Decision Vision Episode 73: Should I Sell to the Government? – An Interview with Sean Mahoney, Maston Space Systems
If I decide to sell to the government, what are the challenges my business will face? Sean Mahoney of Maston Space Systems offers an experienced perspective on this question in this interview with host Mike Blake. “Decision Vision” is presented by Brady Ware & Company.
Masten Space Systems
Masten Space Systems is a private company founded in 2004 by CTO David Masten and has its headquarters in Mojave, CA.
Masten’s focus on reusable rocket technology is driven by the goal of enabling space transportation and reliable planetary landers for the Earth, Moon, Mars, and beyond. They are a passionate company of inventors, creators and builders with goals that include landing our own vehicle on the moon.
Masten competed in the NASA and Northrop Grumman Lunar Lander Challenge X Prize in 2009 with Xombie (model XA-0.1B). Xombie came away from the lunar lander challenge with an average landing accuracy of 6.3 inches qualifying it for Level One second prize of $150,000 on October 7th, 2009. The Xoie VTVL won the $1,000,000 Level Two prize of the Lunar Lander Challenge on October 30th, 2009 with an average landing accuracy of about 7.5 inches. Masten’s future vehicles have improved this performance and landing accuracy to provide EDL and testbed flight services to customers through NASA’s Flight Opportunities program.
Sean Mahoney, CEO
Sean Mahoney is the CEO of Masten Space Systems, an aerospace R&D and flight services company that creates and deploys reliable, reusable rocket vehicles and components. Since joining Masten in 2010 as Director of Business Operations, Sean has focused on building a sustainable, customer-funded business. He has been instrumental in establishing Masten as one of the rising stars in the New Space movement. He served as COO during 2011-2012 and was named CEO in 2013.
Sean has over 15 years of corporate and technology industry experience, having founded and led a number of technology start-up ventures, and raised multiple rounds of private funding. Sean began his career overseeing technical sales and building internal organizations as a manager at AT&T’s Enterprise hosting division.
Sean received his MBA from Emory University’s Goizueta Business School and serves in a leadership capacity for a number of entrepreneurship and environmental non-profit organizations.
Michael Blake, Brady Ware & Company
Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.
Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.
Brady Ware & Company
Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.
Decision Vision Podcast Series
“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast.
Past episodes of “Decision Vision” can be found at decisionvisionpodcast.com. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.
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Show Transcript
Intro: [00:00:02] Welcome to Decision Vision, a podcast series focusing on critical business decisions. Brought to you by Brady Ware & Company. Brady Ware is a regional full-service accounting and advisory firm that helps businesses and entrepreneurs make visions a reality.
Mike Blake: [00:00:23] Welcome to Decision Vision, a podcast giving you, the listener, a clear vision to make great decisions. In each episode, we will discuss the process of decision making on a different topic from the business owner’s or executive’s perspective. We aren’t necessarily telling you what to do, but we can put you in a position to make an informed decision on your own and understand when you might need help along the way.
Mike Blake: [00:00:42] My name is Mike Blake and I’m your host for today’s program. I’m a director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia. Brady Ware is sponsoring this podcast, which is being recorded in Atlanta for social distancing protocols. If you like this podcast, please subscribe on your favorite podcast aggregator. And please consider leaving a review of the podcast as well.
Mike Blake: [00:01:08] So, today’s topic is, should I sell to the government? And, you know, this is a topic I’ve wanted to do for a while. And I think it’s even more important now given the state of our economy. And again, the slow-moving horror movie continues that we hope we’re kind of reaching at least the final act of this thing. And, you know, I think that most companies, most business owners have thought about, you know, can I sell to the government? Should I sell to the government? And it’s certainly worth thinking about because I read somewhere that, in fact, the government does buy about 20 billion dollars of stuff every day. And that $20 billion of stuff includes things from pencils to laptops, to cars to airplanes. And as it also happens, spacecraft. More on that in a minute.
Mike Blake: [00:02:10] But I think many owners then don’t pursue the notion or the idea of selling to the government because they have some concept, or some preconceived notion, or some misapprehension of what it’s like to sell to the government and do business with the government. And maybe some of those things are true. Maybe some of those things are not. So, I think we’re going to do, maybe, today is do a little bit of myth busting. Because if you could afford to not try to sell to the government before, I think most companies now are in a position where you can’t afford to walk away from clients, even if they force you, maybe, to leave your comfort zone a bit in order to conclude a sale.
Mike Blake: [00:02:57] And to help us with that, I am bringing on a guest that I wanted to bring on for a while. He’s been harder to catch without a Taser and a butterfly net because he’s been busy building his company. But he’s a guy that I’m so excited to bring on. And I’m excited to really talk to him any opportunity I get because I’ve known him for a long time. I’ve known him since he’s been with his company. And, you know, I can tell you that right now – knock on wood. I don’t want to jinx him – but his company is enjoying some success. Believe me that the road to that success has been paid with broken glass. And he has crawled it both ways up and down the hill, however you want to express it.
