There are not many industries more resistant to disruption than satellite and aerospace. The dominant firms thrive largely because of the massive capital requirements and strong government connections. Yuya Nakamura of Axelspace is confident he can change that.

Axelspace’s micro-satellites are a complete redesign of what a satellite can be, and they come in at one-tenth the weight and one-hundredth the cost of conventional hardware. Axelspace has already launched the world’s first commercial micro-satellite, and are new gearing up to launch an entire constellation of them.

Something amazing is happening in aerospace right now. After decades of, slow, steady incremental improvements, we are seeing tremendous new bottom-up development all over the world, and Axelspace is right in the middle of if it.

It’s a great conversation and I think you’ll enjoy it.

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Show Notes for Startups

  • What is a micro-satellite
  • Why current satellites cost so much
  • What’s changing at Todai and why it’s important.
  • How to sell a satellite
  • What is driving the recent big changes in space technology
  • Why governments need to (mostly) change aerospace procurement
  • How Japan can compete in the global aerospace market

Links from the Founder

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The full transcript follows, but you can read a short summary of the interview here.

Transcript from Japan

Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs. I’m Tim Romero, and thanks for listening.

Most of us startup founders have it relatively easy. We choose our battles and we usually choose to compete where we can sell to businesses and customers directly and where our speed, agility, and innovation is recognized and appreciated by the market. Yuya Nakamura didn’t really have that option and even if he knew in advance what he was getting into, he would have done it again. You see, when he left Tokyo University, Yuya founded a satellite company hoping to compete in one of the most controlled closed industries on the planet. And amazingly, they’re already seeing success.

Having launched the world’s first commercial microsatellite several years ago, they now have much bigger plans for their very small satellites. Now during our discussion, Yuya and I talked about Tokyo University also known as Todai. Now people often say that Todai is Japan’s Harvard or Oxford but it’s much more than that. Over 75% of all top level bureaucrats are Todai graduates and so are a large percentage of the C-level executives of public firms. Over half of Japan’s Supreme Court graduated from Todai. Perhaps, more than anything else Todai represents the status quo in Japan. It is the gateway to the traditional power structure and that makes the entrepreneurial changes we are seeing there even more surprising. But for now, we’re here to talk about satellites. So let’s get right to the interview.

Tim: Ready to get started?

Yuya: Yeah.

Tim: Okay. Well cheers!

I am sitting here with Yuya Nakamura who founded Axelspace to develop microsatellites. Before we get into this, why don’t you just tell us a bit about Axelspace and tell us what a microsatellite is.

Yuya: Microsatellite is an artificial satellite weighing less than a hundred kilogram and it’s very small compared to the conventional satellite, it weighs like several tons or something like that. The cost of the traditional satellite is like hundreds of millions of dollars and our satellite is inexpensive; just one percent of the traditional ones.

Tim: So it’s cheaper to produce and if it weighs 10%, it obviously costs about a tenth to launch as well right?

Yuya: Yeah, absolutely. So actually it was too expensive for private companies to have their own satellites but now we have realized that microsatellite at say several million dollars, now it’s something affordable for even the private sectors.

Tim: What would it cut before and now? And I know the cost of the satellite is one of those. It’s like asking how much a car costs. With a traditional satellite and with a microsatellite, what sorts of costs are involved?

Yuya: In the case of conventional satellites, it takes three to six hundred million dollars.

Tim: 300 million to 600 million dollars.

Yuya: And to launch it, you need another hundred million dollars.

Tim: Okay.

Yuya: So it’s so costly.

Tim: Right. This is why private industry doesn’t do it. And with the microsatellite?

Yuya: You need three to five million dollars and you need another one million dollars to launch.

Tim: So it’s 1% the cost of traditional satellites.

Yuya: Yes.

Tim: That is going to change the game.

Yuya: I think so.

Tim: Now, Yuya and Axelspace launched the world’s first commercial microsatellite back in November of 2013. Right? And it was to monitor Arctic Sea ice. Now, that was five years after you’ve started the company.

Yuya: Yup.

Tim: What happened between the founding and the launch? How did you get there?

Yuya: Actually at first I thought I was able to find many customers about satellites but it was not. Actually we found a partner, Weathernews, to start a joint project about monitoring the Arctic Sea with their own satellite. Then, we started their project, their satellite. And we started looking for appropriate launcher, I mean the launch vehicle. But commercial microsatellite was the first attempt all over the world so we didn’t know how to do that and the launcher service provider were also confused about that. Actually they launched many university satellites which is for educational satellite.

