Business Stripped Bare (30 page)

Such is the demand for high-quality research in this sector, consultancies have grown up dedicated to encouraging and shaping its emerging markets. In 2002, a survey performed by Zogby International for Futron, one of the leading space consultancies, began to look seriously at the market for space tourism. Their reports suggest that from 2011 there will be 2,000 tourist astronauts a year, and that by 2021 as the cost comes down, there will be around 15,000 a year, by which time the potential revenue from this business is $676 million per annum.

Zogby arrived at these figures by interviewing thousands of very wealthy individuals. My vision is to make the experience of suborbital flight open to many more people. Virgin Galactic only needs two flights per day at three different sites to break through the Futron survey barrier and, with all things going well, this is a highly conservative estimate. My own prediction is that by 2019 the price of a trip into suborbital space will drop to a level that will enable hundreds of thousands of people to experience and enjoy a flight into space. For someone in Europe or America it will be as simple as a decision of whether to go on holiday to Australia or up into space. A figure of under $100,000 is eventually achievable. But even if Futron's survey is correct, Virgin Galactic will still be a successful business.

Virgin is ideally placed to move into the space industry. We have the expertise and experience of moving millions of people around the globe, safely and securely. What the Virgin brand will do – unlike any other in the commercial space market – is establish in the public mind that space tourism is for them: a service industry that's going to be a lot of fun, while being as safe as people can make it. The brand also helps to give the team global credibility as they build out the business to include environmental science work in space, satellite payload launching and astronaut training.

In March 1999, Will Whitehorn registered Virgin Galactic as a company – and our hunt for technology to get us into space relatively cheaply began in earnest.

For years, however, I had been keeping tabs on anything and everything to do with the vexed business of getting off the ground and into space. I wanted us to be first in this sector, in the same way that I wanted us to be first in the biofuels market. And just as we've toyed with some very unlikely biofuels over the years, we've witnessed the launch of some pretty crazy prototype spacecraft!

This is the unseen part of business, the part that nobody ever discusses because, to be fair, there's not a lot to discuss.
The secret to success in any new sector is watchfulness, usually over a period of many years.
It's hard to spin waiting and watching into a vibrant business lesson, but if there's one thing you take away from this chapter, let it be this: that Virgin's sudden emergence as a leader in cutting-edge industries was decades in the making. You need a huge amount of sheer curiosity to make it in a new sector.

Our search for a way into space led us into a brave new world of exotic materials and untried designs, bristling with spin-offs and business opportunities; a thriving community of small companies and driven individuals, motivated by prizes, supported by engaged and well-informed philanthropy.

It was a strange experience. Having considered myself a small entrepreneur all my life – all evidence, airlines and the rest of it, to the contrary! – it was dizzying for me to find myself looking at business through the other end of the telescope. Yes, I was looking to set up my own business – a small commercial space company – but at the same time, I could see that the capital I had to hand could make a real difference in this sector, encouraging other small businesses to develop.

I was now not merely innovating in an existing market; I and people like me were actually helping to create the market. This posed the old question in a whole new light for me – how could we best make a difference?

The tipping point for commercial space travel came during the millennium with the announcement of the Ansari X Prize by space entrepreneur Peter Diamandis. The X Prize set a simple challenge to contestants: carry three people 100km above the Earth's surface, twice within two weeks. Peter had come to England to pitch the idea to me several times since 1997, and we thought a Virgin X Prize was a good idea. However, rather than sponsor a prize, we wanted to take the technology forward ourselves and build a business.

We made the right decision. We were playing to our strengths by developing our own company. That said, I don't think we'd be sitting here preparing for the launch of our first spaceship if it had not been for Peter's idea, his determination, and the huge generosity of Anousheh and Amir Ansari, who were the ones who ultimately donated the $10 million prize.

The Ansari X Prize had twenty-nine entrants, but only three serious contenders. Of these, just one had managed to acquire serious funding –
SpaceShipOne
.

Burt Rutan's company, Scaled Composites – based in Mojave, California – unveiled the existence of its space programme on 18 April 2003. Burt's
SpaceShipOne
was to be carried into the upper atmosphere by a mother ship – a lightweight plane called
White Knight
– and launched in flight.

On 17 December 2003, we finally got confirmation of what had become an open secret in aviation circles – Paul Allen, a reclusive billionaire with a passion for science fiction, was Burt's financial backer for the
SpaceShipOn
e project. That day,
SS1
broke through the sound barrier during its first manned test flight. On 21 June 2004, Mike Melvill flew
SS1
above 100km altitude, and this was a significant breakthrough, dispelling the myth once and for all that manned space flight was the sole domain of huge government programmes.

I calculated that Paul had spent about $26 million to achieve winning the $10 million X Prize. So I wrote to him in January 2004 proposing a fifty-fifty joint venture.

Dear Paul,

May I congratulate you on the latest flight. From the footage I saw it looked magnificent. I should be delighted to work with you on taking the project forward and helping turn it into a serious space-tourism project. I'm hopeful that with the strength of the Virgin brand and our team's marketing skill and your technological skills we can not only get your investment back but earn enough to take the project forward into even greater heights. Our suggestions are these: 1) that initially we together spend the necessary funds to create a three-man craft (along similar lines to the test craft) but with large windows. We spend these funds to make it safe but don't apply (at this stage at least) for FAA certification. This craft should be ready to take passengers in 18 months. We put aside $100 million each over three years to achieve this. 2) We start marketing in a major way to coincide with the last flight before the X Prize flight. We offer 1,000 trips at $200,000 per trip. This would result in $200,000,000 and should be sufficient to get our total investments back plus have a fund left over to take the project to the next stage (possibly a six-seat craft at more affordable fares).

