Entrepreneur of the Year
Above 100,000 feet, the air is so thin that wings become useless and aerodynamics stop mattering. Climbing higher takes sheer propulsion -- propulsion that air-breathing jet engines can't deliver in the deepening vacuum. Here is where the sky ends, the horizon curving away to reveal the star-freckled shadow of space. Call it nature's Maginot Line, separating the world of planes from the world of rockets.
Until a few months ago, that line seemed an impregnable barrier, with $200 coast-to-coast tickets for the masses underneath it and billion-dollar megalaunches for a few dozen professional astronauts above. But barriers are meant to be breached. In this case, history may pinpoint the breach to that moment on October 4 when an orca-shaped, stubby-winged aircraft planted its almost comically spindly legs on a runway in California's Mojave Desert. In so doing, the privately funded SpaceShipOne had carried humans to space and back again twice within a week, earning its owners the Ansari X-Prize, meant to spur the opening of the age of commercial space travel.
The man leading the team that took home that prize is, of course, Elbert Leander "Burt" Rutan, who drove the design and testing of SpaceShipOne at Scaled Composites, his 125-employee Mojave, Calif., company. Rutan has since garnered a variety of accolades for his feat, ranging from a presidential phone call to two appearances on Jay Leno. We'd humbly like to add one more: Inc.'s Entrepreneur of the Year (turn to page 68 for six honorable mentions).
Rutan has hit a big milestone, one that could ignite a revolution and even change the way we view the universe. But his achievement isn't really a matter of altitude or new types of space vehicles. It's about the business model. Rutan managed to send human beings out of the atmosphere without the benefit of an army of engineers and hundreds of millions of dollars in government funds. Instead, he did it the same way a fast-growth software or biotech company develops products -- with a small team, angel funding, freewheeling management, a willingness to take big risks, and a belief that serious profit lay on the far side. Not surprisingly, Rutan sounds a lot more like a venture capitalist than a salaried aerospace engineer. "The government is poison for the process," he says. "The flying that America has done in the last 20 years is by far the most expensive way to get to space and the most dangerous. This can't be done with NASA funding. It absolutely has to be privately funded."
Like most company builders, Rutan sees his achievement as mere prelude. He is already busy working to parlay the SpaceShipOne venture into a far bolder effort to create a space airliner, for which tickets have already gone on sale. He's even looking beyond, sketching designs for orbiting space hotels. Indeed, Rutan just may have opened the door for an entire space tourism industry, as other entrepreneurs and even NASA seem eager to capitalize on the X-Prize excitement to advance their own ambitious space-travel plans. That Rutan -- or anyone else -- will succeed in getting passengers into space is still far from a sure thing. But there's no denying that thanks to him, the earth's pull has never seemed weaker.
For a shrinker of planets, Rutan, 61, cuts a figure that is not only dashing but just a little bit goofy -- part Evel Knievel with even bigger sideburns and part Bill Gates with a slight drawl. Yet the extent to which he has already reframed our notion of space adventure was made clear on a warm October morning in St. Louis, when he picked up his $10 million X-Prize. Standing on a stage set up on a high school football field, Rutan and Paul Allen, the multibillionaire Microsoft co-founder who has sunk some $25 million into SpaceShipOne, struggled with the kitchen-table-size ceremonial check as some 600 local space fanatics cheered lustily. Just off to the side, and only briefly acknowledged, was Brian Binnie, the shy-looking fellow who actually piloted SpaceShipOne in its prize-winning flight. For the first time, manned space flight wasn't about the hero astronaut -- it was about an upstart company aimed at making space flight a consumer product.
