Anyone who has been working in or following the space business over the last decade is familiar with the dichotomy that has grown up between “new” or entrepreneurial space ventures and traditional space programs.
Often these sectors seem to be a model of the classic two solitudes, existing side by side but embodying two different world views and without a lot of (constructive) interaction. But is that really true – and is that all about to change?
What is New Space?
New space, also referred to as “space 2.0” is a term coined in the last 10 to 15 years to describe the rise of a class of businesses and which were seen as being fundamentally different from traditional or “old” space companies. Primarily these businesses have been associated with uses that were driven by private or commercial use, rather than by public sector funding.
Because of its focus on commercial objectives, new space is often seen, particularly by its proponents, as being more less expensive, and more efficient compared to traditional programs driven by government. The implication often being, that projects and initiatives managed by the public sector are, inherently wasteful and less efficient than projects run according to private sector rules.
There is a kernel of truth to this evaluation. But only if you ignore the fact that the two different space “sectors” run to different rules and are aimed at achieving different outcomes. In other words, it isn’t really a fair comparison.
In the same way, the reputation the entrepreneurial space ventures have occasionally attracted within the traditional space community for being being undisciplined, insufficiently concerned with quality and more focused on attracting attention than on achieving technical maturity is unfair as well.
Engaging in this kind of comparison between the sectors is unfortunate. Partly because it’s as useless as trying to compare the taste of an apple to the taste of an orange, but more importantly because it obscures some real and important differences between the two space sectors. Differences that are about to become even more important, I suspect.
The business model – Traditional space
So what are the differences? To me the difference really rests in the business model that underlies the two types of space business. To understand those differences, I like to think of the business model in terms of what drives the business and where the external focus of the business lies.
For instance, I would say that traditional space businesses are typically technology driven and customer focused. They are often built around their mastery of a technology or suite of technologies that define the value proposition and competitive differentiator of the business. Typically, these types of business want to be known for being able to solve certain kinds of problems in the space environment. Just think of how many times the words “solution provider” appear in the marketing material of such firms.
Because they are driven by their ability to use their technology to solve problems, they are also focused on finding customers who have the problems that their technology can solve. A typical successful traditional space contractor is highly skilled at interpreting the requirements of a customer and designing a customized solution to meet those needs using the company’s existing technology or, more often, by extending that technology with the latest enhancement.
The nature of this business model means that successful companies have an ethic and a culture that is well tuned to their customer’s needs.
It also needs to be remembered that there are a relatively small number of these customers. They tend to be large, institutional, often public sector organizations. They also tend to be extremely sensitive to reputational risk because, by their nature, they need to be seen as good stewards of their funding.
When these customers approach new programs or projects, they tend to put a premium on early retirement of technical and programmatic risk. Cost escalations and delays during early development are typically more palatable to these kinds of customers than high profile delays or failures in final testing, on the launch pad, or in orbit.
This means that the culture of the traditional space industry has been built around serving this customer bias. The cost and schedule profiles of typical projects are focused on ensuring that as the project’s profile starts to rise as it enters the final test and launch campaign that it is generating positive coverage in the public and social media. For customers in this space, part of the value of any space asset is the degree to which it enhances their reputation. Projects that eventually succeed technically but which are referred to as “troubled” because of high profile schedule and cost issues, or worse, high profile technical failures are of diminished value to the customer and can even tarnish the reputation of the contractors involved.
Thus, successful companies in the traditional space business have learned to spend a lot of effort ensuring that risk is retired early in development. They tend to place a great deal of emphasis on design, analysis, and testing. This can mean that they appear to move slowly, and that they are heavy on quality control, and program and engineering management while being light on agility and innovation. This is the model that, by and large, serves their customer’s needs.
The business model – New Space
In contrast ventures in the new space industry operate on a quite different model, one which is market driven and investor focused. This is much more typical of entrepreneurial sectors, in general. Such companies are often founded based on an idea of how to serve a market in a novel way. The proposed solution will often be based on an emergent technology, but, the successful players in this space tend to be fairly agnostic to the technological solution. Instead, the find their value proposition and differentiators in their business concept rather than in their implementation.
In order to realize the concept of their business, these ventures rely on attracting investment – often in multiple waves. In order to secure these successive waves of funding companies need to focus both on demonstrating progress in developing their solution and on developing their target market.
It is vital for these companies to adopt and keep a high profile at least within their target audience. In such an environment even high profile “failures” are better than lab-bench successes that attract no social media attention. SpaceX has proven this fact time again by turning less than fully successful launches and tests into media success stories in which they are praised for their vision and their willingness to take risks to achieve it.
