MBA

VentureStar

ONE OSBI PROJECT THAT'S TRULY HEADED THROUGH THE STRATOSPHERE.

Since 1996, Illinois MBA students have been contributing services to this consortium, in which NASA, Lockheed, and other aerospace partners are joining to privatize the space shuttle and send for-profit payloads rocketing into Earth's orbit — and, presumably, over the top of the balance sheets. "We will be able to say we were here when this went from a wild-eyed dream to the day the X-33 actually flies," observes Joe Finnerty, professor of finance and newly appointed associate dean of graduate studies, who, along with OSBI director Paul Magelli, has been involved in VentureStar's liaison with CBA from the start.

Vehicle for VentureStar's success will be the X-33, a reusable space-craft which can carry commercial payloads and position them in low and medium orbits. And topping the X-33's mission list is the creation of "constellations" of geosynchronous satellites. LEO ("low earth orbit") systems such as these will provide — are, in fact, already providing — a cost-effective alternative to the larger, farther-reaching geosynchronous satellites now most commonly used in global communications. (Geosynchronous satellites hold their places in space above the Earth, rather than freely orbiting around it.) In the not-too-distant future, LEO satellite systems will render current technology obsolete. Instantaneous global communications will no longer be the purview of "X Files" agents Scully and Mulder. Whip out the flip phone and call Mother in Kuala Lumpur? No problem. As for Web access, it will be as close as the nearest television set. No cable to deal with, either.

While VentureStar's first commercial launch is still at least a decade away, the initial test-launch for the X-33 prototype is counting down for the early summer of 1999. When blast-off takes place (organizers are hoping for July 4), the event will be cheered with special fervor by the elite coterie of Illinois MBA students and alumni who've carried on work for VentureStar.

Their efforts were set on the launch pad several years ago by T.K. Mattingly, the Apollo 13 astronaut. In 1996 — the same year the movie Apollo 13 was released — Mattingly came to give an address to Illinois MBA students about the near-disaster and overwhelming triumph of that 1970 moon-shot. Mattingly still works for NASA and at the time he came to campus, Paul Magelli recalls: "His new assignment was to organize the political, financial, and human resources needed — from Congress, from the public, from industry, from NASA — that it takes to make something as bold and as high-risk as a reusable launch vehicle."

"He gave a fantastic address about the mission as a living example of team work," Magelli recalls. "There was this immediate chemistry between him and the students. I told T.K. — and I also subsequently wrote to him — that we would have a serious interest in collaborating in VentureStar." While this unexpected offer of support seemed to take Mattingly by surprise, he agreed to think it over. "The way he eventually responded was pretty impressive." Magelli says: "He sent us a picture of VentureStar. On it was written, `Come Fly with Us.'" 

Where Student Meets World

Two years on and the Office for the Study of Business Issues (OSBI) is going strong. From start-up in the summer of 1996, when Illinois MBA students undertook their first consulting project — for Weiberg's, then part of the National Furniture Store chain — the Office for the Study of Business Issues has burgeoned into a de facto consulting firm. Clients savvy enough to avail themselves of MBA student services — certainly one of the best business values in Illinois today — form an ever-lengthening list.

If only they sold stock. But then OSBI is hardly a for-profit concern. Mostly, the students don't even work for pay. Rather, they are reimbursed for expenses and compensated with that most invaluable of commodities — experience. And of course, they earn academic credit for their consulting activities, for companies that range from small local not-for-profits to enormous multinationals. Students maintain project binders, in which they develop evaluations and client profiles, and track their time, expenses, and progress. They're expected to log in at least three hundred hours on a job during a semester. Some put in much more time than that.

But while experience, like virtue, is undoubtedly its own reward, the dollars are also starting to materialize — a development certainly welcome to tomorrow's consultants on today's student budget. OSBI's grant from the Ewing Marion Kauffman Foundation doubled this year, providing $100,000 in matching funds to underwrite forty MBA student internships with high tech/entrepreneurial companies. Even more exciting, the VentureStar consortium has come through with a grant to fund development of a database.

"I consider OSBI to be a docking point between the business community and the MBA program," observes Paul Magelli, director of the program. "We run it like a consulting business."

