Entrepreneurial Lingo Lesson: The Pivot

twist_chubby1_disrupt copy
First in an irregular series on entrepreneurial buzz words

Come on let’s pivot again,
Like we did last quarter!
Yeaaah, let’s pivot again,
Like we did last year!

Do you remember when,
ROI was really hummin’,
Yeaaaah, let’s pivot again,
Pivotin’ time is here!

Heeee, and round and round til IPO we go!
Oh, baby, make those investors love us so!

Let’s pivot again,
Like we did last quarter!
Yeaaah, let’s pivot again,
Like we did last year!

There comes a time in the existence of many startups when there an urgent need to change direction. You set up the company to pursue a goal, but for one reason or several — a lack of a market, shortage of investment, regulatory hurdles, a flawed concept — you have to direct all that talent, technology and enthusiasm toward a new objective that will keep the company in operation.

This is called, in entrepreneur speak, the pivot. In some cases, the pivot is only temporary, a way to make money and develop technologies that are needed to work toward the original goal. In other cases, the original objective is simply abandoned for something that looks more promising.

Sometimes the pivot allows the company to go on to bigger and better things. Other times it’s the last gasp of a dying company. One thing is clear: the startup world is brutal, and most companies won’t survive.

A number of New Space companies have pivoted as they have sought to refine their business and stay in operation.

Stratolaunch Systems

The new design of Stratolaunch's carrier aircraft. (Credit: Stratolaunch Systems)
The new design of Stratolaunch’s carrier aircraft. (Credit: Stratolaunch Systems)

Original Focus: Medium-lift Air Launch
Pivot: Small Satellite Air Launch

When Paul Allen and Burt Rutan unveiled Stratolaunch in December 2011, the sheer scale of the project astounded observers. The world’s largest airplane with a dual fuselage and a 385-foot wing span  capable of launching a modified version of SpaceX’s Falcon rocket.

Allen. Rutan. Elon Musk. A dream team. And what could possibly go wrong?

A lot, actually.

SpaceX withdrew from the project after about a year. Orbital Sciences was brought in to provide a replacement medium-lift vehicle. That effort lasted about 18 months before Orbital was dropped. With the booster now gone, a plan to launch a scaled-own version of Sierra Nevada’s Dream Chaser space shuttle was shelved.

Stratolaunch officials say the pivot has resulted from a shift in the industry toward smaller spacecraft. So, the company will now try to build a business using the world’s largest aircraft to launch some of the p-lanet’s smallest satellites.

For the last two years, the company has been looking at more than 70 configurations of boosters that could be launched from the airplane. If you have a launch vehicle, a rocket engine or plans for one, it’s a good bet Stratolaunchy has had a talk with you.

At the New Space Conference in Seattle last month, a company official said Stratolaunch expects to announce partnership ships with launch providers “very soon.”

Meanwhile, the aircraft — alternately dubbed Carbon Goose, Composite Goose and Birdzilla by skeptics — remains under development at the Mojave Air and Space Port in California. Officials are not setting a schedule for flight tests, which were originally set to begin last year.

Planetary Resources

Prospecting satellite (Credit: Planetary Resources)
Prospecting satellite (Credit: Planetary Resources)

Origin Focus: Privately Funded Asteroid Mining
Pivot: Earth Observation & Public/Private Partnerships

Four months after Stratolaunch’s big unveil, Peter Diamandis and Eric Anderson unveiled a company whose backers — Larry Page, Eric Schmidt, Ross Perot Jr., Charles Simonyi, K. Ram Shiriam and James Cameron — were nearly as dazzling as its business plan: to make trillions of dollars mining asteroids for rare metals and water.

“The pursuit of resources drove the discovery of America and opened the West. The same drivers still hold true for opening the space frontier.  Expanding the resource base for humanity is important for our future,” said  Schmidt, who is chairman of Google.

A whole new Western frontier out in space. Doesn’t get much bigger than that.

Planetary Resources’ plan was to launch a series of Arkyd telescopes into Earth orbit that would peer out into the solar system looking for target rich asteroids. They would then send survey missions out to evaluate their work, culminating with mining operations.