Mike Blake: [00:03:45] And throughout that, I know that it’s been mentally, emotionally, physically challenging as an entrepreneur to do what he has done. And quite candidly, I think lesser men would have been broke and they would have given up. And he deserves all the credit. And he’s just – you know, through all that, he’s been authentic, he’s been nice, he’s been humble, and continues to be that way. And he’s just one of the most awesome dudes you’re ever gonna deal with. And just such an easy guy to root for. And when you listen to this, you’re going to hear that in his voice. So, you know, plan to take notes. If you’re listening to this while you’re driving, jogging, whatever, don’t take notes while you’re doing that. But plan to listen to this later. Or plan to go download the transcript, which is going to be on our website, bradyware.com. But this is going to be a good one.
Mike Blake: [00:04:46] And so, it is my absolute pleasure to introduce my friend, Sean Mahoney, who is the CEO of Masten Space Systems. It’s an aerospace research and development and flight service company that creates and deploys reliable, reusable rocket vehicles and components. Since joining Masten in 2010 as director of business operations, Sean is focused on building a sustainable, customer funded business. He has been instrumental in establishing Masten as one of the rising stars in the new space movement. He served as chief operating officer during 2011 and 2012. And was named chief executive officer in 2013. Sean has over 15 years of corporate and technology industry experience, having founded and led a number of technology startup ventures and raised multiple rounds of private funding.
Mike Blake: [00:05:33] Sean began his career overseeing technical sales and building internal organizations as a manager at AT&T’s Enterprise Hosting Division. Sean received his MBA from Emory University’s Goizueta Business School. And serves in a leadership capacity for a number of entrepreneurship and environmental non-profit organizations. Sean, thank you so much for coming on the program.
Sean Mahoney: [00:05:54] Mike, a real pleasure. Thanks to you for all of your support over the years. And thanks to folks there at Brady Ware for sponsoring this podcast and giving us a platform to talk about all this cool stuff, a little bit of space, a little bit of government, and a lot of sales. So, this is really cool. And I really appreciate the introduction. I hope to live up to the hype.
Mike Blake: [00:06:18] I think you will. This is not going to be a Batman movie for sure. But, you know, I would like – I don’t do it justice. And, in fact, I probably only know 30 percent of what you’ve gone through. But can you take a couple of minutes and sort of tell the Masten story? And I’ve hinted at your success. But, A, I want to do it justice. And B, I want to give you the opportunity to kind of express it. What is the Masten story and where are you guys now?
Sean Mahoney: [00:06:51] Yes. I will endeavor to give you a version of that that’s shorter than the 16-year history of the company. Let me just do one thing. I will tell you all about Masten, but I want to make sure just in case someone only listens this far. The one key takeaway for this whole government sales thing is, unlike perhaps other things where you just need to have someone who wants to buy a thing and they have the money to pay you, government sales requires having a third thing, which is the contract vehicle. There need to be a way to pay you that thing they want to buy. And if nothing else, maybe folks can take that away. But now, we’ll come back and explain what all that means. I just want to get that plugged in upfront.
Sean Mahoney: [00:07:46] So, I first encountered Masten hanging out down around Georgia Tech, the Technology Square. And honestly, it was a true networking breakfast that I attended on a fairly regular basis hosted by Stephen Fleming, who used to run ATDC and a bunch of stuff there in Tech Square. And the conversations in this open breakfast were really just about anything. It was about different startups and what they were doing. And there was usually some football talk and usually some Georgia Tech rivalry stuff, some politics.
Sean Mahoney: [00:08:28] And then every Monday morning, this conversation would eventually turn to the topic of discussing space. And there would be a 15-minute conversation about space policy. Because there were some space, not only enthusiasts, but people who were active in the space world. Stephen Fleming, Mike Mealing, Colin Ake, and others that we’re interested in working in space. And I used to believe it was the funniest thing. I would tell people the weirdest part of my week is the 15 minutes every Monday morning where I get to have a real conversation about space policy. And it’s not a joke. Like, it’s a real conversation. At that time, I had no idea that I would wind up working in the space industry for Masten or even running it. But for years I would tell that stories. Like, “Oh, my God. You should come to this breakfast. It’s the coolest thing.” And we have this odd conversation.
Sean Mahoney: [00:09:25] So, at that time, Masten was competing for an XPRIZE. It was the Northrop Grumman NASA Centennial Challenge Lunar Lander Challenge sponsored by XPRIZE. I think I got all of them in there. And this was phenomenal, I sat in another one of those cafe down there near Tech Square and watched on a friend’s laptop as the company competed for this big XPRIZE. And what the company was doing with the prize was, was demonstrating the ability to take off and land like you would do from a lunar orbit to the surface, refuel, then do it again.
Sean Mahoney: [00:10:07] That team with Masten Space Systems at the time was a dark horse. No one expected for them to win. There was an anointed big-name company that was going to win. And Masten Space Systems won that contest. And there’s phenomenal stories about the vehicle burning up on the pad the day before it flew and won first place. All this stuff, it’s phenomenal.