A list of OSBI clients for the 1998-99 academic year includes the following:
GE/Louisville, Kentucky
GE(A), Louisville, Kentucky
Department of Theoretical & Applied Mechanics, UIUC
U.S.Federal Reserve, St. Louis, Missouri
Xeros Project/Range Mining, Brisbane, Australia
Dow Agro Sciences, Indianapolis, Indiana
Lucent Technologies, Warren, New Jersey
Searle (Monsanto), Skokie, Illinois
VentureStar, Denver, Colorado
Crisis Nursery
Illinois Food Bank
Illinois Geological Survey
KKR, New York
I2S
McDonald's
Illinois Department of Tourism
Mayo Medical Ventures, Rochester, Minnesota RTMO
Wells Eye Hospital, Philadelphia, Pennsylvania
International Paper, Memphis, Tennessee
Nortel, Dallas, Texas
Enclave
Alfie Swartzbaugh Enterprises

The first assignment called for students to evaluate the work of several consulting companies which had produced financial models and other work on the prospects for VentureStar. "The students discovered there was a lot to add," Magelli notes. "This was a whole new concept — selling a product through a reusable space vehicle." Onboard for the first phase of the OSBI/VentureStar collaboration was Normand Paquin, MBA Class of 1997. Now a consultant for American Management Systems in Springfield, Paquin, 36, observes that VentureStar emerged as "a major project breakthrough for OSBI. It's the type of work that will give the U of I national exposure." He and his team took a long, hard look at the many implications of forming the VentureStar consortium, detailing their observations in a report that ran around 200 pages — with around a thousand more in attachments and appendices. "We worked under a lot of pressure," Paquin recalls, "The first report was due ten days after finals." Using a variety of sources of information, from data supplied by NASA and Lockheed to financial magazines and the Internet — and with a lot of help and encouragement from profs including Finnerty, Magelli and accountancy lecturer Tom Finnegan — the students created an extensive analysis of VentureStar's business prospects. The report comprised an evaluation of the company's marketing, financial, and corporate structure, ranging from estimates of global demand and projected revenues to pricing and environmental impact.

"For the VentureStar people, marketing was the most innovative aspect of what we contributed in the first part of the project," Paquin recalls. "They were definitely coming from a traditional aerospace environment. And here we were, coupling the core business model with opportunities related to it. The most beneficial aspect of getting students involved comes from the different viewpoints, the challenge to conventional thinking." Their ideas would have played well in the boardrooms of Disney or DreamWorks. The students suggested creating alternative revenue sources by licensing the VentureStar brand name on products ranging from video games, children's toys and clothing to theme parks and major mass market advertising campaigns. Movies, links to the Olympic Games, even VentureStar credit cards and the sale of ad space on the X-33 nose cone — the imagination of OSBI students was limitless as space itself.

Best of all, the big guys liked it. A lot. "We came to campus in the spring of '97 to hear the debriefing," recalls Lockheed's Dave Markham, who was then manager of business planning and enterprise development for VentureStar. "The quality of the product was outstanding. And a lot of the students' work factored in the rewriting of business plans over the summer." That same summer, Lockheed held a three-day strategic simulation — "war-gaming" — for VentureStar. Booz-Allen set up the program, which was held in Washington, D.C., and attended by top management from companies throughout the aerospace industry. The purpose of the game was to simulate customer needs in the industry and to sort out those financial models that would work from those that would not. Paquin was the leader of the Illinois MBA team that went to D.C. The following September, Markham recalls, the Commerce VentureStar team, now led by Trey Campbell and Sarah Brown, got "very broad, far-reaching assignments. They covered specifics, such as accounting, taxation, and business modeling. And they were focusing on strategies."

A member of the MBA Class of '98, Kent Saldeen, 35, is now an auditor for the U.S. Defense Logistics Agency in Columbus, Ohio. For VentureStar, he worked with a group that analyzed the prospects for an initial public stock offering in 2004. Later, he led a team that developed a financial model for the VentureStar consortium. They created statements for income, balance sheet, and cash flow. "Our projections were developed using Excel and Visual Basic and spanned a twenty-year period, from 1996 to 2015," Saldeen explains. "They took into account various debt rates based on cost variables." Hence, projections were dominated by that most important of all commodities for transportation, whether interstate or inner-space. Fuel.

"The craft is a fairly high-tech version of the space shuttle, though it's bulkier and uses different fuel technology — essentially liquid oxygen, which is fairly
non-polluting," explains Manual Otero. A member of the MBA Class of '99, who has just spent the summer interning at Ford Motor Company, Otero began working on VentureStar cash flow projections, using the model of a reusable spacecraft, in the fall of 1997. He stayed with the project through the end of spring semester, and plans to resume his work for the consortium in the coming academic year. "Our work included role-playing to verify various case scenarios," he observes. "This follows the curriculum, which takes a case approach." Among the issues his team addressed were receivables, finance, decision-making, and depreciation management. "There were tax issues," Otero recalls. "How do you estimate depreciation on a class of machinery — which is to say, a reusable space craft — not yet dealt with by the IRS?"

