Friday, July 03, 2009

Middlemen in Space

This blog was inspired by a couple of sources: the recent Heinlein New Space Business Plan Competition, which I did not enter because I had too many other things on my plate, and Thomas Sowell's Basic Economics, which I am now reading to educate myself on economic reality.

It occurred to me early on in my quest to get into the space business that I would not become an astronaut, space scientist, engineer, or rocket- or space station-building entrepreneur. Such careers are either not of interest to me or within the range of my financial capabilities. However, there is much to be said of middlemen--those scourges that Douglas Adams describes as "an entire useless third of the population," as opposed to the great thinkers or the workers who "actually did things."

In The Hitchhiker's Guide to the Galaxy radio program, Adams described an alien planet which concocted a story that their planet would shortly be destroyed in a great catastrophe. The useless third of the population (consisting of hairdressers, tired TV producers, insurance salesmen, personnel officers, security guards, management consultants, telephone sanitizers and the like) were packed into the "B Ark," one of three giant Ark spaceships, and told that everyone else would follow shortly in the other two. The other two thirds of the population, of course, did not follow and "led full, rich and happy lives until they were all suddenly wiped out by a virulent disease contracted from a dirty telephone."

Adams' take on middlemen notwithstanding, most of America's small businesses are based on jobs that qualify more as middlemen. The economic argument runs something like this: large companies have the resources to do lots of things, like build large finished products, manage their own public relations, and so forth, but eventually economies of scale cause them to become inefficient at particular activities. It is in these small niches, like transportation, package delivery, paper shuffling, sub-component manufacturing, brochure design and printing, etc., that individuals and small companies can find ways to do things more cheaply, start their own business, and save the larger companies money than they would spend doing minor tasks themselves.

Tim Pickens, President of Orion Propulsion, stated this position to me early on in his company's existence: "I don't want to build the Transcontinental Railroad, I want to be the guy selling pickaxes to the workers." He understood what I think many big dreamers in the entrepreneurial space business often miss: the real money is to be made at the second- and third-tier supplier level, not at the level of building America's Next Great Rocket Ship.

Elon Musk's SpaceX does what's called "vertical integration" of his business, in that he is building nearly every part of his rocket in-house from start to finish because he cannot find the suppliers he needs to build the specialized components he wants, and it is not cost-effective for the big aerospace firms to build them in the small lots SpaceX needs. Until the second- and third-tier suppliers come along to support the specialized widgets and services New Space companies need to make their rockets go, vertical integration efforts like Musk's will continue.

Now Pickens happens to be a maker of widgets--he's not necessarily building entire launch vehicles (though he does those, too), but he is developing new engines, new technologies, and new ways of doing things on the margins that the bigger companies don't always have the time or money to do. He's starting to build thrusters for Bigelow Aerospace's much bigger project, the Sundancer inflatable space station.

So what would I do, English major and mid-tier bureaucrat that I am, if I was sufficiently motivated or capitalized? Here are some of the niches where I could start a relatively successful business:

  • Communication, marketing, public relations, and branding services.
  • Business and marketing plan development for startups.
  • Federal regulatory compliance -- helping smaller aerospace companies complete and obtain the legal permits to do things that occasionally go boom, e.g., FAA flight approvals, environmental impact statements, etc. This would obviously require a few lawyers on staff.
  • Market research - seeking out "spinoff" uses and customers for new aerospace technologies
  • Developing aerospace-related education products for educators.
  • General administrative staffing to handle any or all of the above.
  • Concession services at spaceports, once they're finally open for business--think of all those businesses in commercial airports--food & beverage, retail, parking, business centers, etc.

Other small businesses are possible, of course, but this is mostly an intellectual exercise at this point because I'm happy where I am. Still, if the American economic engine is allowed to function normally again, I will not be the only one to think of ways to make money in the new space economy. The saying used to be, "If you can build a better mousetrap, the world will beat a path to your door." Let's hope that continues.

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