Sean Mahoney: [00:10:36] And my story with the company starts to come in after that win. Six months after they won a million dollars, the folks that I knew were like, “Hey, we need to raise the money because a million dollars doesn’t get you that far.” Which is true in space. But it’s also true – for any aspiring entrepreneurs, you think a million dollars, if you think about it in your bank account, it sounds like a lot of money. If you think about it in the operating account for paying for salaries and everything else, it’s really not that much money.
Mike Blake: [00:11:15] Payroll really changes that equation.
Sean Mahoney: [00:11:17] It turns out it does. And so, that was how I kind of started getting involved to help bring some of the – it was the decision science background and kind of structuring some of the payload opportunities and the sales opportunities and helping structure things. And that was how I first got involved with the company. And the challenge at that point was we had won an XPRIZE. The other company that had won an XPRIZE before us had turned into this company called Virgin Galactic. So, SpaceShipOne and the $10 million Ansari XPRIZE had turned into Virgin Galactic. Masten wins a $1 million XPRIZE, we’re trying to figure out what do we turn it into. And so, I honestly came in to figure that out – to help figure that out. And it was one of those things that we really didn’t know what it was going to be. And to state it bluntly, we didn’t have a big runway. We didn’t have a billionaire.
Sean Mahoney: [00:12:30] My first day on payroll, there were 42 days of cash in the bank. And some of my advisers that I still respect to this day had said, “This is a terrible idea, Sean. You’ve gone through enough of these different startups.” And they’re just, you know,” You got to find something that’s going to stick. This one is the craziest one yet.” And when I present this period of time of different crazy business ideas, it absolutely is the craziest. Hands down. But Masten had three things that I was personally looking for. I was looking for an emerging market that was transitioning from the domain of deep experts to a broader audience. Kind of, like, think internet business, internet video, green tech. They were moving from deep expertise to a broader application.
Sean Mahoney: [00:13:34] I was looking for working technology because I know how hard it is. It seems so easy to take that idea and get a prototype. But getting the prototype is really important. So, I went looking for companies that were working technology and has got a good team. Like, a good place to work. A good team to work with. And Masten fit that bill and has throughout these ten – even when there were some challenges, it has fit that screen. And so, I keep working at it.
Sean Mahoney: [00:14:10] So, what the heck do we do? So, we have this vehicle that can land, a rocket powered lander. Yes, there are other big rockets that lands now. But back then, it had been done by large government programs in this competition, of which there were only two that actually made it all the way to the final competition.
Sean Mahoney: [00:14:34] And so, “Okay, Well, how do we take this and turn this into a business?” And the big idea – and I’m going to fit in this kind of government sales thing – is that the large vision of space was that this is going to move from being government to being commercial. And people are going to buy their ticket and they’re going to go to space. Or they’re going to buy cargo and things are going to go and everyone is going to be using space. And we’re going to open use of space to everyone because it’s going to be commercial. And that is a great vision of the future. It was not the reality of the customer in 2010. It is not the reality of the customer in 2020.
Sean Mahoney: [00:15:24] And so, understanding the difference between “I’m going to solve this problem for this industry by getting away from government” might be the right answer. But be careful about confusing this ideal future state with the states you have to be to get from here to there. So, what we focused then on is the thing that we had that worked. I had a rocket powered lander. Who needs a rocket powered lander? It’s a very small market. But the thing that we found that resonated was, we had a rocket powered lander that you could come fly on. And I can offer rocket flights as a service instead of selling vehicles or selling programs that can cost, you know, 30 million or 50 million. And for less than a million dollars, we can test your thing out.
Sean Mahoney: [00:16:33] And so, we’ve figured out that there was a market for doing these terrestrial test flights. And it wasn’t because of a business case analysis. And it wasn’t because I spent a bunch of time studying market reports. The reason we are successful today is because there were people working for NASA, government employees, that saw the value we could provide. And the need that they saw existing within the agency. And they brought them together. And so, first up, the idea that it’s industry versus NASA for space or any of these things, that it’s industry versus the government, is far too great a simplification. And probably, absolutely incorrect.
Sean Mahoney: [00:17:38] So, what we did then is we took a service, a rocket powered landing test bed, which – and I’ve described it from a business perspective, I’ll say, “It does precisely what nobody needs.” Like, “Wait. What?” It does not. Our service to this day does not meet the desires of the testing community. It doesn’t meet their high-level objectives. What it does is exist. So, because I have a thing that I can do, the people are willing to use it and build up until some point we will have that higher capability. And it’s weird because if you ask – if you did a market survey, and said, “Okay. Well, what does the industry wants?” You would say, “Okay. Well, it wants all these things and we can’t do that, so therefore we need to invest. We need to build the next thing, yadda, yadda, yadda.” But that’s not a business plan that would close.
Sean Mahoney: [00:19:04] So, using the thing we have, working with the customers to meet needs they have right now is kind of the thing that we did for years. Now, along with that, we were trying to take – and we were taking the technology and spreading it out into other applications. So, we are working on technology development. Working with government agencies to develop some technologies. And then taking what we had for that low-level vehicle and applying it to other markets. And there were two that we had identified.
