Lessons Learned

09/09/03 00:00:00    

By Michael Mealling

In C. Blake Power's two latest articles (A Business Plan For Space and Near-Term, Incremental Space Business Development) he covers the basics about business plans that anyone interested in a viable space industry should already know. This article isn't a disagreement with Blake. Instead it's an attempt to push the discussion to the next level. The point I will be attempting to make below is that we have to go back to the beginning and think differently about the entire industry. That we need to stop thinking in terms of technology or goals. Instead think about customers, markets, and ROI.

p. A little bit of background (and a bit of a confessional) might help frame where I'm coming from. My 'day job' is with VeriSign's R&D group (VeriSign Labs). I've been there since 1996. Before that I was at Georgia Tech and was involved in some of the earliest work on the World Wide Web. Coming from an academic background and heavily immersed in the IETF I had a very naive view of what it took to deploy technology. At the time the Internet was relatively tiny compared to today. It was run by people who had easy access to 'free' money (governments, grants, etc) to upgrade the network. New technology was deployed easily because everyone was a geek and new stuff was just cool. It was a false economy.

p. As I moved into VeriSign I took that “just build it and they will come” naivete with me. I attempted to build several new services but could never figure out why the market wouldn't just starting doing what I thought was the right thing. Eventually I started reading business books and understanding why certain things were successful and others weren't. I basically forced myself through a Business 101 course. I learned several critical things that I think we need to apply to commercial space policy:

1. Start with the customer, not the technology

   p. This is so fundamentally important and well understood in business that its not even mentioned. Talking about it in business circles would be like remarking on how well that oxygen thing seems to be working for us carbon based life-forms. This means understanding a customer as a human being with a set of irrational needs, wants, and desires. A term I picked up is something called a 'pain point'. Its the point at which a person is willing to part with money to satisfy the pain of some situation, be it hunger, status, coolness, fear, etc.

   p. The lack of any customer focus within the space industry is amazing. No wonder the American people have lost interest in space, no one ever thought to figure out how it directly applied to their lives. There is no space 'pain point'. Many of us even attempted to do just that at one point or other. We annoyed our families with questions like: “Is there anything about space you would be willing to pay for”? While a valiant attempt, it still begs the question. As an industry we should be getting to know the customer well enough that we understand their existing pain points. We should be asking them a much more fundamental question: What are the problems in your life that you want products or services to fix"? When we have those answers then we can figure out if there are space related technologies that can provide the goods and services needed to satisfy those pain points.

   p.

   And that means market research. It also means throwing out old pet projects that no consumer is willing to pay for. It means listening to 12-year-old girls since market research shows that they have the most influence on consumer trends. It means talking to people like the Zandl Group.

2. Risk mitigation means $1 profit on 10 million items is better than $10 million profit on one item

   p. This has been one of the largest problems with attracting venture capital to space businesses. They have all invariably required investments of hundreds of millions of dollars before even the first dollar of revenue is made. It also means that the loss of one rocket can wash out the entire business. Take He3 production on the moon for example, even a robotic test facility would require hundreds of millions of dollars just to test viability. If there were any accidents then the lost interest income of waiting to build another mission would scare off any intelligent investor.

   p. That's one of the reasons space tourism is so attractive: if there is one lost sale there are hundreds of thousands of other sales opportunities to be had. If you are attempting to run a He3 extraction business there will probably be only one or two buyers. A lost He3 sale would be a disaster.

   p.

   What this means is that we should be focusing our search for opportunities on things that have large unit sales numbers. Satellite radio understands this: they amortize their satellite costs over millions of listeners and content providers.

3. Evolve a product line. The final product should never be done first. Figure out how to make even your smallest component dual use.

   p. The software market understands this very well. Never sell more than the customer wants. Save features for new versions of the products. This is another area where space tourism out-shines other products. Space Adventures is making money now off of space tourism without ever making it into space. People are willing to pay for version 0.1 of their product. At each stage of development figure out some way to make money off of what the product is capable of at that point. Sure, people are willing to pay significant money for a trip into space. But I'm willing to bet a not insignificant number of people would also pay money for a ride in a rocket that never went into space. Those people can provide revenue that can be used to subsidize subsequent product development.

   p. One of the more significant payoffs of this approach is that you are including the customer in the product development process. By the time you've gotten the first few iterations of the product out you already have a customer base that provides invaluable feedback. For example, I bet we will learn that tourists don't want their ride to be to smooth. A little bit of rattle and roll makes the experience more valuable. But you won't know that until you've taken a few people on non-suborbital trips.

   p.

   By making components dual use you create secondary markets that can fund your primary market's development costs. In many cases amateur rocket engineers are using parts from the high performance automotive and paint ball industries. That type of dual use is a two way street: once you've perfected materials for use in engines or avionics, figure out how to sell them back to the industry you borrowed them from.

4. Aerospace costs have either stayed static or dropped slightly in the past 60 years. Conversely, due to globalization, the number of accessible customers for any product has reached into the multiples of billions.

   p. There is a reason so many businesses are tripping over themselves to get into the Chinese market. One product with $1 profit sold to one third of that one countries population would instantly get you into the same country club as Bill Gates and Warren Buffet. I'm mostly speaking to Americans here since we don't seem to notice the rest of the world as anything more than a headline subject on the evening news. But we are missing an extremely important opportunity to bypass some of what I've discussed above when it comes to some of our more science fiction inspired dreams. The world has become an economic engine that can be used to propel us further than any rocket. Simple, directed and goal-oriented capitalism can provide funding that would dwarf anything any government could be convinced of supplying. A few hit products sold around the world could easily dwarf NASA's annual budget. That kind of money in the hands of business people who understand project planning and cost mitigation could easily put a colony on the moon.

p. I've found these lessons useful when it comes to business development for the Internet and I think they are 'Business 101' enough to be directly applicable to the space markets. We simply have to start applying them. That means dropping any pretext about missions, rockets, projects, bases or all the other stuff we see in our minds eye when we read our science fiction author. As engineers we must always let the data lead us to the right conclusions. If the data says a girder will fail we don't keep installing it in the hopes that one day it won't fail. The data has told us that all of our previous methods of space commercialization have largely failed. Maybe its time to go back to first principles and re-evaluate our approach.