The Laughing Wolf

A Business Plan For Space

Recently, some things have caused me to realize that I have not been as clear on some topics as I would like, simply because some basic items have not been spelled out. It is a basic fact of debate that the terms and conditions have to be known and agreed to for proper discussion. If two or more people are using the same term, but have different meanings for the term, all you have is a frustrating argument, not discourse.

Because of how much work I have done with the financial side of space, I tend to forget that I have not spelled out what I mean when I refer to a fundamental part of my propositions. Let me say right now that I don’t just think, but know that tourism is but a start to things, and that it is not really that great a start. True space exploration and exploitation will require a diverse range of operations and opportunities. Getting to these, however, requires a sound business plan.

A business plan is the first thing investors want to see when you talk with them. In fact, they want to see it before you talk with them, so that they can ask questions, explore things, and then begin to decide if they are going to invest. It may seem tedious, or not nearly as fun as thinking of all the great technology that can be developed and discoveries made, but without a good plan, none of the other is going to happen.

Let me first address what a business plan is not: It is not a technological development map. You may have the greatest idea since Leonardo da Vinci on a subject, but simply trying to get people to give you money so you can do it is not going to work. Even your parents are probably not going to put a lot into it, because they are not going to get anything out of it. People give you money for two reasons: One, out of the kindness of their heart; and, Two, to get rid of you so you will quit bothering them. Neither of these options is likely to get you a significant amount of money.

Over the last twenty years, I have seen a LOT of people passionate about space put forward technology development maps in the mistaken belief that they were presenting a business plan. It is a great idea to do X, or to get humanity to Y, but all had the same failing in that simply doing it was the goal. There is also usually a look of stunned disbelief on the presenter’s part when questioned about what happens next. We get there, we have developed X, that is the goal, isn’t it?

No, it’s not. Getting somewhere or developing something may not even be the halfway point. It is what you do with the achievement that is truly important.

It is this that a good business plan addresses. It covers the status quo, what you propose, how you propose to get there, and what happens after you arrive. Let’s look at some basics of a good business plan, and then use that for some more discussions of space.

The status quo is where you always start. What is going on right now, be it a particular part of space exploitation or writing. Don’t be afraid to state the obvious when discussing the issue, as people outside a given area of specialization might not, and probably are not, as aware of things in that area as is a specialist. Things that are obvious to you are not necessarily obvious to all. An example could be:

“Writing is an intensely competitive field, with most writers focusing into various specialized areas. Even within those fields, there is specialization. Science writing may be broken down into groups such as medical writing, but within that field you may see someone focusing on a specific area of medical hardware. Yet, there is a clear need for writers who can write with knowledge and verve on a variety of issues, not simply one particular subset of a sub-specialty. “

Or

“Helium Three is regarded by many as opening the door to a new industrial revolution, particularly in power generation. Scientists feel that it could hold the key to safe and efficient fusion power production, while others see it as a catalyst for a variety of technologies. One of the greatest problems in testing these theories is a lack of naturally occurring Helium Three on Earth. The Moon, however, holds abundant quantities of Helium Three that not only could be used to prove or disprove these theories, but to supply an abundant source for industrial use if the theories are validated.”

These are simply hooks for a discussion of the status quo. A real business plan will go into verifiable numbers, citations for pronouncements, and other means of establishing what is the current state of affairs in a given area. Yet, that hook also has to be the hook for the next part, what do you want to do?

This is where a lot of business plans, not just space business plans, loose it. They get so caught up in the technology or achievement, that they see that as the ultimate goal. What you have to do is establish not merely what you want to do, but what you want to do with it.

Typically, a plan might call for going to the moon and obtaining sufficient Helium Three to prove or disprove the hypotheses. That, however, is not a business plan. The facts are that most of your initial expenses are in the initial getting to the moon and obtaining sufficient resources for testing. If you plan simply covers going and getting, and makes no plans for doing more if the results are positive, you may have potentially doubled or tripled your costs of operation. This is no obstacle to any government agency, but is a crippling blow to commercial operations since the idea is to make money.

Yet, if you look at scale of operations at the start and spend just a bit more up front, you can set things up so that if the results are positive, you have the infrastructure already in place to exploit the resources. That is what investors are going to be looking for.

