Does your Mom Understand your Business Plan?

Several months ago Jonathan Goff, CEO at Altius Space Machines, called me.  ASM was preparing for a business plan “sprint” to compete in the 2011 Heinlein Business Plan competition in Silicon Valley (hosted by the Space Frontier Foundation).  Could I help with the business stuff?

Jon had been pitching his new technology – “Sticky Boom” which is a really long tube with glue pads on the end of it.  Only the tube can be rolled in or out and the glue can be turned on or off via an electric current.  Altius knew Sticky Boom had space rendezvous and docking applications (think servicing satellite, grabbing lost wrenches during EVAs, etc.), but could we wrap a business around this cool technology?

Assisting on the Altius Business plan has been a big part of my life over the last few months which is my excuse for light blogging.  

I am pleased with the result (yes, we won the $25K grand prize).  Here is Jon Goff, Altius's CEO, pitching the plan (worth watching to get a better feel for what ASM is really trying to do as a company - about 6 minutes long).

Here are a few highlights the team at Altius and I kept discussing while developing this plan:

• Is there a problem people will pay you to solve?  If not, you do not have a market.
•  An attractive Market is even more valuable than an attractive technology.  New space technology is cool to us space nerds, but markets determine how valuable company technology really is.
• Your customer is the organization that pays you – not necessarily the group that uses your product.
• Once you have found a market, be cautious before competing head to head with incumbents (those competitors already selling to your market) – how do you take market share away at the edges without drawing an incumbent response – a disruptive strategy .
• Management team – do you have the right team?  This is so important.  If you get the market and management right (and maybe a little traction), investors know that even if the product or technology changes over time, the company will have a good chance at success.  There is no substitute for the right market and the right team.
• Money: how much do you need and how are you going to get it?  Banks probably won’t lend to you (at least not at first).  Investor money is an obvious choice but have you thought about govt contracting or strategic partnerships?
• Few investors understand NewSpace (if you find one that does, keep him/her happy!).  The industry is small and in its infancy.  It is not right to expect Tech and Biotech investors to immediately understand: ISS regulations, LEO vs GEO, terminator tethers, plane changes, lagrange points, etc.  The question becomes how to present your idea in terms/images VC’s will understand while still being concise?  I recommend pitching your deck to your spouse or your mom.  If your Mom doesn’t understand your plan, VC’s won’t take the time to understand it either.  Simplify.  Simplify.  Simplify.
• The “prize” in most public competitions is the publicity and connections made as a result of winning, not in a the few dollars at stake.  This is what the Google X-Prize teams are fighting over – the media rights!  To highlight the value of publicity, here are a few of the Altius Space Machines articles that have been written since winning the prize.  Ask yourself how long it would have taken to generate this media attention without the win?

List of articles:

1. Aviation Week
2. CNBC
3. The Space Review
4. Business News Daily
5. Plus the sites that published the press release or the many posts by NewSpace blogs (thanks guys).

Business plans are like going to College – professors push you to do what you probably could not discipline yourself to do on your own.  This is why we have all-nighters finishing 20-page papers and cramming for tests.  On your own, you would just go to bed.

Business plans are great forcing functions and entrepreneurs learn a lot through the process.  I am glad I got to be apart this journey.

Here was some great advise we tried to follow when preparing the slide deck for the competition:

Pitching Hacks Preview

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NanoSat Launch Vehicles: Vertical vs.Horizontal Integration

I have been talking a lot about NanoSat Launch Vehicles lately.

We spoke about the last mile problem: how to use an NLV to deliver “just in time” supplies to orbital stations.  We spoke of a variable pricing model that would charge NLV customers commensurate to what they could pay (and increase launch demand in the process).

In all of the excitement over SpaceX’s Tremendous achievement yesterday, it was easy to miss Altius Space Machine’s announcement about their recent contract to develop NanoSat Launch Vehicle tanks. Quoting from ASM’s announcement,

“I’ll be using this tank to validate some of the low-cost, lightweight manufacturing techniques that could be used for other low-pressure tanks, like pump-fed propellant tanks for suborbital vehicles or nanosat launchers. Once the development of this system is completed, it should provide a low-cost, highly capable propulsion system for high-end nanosats and microsats.”