These business necessities drive an approach to managing space projects which is quite different from the traditional model. The biggest risk these kinds of projects face is that they will cost too much and take too long to get to market. In effect, they cannot take the risk that they will exhaust either the resources or the patience of their investors before they begin to generate a return on that investment.
This, in turn, leads to a strong focus on cost and on rapid prototyping with proven and available technologies and with successive generations of design developed in parallel with deployment rather than looking for exquisitely engineered solutions that have been “de-risked” on the ground before being launched. Successful companies in this space are highly disciplined and focused. But their focus is not on perfecting advanced designs before launch. Instead they are focused on developing efficient and innovative solutions to business problems. In order to be successful, companies in this space need to be prepared to adapt their solution as their appreciation of the market changes. They tend to be extremely agnostic to technological solutions and will adapt their technical designs to stay aligned with their perception of the needs of the market.
In short new space companies value agility, innovation, and cost-effectiveness since these are the differentiators that attract and retain investment as they move their solutions to market.
It is no wonder, then, that new space and traditional space are often compared and contrasted often to the detriment of one or the other. Often these comparisons are unfair. It is true that new space companies and projects are leaner, more agile, and more cost conscious than traditional space projects. The whole rise of the new space sector is driven by players who have seen or sampled the classic approach to space projects and found it to be incompatible with their needs and their business model.
On the other hand, while the new space model seems very attractive to government agencies and departments who are frustrated by costly space projects, it’s also true that most traditional space customers would not tolerate some of the uncertainties and risks associated with this approach. For instance, most government procurement systems are simply not configured to accept a project where design and even requirements are set by a wider market of which they are a constituent but over which they have no control. Similarly, public sector program managers are unlikely to find the risk management philosophy of “fail early, fail often… and fail publicly” to be acceptable.
This is not to say, however, that the two space sectors represent two complete solitudes. The two sectors have a significant intersection. This is, more or less, because they are both “space” sectors. The fact of the matter is that regardless of the business model, a successful space business eventually as to deploy a working solution in space. The other fact of the matter is that this requires some very particular skills in engineering and manufacturing and that there really is only so much of that expertise and experience going around.
And thus, the place where the two sectors intersect is in the engineering and manufacturing of the spacecraft and their components. The challenge is that the emphasis of the two sectors drives quite different values in the design and build process. The new space focus on agility, on VOLUME and therefore cost efficiency has posed a genuine challenge to an industry that has been calibrated to low-volume, high quality, highly customized designs.
But the industry has adapted to this new reality. In some cases, this adaptation has come in the form of new companies being founded by former employers of larger enterprises or of small subcontractors who saw an opportunity to bring their agility and flexibility up the supply chain. But, increasingly, it has also consisted of large, established space contractors developing new approaches or even new business units that are designed to serve this emerging market.
In a very real way one of the effects of the emerging new space market dynamics has been to invert the typical project pyramid with a few large customers and large prime contractors at the top and small, agile, new companies feeding into the bottom. Now, instead there is a market space with small, new, agile companies acting as the customers as they attempt to access broad, diverse markets – with the fewer, larger space contractors acting as their suppliers at the bottom.
It has certainly made for interesting times.
It’s about to get more interesting
Well, it’s about to get more interesting, I suspect. Over the last few years – up until 2020 – the new space sector was definitely seen as the more vibrant part of the space business. Not only was funding reaching very significant levels it has been growing rapidly. New space ventures also dominate the social and public media mindshare.
And then came COVID-19. The ramifications the global health and economic crisis sparked by the pandemic of 2020 are likely to have a significant impact on both types of space projects.
On the one hand, the investment climate has already shifted significantly. Most of the talk in venture capital circles these days is about protecting existing investments and helping companies survive in the current economic climate. There is still some appetite for new investments but the approach is much more cautious and, as you would expect a lot of focus in the investment community is on markets and technologies directly related to recovering medically and economically from the pandemic.
This is going to prove to be a much more challenging environment for new space companies, especially those that were contemplating or in the midst of new rounds of fund raising. Some of these companies will be successful, but it will be harder, and it will take longer than was the case even six months ago.
In contrast, public sector agencies have discovered a sense of urgency in responding to the crisis. Governments are discovering that the risk of being seen to do nothing or to move too slowly is suddenly very high.
Now, assuming that funding space projects will be seen as an acceptable way for government to provide economic stimulus (not a certainty, but there are some hopeful signs at this point), this may lead to an interesting inversion where traditional space projects are accelerated – and become more tolerant of risk in order to demonstrate rapid progress while new space projects suffer some friction from increased investor uncertainty and lower risk tolerance.
While it may be a stretch to expect a virus to join together two sectors that business models have torn asunder – I suspect that the two sectors may look a lot more like one another for at least a little while.