Disrupt Aerospace
A protected industry gearing up for acceleration
As ‘accelerators’ provide investors and entrepreneurs structure for growth in the startup ecosystem, corporations are beginning to consider them an appealing alternative for accessing ‘innovation capital’ as a way of staying ahead of the competition. But how should aviation/aerospace companies respond?
State of the Market
Today, it takes mere months for a startup to reach global scale. Logistics are easy to manage, billing happens instantly, and digital storefronts can be replicated and translated around the world. With nearly 3 billion people accessing the internet, we shouldn’t be shocked that the pace of disruption has picked up.
The dichotomy of startup innovation versus traditional corporate R&D continues today but is further compressed as enterprise and government customers impose pressure on their suppliers to share risk and co-create value by taking accountability of product/service performance.
Bridging the gap
Traditional attempts to resolve this dichotomy have seen failing and expensive models tried and tested by Corporate Venture Capital or mismatched acquisitions where small businesses fail to assimilate into big corporate culture. Few have implemented rigorous models that set the benchmark for a successful case, notably Google on the private side and In-Q-Tel on the public side.
As the cycle of entrepreneurialism and inflated acquisitions continues to spiral out of Silicon Valley, so too does the commodity of startup talent that is encouraged to participate, fail, and innovate ever more.
An Emerging Format
Under increasing pressure by investors in seed and venture capital for startups to achieve various business targets, a best practice emerges providing a standardized framework for growth. The architect and facilitators of these growth platforms are commonly referred to as seed accelerators.
Unsurprisingly, the past couple years has seen exponential growth of them and a stratification across verticals taking different shapes. One in particular is applying the franchise or ‘white-label’ incubation model, funded and sponsored by major corporations. A model that seems to be taking off as a low-cost alternative to a fully-blown Corporate VC.
Understanding the Aerospace and Aviation Sector
A recent study aimed at identifying the best places to work in government reveals how much innovation is lacking in most agencies and departments (with the exception of CIA, NSA, and NASA). This is no surprise considering creative problem-solving and thinking outside the box is certainly critical to protecting citizens, but sometimes, you’ve got to play it safe to be safe.
The general public is, for the most part, unaware of the scale of aviation infrastructure that supports the overall economy and their day to day lives. Nearly 3 billion people fly annually, just over a quarter of the worlds population. Air cargo transports goods worth in excess of $6.4 trillion on an annual basis, approximately 35% of world trade by value. In the US alone, the FAA budget to maintain the systems and pay for the workforce is about $15bn per year. A technical beast so complex the best attempt at simplifying it is captured here:
Some like to argue the technology that binds it all together hasn’t evolved since the 1950’s claiming events like the missing Malaysian MH370 aircraft as proof, while others argue new tools for monitoring engine fuel efficiency can be tracked live via satellite. Whether the industry is outdated or not, the pace in which innovation will accelerate is a sure thing.
Standardization and strict safety regulations require a comprehensive understanding involving many stakeholders ranging from government regulators, service providers, and industry, all of which have been shaping rules for decades, ultimately minimizing the potential for new entrants and market disruption. As a result, innovation from outside the industry is limited to consumer-facing tech such as drones, travel websites, and charter aviation services while legacy businesses from the inside lack the modern innovative approaches to think more aggressively.
Further, traditional defense and aerospace research is subsidized through federal funding grants via organizations like DARPA, which has an annual budget of about $3bn, or is passed through costs via contracts under respective branches of the military totaling roughly $4bn in annual expenditures. So there really is no incentive for industry leaders to disrupt the market as long as they keep getting paid.
The bottom line is there are many segments within the industry that depend on robust information and improved data management, so how long before adjacent market disruptors find a way to create a vehicle that allows new entrants to access this data and disrupt from within the boundaries of a strict and safe environment?
Accelerator for hire
The purpose of an accelerator is to offer entrepreneurs a small amount of funding in exchange for equity and access to intellectual capital with support through mentorship bounded within a short-term program.
Depending on the way you consider it, accelerators have either become a quicker and more affordable alternative to Corporate VC or a complement to them. As a result, reputable accelerators offer a white-label model for internal corporate application. Many consumer market brands like Microsoft, Wells Fargo, Sprint, and Nike have implemented their own accelerators, offering entrepreneurs seed investment and mentorship in exchange for access to growing innovation capital.
It’s worth adding that many formats are being tested that don’t necessarily require the exchange of equity or sharing of intellectual property, providing further incentive to entrepreneurs concerned with corporate interference. One possible alternative is a profit-sharing scheme, or even the Microsoft approach by creating an ecosystem that relies on using Microsoft infrastructure, ultimately, creating a convenient dependency while improving its reputation and strengthening its brand.
Aerospace Disrupt
If a Corporate VC fund can move faster, more flexibly, and more cheaply than traditional R&D to help a firm respond to changes in technologies and business models, then a corporate-backed accelerator should offer a similar impact for a lot less investment.
As the government customer demands more savings and innovation from traditional aerospace and aviation suppliers, there is an opportunity for an industry giant to be ahead of the curve and follow the white-label accelerator model; similarly pull from the talent pool of innovation hubs, offering the next generation mentorship and the opportunity to participate in something that ‘really matters’ in everyday life, travel, and even national security.
Action
If industry giants know what’s good for them, the next couple years should see the likes of accelerator incubators by Lockheed Cyber, Airbus Future Airspace, Virgin Transport, and many more as industry prepares to take-on the next generation of innovation talent and maintain a strong competitive advantage in a shifting economic and urban landscape.
