By Bret Engelkemier and Thomas Dittler
“Failure is not an option” – is a quote attributed to Nasa’s famous flight director Gene Kranz who has directed Gemini, Apollo and Space Shuttle missions. He confirmed to have said originally that among the options to rescue a mission failure was not considered an option. We wish we could say that for Tech Start Ups. Is there anything that the venture industry may be able to learn from AeroAstro (= Aeronautics and Astronautics)? Actually, we believe a whole lot.
Aircraft Engine Manufacturer Rolls Royce pioneered an “engine-as-a-service” model dubbed “power-by-the-hour” which included so called on-condition monitoring of 200plus parameters, engine health analysis and prescriptive maintenance as well as pricing based on flight conditions, power-rating and usage. This business model was first introduced in the late sixties and refined over the years to include complete digital twins which are built on all the gathered aircraft fleet data for further development, risk management and adjustment of pricing.
Transfer to Tech Start Ups? Any sufficiently complex technology will be easier adopted if entry barriers are low. Turning a product into a service level agreement (SLA) may radically change customer willingness to buy because much of the risk associated with the new product’s application stays with the OEM and the benefits to the customer become more transparent.
In the airline industry, market share for OEMs is only computed after the fact. For sales strategies this figure is utterly useless. For mature products it is all about making fleet deals. Fleet deals are about intimate knowledge of airline fleet operations and key economic metrics of the airline customer’s business system. For new products it is about finding at least two launch customers who are willing to share the risk of the new product introduction, make advanced payments and feed back real operational data to the product development team.
Transfer to Tech Start Ups? We don’t believe in market share targets at all. Especially early adopters need to be sold on a new product one by one. B2C products require a clearly focussed beachhead market from which to expand. B2B products require signing on a few launch customers as points of reference for superior user economics. Only then larger deals are within reach.
The 1960s moonshot program Apollo gave birth to numerous exciting RTD management tools of which we would like to mention the “Earned Value Management”. Briefly explained, a work break down structure is used to monitor progress in each work package. Value is only generated and “earned” if the work package is 100% complete – not 98%. That was at the time of utmost importance as testing a hardware or a software yields only a qualified result if the final outcome can be tested against the specs. Only 100% completed and tested outcome would be credited to the work package accountable person – only 100% got her/him earned value. Todays agile and “forever in beta” methodologies do not render the earned value tool useless. Just the opposite: scrum sprints should yield a result that can be tested against a target scenario. Achieving 98% of that particular target is still no proof of nothing.
Transfer to Tech Start Ups? We are writing this in 2019 when lots of money is thrown at start ups to develop products in hyped areas such as AI. We love to see CEOs and CTOs have a clear RTD strategy and the management in place to deploy these funds efficiently and effectively. Just ask for a detailed approach to deployment of funds in RTD.
In AeroAstro there is a heuristic: If N Partners work together, the effort scales with square root of N; e.g. 3 partners increase the effort to build a product (time, cost) by a factor of 1.7 at the least. In complex technologies such as automated driving there has been a lot of talk about the necessity of having software firms working together with Automotive OEMs and Mobility Service Providers. Well, think again. That heuristic still is a guideline. In AeroAstro consortia were forced together to bridge national interests, overcome political issues, etc. and these inefficiencies were accepted. But the tech world of today is different.
Transfer to Start Ups? Try to pick a place in the value chain where you can do it on your own until your product and service is mature enough to be integrated (bought) by a bigger player. Don’t get caught up in difficult partnering discussions driving up time to market and cost to completion. If you can disrupt an industry, that is fine. If you have only a component to sell, fine. If you have an interesting technology, make it an IP play.
AeroAstro’s products are mostly operating in challenging environments. Anything related to space means: fire and forget – no chance for maintenance other than software updates. In the airline business you have trained pilots, scheduled maintenance and traffic controlled airways but little margin for error at 30.000 feet and 600 mph. Product and operations have to take that into account. As a consequence, AeroAstro companies and regulators came up with a number of good ideas to manage risk and make everything safe and secure. Important guidelines involve “fail safe and fool proof” operations, dual/tripple redundancies on all levels system, product, component, “2 out of 3” sensor input data, FMEA (Failure Mode Effect Analysis), etc. In AeroAstro it is generally agreed that a risk probability of 10^(-9) constitutes an acceptance threshold: i.e. a risk that may occur with a probability of one divided by one billion is acceptable.
Transfer to Tech Start Ups? Tech Start Ups tend to be risk agnostic. After all isn’t it about high risk and high return? Yes, but we are talking about risks that are associated with a return perspective and not just any risk. A tech start up may take on an engineering challenge based on the premise that a certain deep scientific insight could lead to a superior and disrupting product for a certain market. That same start up might be well off to analyze all other risks such as legislative risks, customer handling errors, failure to fund to completion, patent infringement, etc. in order to succeed.
Another heuristic in AeroAstro is that it always takes 3 times as long and 5 times more money than originally planned – regardless of how well you plan. That raises the question of funding and funding tactics. The literature is full of examples for budget overruns. Some are attributed to complexities in customer decision making processes, some to cost plus accounting, some to inflation and long program durations, and so on. In the end even the most successful projects have endured funding crisis through a combination of shrewd tactics and moving matter of factly beyond points of no return.
Transfer to tech Start Ups? Your Tech Start Up will consume 3-5 times your budgeted cumulated cash burn to break even. A successful funding strategy takes that into account and harvests as much funding as they can get while maintaining a life line to investors-supporters. You will need to get back more often than you think and will need to continue building your equity story.
This somewhat arbitrary list is to be continued with other interesting subjects such as:
Whenever failure is not an option, try to learn from AeroAstro!