The Space Reviewin association with SpaceNews

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NewSpace companies need to focus on specific markets rather than broad aims like lowing the cost of space access if they want to be successful. (credit: Virgin Galactic)

The impulse to be specific

For managers in any business the most important decision they have to make is: “What is the company going to do?” and having made their choice they have also declared: “These are the things we will not do.” A firm has to be specific about where it is going and also which route it will follow to get there based on its competencies and the resources it has or can acquire. This is the essence of formulating a strategy which is the current plan for moving a company toward achieving its vision. We expect vision and strategy to be coherent; we would be amazed if Apple announced that it was going to compete with McDonald’s or if Intel decided to build automobiles. Like us, investors look for a laser-like focus, too.

As Taylor Dinerman has recently discussed (see “Financial risk analysis for the space industry”, The Space Review, June 16, 2008 and “Financial risk analysis and the space industry revisited”, The Space Review, June 23, 2008), many companies in the NewSpace sector are struggling to find the capital they need to carry their businesses forward. It may be that a lack of focus—hazy rather than specific plans—is what deters some investors from handing over their money. Perhaps the space entrepreneurs could usefully take time to consider what are their key competencies and whether their goals and products are generic (what everyone is doing) or specific (only we are doing this).

We expect vision and strategy to be coherent; we would be amazed if Apple announced that it was going to compete with McDonald’s or if Intel decided to build automobiles.

Competencies are those defining skills that firms possess from the outset, or develop over time, that differentiate them from their competitors (think Apple’s talent for cool design or Toyota’s high-quality production system). Among the space entrepreneurs, some have a competency in engine design while others focus on creating the vehicle. The problem is that both types have set out to build the whole system themselves with the risk that each may produce a sub-optimal design in an area outside of their core competence. Those projects funded by the mega-wealthy are in a better position because a range of talented people can be hired to provide all the necessary skills—from various engineering disciplines to marketing—that will ensure success. But for potential investors in the remaining companies, it is more attractive to write a check for a firm that is specific about what it does best; sticking to your knitting is the way to produce a truly outstanding product. Boeing produces wonderful airplanes; GE produces world-class engines; they don’t play on each other’s turf and neither of them wants to start an airline to fly their gear.

How does this lack of focus show up in the goals and products of some of the NewSpace companies? They tend to have a generic vision that states, “We will dramatically lower the cost of space access.” This benefit applies to both passengers and cargo. However, often the same vehicle is intended to serve both markets even though there are significant differences between them. In commercial aviation, the airlines that focus on carrying passengers want a very different ship from the dedicated freight operators; outwardly similar perhaps, but with radically different interior design and facilities. For space-going craft, the development, testing, and certification process will vary greatly between the passenger-carrying and cargo-only versions adding cost, complexity, and time. The point at which development costs are recouped recedes into a distant future.

There’s nothing wrong with the grand goal of lowering the cost of space access, but the danger is that for a small firm with limited resources the impulse to be everything to everybody is more hazardous than the impulse to be specific—to be something to somebody. Now that investors are harder to find than water in the Sahara a tight focus might look more attractive to the few who are left.

What might an investor look for? A vision that is directed to a particular application and market, preferably that no-one else is addressing. Some examples to illustrate: to be the prime contractor for cleaning up space debris with a specially-developed orbital garbage truck; to be the prime contractor for on-orbit repair work with a combined repairman’s truck and workshop for fixing Bigelow’s space stations and other space assets; to provide an emergency service with a fully equipped space-going ambulance. These vehicles may not be as glamorous as flying celebrities in SpaceShipTwo, but as more nations send people and stuff into space they’ll be needed soon (not forgetting that space junk is with us now and the ISS could use a repairman’s truck and an ambulance today). With such a focus, a firm can develop from launch-on-demand orbital craft to long-haul versions for lunar missions or beyond. Pursuing a specific goal enables a firm to develop its unique core competence.

Does this mean that companies have to build the entire system themselves? If they can attract investors and raise sufficient funds to do it then that could work. Otherwise, an alternative is needed. One way would be for several firms to come together to pool their competencies and resources to develop a complete system with one of the companies acting as the leader of an informal coalition or alliance. The open source software movement broadly follows this pattern, though the participants’ motivation is mostly to enhance their professional reputations than to make money.

Another option is to consider the business model of Li & Fung, the Hong Kong-based company that serves private-label apparel firms in North America and Europe. Li & Fung operates what has been dubbed a “smokeless” factory in which it coordinates manufacturing through a network of 10,000 suppliers in 40 countries without owning any of them. The company helps the flax growers, spinners, dyers, weavers, and garment makers by sourcing the orders and placing the business with the best supplier for that particular work (core competence, again).

The NewSpace entrepreneurs face the same challenge as managers in any other industry: how to differentiate the firm from its competitors and avoid competing on price with me-too products?

In the NewSpace industry, there may be an opportunity for a person, or a company, to become the conductor of an orchestra in the way that Li & Fung operates. The conductor may possess a personal fortune or be well-connected with potential investors and may be in a position to attract customers to the venture. This model offers the promise that companies and even individuals can enhance their reputations by contributing their specific, deep expertise to a collaborative project while still pursuing their own business opportunities. If we let our imaginations roam, we could envisage this model or a variant of it being the genesis of one of the great companies of the future—the General Space Corporation perhaps? But that would need a wealthy backer like Pierre du Pont and an organizing genius in the mold of Alfred P. Sloan.

The NewSpace entrepreneurs face the same challenge as managers in any other industry: how to differentiate the firm from its competitors and avoid competing on price with me-too products? While many ways have been tried over the years, the route to success most often lies in doing what you do best and to keep on getting better at doing it. Anything else can and should be outsourced either to partners in an alliance or to arms-length subcontractors.

The impulse to be specific is invariably more productive than the urge to start a generic “world hunger” project—and more likely to attract investors.