Scaled Composites, of course, is no ordinary company. In the perennially profit-challenged aviation industry, it has managed to post 88 straight profitable quarters, according to Rutan. Working out of a dozen corrugated-metal buildings in a dismal windblown patch of desert in Mojave, 100 miles northeast of Los Angeles, it has rolled out 26 new types of manned aircraft in 30 years, many of them rule-breaking and innovative; most big aerospace contractors, by contrast, struggle to get a single new aircraft out in an entire decade. Even while pushing the envelope, the company has never suffered a fatal crash. It is the place where NASA and its top contractors often turn when they're stuck on a design issue.
"There's a good chance of getting my original investment paid back," says Allen. "That's pretty amazing."
SpaceShipOne promises to propel the company to even greater heights. Rutan ticks off new and potential revenue streams as if he were running through the world's coolest flight checklist. There's the $10 million X-Prize itself. Corporate sponsors, including M&M's candies and 7-Up, paid an estimated $2 million to get their logos on SpaceShipOne. Richard Branson, the mediagenic British founder and CEO of the formidable Virgin Group, which includes Virgin Airlines and Virgin Records, has agreed to pay up to $21.5 million over the next 15 years to provide spaceships and technology for a proposed space airline called Virgin Galactic. And Rutan says discussions are under way for similar deals with four other potential spaceline operators. "There's a good chance of getting my original investment paid back," says Allen, closing his eyes for a moment as if picturing a spaceshipful of weightless tourists. "That's pretty amazing."
For Rutan, it's the culmination of a lifelong dream. Even as a child growing up in the 1940s in Dinuba, Calif., the son of a dentist, he was something of an action nerd. He soloed in an airplane before getting his driver's license, but his real obsession was designing and building model planes. After picking up a degree in aeronautical engineering from California Polytechnic in 1965, he took a job as a test engineer at Edwards Air Force Base in the Mojave. "Young engineers at aerospace companies went through relatively lengthy periods designing some arcane bulkhead or door," he says. "I felt by testing the final product I'd understand it better, which would help me in my dream of being a configuration designer" -- that is, a designer of aircraft, not just components. He narrowly survived a test ride in the back of an out-of-control Phantom F-4 fighter while studying ways to stop the aircraft's treacherous handling from killing pilots in Vietnam.
After seven years at Edwards, Rutan founded his first company -- RAF, or Rutan Aircraft Factory -- to sell plans for small, mostly two-seater aircraft to hobbyist pilots. Unable to afford a wind tunnel to test his designs, he would strap parts of his plane to the roof of his station wagon and hurtle down the road at 80 mph to see how they held up. "He was always one of those guys who if you said to him, 'No, you can't do it that way,' it was like waving a red flag in front of a bull," says Vern Raburn, founder of jet manufacturer Eclipse Aviation in Albuquerque, who has known Rutan for a decade. Rutan eventually discovered a cheap way to hand-build exterior components out of "composite" materials -- essentially strips of glue-soaked fiberglass over cut foam -- that proved stronger and lighter than wood or aluminum and easier to craft into complex shapes. In 1982, he founded Scaled Composites to design, build, and test experimental prototypes for big customers such as aerospace companies, the Air Force, and NASA.
As a manager, Rutan has proven intuitively adept at inspiring loyalty and extraordinary work. He doesn't worry so much about the formal background of the engineers he hires. He looks for people who share his passion for aircraft design and gives those who have it free rein. Instead of the specialists sought by aerospace companies, he encourages his staffers to remain generalists who can design anything from a fuselage to a door handle and then go into the shop and build it. Chief engineer Matthew Gionta recalls starting off at the company right out of graduate school in 1994 and being handed the project-leader slot on an ultra-high-tech unmanned aircraft. "What I had to learn on the job made my formal education pale in comparison, but I had to learn it because no one else was going to do it for me," Gionta says. "The stress took years off my life, but when you get that kind of responsibility, it's hard not to feel ownership."