Tim: So what was the challenge? It was just the payload was too small?

Yuya: It’s not the biggest challenge but they have some difficulties about pricing, so we continued negotiation with them so long time, more than two years or something. And actually, I was about to reach an agreement with the Indian Rocket but they stopped negotiation after two years so we needed to find another one. And we started negotiation with the Russian. We agreed the launch of satellite in 2012, however, postponed that launch to the next year.

Tim: It sounds like a very different experience than what most startups go through.

Yuya: Yes.

Tim: Things are moving very slowly.

Yuya: Yeah.

Tim: I’m sure by aerospace standards you guys are moving at incredible speeds right? So you mentioned before that you are hoping to sell many satellites.

Yuya: Yeah.

Tim: And you ended up working in partnership. How much of the engineering work and the components that go into building a satellite can be reused in another satellite?

Yuya: Actually, many of the conventional satellite uses the standard products that can be used in different satellites. But in our case, our satellites are very small like this.

Tim: Yes.

Yuya: It’s just half-size of the model.

Tim: It’s an audio podcast so the audience doesn’t know that. So the full size is about 80 centimeters.

Yuya: Smaller, it’s around 50 centimeters.

Tim: About 50 centimeters on the side.

Yuya: It’s very small. So we used the design and our technology comes from university. At university, we had no money. Actually, I myself started the satellite development while I was a university student. My satellite was so tiny; I mean 10 centimeters on a side, mass is just one kilogram. It’s so small and difficult to implement every functions of the satellite into it.

Tim: I imagine it.

Yuya: From the beginning of my experience, it was so difficult to make a standard product. So we reused only the way of developing the satellite and the basic design.

Tim: The know-how and the basic platform is reusable but the components have to be customized for every single customer?

Yuya: Right.

Tim: So, if the traditional satellite makers, I mean they’ve got the engineering know-how. They have parts that they’re reusing and generally having a design constraint saying you need to make things small tends to be expensive. So why are your satellites 1% the cost of the traditional ones? Where does the savings come from?

Yuya: It’s a very important question. It’s very difficult to answer. This is disruptive technology. Actually, the culture is completely different toward the way of developing the satellites.

Tim: So since your advantage is not so much the raw technology, but the fast pace that you can move.

Yuya: Absolutely. Actually, the important point is that we have not improved the traditional satellite to a microsatellite. A microsatellite evolved from a much smaller satellite.

Tim: So too completely different technology base.

Yuya: Yes they are too different.

Tim: Alright. I see.

Yuya: And actually, traditional satellites are made by space agencies like JAXA , NASA, or traditional big companies in Japan, Mitsubishi Electric or NEC, or in the US, Boeing or Lockheed Martin or something like that. So they are based on the traditional attitude towards quality.

Tim: That makes sense so they are in an environment where they’re trying to avoid failure. They’re not trying to innovate.

Yuya: Actually, they are using space rated parts for all of the components inside the satellite. We are using industry grade or automotive grade.

Tim: Not over engineering.

Yuya: Right. You’re right. Delivery time is very short and of course the cost is very cheap. Actually the most difficult point to use space rated product is its delivery time. It takes more than half a year to get just one part.

Tim: Well I mean this certainly sounds like disruptive technology, isn’t it? You mentioned before that you did research on microsatellites back when you were studying at the University of Tokyo. And in fact, your whole team, your engineering team was from Todai. Did you guys work together at university or did you meet up afterwards? How did the team come together?

Yuya: Actually, when I was a university student, there were two universities that were developing microsatellites. We called it nanosatellites because it’s cheaper than microsatellites.

Tim: Alright.

Yuya: And in Japan, University of Tokyo and Tokyo Institute of Technology developed their own satellites in parallel. And we are friends but rivals and we had a meeting  to exchange some information about their project status that’s why we could keep high motivation.

Tim: Right, okay.

Yuya: After the graduation…

Tim: To?

Yuya: Engineers from the University of Tokyo and one engineer from the Tokyo Institute of Technology joined together to make this company.

Tim: Alright. Tokyo University, most graduates, they’re goal is to go into a fast track government job or to get a job at one of Japan’s major corporations. But I’ve got to say in the last three or four years, I’ve seen a lot of technology startup founders coming from Todai. What’s changing there? Is the attitude of the students changing? Is the university doing something to encourage people to start companies?