I suggested the name Virgin Galactic Airways and thought we could start taking deposits in the summer. I said: 'We have a team which I believe can manage this well.'

While running an actual airline in space didn't appeal to Paul, he loved the idea of developing a six-seater commercial space plane. Will Whitehorn and Alex Tai, a former Virgin Atlantic captain, flew to Seattle to meet Paul's advisers. Jon Peachey, Virgin's investment director and a Galactic board member, went with them. Peachey was the moneyman, with strict instructions to keep Will's and Alex's enthusiasm under control!

The first deal didn't work for Paul's company, but we resumed discussions a little while later and this time things progressed well. Both sides were conscious that the Ansari X Prize was looming, and we needed to complete the deal quickly if the new company was to get the benefit of the publicity. Eventually Virgin negotiated with Paul Allen to buy the rights to use his technology – just three weeks before the X Prize! It was a terrific deal for us because the Virgin Galactic branding would now be on
SpaceShipOne
during the ceremony in the Mojave in October. This would give us worldwide exposure – and it would deliver a message that we were now a serious player.

The last week of September 2004 is one I will always cherish. We launched our 125mph Pendolino tilting service in the UK. We gained plaudits from the President of Nigeria for the launch of Virgin Nigeria. And I was on the platform at the Royal Aeronautical Society in London with Burt to announce the launch of Virgin Galactic. We signed a historic $21.5 million deal for the use of the technology with Paul Allen's company, and announced that we had developed a $100 million investment plan to develop a prototype commercial six-seater spaceship at Burt's factory in Mojave.

Burt Rutan is an engineering genius, years ahead of his time. Do you remember
Voyager
, a plane that looked like a flying catamaran and flew around the world on a single tank of fuel in 1986? That was Burt's design. It was the largest all-composite aeroplane ever built, and the father of much of Scaled Composites' later work and of
SpaceShipTwo
. That plane was
woven
from glass, graphite and aramid, and bonded with epoxies and resins. Once heated in an autoclave, the compound became immensely strong and far lighter than pressed aluminium.

SpaceShipOne
was constructed from equally exotic materials. In fact, there was very little about its design, fabric, execution and flight behaviour that
wasn't
exotic. Take the engine: a revolutionary rocket-motor design that will be used in
SpaceShipTwo
, and one without which commercial space tourism simply wouldn't be possible for us.

It was Burt's unique take on an old idea, of course: a dual-propellant system with a liquid oxidiser and a solid fuel. The solid fuel lines the case of the rocket. The liquid oxidizer is injected at the head of the motor and then ignited. The surface of the solid fuel reacts, combusts and turns to gas. And because the propellants are separated they cannot mix in the event of a leak. Consequently, they cannot explode. Most serious systems failures on rockets over the years have been fatal. Not so here: Burt's spaceships are very failure-tolerant.

And they're cheap. Once all the engineering and design has been done, cranking them out on a production line is a relatively simple business. The solid fuel is rubber. Once the igniter motor starts the rubber burning, nitrous oxide is added under pressure, producing a flame. The gas expands through the nozzle and provides instant thrust.

The rocket motor will give us just enough push to tip the craft into suborbit. After this the motor shuts down, and the spaceship coasts into space for a few minutes. It reaches the top of its arc and then starts to fall back down again. Just like tossing your keys in the air, once they reach the top, they start to come down.

And another lovely thing about this engine. It's green. Well green compared to any other form of rocketry from the ground. Fly into space with Virgin Galactic and we'll be releasing less CO2 than the equivalent of a person flying from London to New York and back on an upper-class ticket. NASA's Space Shuttle has the same environmental output as the population of New York over the average weekend!

Mike Melvill, a long-time friend and associate of Burt, was the pilot as
SpaceShipOne
, tethered to its mother ship
White Knight
, took off from Mojave Airport's Civilian Aerospace Test Center on 29 September 2004. It was a shaky ride, which required brilliant skills from the pilot.
SS1
reached its apogee of 337,600 feet, or 103km. This was space.

On 4 October 2004,
SS1
, with test pilot Brian Binnie at the controls, was launched from its mother ship and soared into suborbit, reaching 367,442 feet above the Earth. For Binnie, it was a flight and a day to remember for the rest of his life. He had become an astronaut.

For Burt Rutan, it was the culmination of his life's work.
SS1
had won the Ansari X Prize.

At Virgin, we believed the success of this tiny spacecraft revealed commercial possibilities, and so we decided to license the technology of
SS1
and its mother ship,
White Knight
.

On 27 July 2005, at Oshkosh, Wisconsin, Burt and I announced the signing of an agreement to form a new business. It was agreed that the new company would own all the designs of
SS2
and the
White Knight Two
launch systems that were being developed at Scaled Composites. The new business, the Spaceship Company, would be jointly owned by Virgin and Scaled. Burt's company would undertake all the research, development, testing and certification of the two craft, with Burt heading up the technical development team.

I believe Virgin's work with Paul Allen and with Scaled Composites is a great example of capital and inventiveness working together. From day one, we have, every one of us, been singing from the same song sheet. Our symbiosis is nigh on perfect. Burt's genius is being challenged and stretched and will be well rewarded, even as our investment of capital produces a fantastic return. I think – setting aside the huge financial risks involved in doing anything new – the relative ease of doing business in this sector is due partly to the environment; the enthusiasm is tremendous. I also think it has to do with the fact that Virgin considers everyone involved, regardless of their capitalisation, as an entrepreneur. We're all, in our own way, moving into unknown territory, and so we're all sharing the same experience.