In May 2013, the company decided to get the public involved by launching a Kickstarter campaign that raised $1.5 million. The two most prominent awards for donors were: the right to have a picture of yourself displayed in orbit with the Earth in the background; and time to use the Arkyd telescope to look at objects in space.

In May 2016, Planetary Resources pivoted. The company announced it has cancelled the Kickstarter campaign and that it would refund everyone’s money. Despite all the billionaires backing the company, it was not able to find enough money to actually fund the Arkyd telescopes to hunt for asteroids.

Instead, the company would turn its Arkyd technologies — renamed Ceres — toward Earth to collect valuable data. Planetary Resources would be able to test out its technology while at the same time having a revenue stream to stay in business while it developed the technology needed to min asteroids.

Ceres constellation (Credit: Planetary Resources)
Ceres constellation (Credit: Planetary Resources)

The company signed a memorandum of understanding to provide data to Bayer to improve agricultural production around the world.

“Using the combined technologies from the two companies, farmers can time their irrigation systems much better to save water, receive planting date recommendations and re-planting advice, and assess their soil’s water-holding capacity,” the companies said in a press release. “Another project is a canopy temperature scout that provides weekly practical insights and scouting support from emergence to harvest by identifying problem areas in the field.”

Providing valuable data to an international conglomerate was something investors were willing to fund. Planetary Resources secured $21.1 million in Series A funding to support its Ceres constellation of satellites.

But, there was more. Planetary Resources sold 49 percent of that business to the government of Luxembourg for 25 million euros ($27.9 million).  The company has located its European operations in Luxembourg.

The transaction was part of another pivot for Planetary Resources. One might have thought that with all its millionaire and billionaire backers looking to become trillionaires, the company was dedicate to a purely public economic development of the solar system.

But, that’s not the way it works. Asteroid mining is a long-term play that will require the development of brand new technologies and a space-based economy with customers for the water and minerals those orbiting bodies will produce.

Hence the need for short-term revenue to keep the company in business (Ceres), and someone to provide both equity investment and to fund the development of the technology needed. Tax haven status helps. And laws that legalizing asteroid mining. Luxembourg has stepped forward to provide all four.

The country has signed agreements to work with Planetary Resources and its rival, Deep Space Industries. Luxembourg has established an initial fund of 200 million euros ($227 million) to fund its asteroid mining project, with promises of more to come.

Luxembourg has committed itself to supporting research and development needed for mining asteroids. It also will fund risk reduction missions by the two companies that will involve sending survey satellites past asteroids to prove that the technologies work.

The nation is also working on laws that will make asteroid mining legal. The United States passed a similar law last year.

Deep Space Industries

Deep Space Industries will build a constellation of 24 nano-sats, called BitSats for Dunvegan Space Systems. (Credit: Bryan Versteeg, DSI)
Deep Space Industries will build a constellation of 24 nano-sats, called BitSats for Dunvegan Space Systems. (Credit: Bryan Versteeg, DSI)

Origin Focus: Privately Funded Asteroid Mining
Pivot: Satellite Construction & Public/Private Partnerships

Deep Space Industries (DSI) has followed a path similar to Planetary Resources. DSI has launched a number of initiatives to enable it to develop technologies and bring in revenues, including:

  • building a 24-satellite BitSat constellation for Dunvegan Space Systems;
  • providing satellites to HawkEye 360 for its Pathfinder Earth-orbiting small satellite mini-constellation;
  • sending a virtual reality recording system to the International Space Station to record operations the orbiting laboratory; and,
  • bringing Innovative Solutions In Space’s nanosat technology from Europe to the United States.

Like Planetary Resources, DSI also has set up a European operation in Luxembourg and is taking advantage of that government’s investment in asteroid mining.  The two parties have announced the first mission under the partnership: Prospector-X, which is an experimental, low-Earth orbit spacecraft to evaluate the technology required for asteroid mining.

XCOR

XCOR’s senior test pilot Brian Binnie and senior engineer Erik Anderson performing a Lynx mission in the Simulator. (Credit: XCOR)
XCOR’s senior test pilot Brian Binnie and senior engineer Erik Anderson performing a Lynx mission in the Simulator. (Credit: XCOR)

Origin Focus: Suborbital Human Spaceflight
Pivot: Upper-stage Engine Development

On the Friday morning that kicked off Memorial Day weekend, XCOR employees were greeted with the worst news imaginable. About half the company’s staff — roughly 25 people — were told they no longer had jobs.