Yuya: The university is providing some education for entrepreneurs but the more important thing is that they can see many entrepreneurs from the University of Tokyo. It’s track record or the fact their friend is starting their company is important.

Tim: I think so. Yeah. I think that, that is really new in Japan because before when you look at successful businessmen like Son-san or Mikitani, they seem like almost bigger than life. You can’t compare yourself to them. But I guess when you see your friends or people who are just a few years older than you going up and starting a business, you start believing that you can too.

Yuya: Absolutely.

Tim: So did you consider taking a job at Mitsubishi or the like?

Yuya: Yes. I was really interested about the microsatellite technology. I checked all the company that are developing nanosatellites or microsatellites but there weren’t any.

Tim: Well I guess it goes back to what you’re saying. The industry is focused on no risk, don’t worry about the cost.

Yuya: Yes, they were only doing work for the government. So I don’t think it’s a healthy industry. In the US I could find some companies developing satellite components for nanosatellites but it’s for educational satellites. There were no commercial microsatellites. I need to make a commercial microsatellite. But, there was no choice, Mitsubishi or NEC were developing a huge satellite and even if I enter that company, I can’t do developing microsatellites.

Tim: So the only way to continue working on microsatellites was to start your own company.

Yuya: Yes.

Tim: Makes sense. You mentioned before that you received some assistance from the government in grants and in setting up Axelspace.

Yuya: Actually, the government was supporting the universities to help make startups based on the university technology. Our microsatellite was one of those but most of the university technologies were biology or chemistry.

Tim: So it was the government program working with the university to promote university technology.

Yuya: Yes.

Tim: Well this is one thing that I think that Japanese universities are only starting to do. American universities are very good at making money from the technology developed there and encouraging the students to commercialize it. Japan has always been very bad at that and it sounds like this is one of the very first attempts to monetize work done at the university.

Yuya: Yes, but the way the university supports this startup company was no good at that time because they are just paying money for…

Tim: Some basic seed funding and that’s all.

Yuya: That’s all. Of course the money is very important but they need other things to make a startup.

Tim: Sure, you’re just students.

Yuya: Yeah just students. They need to learn the management of the company.

Tim: Yeah, you have picked one of the hardest markets to disrupt, I think. Aerospace is not usually something that startups got running into. You end up against your own limitations on the business side pretty quick right? Because you were saying nobody took your cube sats, your microsatellites seriously at all at first.

Yuya: Yeah. I swear that was too early for us to start this type of business. And I visited many companies about their satellite projects.

Tim: How do you that? How do you sell a satellite?

Yuya: So at first, I did visit some companies like a toy company, a mapping company, and talked about our satellites. It didn’t work.

Tim: Too big of a jump I guess.

Yuya: They get interest in our satellite at first. In 30 minutes they stop thinking because they cannot imagine how they can use our satellites.

Tim: It would probably be very easy to get lots of meetings because it’s such a fascinating topic but actually getting internal approval for a company to launch a satellite is something…

Yuya: You know, the Japanese company’s structure, because there are a lot of hierarchies. So if we talked with some person in the company, even if he is thrilled about this project, he needs to persuade their boss, and their boss needs to persuade their boss. It’s so difficult.

Tim: It’s the project that will die in committee for sure.

Yuya: So it is difficult for us to get a new customer for five years. But the environment is getting closer to us. More and more people have interest in this new business using space.

Tim: How do you think this is going to change it if launching a satellite using this new technology? So you were talking about three to five million dollars to launch a satellite. That opens it up to a whole new range of applications. So how do you think the use of satellites is going to change in the next ten years?

Yuya: We raised $15.8 million last month to launch three satellites in 2017. It’s for earth monitoring. We want to make it 50-satellite constellation by 2022. And by this infrastructure, we can monitor everything on earth on a daily basis and it’s a completely new infrastructure.

Tim: You would basically have a real time Google Maps.

Yuya: Yes, it’s about very similar. And the important point is that we’re providing a huge amount of data. And now big data or artificial intelligence is improving and it’s very suitable for analyzing our big data.

Tim: It’s a lot of data coming in but what’s the resolution of the..?

Yuya: Again it’s 2.5 meters.

Tim: 2.5 meters. Okay, so that’s enough to track ships at sea.

Yuya: Yes.

Tim: What sort of applications? How do you think this data would be put to good use?

Yuya: We are now thinking of agriculture, forestry.

Tim: Okay.

