers” fly (transition to activity. Mojave California may equal the modern payload or orbital?) Silicon Valley for space. Alternatively, companies are o In U.S.: COTS Phase 2 (and taking advantage of global workforces (mostly outside Capability D-Human transport) the U.S.). An example is the training of Nigerian services engineers at Surry Satellite as part of a satellite purchase. Small companies may now be able to form coalitions to work together, regionally and globally. REFERENCES Additionally, within the United States, ITAR is still a prominent legal regime that must be taken into account. 1. Tyson, Neil deGrasse. “Reaching for the Stars: America’s Choice.” Natural History magazine, April 2003. 7 Feb. 1999 .

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

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4. Charania, A., Olds, J. R., Bradford, J. E., Wallace, J. G., DePasquale, J., "Economic Development of Space (EDS) Project Update: Examining and Simulating the Space Marketplace," AIAA-2005-6797, Space 2005, Long Beach, California, August 30 - September 1, 2005.

5. Wikipedia: social entrepreneurship: http://en.wikipedia.org/wiki/Social_entrepreneurship

6. Evan Carmichael, http://www.evancarmichael.com/Famous- Entrepreneurs/1610/Lesson-3-Make-Your-Mission- Your-Holy-Grail.html

7. Greenberg, Peter, Inside American Airlines: A Week in the Life, CNBC Documentary Feature, October 18, 2006, URL: http://en.wikipedia.org/wiki/Robert_Crandall

8. Berkshire Hathaway Inc., 2007 Annual Report, URL: www.berkshirehathaway.com/2007ar/2007ar.pdf

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