The staffers worked on the company’s Lynx space plane, which is designed to take a pilot and a passenger on suborbital rides. The program has now been suspended as XCOR focuses on its other main project, the development of an upper stage engine for use on United Launch Alliance’s (ULA) new Vulcan launch vehicle.

It was major blow to the entrepreneurial company that, after nearly 17 years in operation, still looked and felt like a startup. The reason for the pivot was simple: the company didn’t have enough money to continue with both programs. One had to go for now.

XCOR says it is committed to finishing the Lynx and flying it to space, but it’s not clear if or when that will occur. Meanwhile. the company has some tough competition in the form of Aerojet Rocketdyne and Blue Origin in supplying an upper stage engine to ULA.

Virgin Galactic

LauncherOne ignites after being released from Cosmic Girl 747. (Credit: Virgin Galactic)
LauncherOne ignites after being released from Cosmic Girl 747. (Credit: Virgin Galactic)

Origin Focus: Suborbital Human SpaceflighT
Pivot: Launch Vehicles & Supersonic Aircraft

For a dozen years now, Richard Branson has been talking about what a world changing experience it will be when he and his son Sam climb aboard SpaceShipTwo for a flight into suborbital space. They will be the first two of what the British billionaire says will be hundreds and then thousands of space tourists.

In those 12 years, Virgin Galactic has eaten hundreds of millions of dollars without sending anyone anywhere near space. And four employees of Scaled Composites — which designed and built the spacecraft — have died in the process of trying to fulfill Branson’s dream of spaceflight.

Sources tell Parabolic Arc that Virgin Galactic doesn’t not expect to make any money from the tourists into space. This is why the company’s pivot toward other areas is so vital to the company’s survival.

Virgin Galactic is developing LauncherOne, a rocket capable of placing small payloads into space.  It is modifying a Boeing 747 to air launch the rocket. The company is in fierce competition with a number of competitors hoping to serve the booming smallsat market.

The company also is partnered with Northrop Grumman on the XS-1 launch vehicle. The DARPA-funded program aims to develop a low-cost, reusable rocket capable of placing a payload into orbit. The launch vehicle must be capable of flying 10 times in 10 days.

Northrop Grumman is in competition with Boeing (partnered with Blue Origin) and Masten Space Systems. DARPA is expected to down select to one provider for the second and third phases of the program later this year.

Virgin Galactic is also set to provide services to Boom, which is developing a Mach 2 civilian airliner. The company will provide technical services, and the Virgin Group has an option to purchase aircraft.

World View

Crewed high altitude capsule. (Credit: World View)
Crewed high altitude capsule. (Credit: World View)

Original Focus: Near-space Tourism
Pivot: Data Gathering

World View Enterprises is not a space company per se; its high-altitude balloons will only reach the stratosphere. Originally, the business focused on flying tourists in a pressurized cabin where they will enjoy spectacular views of Earth.

The company remains committed to this goal. However, the near-term plan is to mount sensors on the balloons and sell the data to companies. This focus will bring in funding to support development of pressurized modules for tourism.

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  • Geoff T

    Judging from the years I’ve been following this site the steadiest job in NewSpace must be in the CG imagery rendering departments!

  • windbourne

    LOL.

  • While I’m all for pivoting to provide your same product to a more appropriate set of customers, or provide your same customers with a more appropriate product, many of these “pivots” are late gasps or simply PR stunts (fishing expeditions) – which I’m opposed to.

    A GOOD pivot isn’t after you’ve sunk a billion dollars into development, or after you’ve had a splashy rollout and made a bunch of promises. It should happen before all the money has been spent when you realize you don’t have product/market fit.

    If you’ve sunk a decade and billion bucks into something only to NOW realize that wasn’t a good idea, you’re just a bad steward of other people’s money!

  • JamesG

    And usually the only tangible product they produce. Sadly.