SpaceX is vertically integrated and associates much their success to this approach – developing all aspects of their product in-house (or limiting external component suppliers).

As NASA’s NLV Challenge heats up, NLV Challenge teams are going to be faced with the same decision: do they develop all components of their NanoSat Launch Vehicle in-house or utilize suppliers like Altius Space Machines, Team Phoenicia, and others to create a vehicle capable of winning the prize.

Over the coming months I expect to see NLV Challenge teams fall into two groups:

1. Vertically Integrated Teams: Some will follow the SpaceX model – building every component internally, controlling the supply chain. Advantages of this approach are ease of integration and schedule control. Disadvantages of this approach: Cost growth with low production volumes (perhaps cost savings with high volumes, but this would case specific), and the opportunity cost of developing components that could be purchased by others. Opportunity Cost is what you could have done with your time or money if you weren’t vertically integrated (and in such a competition, “first to market” may win it all).
2. Horizontally Integrated Teams: Others will see an advantage of utilizing hardware developed by others. Since I expect the NLV Challenge winner will utilize several vehicle stages (Paul Breed is considering a three stage nanosat launcher), this group of competitors will outsource some stages (or components of stages) and build other stages in-house. With Horizontal Integration, the Advantages and Disadvantages are reversed. Advantages: Using components built by suppliers may get you to market faster/cheaper, and may help you raise angel funding if you can leverage pre-existing supplier hardware when pitching to investors.  Disadvantages: Integration and Schedule risk (which could be a HUGE risk for any NLV Challenge competitor)!

Jon Goff, founder of Altius Space Machines, will be on the Space Show on Monday, Dec 13. I will be listening for hints of what lightweight systems Altius may be considering that could help those considering the horizontal integration approach.

Disclaimer: I have become friends with Jon Goff from his blog, Selenian Boondocks. I have re-read this post and think the content is free of too much bias, but you be the judge.  Regardless, it should be a good Space Show interview.  Check out the Space Show's archives after Dec 13 if you can't listen live.

Review: Suborbital Market Overview and Application of Disruption Theory

In a recent paper, Ken Davidian of the FAA Office of Commercial Space Transportation, and Jeff Foust of the Futron Corporation have applied Clayton Christensen’s Disruptive Innovation Theory to the suborbital launch industry, predicting the impact of RLV’s on the suborbital market by describing the impacts from multiple technology introduction strategies. The resulting paper provides significant insight.

First a quick summary of Christensen’s Disruptive Innovation Theory (think of this as three strategic options for RLV companies entering the suborbital launch market):

1. Sustaining Innovation: As an RLV company, enhance one of the current sounding rocket capabilities. Fly higher, reduce g-forces on payloads, reduce cost of launch, reduce purchase-to-launch cycle times, etc. Competition from incumbents will be high. Marketing Risk will be low (you already know the market exists).
2. Low-End Disruptive Innovation: As an RLV company, offer a lower price than sounding rockets and offer an inferior product (e.g. by not flying as high as a sounding rocket - early RLV’s will offer fewer minutes of quality micro-gravity). Competition from incumbents will be low since this strategy steals the lower margin portion of the market (those customers wanting “a deal”). The incumbent will instead focus on the high-margin portion of the market. Marketing Risk will be low.
3. New Market Disruptive Innovation: Offer a new capability not offered by sounding rockets. Fly people, return experiments at mission end, fly more than once per day, etc. Incumbents will not be able to compete in the near-term in most cases since current sounding rockets do not offer such capabilities. Marketing risk will be high since new market disruptive innovation must pursue “non-customers” – those not currently served by sounding rockets.

Here are some nuggets from the paper:

• The paper argues in favor of Low-End Disruptive Innovation as a preferred strategy for Government customers to support RLV operators – encouraging use of RLV services even before the capabilities of such RLV services fully meet Government needs (or fully matches sounding rocket capabilities). The authors argue this is the best way to help grow a sustainable industry.
• Quoting studies from Christensen’s book, Innovator’s Dilemma, new RLV companies would garner a significant first mover advantage by pursuing either of the disruptive innovation strategies mentioned above: new entrants in an established market were successful only 6% of the time while “first mover” new entrants pursuing disruptive innovation strategies were successful 37% of the time. The first move advantage is large!
• The paper considered “low-end” suborbital markets to be: earth remote sensing, astronomical & atmospheric observations, technology demonstrations, educational payloads, and novelty payloads that can be performed with only one minute of quality microgravity.
• Since 1942, suborbital sounding rocket altitudes are grouped into three categories: 100 kilometers (4 min of microgravity), 300 kilometers (10 min of microgravity), and 300-1500 kilometers (astronomical observation mostly) – with the majority huddled into the 100-300 kilometer range.
• The paper predicts according to Christensen’s Disruptive Innovation Theory, early RLV’s will use proprietary technology and be highly integrated, but as more RLV competitors join the market, RLV products will become more modular.