"Astronaut T.K. Mattingly sent us a picture of VentureStar. On it was written, 'Come Fly with Us.'"

- Paul Magelli


Yet it is on such creative challenges that students thrive, and have always thrived. And Illinois MBA students are no exception. "They have been using our financial model to check the work of the consulting companies. It's sort of an honor, " says Mark Thompson. A VentureStar team player and member of the MBA Class of '99, Thompson, 47, has spent the summer as an intern at the Entrepreneurial Educational Foundation in Denver. He returns this
fall with a project list topped by directorship of the OSBI B VentureStar project for the 1998_99 academic year. A Decatur native with a background he describes as "eclectic," Thompson has an undergraduate degree in math and is a CPA. He is also a founding member of the National Space Society. "One of thousands," he hastens to note. "But I have been interested in this stuff for a long time. And when the opportunity to work with VentureStar came along, I saw it as my chance to make my contribution to society."

Last year, he says, "the model we worked on was how a reusable launch vehicle could drastically reduce costs. We're looking at dropping $2,000 per pound for a payload." For the coming semester, the subject is global alliances — "finding," in Thompson's words, "countries that can share benefits with VentureStar. The key is launch location." More precisely, the key is altitude. The higher the elevation of a shuttle launch pad, the more weight the craft can bear on liftoff. Proximity to the equator also has a salutary effect on payload size. "Brazil would be a great spot to have a launch facility," Thompson observes. "So would Australia." He also plans to research the potential benefits of technology-sharing with countries such as Japan and Korea. And "we're also looking at an alternative revenue project — how to start bringing in revenues now, before the vehicle is available." Ideas include promotional opportunities, and advance sales.

And speaking of alternative revenues, OSBI has received a grant — initially for around $45,000 — from VentureStar. "This is being established so we can become the program that will be the repository for VentureStar information," Magelli explains. "We want to create a database covering the history of the project. We also want to study aerospace entrepreneurship, tracking technologies and start-up companies that emerge as a result of VentureStar." Magelli envisions Commerce as home to "the VentureStar core," where students will work in conjunction with others doing projects for the consortium — MBA students from such institutions as University of Texas, Indiana, Purdue, Carnegie-Mellon, Renssalaer, and Kellogg. Project manager for the grant is Rick Janson, a first-year MBA student who's studying for a joint degree in law.

Farther out in space, "a lot of other ideas are now coming off this," notes Kent Saldeen. "In the future the shuttle might be a faster way of transporting people — going from the U.S. to Japan in a really short time, or even sending something Federal Express."

For Joe Finnerty, professor and associate dean, the X-33 holds possibilities that may sound really sci-fi, but are in fact orbiting closer and closer to earthly reality. "Basically it's about communications," he says. "A galaxy of satellites can make hand-held phones a reality for everyone. Remote medical monitoring can go on round the clock. In fact the Army is already doing this with soldiers in the field — monitoring them by satellite so care can be provided should the soldiers become injured or sick." He continues. "The menu of experiments in zero-gravity — which includes building crystals and producing drugs — can be expanded. There are even applications to farming. A satellite scan can detect what chemicals are needed in what fields. Caterpillar is building earthmoving equipment with sensors that can predict when the machine is going to need maintenance. The sensors beam that information back to Peoria. Then the company can call and arrange to come out and do the repairs. We're talking about a $100,000 system that's already in place. So — if they can do it for big tractors, why can't they do it for your car? In Europe, sensors on the highway communicate with satellites — setting the groundwork for an automated highway system called Pegasus. It's a system of robot cars that can operate better than the average driver. The technology is already there."

Lockheed's Dave Markham offers a different perspective. "The VentureStar idea of the reusable spacecraft will allow us to sell launch services. Clients will go from buying a big, shiny rocket to buying the equivalent of a plane ticket. They don't care what a craft looks like. They care about getting their payload from Point A to Point B." He adds: "Irridium has an LEO system that's up and operating — now. Other firms are looking at entering the market. With this type of system, you've got to replace the satellites every so often. Just like changing lightbulbs."

Concludes MBA alumnus Normand Paquin: "It's neat to think that, in a ten-year time frame, we'll know that we were here at the start — and that we made a difference."

School is a lot more than classwork and study. Here members of the Asian Business Society interact before a meeting.