Rutan is loath to codify his approach to managing. "I don't like rules," he says. "Things are so easy to change if you don't write them down." But one way or another, he has communicated a few simple principles to employees. One is that when it comes to safety issues -- and in aircraft design, almost everything is a safety issue -- everyone should be quick to raise questions. Rutan makes sure that when people at Scaled point out their own mistakes, they're applauded rather than reprimanded. And instead of extensively analyzing a design before building it, a notion that's axiomatic in the aerospace industry, Rutan pushes his people to get a first version built quickly, test it, and fix it. Says Gionta: "Testing leads to failure, and failure leads to understanding."
Rutan himself has remained on the company's frontlines. He long ago trained his board of directors not to waste time asking administrative or financial questions he can't answer. An eight-person management committee, of which he is a member, runs the company. But Rutan also keeps busy by picking out the one or two projects that interest him and joining those teams as a designer. Scaled test operations chief Doug Shane, like many others at the company, says that having Rutan work alongside him has served to reinforce his own excitement about the job. "Most aerospace businesses are run by people who are only interested in making money," he says. "Burt built an environment of passion for the product, and that's the only motivation."
Indeed, no one joins Scaled Composites for the pay or benefits. The company doesn't even offer a retirement plan. And then there's the location, in a remote corner of a wind-scoured desert. A new male employee who's married will inevitably be asked, only half jokingly, how long his wife cried without stopping when she arrived in Mojave -- the generally accepted company record is a month. "What keeps us in this crummy desert is doing things that are fun," says Rutan. "I built a house without windows because you don't need to look outdoors here." The only significant source of turnover at the company is employees becoming romantically involved with people who refuse to move there.
Scaled grew to 50 employees by the late 1980s and more than 100 by the mid-1990s -- a close-knit, highly competent company that was financially successful and sought after by high-profile customers. Rutan also had caught the fancy of the general public. In 1986, his brother Dick co-piloted an aircraft called Voyager on the first nonstop flight around the world. Thereafter, Burt Rutan belonged to a rare and oxymoronic breed: the celebrity engineer.
But by the mid-1990s, he was restless. Gionta recalls working with him on designs for a new high-altitude aircraft called Proteus. Rutan showed Gionta several sketches, and one in particular caught Gionta's eye: It showed the large aircraft with a smaller, rocket-powered craft latched to its belly. Says Gionta: "I just kind of thought, 'Hmmmm..."
Gionta had little idea at the time that Rutan was thinking about the ultimate in high-altitude aviation: manned space flight. Specifically, Rutan was spending more and more time pondering the question of how to get human beings into space in a less costly and less complex manner than that employed by NASA. He had been sharing some of his ideas with potential investors, with no takers. Then, in 1996, Rutan's friend Vern Raburn, who at the time worked for Paul Allen, convinced his boss to fly out to Mojave. A longtime aviation and space fanatic, Allen was fascinated by Rutan's ideas. "I hadn't really done anything in aerospace before," Allen says. "Burt spent a half-hour talking about different concepts in design, and it was clear he had approaches that seemed workable and that nobody else could have thought of."
Several months after that meeting, Peter Diamandis, a space-travel fanatic in St. Louis, announced a new competition, the X-Prize (later named the Ansari X-Prize), for the first manned, non-government-funded flight to reach an altitude of 100 kilometers, or 62 miles, and then repeat the feat with the same vehicle within two weeks. The winner would receive $10 million. It was inspired by the $25,000 prize offered by French businessman Raymond Orteig in 1919 for the first nonstop flight between New York and Paris, the inspiration for Lindbergh's flight. Says Diamandis: "A good prize creates a hero." The competition did its job, eventually attracting 24 teams from seven different countries.
Like everyone in the aviation business, Rutan noted the prize, and soon dropped in on Allen in Seattle for another chat. Afterward, Allen shot an e-mail to David Moore, who evaluated venture deals on his behalf. "We should do something with Burt," read the note, Moore recalls. Rutan and Allen were frankly skeptical that the X-Prize would materialize. And Allen, for his part, was skeptical that they'd actually get someone into space. "We knew it was going to be difficult to achieve," he says. Nonetheless, he agreed to invest $25 million in the project. Allen created a new company, Mojave Aerospace Ventures, which would own the spaceship technology developed by Rutan, structuring the deal under the assumption that there would be no payoff. (Neither Rutan nor Allen would discuss the specific financial terms of the arrangement.)