Okay, you have laid out the status quo and what you want to do, namely that there is not sufficient here, we want to go there and bring back enough to test, and if good we want to move into full-scale operations. Great. You have a good technology map. Now, let’s make it a true business plan.

What will it take to do the job? This is much more than the technology, it is all the resources that will be needed, from people to paper clips, and what will be needed when. It also must include plans for what will happen if things don’t go as anticipated, for good or for bad. There must be no invocation of the Magic Technology Fairy or any other form of deus ex machina involved.

Let’s start with the easy part, the people. You need someone to lead the effort, you will need someone to keep up with the accounting, you will need various technological people at various times. On these, you may need some of them full time, while bringing in others for limited duration work or on an as needed basis. Keep in mind with all of it that with modern employment, it is much more than the salary, in fact it can be anywhere from about 1.6 to 2.75 times the salary in terms of benefits, bonuses, and other costs. A good figure to use is 2, so that if you are paying someone $50,000.00 a year in salary you can figure that the total cost will be $100,000.00. Figure out who you need, when you need them, and the total costs for all of them broken down by year for the duration of the plan.

Materials are the next cost, and include buying off the shelf parts and supplies, raw stock or material for making your own, the machinery for all in-house operations, special or standard storage containers or systems, etc. Figure in regulatory costs as well, as there can be special requirements for any given item. A chemical may need a special storage container, inspections, or special disposal. A part may require that it be vacuum sealed, or a clean room required.

Location is the next cost, with offices, specialized materials areas, and other volume. If you are a launch service company, you need a place to fly and test that won’t get you regulated to death, picketed, etc.

There is more, of course, but now you have the basic resources and associated costs down. What is needed now is a timeline for development. Work out what you need to do and when you need to do it to reach your goals. More than that, you then have to have sub-maps for the unanticipated. If suddenly some new technology comes out that you can use to jump ahead, have a plan. If your promising technology fizzles, what is your fallback? Map these out with estimated costs for each. Yes, you can anticipate a good bit of the unexpected using probability functions and risk trees.

You also have to look at scale as you do this. Almost no business springs full grown from Jove’s breast. Most use some form of pilot demonstration and then grow from there. If you are going to do something and then be prepared to exploit it, you need to look at the optimum scale of operation to accommodate both. You don’t plunk down a huge plant on the Moon just to test a theory, but you can make it modular so that it can be expanded in the event of good news.

This, however, is still just a technology map. It is a great one, well fleshed out, but it lacks the key component of a successful business plan. It lacks a return.

It does not matter if it is sub-orbital tourism, Helium Three on the Moon, or mining an asteroid, you still have to show what you are going to do once you get there. Fine, you are there, now what? How do you make a return on the investment.

Once again, you have to go into what is now. Let’s use asteroid mining as an example. You have to detail what it takes and costs to bring out your target materials here on Earth. What is the current abundance of nickel on Earth? What is the readily available amount for extraction? What is the current methodology for extraction and how much does it cost? What are the practicalities and costs of waste use and disposal? What are the environmental costs, both direct and indirect? What is the relative purity of the finished product? How is it delivered and what are the costs? How are all the costs amortized? What does all of this together make the final cost per kilogram of finished product?

Lay out your homework, and then go into what you will do. What is the relative abundance of nickel in space and what is the readily available amount for extraction? Can you get other materials at the same time and within the same facility? What methodology of extraction will you use and what will be its cost? What of waste disposal? What are the direct and indirect environmental costs? What is the relative purity of the final product(s)? How are you going to deliver it and what will be the cost? Hint, amortize the costs exactly the same as they do on the ground, so that you are comparing apples to apples. What does all this together make the final cost per kilogram of finished product?

Guess what. If you can provide a product that is as good or better than Earth-based, in greater quantity, and at the same or lower cost per kilogram, then you have a viable business idea, though we are not yet to a true business plan.

