Journey from a startup to scale and beyond

Posted on Apr 20, 2017

Journey from a startup to scale and beyond

In our latest feature, we spoke to Mike Scardera is Vice President of Advanced Concepts at Millennium Space Systems about the challenges involved with space startups and how the experiences of his company Millennium could be used as a tool for other companies looking to do the same.

A challenge for any space startup is how to plan for growth from the outset. Many new companies start with an idea and look for funding from accelerator programs and venture capitalists, but they often face tough questions from potential investors, not only about turning their vision into reality, but about scaling the business once it has an initial foothold in the market.

Mike Scardera is Vice President of Advanced Concepts at Millennium Space Systems in El Segundo, CA, a company that has taken an alternative path to growth since its formation by Stan Dubyn and Dave Barnhart in 2001. He questions whether venture capital investment is always the best financing route for startups to take.

“We [Millennium] started just by doing small-scale government studies and built slowly but surely along those lines, and for this industry we believe that’s probably the better model,” he says. Co-founder Barnhart left the company in 2006, and Scardera arrived in 2008. “Around that time, probably due to a lot of the good work Stan and his colleagues had done prior to me arriving, we won several contracts from the government, including one [the Aquila-M1] that went to flight. That was basically the foundation for our growth.”

quoteScardera’s previous experience gave him some insight into the world of venture capital funding in space enterprise. “When I left the Air Force in the 1990s, I joined a company called Pioneer Rocketplane. We did a combination of trying to get government business and go after venture capital.

“There were several times we tried to get financing, and every time we looked close, some hiccup in the market caused things to be delayed or cancelled. At least in my experience, the venture capital market is fickle. Even if you secure funding, investors can withdraw at pretty much any time they want.”

Another issue, he says, is that venture capital companies might preferentially pursue opportunities that offer short-term returns. “But the reality of the space industry is that once you’re successful, it takes a good couple of years to make anything out of that. And getting to that success can take five to 10 years. Very few venture capitalists are willing to wait that long.”

 

Lessons learned

Taking a boot-strapped route to growth has been successful for Millennium, generating what the company sees as a longer but steadier and more stable path to growth. So what lessons have they learned along the way?

“It’s really been a case of steady progress, getting flight programs done on time and on budget, and doing studies,” says Scardera. “Our CEO would tell you that government-backed space programs have been around since the dawn of the space age, and there’s no reason to believe the government will not continue to be the biggest investor in the future of space.”

So far, Millennium’s success has resulted in contracts for several government departments (particularly in the field of space security) and the development of two distinct satellite products: the robust Aquila line and the smaller, low-cost Altair. Along the way, the company had to overcome some of the key challenges that face any expanding space business. For example, is it better to outsource work to other contractors or to retain it in-house?

“When we built our first satellite we went out of house for about 80% of the work,” recalls Scardera. “That was back around 2008-11, but since then we’ve found that the industrial base has consolidated in such a way that schedules have gotten longer, prices have gone up, and quality has, frankly, gone down. So we consciously decided to do a ‘make or buy?’ decision on every piece of hardware we need. More often than not, the decision now is to make. So we’ve become much more vertically integrated and build a lot of components in-house.”

The company’s second big satellite, the Aquila M8, Scardera says, is around 80% in-house. “And when you look at our Altair satellite, that’s more like 90-95% in-house. We’re not against buying product when it meets our needs and is cost-effective, but what we’ve found is that even if we could get an outside product faster and cheaper, it may not come in at the quality we need and there’s still a lot of work to do.”

 

Keep adapting

Retaining the manufacturing process in-house raises questions about economies of scale, particularly around how and when to automate. For Millennium, the message seems to be to start at the bottom of the process and work up.

quote“At the spacecraft and component level we’re still a craft industry,” says Scardera. “It’s really a matter of figuring out where quantity makes a difference. Right now we’re doing about 10 flight programs and I don’t know how many vehicles, and we’re using a lot more automation on individual piece parts. But for assembly it’s still more cost- and time-effective to just have manual labor integrating the spacecraft.”

The company has done lots of process streamlining, Scardera says, but at what point do they switch from human to machine-based integration of components? “Our guess is probably somewhere in the order of between 20 to 50 spacecraft in a production line. If you’re talking about building large constellations, though, automation makes a lot of sense.”

Other challenges arise when working for clients rather than for yourself. “Government customers still want a large degree of oversight,” admits Scardera. “Independent design verification, high reliability, low tolerance for risk and high levels of mission assurance are a carry-over from past decades where design and development processes were justified for hugely expensive space systems. But due to increasingly urgent need, budget challenges and the need for rapid infusion of advanced technologies, we are starting to see a shift, with oversight, reliability and risk being traded for affordability, responsiveness and high-tech refresh.”

Working for unyielding clients doesn’t mean that you can’t be nimble in other ways – it’s the flexibility of a small company, Scardera argues, that can help Millennium outpace some of its longer-established rivals. “We do implement fast prototyping or spiral development, but we tend to use that more on internal projects rather than ones where we have customers,” he says. ‘The bottom line is we are confident that our satellites can be built faster as we invest more in our production infrastructure.”


Mike Scardera will be speaking on the ‘Winning the Race to the Bottom: Slashing Costs while Managing Risk’ session the Space Tech Conference on Thursday May 25 at 10:45am.

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