Scaled's management committee was stunned when Rutan announced the contract with Allen. "It was overwhelming, hard to believe," says Gionta. "It didn't seem credible. We had done low-speed subsonic flight for 17 years. What did we know about going to space? I thought for maybe the first time Burt had gotten in over his head." Nevertheless, excitement ran so high over the prospect of a space project that Rutan felt obligated to promise that every single employee in the company would have a chance to contribute.
Uncharacteristically, Rutan had some doubts himself. "It was extremely risky technology," he says. "We were a company that had never built a supersonic aircraft, and here we had to go straight up into space at Mach 3" -- three times the speed of sound. There would be any number of other firsts to tackle: Scaled Composites had never launched one aircraft from another, never built the sort of flight simulator that would be necessary for training and testing, never designed a thruster system needed to turn a spacecraft in space, and never put together from scratch an electronic navigation system. Most daunting of all, Rutan and Scaled had never built a rocket motor -- the source of fully half of all space-launch failures -- and had never had to deal with the nightmarish heat and extreme forces generated from reentering the atmosphere at high speeds. Each of those challenges had been the cause of a Space Shuttle disaster.
But the breakthroughs came quickly. Rutan thought up a simplified design for a rocket motor and contracted its manufacturing out to SpaceDev, a company in Poway, Calif., that had developed rocket motors that burn a relatively easy-to-control mixture of liquid laughing gas and rubber, producing a full ton of thrust. And in a middle-of-the-night inspiration, Rutan came up with a way to avoid a hot, ultra-high-speed, difficult-to-control reentry: Add rotating wings that would tilt back during reentry, effectively configuring the entire aircraft as one big air brake. It was a typically out-of-the-box innovation that stunned many of his engineers. "People, especially the pilots, came to me later and said, 'Burt, we thought you were really smoking something there for a while," Rutan recalls.
Not that it was all smooth sailing. In one early test, SpaceShipOne lurched out of control and was barely rescued by its pilot from crashing; it turned out the tail was too small to provide adequate stability. To fix the problem Rutan used one of his tricks from the old days of RAF: He lashed the tail to a truck and drove it up and down the runway to study the airflow around it. Meanwhile, the aircraft's rocket motor incinerated itself in its first test, and then kept falling just short of the needed power. The Federal Aviation Administration even weighed the possibility of forbidding the launch. Back in Allen's office, Moore was concerned. He had researched the 1919 Orteig Prize and learned that famed polar explorer Adm. Richard Byrd had also entered the transatlantic race, spending an astonishing $100,000, only to ditch his plane in the ocean. "I sent an e-mail note to Paul saying, 'We could be funding Byrd. Is someone going to come in from their garage and do this for half or a third the price, like Lindbergh did?"
But others were willing to put their doubts aside. Among them was Richard Branson, who in early 2002 dispatched Will Whitehorn to Mojave to meet with Rutan on unrelated business. Branson was helping fund a Rutan aircraft called the GlobalFlyer, which was intended to beat the Voyager's round-the-world time. Whitehorn, a Virgin senior executive, was getting a tour of Scaled's facilities when he glimpsed a bus-size, bulbous, and altogether strange-looking aircraft. "I asked Burt what it was, and he said, 'It's a spaceship," Whitehorn recalls. Flabbergasted, Whitehorn told Rutan that Branson had long been looking to fund a venture that could produce a rocket capable of carrying a handful of people at a time into space. Branson had even registered the company name, Virgin Galactic, back in 1995. Rutan said he wasn't at liberty to talk -- both he and Allen were obsessively secretive about the project -- but promised to tell Whitehorn more when he could.