Sean Mahoney: [00:19:42] And Dave Masten, the founder and now CTO, had from the get go the idea of reusable launch vehicle. He, along with a couple other people that you’re probably familiar with, had the same idea. And were similarly mocked for that idea. So, what you can do with the reusable rocket is I can reduce my costs of operation if I reuse the vehicle. And then to a certain degree, the payload doesn’t care, right? If I’m buying delivery to orbit, I just need to get to orbit. I don’t care how you get me there. I just want to get there.
Sean Mahoney: [00:20:34] So, one angle to the business was launch and using reusability and launch. The other one is, where is a rocket powered lander uniquely suited to meet a need? And there are places where planes and helicopters can’t go. Places where you don’t have runways. Places where you don’t have air. Places where the air is too thin. Places that are too dangerous. So, you have a whole series of things there. But the moon is one of those places. You’re not going to land with a parachute. You’re not going to land with – you have pretty much two options to land on the moon. You either crash into it or you do some sort of propulsive landing. So, we knew those were the things. But much like the adage of, you know, can you stay liquid longer than the market can stay irrational?
Mike Blake: [00:21:38] John Keynes.
Sean Mahoney: [00:21:42] So, we had big correct ideas but the timing wasn’t right. So, part of the through broken glass has been stringing together customers creating value as some of these large trends turnover in time. And so, it’s – and I don’t know if this version of the story speaks to the decision makers that are potentially listening in. But it’s hard to know what’s the difference between grit and perseverance versus being stubborn. They are largely indistinguishable except through the lens of history. And maybe there’s – I don’t know – maybe you’ve got another guest who can speak to discerning those ones. But we have been able to persist focused largely on revenue. And I can talk about the trend to raise money in the space world and all of that stuff. But this is more about the customer side of things.
Sean Mahoney: [00:23:01] And in order to support ourselves off of revenue, realized revenue, actually getting a thing done, giving someone the value that they’re paying for, that customer or the pair for us has largely been government. And even those deals and projects and things that we have worked that are not a government entity that are commercial customer, a lot of their business is for the government. And so, either directly or indirectly, I came finally to realize, “I should stop thinking about the market in terms of what could be. And focus on what is.” And so, we’ve been able to be successful building and flying rockets. We’ve had a big DARPA program a couple of years ago. Three companies were selected to design a reusable booster, Masten Space Systems and then two other companies no one has heard of, Boeing and Northrop Grumman.
Mike Blake: [00:24:12] Oh, yeah. Those has-beens.
Sean Mahoney: [00:24:15] Yes. Yeah. And you’ll also note there’s a bunch of other companies that did not win that way. So, we had that contract that was phenomenal. I learned a lot. We grew a lot. But the market for that had turned a little crazy. And I had to make the – this was a decision point. I decided to put our launch – applying our technology to a launch solution and put it on ice. Because everyone of our brother had started a launch company. And I can’t. I was burdened with the reality of understanding how hard some of this stuff is. And I could not lie and just say, “Oh, yeah. We can do this. This will be easy.” I know it’s not going to be easy. And so, some people had the benefit of idealism and enthusiasm. Or maybe they were ten times smarter than us. But I know enough to know some of the bold proclamations of what you’re gonna do aren’t going to pan out.
Sean Mahoney: [00:25:27] So, fortunately, by the time that happened, the other piece of what we’re expecting to come around was growing. And we had been quietly working for that last decade on the lunar lander side of things. But what I didn’t do was bother talking about it. Why? Well, there was a Google Lunar XPRIZE competition going on that we had supported companies, but we were not directly competing in. And I felt that the market wasn’t real yet. I did not see the ability to actually get dollars committed and flowing. That was anticipated to change. It did change.
Sean Mahoney: [00:26:14] And now, as of today, not only do we have government buying delivery of payloads to the moon, similar to they buy payload delivery to the National Space Station. Masten has not only the broad general contract, but a specific task order. And so, we’ve been selected to deliver a series of instruments for NASA. And now, it’s time to put all of this decade in my case, a-decade-and-a-half in Dave’s case, to work delivering payloads to the moon for the government, for NASA, for other government agencies, and for commercial markets as well. So, I get to serve all of them.
Mike Blake: [00:27:03] I want to interject a little bit because hat one decision point you talked about where you had to decide if you’re going to be on a launch business or the landing business, I think was really important. And tell me if I’m wrong, but I suspect there are kind of two big factors at work. Number one is that, I don’t think you have the resources really to pursue both. You kind of have to make a decision and just put all your chips in the one square. And then second, it occurs to me – not that I want to understate the difficulty – but let’s face it, there have been a lot more spacecraft that have been launched than have been landed. So, isn’t a trick of a soft landing –
Sean Mahoney: [00:27:52] Oh, God. Yeah.
Mike Blake: [00:27:54] … isn’t that kind of a more rare thing?
Sean Mahoney: [00:27:59] Yes. Yeah. So, let me address the technology piece of it. First, absolutely going up is easy. We’ve kind of known how to do that for a long time. Coming down is even easier. Even longer amount of time we figured out how gravity works. It’s that controlled landing that is the really hard part. And so, yes. Absolutely. Now, what I can tell you is that, with that understanding, Dave started out focused on the hardest part first. And that’s why the company has – we have more flight operations. We have done more rocket landings than anyone.
