Risk/Opportunity? It Depends on the Customer and the Company

Risk/Opportunity? It Depends on the Customer and the Company

This article’s headline, “Why the private space industry embraces risk,” intrigued me. At the very least, it appeared to promise the article within contained some food for thought. However, the post’s answers to the question of risk were contradictory and seemed to be incomplete.

Thinking in Terms of “Risk”

Here were some of the article’s answers regarding why private space industry accepts risk:

  1. Risk and failure tolerance are the signs of a maturing private industry.
  2. Risk tolerance = company break through (unsure if this referenced better industry profile or technology breakthrough)
  3. High risk = potential high return
  4. The payloads have changed (according to Tory Bruno). Therefore,
  5. the payloads are less expensive
  6. implying mission failure is more acceptable to those who invested in the inexpensive payloads

Responding to bullet #1--this doesn’t sound right. Mature industries are typically full of companies who have “made it.” These successful companies tend to become very conservative and ripe for disruption (what a Silicon Valley entrepreneur is looking for).

For example, the U.S. auto industry is very mature. Ford and Chevrolet very rarely took “risks” through changing business models and ground-breaking technologies. And when they did, they weren’t groundbreaking enough (looking at GM’s Saturn experiment), nor did they contain vision.

The space industry works the same way, in that the legacy commercial companies, such as Lockheed, Northrop, and Boeing, don’t feel compelled to run “risky” operations. First, they are already making a lot of money (a high return). Even more importantly, the customer giving them lots of money (the government) is not looking for breakthroughs and risks. Instead, their customer prefers reliable and steady products and services.

Strangely, the author agrees with that, contradicting the initial first bullet:

Longtime government contractors like Boeing and Lockheed Martin, which likely took more risks earlier on, are now in mature positions in the industry where high-profile failures could spell problems for their businesses.

I agree with that statement. It makes sense based on what we’ve seen in other mature industries.

However, those longtime government contractors (who are also commercial) have embraced their primary customer’s risk levels. And that customer, the U.S. government, is the source of many risk processes in the legacy space industry companies. In “SpaceX’s Cyclical Problem,” (under “The Madness of Being (and working for) Government?”) I noted the government drives up the cost of launch because:

“[p}art of the reason for these accusations is the U.S. government, whether in the guise of a civil agency like NASA or the military, tends to pay a lot for a product or service--mainly to “buy down risk” in the case of launch services provided by the likes of SpaceX and ULA.”

Thinking in Terms of “Opportunity”

But the U.S. government’s risk is a startup’s opportunity. And while that sounds glib enough to be bumper sticker, it’s also true. That opportunity is what space startups are looking for; the pain points that they can salve. If they do this well, then it’s no longer a risk for anyone, instead transforming into a desirable service or technology for which they receive a (hopefully high) return.

This brings up ULA’s Tory Bruno’s response to why certain space companies tolerate risk: there are more inexpensive payloads than in the past.

That fact is somewhat true, but Bruno’s viewpoint appears to be narrowly focused on what his company does--launch payloads. Instead, maybe smaller companies are buying less expensive satellites--because that’s all they can afford. A disaster for their satellite could still be fatal for their business, so the risk is still not acceptable. While less costly satellites contribute to higher risk acceptance levels, it doesn’t explain the extreme differences in risk-level tolerance between legacy space companies and space startups.

As noted earlier, it may be more accurate to say commercial space startups don’t view what they are attempting as the act of embracing risk. Instead, they see an opportunity. That opportunity might even be disruptive, the gold standard for a startup’s industry goal.

There are a lot of government risks identified in the space industry. It’s in government organizations’ everyday language (and the legacy companies working with them)--schedule risk, system risk, etc. A space startup would do well to identify those opportunities, addressing the ones it does exceedingly well--especially if that startup provides an answer that’s desirable to the commercial sector and the government.