In April 2003, Rutan went public with his plans and started flight-testing the White Knight, the big, spindly aircraft that would carry SpaceShipOne under its belly to 46,000 feet and loose it. Six months later, SpaceShipOne broke the sound barrier in its first manned flight, something no private aircraft had ever done. In May 2004, the vehicle reached an altitude of 212,000 feet, nearly two-thirds of the way to space. A month after that, SpaceShipOne officially became a spacecraft, just cracking the 62-mile mark, and making its pilot, Scaled general manager Mike Melvill, the world's first civilian astronaut. Finally, on September 29 and October 4, SpaceShipOne reached space twice more, and Mojave Aerospace Ventures captured the X-Prize. Rutan wasn't just running a private manned space program. He was running a private manned space program that was taking in money.
The notoriously secretive Paul Allen had revealed himself as SpaceShipOne's backer after the December 2003 test flight. A team of Virgin executives scrambled to Seattle to meet with him and open negotiations over a spaceliner successor to the spacecraft. They eventually struck a deal that has Virgin paying up to $21.5 million over 15 years for vehicles and technology to Mojave Aerospace. And that's just the beginning. "We're prepared to invest another $100 million to develop this business," says Whitehorn, a director of Virgin Galactic. The first five-passenger flights are planned for 2008, and Virgin Galactic has set ticket prices at $210,000. It's a hefty fee, but Whitehorn says more than 7,000 would-be astronauts have added their names to a waiting list on Virgin Galactic's website. "I just appointed our head of astronaut relations to arrange for them to make deposits," says Whitehorn.
Is there really a market for the sort of spaceline that Virgin is conjuring? Space-travel boosters love to quote surveys showing that the great majority of Americans say they'd want a ticket to space. But the numbers drop pretty fast when certain niceties are specified -- such as $100,000-and-up price tags, the likelihood of severe motion sickness, dizziness, and acceleration-induced unconsciousness, as well as an unknown but certainly less than trivial chance of being incinerated in a rocket explosion or errant atmospheric reentry.
SpaceShipOne itself suffered several such problems in its three space flights, including the loss of its navigation system, a sudden lurch that carried the ship some 30 miles off course, the buckling of the aircraft's skin from the rocket motor's heat, and an uncontrolled wobble that spun the craft around at high speed some 20 times before pilot Melvill -- he flew the first prize-winning flight, Binnie the second -- stilled it, possibly just in time to prevent a fatal tumble. Even when it's functioning properly, SpaceShipOne is racked by violent vibrations during the long minute or so when the rocket is firing. And reentry is worse. It seems like a lot to put up with to achieve a few minutes of weightlessness and a glimpse of space.
Mojave Aerospace quotes a study commissioned by Virgin indicating that there are 15,000 people in the United States alone who would shell out more than $100,000 for a ticket to space. Other studies have been less optimistic. Futron, a market research firm in Bethesda, Md., did a survey in 2002 that suggested only about 820 people worldwide would be willing to pay $100,000, once they understood the likely discomforts. The numbers dwindle as the price approaches $200,000. Longer term, assuming safety and comfort improves and ticket prices drop, Futron sees as many as 15,700 people flying to space annually, representing up to $786 million a year in revenue. MIT aerospace professor John Hansman, who enlisted a group of students to study the space-tourism business using a ship much like Rutan's, is skeptical of even Futron's scaled-back projections. "We looked at the business case and decided it wasn't sustainable," Hansman says. "This is a glorified amusement-park ride. There's a market for the first few people to get their astronaut wings. But I'm not sure how much someone would pay to be the 1,123rd person to get to 100 kilometers."