Sean Mahoney: [00:28:47] But we’re not bringing it back from space. We had focused on – think of it as doing more diverse stuff rather than altitude. And there was a decision point earlier on where I was like, “Okay. Do we focus on going higher and faster or do we focus on doing more and refining more of the landing?” So, the landing stuff, I feel pretty good about. I feel like we have decent enough understanding. I know there’s things that we know. I know there’s things that we don’t know. Because we actually thought we had the whole thing figured out. And then we found out we didn’t.
Sean Mahoney: [00:29:25] And so, you know, we’ve gone through that iteration. That was the landing part is the thing that has really been a core assets of ours. And it’s not just – and this is in a lot of industries and especially in space. We really like the superlatives of saying first. But first is nice for a press release. Repeatable, reliable is what you need for the business. And so, just because you did something first doesn’t mean squat if it never goes anywhere, right? If it never gets you anywhere.
Sean Mahoney: [00:30:05] And a lot of times, because of the long timelines, people are grasping – they’re seeking something to differentiate themselves and say, “Aha. Look, I did this.” And that’s great. But I am less interested – personally, as to the business side of things, I don’t care about your feet of rocketry of technical performance. What I care about is, are you creating value for your partner? Are you helping make them rock stars inside their organization? Are you helping find ways to make someone else’s life better today? And so, yes, the landings part is hard. That was not actually the problem.
Sean Mahoney: [00:30:50] I have spent a lot of time obsessing over this question of diversification versus focus, diversification versus focus. The best practice for entrepreneurship is laser like focus. Pick a thing and do that. I understand and I agree. However, that’s not exactly what we’ve done. And we were keeping multiple things open at the same time. And here’s the reason why. For space, there are a few – it’s a small N on statistics. A few big events that happen infrequently. So, I could choose, “We’re gonna be all in on the moon. Great.” And if that had been the decision in 2011, that had been fine. But we would have run out of money and gone out of business. I could’ve said we’re all in on launch. And then when launch dried up and we weren’t selected for the next DARPA phase, we could have been them out of business there.
Sean Mahoney: [00:32:11] And so, it is a difficult thing that I’ve grappled with because I understand the best practice and yet have chosen a different approach. And so, right now, the way I frame it is, delivery to the moon is our flagship. That is the thing that is very clear. That is the big thing that gains people attention. And I can show you how the other work that we’re doing aligns with providing value to the people who want to get access to the surface of the moon. And so, our terrestrial flights.
Mike Blake: [00:32:54] Sorry about that.
Sean Mahoney: [00:32:54] No. No. It’s okay.
Mike Blake: [00:32:54] But what I take out of that is, I think, a couple of very important points. Is that one misconception is that selling to the government is fundamentally different from selling to private sector clients. But what you’re telling me is, at the end of the day, it’s still about providing value even if value might be defined somewhat differently. And it’s about making your customer somehow better. And along the way, while you talked a little bit in your story about, you know, there are some strong advocates from Masten because they know they got a technically, and I presume, decided to become advocates. And that tells me that somehow you were able to develop a relationship with the government or something in the government.
Mike Blake: [00:33:54] And I think a lot of people wouldn’t expect that that’s something you could do, at least not in a typical way. When we think about relations with the government, frankly, we think about lobbyists and we think about having your senator make a well-placed phone call to somebody. But we don’t think of it necessarily in terms of just good old-fashioned garden variety, people to people relationships. But it sounds like that that actually does – that actually is present.
Sean Mahoney: [00:34:27] Yeah. And by the way, working in space has this problem is that it oftentimes is so cool that it distracts us from whatever other conversation we’re having. So, here we’ve talked all this stuff about Masten and haven’t really addressed some of the government part.
Sean Mahoney: [00:34:44] So, yeah, first of all, the government, you do not sell to the government. No organization is actually monolithic. And that’s a mindset. Like, you’re not selling into a faceless blob. No matter what, whether you’re selling to a small company or a big company, the government. You are selling to individuals. And that is a key thing I think some people don’t quite understand. It’s not like you’re just throwing in a proposal and then someone throws money at you. There’s someone on the other side of that. That is a person that has things that they’re trying to accomplish.
Sean Mahoney: [00:35:37] And just like if you’re selling to a local mom and pop shop and you’re selling them something. The same thing applies if you’re selling something to the government. You’ve got to understand as best you can what they’re trying to do. And it’s not maybe as easy as going in. But it’s also not impossible. And it’s not necessarily as hard. So, the perception that it’s only for the bigs is not accurate. And it’s demonstrably not accurate, like, there are some specific things that are clear that our federal government has interests in working with small business.
Sean Mahoney: [00:36:23] I will tell you that there is this thing called industry capture, where any industry that is selling to the government often has a lot of influence in what the government asks for and wants to buy. It is not necessarily these whole arms, like the ideal maybe that the government chooses to acquire things and companies have to propose against it. But oftentimes the thing the government asked for is influenced and shouldn’t be influenced by what the market can provide.
