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Entrepreneurial firms like XCOR Aerospace are the key to opening up space for all. (credit: XCOR Aerospace)

Some passionate thoughts

As author Pearl S. Buck put it: “The young do not know enough to be prudent, and therefore they attempt the impossible—and achieve it, generation after generation.” But as the pioneers indulge their imprudence they garner mixed reviews of their efforts. Observers divide into two camps: those who greet developments with enthusiasm and those who take a more pessimistic, or as they might see it, pragmatic view. What is often overlooked is the passionate belief that innovators have in their ability to ultimately achieve the impossible. Consider Jeff Bezos. Some years back when Amazon was young and burning cash with no hint of a return, Bezos was being grilled in a television interview. The host challenged Bezos on the firm’s financial performance saying: “I’ll bet you can’t even spell ‘profit.’” Bezos shot back, “Sure I can: P-R-O-P-H-E-T.” Perhaps some of the new space pioneers are destined to be prophets, too.

In his recent article “Market romanticism and the outlook for private space development” (The Space Review, September 2, 2008) Nader Elhefnawy took a somewhat downbeat view of the prospects for the space entrepreneurs. However, he raises some interesting points and calls on Adam Smith and Joseph Schumpeter to support them.

In America at least, if the government won’t open up space then private enterprise will—the antithesis of statism.

Elhefnawy is skeptical that entrepreneurs can resurrect a space age that has been spinning its wheels for the last thirty years. Why shouldn’t they? Practically every industry has been founded by people who set out to attempt the impossible, as a brief scan through the history of innovation will show. From the Iron Age to the Silicon Age, people have either set out deliberately to create something or sometimes made serendipitous discoveries that led to seminal advances. Unless the flow of human history has come to an abrupt halt there is no reason to assume that the new space pioneers will be any different. Also, this not your grandfather’s space program; whatever the motivations behind JFK’s call to go the Moon, today’s impetus is a good old-fashioned business intention to open up space access to all at an affordable price. I am not aware of any government that is anxious to do thatL spacefaring remains constrained by issues of national prestige and military capability, which leave no room for Joe Public. In America at least, if the government won’t open up space then private enterprise will—the antithesis of statism.

It is true that government can play a useful part by giving a helping hand to a nascent industry. This may come from fiscal policies, provision of low-cost or even free assets, or a willingness to hold back on regulation or other legislation that may suffocate the industry. Additionally, a government can fulfil the role of the customer and “prime the pump” with initial orders that provide revenue to the pioneers. Even with this assistance, which Elhefnawy would refer to as the “statist roots” of innovations, the actual task of innovating has, throughout history, been the sole province of the entrepreneur and success or failure has been his and his alone. So it is today.

Now let’s turn to Adam Smith. His assertion in The Wealth of Nations was that entrepreneurs are motivated solely by their own opportunities for gain and do not consider the public interest—any public benefit it is an unintended consequence. Smith goes on to say that only the individual can decide how to deploy his capital and will do so: “Better than any statesman or lawmaker can do for him.” Any attempt to direct entrepreneurs’ investment of capital would be dangerous especially in the hands of one who had the “folly and presumption enough to fancy himself fit to exercise [such authority].”

There’s no doubt that entrepreneurs hope to make a living and no government can dictate how they should do it. But this rational view overlooks the real force driving many entrepreneurs: a passion in pursuit of a vision. When Elon Musk says after his third failure, “I will never give up,” you know it is his passion carrying him and his team along, not the prospect of immediate profit. Are Jeff Bezos and John Carmack in it for the money or are they attempting to achieve higher goals? Did Paul Allen get a terrific return on his investment in SpaceShipOne? The view of the entirely rational economic actor is being overtaken by the new school of behavioural economics that embraces human irrationality and emotional motivations. Rationality falls flat on its face when a new-to-the-world industry is being created—passionate belief in ultimate success is what’s required. Why else do the space pioneers get out of bed each morning?

Raising the subject of schools of economic thought brings us to Joseph Schumpeter. He will be forever famous for coining the term “creative destruction” to describe the essence of capitalism, namely that entrepreneurs constantly create new, innovative products and methods that displace old ones and in the process sweep out old enterprises and organizational forms.