It's a fascinating conversation, albeit a bit premature. After all, you can't build a space-travel business without a spaceship capable of carrying several passengers profitably and in reasonable safety. "The spacecraft Branson wants doesn't exist yet," says Futron director Phil McAllister. "SpaceShipOne is an experimental craft, and while its flying is very significant and promising, there are still real hurdles before passengers are flying." Richard Branson and Paul Allen are among the many who have been willing to bet on Rutan's ability to overcome serious technical difficulties. But aviation insiders are quick to point out something about Rutan that is often overlooked in the excitement over his novel prototype vehicles: Rutan has yet to turn one of his experimental vehicles into a successful commercial aircraft.
Rutan admits as much but insists this time will be different. "Absolutely, we have to get it certified, produce more than one, and support commercial operations, and I have not done that," he concedes. But he's loath to license the technology to someone who has. "It's way too risky to turn this technology over to another group and let them manufacture and operate it," he says. "I've watched so many of these companies do it wrong with aircraft. They just flat waste money and don't get the job done. It's important that we stay with it until there's a robust, profitable industry flying thousands of people into space." Rutan is determined to build a spaceship roomy enough to allow five people to float around enjoying the sensation of weightlessness and spectacular panoramic views of the earth and outer space. He also wants to be the man who designs a vehicle capable of not just brushing the edge of space, but actually going into orbit. Even Gionta is surprised at Rutan's determination to stay with the commercial program. "I really thought he'd start this program, do the conceptual work, and move on. But he's like a kid in a candy store. He's having more fun than he ever has."
He'd better be, because the new space race already is under way and competition is shaping up as fierce. Rutan's chief rival may ultimately be Elon Musk. A former Internet mogul who in 2002 sold his online payment company, PayPal, to eBay for $1.5 billion in stock, Musk now runs SpaceX in El Segundo, Calif., which is developing an orbital space vehicle. Musk notes that making it into orbit requires going eight times faster and producing 65 times more rocket energy than a suborbital vehicle like SpaceShipOne. Musk has already put more than $50 million into SpaceX and says he is prepared to invest $50 million more. He expects it to take at least five years to get passengers into orbit. In the meantime, SpaceX is generating revenue by booking orders to launch satellites; its first such launch is scheduled for January. "Our earned revenue will be $35 million after a little more than two years of operation," Musk says. "By comparison, the X-Prize was a one-off of $10 million, and it took Burt something like five years to do it."
Meanwhile, SpaceDev, the rocket motor supplier for SpaceShipOne, is also working on a manned orbital vehicle, funding itself not only through rocket motor sales but through contracts with NASA -- which might eventually be willing to pay big bucks to a private company to get government astronauts into orbit. Another source of competition is Zero Gravity Corp., a Fort Lauderdale outfit that takes passengers on a 90-minute flight in a Boeing 727 that flies in vertical arcs, creating the same weightless experience as a Virgin Galactic flight would -- except for much longer and at a fraction of the price. Zero Gravity's founder? None other than X-Prize dreamer Peter Diamandis.
But even as it faces competition in the future, Scaled Composites will not turn its back on the past, Rutan insists. While he devotes his time to the space venture, his engineers are continuing their work on radical new airplanes. The high-altitude Proteus, for example, is being developed under a contract with NASA, which plans to use it to study the environment. There's also a supersonic jet with a hushed sonic boom for flying over populated areas.
Indeed, Rutan doesn't seem the type to forget his roots. At the end of the X-Prize award ceremony in St. Louis, when the giant check had been put aside and the celebrants huddled on the stage to pose for photographers, he suddenly looked up and started searching the skies. While the photographers waited, Rutan kept swiveling and gawking, shielding his eyes against the sun. Then everyone else saw what he was looking at -- a two-foot-long model of SpaceShipOne, banking and swooping through as pretty a sky as can be seen here on earth. Rutan had just received a $10 million check for building the real thing and sending it to space. But he couldn't take his eyes off the tiny model soaring overhead. i
David H. Freedman, a former Inc. senior editor, is a freelance writer based in Boston. He has been a licensed pilot for five years.
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