Sean Mahoney: [00:37:04] And so, it is an interesting challenge. Because from the government standpoint, their risk posture is different. It’s sometimes very similar to a large organization. It used to be – and every industry has the saying, no one gets fired for buying blank industry leader. No one gets fired for buying from IBM. It doesn’t matter if it’s a good deal or a bad deal, or whatever. It doesn’t matter. They’re the industry leader. So, you’re not going to get in trouble if you buy from them.
Mike Blake: [00:37:38] Well, right now, I’d imagine in your world, nobody gets fired for buying from Grumman or Raytheon or –
Sean Mahoney: [00:37:44] Correct.
Mike Blake: [00:37:45] … Boeing, right? And I have to imagine that at least crossed your mind –
Sean Mahoney: [00:37:50] Oh, yeah.
Mike Blake: [00:37:51] … as pertaining to these things, right?
Sean Mahoney: [00:37:54] Absolutely.
Mike Blake: [00:37:54] Did it turn out that that was a legitimate fear?
Sean Mahoney: [00:38:01] Yes.
Mike Blake: [00:38:01] Or once you got in, did you find out that maybe they even kind of root for the little guy?
Sean Mahoney: [00:38:07] There are –
Mike Blake: [00:38:10] It’s not monolithic, right? It depends.
Sean Mahoney: [00:38:12] It’s not. Right. Yeah. It’s not. Yeah. So, I don’t know if it makes sense to do the negatives. Let me start with the negatives because it’s better to start there. There is an awful lot of process that is designed to prevent government fraud, waste, and abuse. There is a lot of things that exist to prevent the government from doing bad, stupid, fraudulent things. And you know what? On principle, everyone says, “Yeah, of course. We want the government to reduce fraud.”
Sean Mahoney: [00:38:53] There is a point, however, where you get diminishing returns. And so, there is an information asymmetry for you to this particular industry. And the incumbents who have mature processes and systems. And that becomes right there is the kind of the key difference. That information asymmetry means that you don’t know about the federal acquisition requirements. And if you don’t know how to quote them chapter and verse, you may wind up getting yourself into some difficulty because you have this extra burden, this extra cost of compliance. So, that favors larger companies.
Sean Mahoney: [00:39:41] Now, I will flip to the opposite side and say, “Yes.” And the government aware of that. And there are specific initiatives that have been around for a long time. And new ones where people on the government side are trying to find ways to reduce or circumnavigate those burdens of doing business with the government. And the first one is to point out the SBIR program, Small Business Innovation and Research. And then there’s an STTR, which is – oh, I don’t know. I forgot the acronym.
Mike Blake: [00:40:13] Science and Technology Transfer –
Sean Mahoney: [00:40:13] Yeah. R –
Mike Blake: [00:40:20] … Research, something like that. Yeah.
Sean Mahoney: [00:40:20] The idea there is that this is federally mandated to be a percentage of federal agency budget across, I think, 11 different agencies. And it is money that they have to spend on small businesses. Small businesses is defined as less than 500 people. So, this is obligated money that they have to push this away. The question is, how do you go about tapping into it. And how do you make sure that this is something that’s not going to just bog you down?
Mike Blake: [00:40:59] Let’s dive into that. So, how do you – I mean, what’s the first step, right? When you’ve figured out that NASA ought to be an important customer, I mean, do you just do you just call NASA up and say, “Hey, I’ve got this landing system. And, hey, you might want to use it to land on Mars, the moon, or whatever?” How do you start?
Sean Mahoney: [00:41:22] Yeah. “Dear NASA, please buy my rocket stuff.”
Mike Blake: [00:41:27] Door to door? I mean, “Hey, bud. Do you want to buy my landing system?”
Sean Mahoney: [00:41:31] The first thing to do is not to build a rocket. The first thing to do is go talk to people and understand their pain points. And so, I will refer you to the customer discovery model, and the iCore, and Steve Blank. And understand the pain in the market first. And then build a solution to it. How do you understand a pain in the market? Well, there are a lot of things that are available.
Sean Mahoney: [00:42:18] Number one, go look at the previous SBIR solicitations and the topics that are there. And you can read through what has been selected. And you can call those companies, you can call those sponsors. Most government officials probably have phone numbers and contact information available publicly that you don’t have to pay for because it’s probably required one way or another. So, you can actually pick up the phone and call people and say, “Hey, I saw the solicitation was out last year. Do you guys get what you need? Or are you looking for something different? What’s coming up in the future?” Ask the questions.
Sean Mahoney: [00:43:02] Reading industry papers. The scientists and the engineers that write industry trade papers, whatever that is, look them up, call them up. I can tell you they love talking about those papers that they wrote. And I will also tell you most people don’t read those papers and don’t refer to them. And you will immediately – if you have a topic and you actually, like, pick up and read their thing, they’ll be thrilled to talk about the thing that they spent their time writing the paper on. And can help guide you into, “Okay. Well, here’s a pain point that I know somebody has.”