The new space entrepreneurs may one day “creatively destroy” NASA, at least in its present form. As others have commented, the greatest role for NASA is to become the Lewis and Clark of space exploration, blazing the trail for others to follow. Everything other than path finding can and eventually will be carried out by private enterprise, just as explorers traced the course of rivers but entrepreneurs built and operated the steamboats that made trade flow on those waterways.

The new space entrepreneurs may one day “creatively destroy” NASA, at least in its present form.

Schumpeter also asserted that the entrepreneur is not driven solely by the wish to grow rich, but feels “The dream and the will to found a private kingdom… the impulse to fight… to succeed for the sake, not of the fruits of success, but of success itself [to exercise] one’s energy and ingenuity.” The polar opposite to Smith’s “selfish” view and seemingly more consistent with what motivates today’s space pioneers.

However, the private space companies are facing another issue raised by Schumpeter: entrepreneurs may have to create the market they exploit. As he put it in his review of business history, “It was not enough to produce satisfactory soap, it was also necessary to induce people to wash.”

When commenting on potential markets for space access, Elhefnawy focuses on the failures of the past such as Iridium or the known (and somewhat limited) demand for satellite services, but does not seem to allow that entirely unforeseen markets may emerge. His description of the space tourism market as “overhyped” is interesting. That term can only be used when the true nature and scale of demand is already known, or can be accurately predicted, so that exaggerated claims can be properly assessed. However, absent some unique insight it would be unwise to dismiss what could be a lucrative market. Again, history tells us that most seminal innovations have never had a ready-made market just waiting for that product to appear. They are instead more likely to greeted with incredulity: Ken Olsen, founder of Digital Equipment Corp., will long be remembered for asking, “Why would anyone want own a computer?”

The uncertainty surrounding markets may well be a root cause of investors’ reluctance to put money into space enterprises. Many are sure to be looking for a return in the shortest possible time. Some, though, will be patient. They will take the path of minimizing their risks by backing a project with small injections of cash, enabling the firm to conduct small-scale experiments to prove what works and what doesn’t, to learn from the failures, and plan the next experiment. The wisdom in business today is that funding the whole project up front can hamper innovation as teams try too many things at once, wander down interesting but unproductive byways, and skip the learning opportunities. The step-by-step approach reduces risk by keeping the team focused and allows the plug to be pulled whenever it becomes clear that the project won’t succeed.

Patient investors will also act as mentors and follow in the footsteps of General Georges Doriot, the founder of the venture capital industry. One of his protégés remarked: “The general provides two things a young scientific organization most needs: enthusiasm and appreciation… I started out with a hatful of ideas and a lot of long range plans. In a couple of years I got bogged down in detail… Doriot stirs you out of your lethargy, keeps you looking five years ahead.” In other words, he kept the entrepreneur in touch with his original vision and his passion alive.

Ideas, plans and a powerful motivation to achieve a goal are the things that drive entrepreneurs to risk all. An analogy highlights the challenge facing the space pioneers—the production of an animated movie.

The new space entrepreneurs are the key to mankind’s future in space. For the life of me I can’t think of a credible alternative.

In an article published in the current edition of the Harvard Business Review, Ed Catmull, the cofounder of Pixar and the president of Pixar and Disney Animation Studios, describes the creative process. He talks of an “arduous process” that takes four to five years. During that time literally thousands of ideas are generated by the project team regarding the “form of every sentence… locations of the camera… the colors, the lighting and the pacing.” The director and other creative leaders have to sort through these ideas to find the ones that will combine into a coherent whole. During those years, the team has nothing but its passion, its belief that the end product will be as great as the original concept intended it to be. Years in which there is only cost to be borne and no revenue received. Only when the movie is finally launched does the market appear—or not. Sounds a bit like building a rocket, doesn’t it?

The new space entrepreneurs are the key to mankind’s future in space. For the life of me I can’t think of a credible alternative. If government control is the answer, could you rephrase the question? All the world’s space agencies are cash-strapped and crippled by ever-changing political masters who want to tinker with their budgets, structures, and goals. Long-range plans are hard to create and close to impossible to implement. There’s an old joke that a camel is a horse designed by a committee—space agencies are the camels.

Having invoked some historical figures during a discussion about how space entrepreneurs will create the future, I’ll close with some eloquent words from a modern legend—Dan Quayle—who said: “The future will be better tomorrow.” Who could argue with that?