What finishes out any business plan is the marketing. Not in the sense of telemarketers and spam, though I might enjoy those more than the current crop of pornography and breast enlargement ads, but in terms of who are you going to sell which product or products. Using hypothetical asteroid mining, to whom are you going to sell each metal or alloy? Can you sell the waste products for shielding, if so how much can you provide? How much can you actually sell? To whom will you sell it? For what price will you sell it? Can you sell electrical power to other nearby ventures if you have excess capacity? Will you sell any excess processing capacity to others, and if so for how much?

All of this means doing market research, with it firmly based on current Earth operations. Flights of fancy are nice, but if you can’t back up your numbers with verifiable information, that is all you are doing.

Investors are going to demand real numbers and apple to apple comparisons. Which is why space tourism is so important right now. The fact is that space tourism is the only proven commodity other than satellite usage, which is an apple to orange comparison.

The fact is, we know that there are at least two people who are willing to fork out $20 million to go to space, and that there are a number of others who are interested in so doing. We know that there are X number of people who can afford this, and that of that number that Y percentage are capable of meeting all requirements and going, and that of Y that there are Z percentage that have expressed interest. From this, market research has shown that if the cost of going to space comes down, more people are interested in going. In fact, the number grows significantly the lower the cost becomes.

Investors can look at these numbers and check them, which means they like these numbers. They can check and crunch them, which means that they are more likely to make an investment if they see a business plan they like.

Now for the problems, the main one being technology. Investors don’t mind taking risks, in fact some groups are willing to invest in 20 or more ventures even if only one works out, provided that one makes up for all the losses and still provides a significant return. They have to have at least one pan out, because the do not give money out of the kindness of their hearts. Space has not been a truly good investment, because many promising technologies have failed. Worse yet, the investors see NASA going through new launch initiatives right and left, and if the much vaunted NASA can’t do it, how can some basement start-up make a go of it?

This is not reality, but this is a case where perception matters. It is going to take someone winning the X-Prize or doing something comparable to break this mindset in regards launch companies. Yet, launch companies are not the only business model, but they are the key to all others.

All commercial space ventures are dependent on the launch industry and launch costs. As long as launch costs remain around $10,000.00 a pound, very little is viable. Drop it to $1,000.00 a pound, and interesting things start to happen. Drop it even further, and a whole range of new possibilities opens.

Tourism is not a great start because it is a very limited option. The number of people willing to go is finite, and no one has demonstrated that people are willing to go more than once. That the latter is a factor of cost is well known and understood, but the fact remains that repeat business is unproven. Unproven is a bad thing insofar as the investment community is concerned.

So, tourism is used to help open the door. What needs to be done to throw that door wide? Simple, we need a diverse range of business opportunities. Moreover, we need near-term readily provable options to start that door on its way. The fact is that the more you show business success the more willing mainstream investors are going to be to take part. You have to have more than just SpaceVest or similar high-risk outfits taking part. Getting to that mainstream is critical.

This is one area where NASA and industry should be working together, and it was an area that had just opened up when my contract went away. We had just make contact with a/the major trade association for venture capital groups and were in discussions on having NASA and industry speakers go out and talk about what Industry was already doing in space. The role here for NASA was to set the stage, and then let Industry talk about what they had gotten out of it.

Let’s face it, NASA is the government and standing up and saying “Hi, I am from the government and I’m here to help you” doesn’t fly real well at any time. Standing up and saying “Hi, I’m from the government and here is John/Jane Doe from Industry X to tell you about what they did, and I am here to tell you that it is no bull” goes a lot further.

Even better is having them stand up and say that they had a success, here is what it means to them and their bottom line, and that if they could have regular and low-cost access to space they would be flying on a regular basis. This demonstrates to the investment community that there is indeed a market and that initial quantification of same is possible. This makes it far more likely that they will invest.

What this means is that there are some good opportunities for new business plans out there. There is a foundation laid for, if nothing else, providing research opportunities so that real quantification can be done. Where the base is solid, there are actual research and production opportunities. As these are established, they will in turn generate that next generation of opportunities and allow expansion so that we can go out further into the solar system.

The two keys to getting the necessary level of investment are, however, launch capabilities and sound business plans. The more good plans there are, the more willing the investment community is going to be to help push the launch industry. There are a few businesses that are leading the way, but they need some company. Let’s give it to them.

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