Sean Mahoney: [00:43:40] And then the other one is just show up and be useful. Go to conferences, volunteer. If you’re trying to get into an industry, find an industry group. Volunteer to serve on a panel, to do a thing, to take tickets, and whatever. Become part of the community. Become a known entity. And that way you can help work your way in.
Sean Mahoney: [00:44:11] So, I know I had just kind of networked your way into the government. It sounds kind of odd. But again, it’s not the government. It is, probably, an agency. And more particularly a director. And more particularly a group. And more particularly a set of, you know, 50 to 100 people that work in and around whatever domain you have interest in. So, how to get in, that’s my recommendation for that. It is kind of pick up the phone, but start with the questions.
Mike Blake: [00:44:49] Now, let me ask you this, how did you find the government or NASA? I guess, they are not monolithic. So, I’ll ask you to talk about what you’ve actually done. How you found NASA or whatever specific office you are dealing with in NASA in terms of their responsiveness? You know, I think many of us – I don’t want to be ideological here – but many of us, when we think of the government, we basically think of the DMV. And everybody’s a DMV. And not everybody is a DMV. I don’t think the DMV could launch vehicles into orbit. But the perception is that they’re slow as molasses. And it’s going to be a nightmare in terms of length of sales cycle. And they can’t make a decision. How has your experience been relative to that perception?
Sean Mahoney: [00:45:42] Spot on.
Mike Blake: [00:45:45] Really?
Sean Mahoney: [00:45:45] In some cases, spot on. And it’s important to realize the different objectives and the different world that your government partner lives in. And it’s one thing to say, “Well, it’s crazy that this thing takes 18 months.” They might know that it’s crazy. But it also might be the way things are. And to a certain degree, some of this is a gravity problem. And this is not a space thing. A gravity problem is one of those ones that is not worth getting upset about because it’s just there. And government bureaucracy, like, if you want to skip the bureaucracy and want to just take straight payments from someone, feel free. However, you’re likely to have then have to pay the price when someone says, “Hey, how come you didn’t follow procedures and yadda, yadda, yadda.” Right?
Sean Mahoney: [00:46:52] So, yes, there are some things that are absolutely infuriating. A sales cycle for some of these things, even small amounts of money, can be 18 months easily. And if you want to go all the way back to the beginning and having the conversation with a person you want to sponsor a topic that you then apply to, that you then get selected for, then you negotiate a contract for them, and start executing on, you know, two years for a small business? I don’t know about you, but my lifestyle, like, were fruit flies. I live week to week, day to day, month to month.
Mike Blake: [00:47:37] Now, the sales cycle requires – go ahead. Sorry.
Sean Mahoney: [00:47:40] No. It’s an entirely different thing. And it’s not worth railing against it to say, “Oh, it’s not fair. It’s not right.” You know what? It’s not fair and it’s not right and it doesn’t matter. It is. And so, play the game. Play the field. Understand that it’s going to take that long. And figure out, maybe, the choice is you don’t wanna do it.
Sean Mahoney: [00:48:05] Let me also flip around the other side and say, doing a project with the Air Force – and I’m not kidding you on this – we submitted a proposal. We were contacted nine days later on a Saturday telling us we’d been selected. And we had a contract a week after that. That is unheard of. That was only 50K, but it doesn’t matter. That is the speed and why are they moving that fast? Because DOD realized that they had made it so difficult to work with. That the best and brightest are busy building, you know, the next Uber app and are not even engaging with the government. I don’t need to bother with your process and your BS and all the rest of it. I am just going to sell my stuff to someone who can pay me. And I don’t have to deal with the FAR and they don’t have to deal with all this other crap.
Sean Mahoney: [00:49:07] So, there are pieces that are in effect. Sometimes they’re referred to as Other Transaction Authority, OTA. And this can be a program if it’s set up that way. Whether the government can have reduced amount of certification, all of this other stuff that goes on. But you’ve got to have someone that’s willing to find and exercise those things.
Sean Mahoney: [00:49:38] And let me just real quick, because I talked about SBIR and I talked about the long sales cycle and how much of a pain on the butt it is. And for $125,000, it just doesn’t make sense. But this is the thing. And you have to add even more time to get to this point. Phase one might be 50, might be 150K. Not a whole lot. Phase twos might be half-a-million to a-million-and-a-half. That’s better, right? You do successful. But yield on an SBIR, depending upon the agency, 15 percent, sometimes less. Phase one to phase two, maybe 50 percent. But once you have completed an SBIR successfully, phase one, now you have a contract vehicle that will allow someone in the government to sole source a contract to you as long as it relates to that topic.
Sean Mahoney: [00:50:51] And so, I’m going to bring it back to what I said at the very beginning, someone wanting to buy the thing you’re selling, the service or product, having the budget and the money to pay for it. And you need a way for them to be able to get that to you. If you think about your business and you set it up so that you are building customers, and building budgets to support, and building a portfolio of contracts that can be used to send business to you, it can open this whole world up. So, it is a big wall in the front, but can be very beneficial once you get through it.
Mike Blake: [00:51:39] So, we’re talking with Sean Mahoney of Masten Space Systems. I think a takeaway from that is that if you are personally or institutionally impatient, selling to the government is probably not for you.