  • Douglas Messier

    Way back in the day, John Logsdon was asked about Japanese plans for solar power satellites. He responded that the one thing Japanese space folks led the world in was the production of viewgraphs.

  • ThomasLMatula

    I agree. That is why it is also important that the venture team does a solid business plan. Too often firms believe the purpose of a business plan to raise outside funding. Actually its purpose is to provide a reality check on your business idea and identify is there are viable routes for achieving it.

    Key of course is determining if there is a market that will cover the startup costs in the near term. Too often space markets are just long range visions and speculation, linked to what the current fad is. Great for producing the eye candy we see, but not good for encouraging good near term business decisions. Also too often business plans are used to justify the dreams of engineers rather than to identify a solid business model.

    What all of these startups have in common is focusing on what are really 2nd and even 3rd generation markets that require lots of capital to reach instead of first stage markets that would have been doable and practical with their resource and funding abilities. Some are belatedly trying to back track to those markets while they funds while others are going off in new directions with little links to the markets they were focused on. Really a lot of good case studies for my technology entrepreneur students to learn from 🙂

  • If you haven’t, you should check out the Customer Development Process discussed in Steve Blank’s book and the Business Model Canvas discussed by Alexander Osterwalder. The traditional B-school business plan is on its way out, and it’s being replaced by something MUCH better.

  • ThomasLMatula

    Its an interesting variation on mapping the value chain that is the core of a business model, but as with most consultant systems it is overly complex and ignores the external environments a startup exists in. As such its is really possible to manipulate it to justify anything you might want to do. As with most management fads is will fade out as its limitations become clear to organizations.

    In terms of traditional B-school models, I think you are referring to the cookie cutter fill in the blanks you see various consultants offering. I suspect only the big name schools are still teaching those, they are using the last ones to innovate.

    The business plans models I teach are rooted in the theoretical work of E. Jerome McCarty, Wroe Alderson and Peter Drucker. You need to first understand the economic utilities you are creating as part of the transformation process before you are able to map out a business strategy.

    This is the fundamental mistake common to all of the firms above. They first decided they wanted to build rockets, or mine asteroids, then looked for an excuse to justify it. Basically they are solutions looking for markets. The application of something like the Business Model Canvas would just enabled them to double down on their error. You need to work the problem the other way by identifying the economic need being satisfied than determine the parameters for satisfying the need.

  • uranium9

    “But, there was more. Planetary Resources sold 49 percent of that business to the government of Luxembourg for 25 million euros ($27.9 million). ”

    Is there any source for this claim? I see that Luxembourg has announced they’re considering a direct investment [http://www.spaceresources.public.lu/en/press-corner/press/2016_06_13-Press-release-MoU-Planetary-Resources-and-Lux-Gvt.pdf], but I’ve seen no numbers. The “49%” appears to be clickbait-speak for “a minority investment”, and everywhere other than ParabolicArc lists that as a maximum, not an actual stake.

  • Douglas Messier

    The 25 million euros figure for up to 49 percent stake was discussed in several stories, including this one:

    http://www.wort.lu/en/business/spaceresources-lu-luxembourg-signs-on-dotted-line-with-planetary-resources-575eb5c3ac730ff4e7f61e26#

    My understanding was that the investment was primarily focused on Ceres. Very unlikely to be the last equity investment made by the Luxembourg government.

  • Douglas Messier

    The original, one and only Chubby Checker!

    YEEEEAAAAAAHHHH!

    https://www.youtube.com/watch?v=eh8eb_ACLl8

  • uranium9

    Still looks like “considering a minority investment” rather than “bought 49%”, but thanks for the source for the €25M.

    I’m certainly hoping to see more space activity by Luxembourg. The more, the merrier.

  • Douglas Messier

    No problem. You might be right in your assessment.

  • ThomasLMatula

    Depends. If Luxembourg thinks they are buying an asteroid mining business they are going to have a long long time to wait for an ROI. It will probably sour them on similar future investments.

    But it appears all they are investing into is a subsidiary of Planetary Resources being created in Luxembourg to avoid American restrictions on selling remote sensing data.

  • publiusr

    Before Musk (or Rutan for that matter) it was Gary Hudson. The mention of his name on private space was all but a kiss-of-death.