A truly classic South Park episode, aired a few years back, still offers valuable lessons for investors, not just in space, but really any industry.
In this episode, the boy’s teacher assigns a report on current events. Being totally unschooled in such, they instead decide to write about mysterious “underpants gnomes” that have been spied stealing underwear from their dressers.
The boys followed the gnomes to a huge cavern, which was filled to the top with purloined undergarments and gnomes busily processing them. When questioned about their activity, the gnomes produced a business plan:
Gnome 1: Collecting underpants is just phase one. Phase one: collect underpants.
Kyle: So what’s phase two?
Gnome 1: Hey, what’s phase two?!
Gnome 2: Phase one: we collect underpants.
Gnome 1: Ya, ya, ya. But what about phase two?
Gnome 2: Well, phase three is profit. Get it?
Stan: I don’t get it.
Gnome 2: (Goes over to a chart on the wall) You see, Phase one: collect underpants, phase two-
Gnome 2: Phase three: profit.
Cartman: Oh I get it.
Stan: No you don’t.
Kyle: Do you guys know anything about corporations?
Gnome 2: You bet we do.
Gnome 1: Us gnomes are geniuses at corporations.
Does this sound familiar to readers of this column? It could be argued that the gnomes’ underpants business is a lot like the way many alt.space firm’s business concepts are expressed:
Phase 1: Develop cool new launch system for passengers or freight in Year 20xx
Phase 2: [intentionally left blank]
Phase 3: Make oodles of money (in Year 20xx + 2) flying 50-100 flights a year in a fully mature industry with lots of market demand.
This is where I see the greatest disconnect in the alt.space community. They skip Phase 2 – which is actually the hardest part – developing and following a realistic roadmap from engineering prototype to 50 flights a year. That market demand cannot be demonstrated to exist at present – one has to create it. Large serious investors are going to want to know precisely how that is going to be accomplished – and within that 2-3 year time frame that always seems to be part and parcel of the business plan.
For a decade or more I’ve seen a lot folks who say they’ll be up and running in a couple of years – and they’re still out there, and it’s still only a couple more years down the road. One company, for example, made a big splash in 2004, coinciding with the Aldridge hearings, claiming they’d be flying by 2006. 2006 is almost half over, and I haven’t seen any more press releases of late. Not that I was expecting any.
Point is, when you’re doing due diligence on a company – and that could be any company, not just alt.space – make sure they’ve got all three phases nailed down. You don’t want to lose your shorts.