Sean Mahoney: [00:51:54] It does require – yeah.
Mike Blake: [00:51:59] I mean, again, there is a nine-day contract and so forth. But let’s face it, if you’re just the impatient type –
Sean Mahoney: [00:52:04] Yeah. Or find someone to partner with who will take half the value of the contract or more and handle all that stuff for you. Right?
Mike Blake: [00:52:17] Okay. Yeah.
Sean Mahoney: [00:52:17] If you’re really impatient, but you’ve got something that’s really valuable, don’t complain about giving up a whole – “Oh, well. I did all this work.” Yep. But you can’t sell to anybody so it doesn’t matter. Right? But yeah, it is not for the impatient. But then again, I would say entrepreneurship is not for the impatient. It takes time. You need to move extraordinarily quick every day. But then, also, it’s a marathon. So, you got to do both. You got to sprint every day in a marathon and keep your wits about you. Then it’s phenomenal, but it’s not easy, to say the least.
Mike Blake: [00:53:06] So, we’re running out of time and there are a couple more questions I want to try to sneak in here if I can. One question is about cost sensitivity. On the one hand, you hear about the government that they always go to the lowest bidder. On the other hand, you hear about $500 toilet seats. So, in your experience, what’s the reality there?
Sean Mahoney: [00:53:31] Different types of contract. So, you have a cost plus contract where the government will choose a vendor. And then, basically, you do change orders to keep adding things on. Or you then have firm fixed price contracts, which is this is the thing, you deliver it regardless. Now, in an ideal world, things that are mature would be that firm fixed price because you know your cost of production. You know, you’re selling pencils to the government. Fine.
Sean Mahoney: [00:54:06] In reality, things have kind of become inverted. And so, Masten, as a small research company, is doing from fixed price contracting for highly uncertain projects because of our R&D. I’m willing to take that risk. I have to build my pricing to the government sufficiently to cover my risk. They would be willing to allow a given contract to put me under. Does the government care about price? Yes and no. I wish I could say it’s one single answer. It’s not.
Sean Mahoney: [00:54:54] I will say to the entrepreneurs, selling on price is very difficult. And it can kill you. If you think I will cut my rate to the government in order to win this contract but you can’t pay yourself, then you will die because you’re not hitting enough. And the same in symmetry as I talked about earlier can bite you here. I am a strong advocate for the idea of SBIR programs. Basically, just coming up with a standard deduction on your tax form. They should have a standard rate and say, “We’re going to pay 200 bucks an hour on an SBIR,” or whatever it is.
Sean Mahoney: [00:55:50] In reality, you have to submit your pricing even on a firm fixed. Then you have to go through negotiations. My recommendation is use Bureau of Labor Statistics numbers. Use those industry numbers that you can. And do not allow the fact that you are taking less than market salary. And then passing that direct benefit on into an SBIR program. Because then you’ll never get yourself out of it. Right?
Sean Mahoney: [00:56:30] And so, that’s one of the things, I did not agree to price our services at the obscenely lower rate that we pay ourselves divided by 2,000 hours and say, “Okay. You can buy one hour at one/2,000ths of our salary.” No. That is not a sustainable business. So, I’m not saying government is going to buy gold plated stuff. But I am saying don’t sell on price. Because regardless if you’re selling to the government or anything else, selling on price is a bad idea.
Mike Blake: [00:57:16] Sean, there’s a lot of stuff we could still cover, but I also know you’re really busy. But if somebody wants to ask you more about selling to the government, you’re experience with it, how can people contact you? Can people contact you? And if so, how could they do it?
Sean Mahoney: [00:57:32] Yes. You can absolutely contact me, smahoney@masten.aero, A-E-R-O. That’s my email. I can not guarantee you that I’m going to be able to catch every single one. But what I’d be happy to do, if there are folks that are interested from this conversation, I’m happy to pull folks together and do another kind of seminar, Q&A sort of thing. We’re a little bit busy. I am trying to get us on our way to the moon. But I absolutely believe in making sure we’re taking others with us.
Sean Mahoney: [00:58:17] I have benefited from your advice and guidance and from others in the Atlanta area, throughout the space industry, and honoring the support they have given us. I’m doing the same. It doesn’t have to be space related. We’re absolutely trying to make sure that we don’t pull at the ladder behind us. And share some of the things that we’ve learned to help others. So, drop me an email and we’ll make sure we set something up. If you get hammered with questions about this stuff, I’m happy to do a second round less about the space stuff and more about some of these crazy contracting stories which I’m happy to share as well.
Mike Blake: [00:59:01] Very good. Well, that’s going to wrap it up for today’s program. And I’d like to thank Sean Mahoney of Masten Space System so much for joining us and sharing his expertise. We’ll be exploring any topic each week. So, please tune in so that when you’re faced with your next decision, you have a clear vision when making them. If you enjoyed these podcasts, please consider leaving a review with your favorite podcast aggregator. That helps people find us that we can help them. Once again, this is Mike Blake. Our sponsors, Brady Ware & Company. And this has been the Decision Vision podcast.