If I had a critique, it would be:
The authors assume the suborbital market would have a large enough “high-margin” market segment to allow incumbents to thrive even while surrendering the low-margin segments to RLV’s. Let’s assume the high-end segment of the suborbital market is any mission significantly over 100 kilometers and the low-end segment is 0-100 kilometers. Looking at the powerful graph on page 11 of their paper, it is clear that the suborbital market is already disproportionately skewed toward the “low-end” portion of the market (although the higher altitude market does appear to be growing). Just by eyeballing the graph I would estimate 35-45% of the suborbital market is 100 kilometers or lower. Would incumbent sounding rockets be able to charge a large enough premium for launches above 100 kilometers to justify losing 35-45% of the market and not retaliate through lower prices?

Remember, I am not doubting the success of RLV introduction into the suborbital market. Instead I am raising doubts on one of the authors’ key conclusions that the sounding rocket incumbents will flee up market rather than retaliate with lower prices. I am not sure the market is large enough for the incumbent to do that. If not, I would expect sounding rocket companies to lower prices to compete with RLV’s even up to 100 kilometers. If, as an RLV operator, you agree with my critique, “New Market” disruptive innovation strategies (although higher marketing risk) may actually make more sense since sounding rockets would not be able to emulate the new RLV-enabled capabilities (in the near-term).

I am a big fan of Clayton Christensen and believe his disruptive innovation theories (especially low-end disruptive innovation) would more perfectly apply to an analysis of Nanosat launchers as a disruptive orbital launch technology. But with that said, Davidian and Foust’s paper provides a great overview of Christensen’s theories and provides significant insight into the future of the suborbital market. And let’s not forget, this is primarily a government paper written to provide recommendations to the US Government on how best they can promote this industry – I do very much like that!

The Power of Video to grow New Space

Do you remember the early updates Armadillo gave on their rocket development progress?  They were open about both their successes and failures.  First the updates were text based.  Then pictures were added.  And then, with flame in the machine shop, came Video.  And video. And Video.

We not only watched the Lunar Lander Challenge live via the web, but in the months leading up to the official attempts to win the prize, Masten and Armadillo both posted videos showcasing their progress.  These videos became bragging rights, milestones, marketing opportunities, insights into their technologies (you better believe Masten and Armadillo disected each other's videos looking for any advantage).  And even after the LLC, the videos continue (maybe not as many as we would like), but..

Armadillo to an altitude of 2,959 feet.  Video.
Masten first to do in-air restarts.  Video.
Armadillo second to do in-air restarts.  Video.
Armadillo first to use retractable landing gear. Video.

And the video is not poor quality.  These companies recognize the marketing power of these videos.
Multiple camera angles.  Video.
High Quality recordings.  Video.

Video has power.  Video connects a community in a way text and pictures cannot.  Below is a Ted Talk by Chris Anderson on the power of video to promote innovation in a community especially those communities whose finished product cannot be emailed to others (think software).  Chris's talk is 18 minutes.  Watch it and ask yourself, just like Masten and Armadillo, how can New Space use this medium to share more and push humanity out to LEO and beyond.  Thanks Chris.  Good stuff.

Rice Business Plan Competition 2010

Is your business plan ready?  The top 42 teams compete for $800K of price money.  $125K investment Opportunity.  NASA will be there participating.  Intent to compete Deadline is next Friday, Feb 5, 2010.  Judged by 200 VCs, Angels, and entrepreneurs.  I love this stat from the event website: over 80% of last years teams have launched their companies and since 2001, competing teams have raised $150M.  Competition date is April 15-17, 2010.  If not this year, start prepping next year's plan!