Yuya: And natural resources and business intelligence. We can monitor the amount of trade everyday then we can estimate the economical figures.

Tim: Sure you could see how much freight is moving in and out of every port in the world. You’ve mentioned before there’s a lot of American companies working in satellite tech. Is this a global market or is this a kind of each country has its own strategic satellite industry?

Yuya: It’s a global market by nature because satellites are orbiting and with just one satellite we can monitor everywhere on earth. So we should go global when we do business in this satellite market.

Tim: That makes sense. Yeah. And the commercial side, of course it’s the very definition of global, isn’t it?

Yuya: Yes.

Tim: Actually, what is happening in aerospace now? There’s something amazing that’s just starting to happen. I mean, last month, Japan executed its first commercial satellite launch. American SpaceX is now working with NASA to send astronauts up to the International Space Station. Blue Origin just landed a suborbital Shephard rocket back on its own platform. A few months back, ESA soft-landed a probe on a frigging comet. It just seems that, like the space shuttle was first launched in 1980? Something like that?

Yuya: Yes

Tim: And then there was this long stretch of incremental improvements and it just seems like in the last year or two, there’s this tremendous amount of innovation. What’s happening? What’s driving this change?

Yuya: I think this industry is moving forward to a next phase. At first, the government orders the private sector and the private sector makes something for the government.

Tim: Right.

Yuya: That was the first age of space industry. Now, the private sector tried to use space by themselves. So that’s why we are speeding up to make innovative thing and we are making products in a year or something like that.

Tim: So the governments have just taken a hands-off approach?

Yuya: Yeah. I think so.

Tim: … in the technologies. Okay, but I don’t imagine the governments are too hands-off because if you’ve got global coverage with 2.5 meter resolution that allows you to see a whole lot of things that a lot of governments don’t want you to see. So what is the plan? How are you going to be dealing with that?

Yuya: Yes, it’s very sensitive, right? But the government doesn’t want us to look at military base or other sensitive places but their limitation about ground resolution is around one meter. But you know our case; the ground resolution is about 2.5 meters so there is no problem about that.

Tim: Really? And is that a globally agreed upon standard?

Yuya: There is no standard. But most of the countries care about one meter or better resolution images.

Tim: Alright.

Yuya: So that’s why we are choosing 2.5 meters. That’s not a technological limitation.

Tim: Ah, okay. So it’s strictly a business decision rather than a technological one.

Yuya: What we want to do is to cover the whole globe with our 50 satellites. Most of the US satellite company is focusing on the better resolution with small satellites. Our strategy is certainly different. But what’s important is with 2.5 meters resolution, we can’t detect cars on the road, we want to analyze the city area, urban area as well, not only the farm land or forests.

Tim: Are you going to continue to launch and develop satellites for other companies?

Yuya: Yes, I think it’s important function because we want to keep our technology at high level. By possessing that satellite developing functions, we can be more flexible about the needs from the market.

Tim: On a personal level, so you had to move from being almost a lifetime engineer into being CEO very quickly. In that transition, what did you have to learn? What was the hardest thing to learn? And what did you have to change about yourself to become a good CEO?

Yuya: They said I was a visionary engineer but at the same time, I had some interest in managing a team.

Tim: Okay.

Yuya: So, that’s why I tried to become a CEO when establishing a company. After that, I found a lot of difficulties about managing the company.

Tim: What kind of stuff?

Yuya: When we were developing the first microsatellite with just three engineers there were no problems. But number of engineers was increasing and when we have 78 engineers, I noticed that I need to care about them, our employees. Actually, I like to talk with customers, it’s much easier than talking with employees because they are always with me and they are thinking about our company every day. So they have a lot of ideas and I need to ask about that. I need to have them talk about that.

Tim: And the more people there are the harder that is.

Yuya: Yeah, I believe so. I don’t have MBA and so I don’t have the strategic theory about managing a company.

Tim: Actually that probably works in your advantage.

Yuya: I think so.

Tim: I’m an engineer myself. And I’ve started four companies and almost every engineer I’ve talked with, they say the hardest thing they had to learn was the people skills.

Yuya: Yeah, right.

Tim: How to deal with 20 people who need your attention all the time.

Yuya: Yes.

Tim: So when you talked with your friends back from the University of Tokyo, I’m sure that majority them did go on to take the really good jobs in government and industry. Do they think you’re crazy for what you’re doing? Do they understand what you’re doing?

Yuya: Maybe half of my friends are very supportive. But the rest of my friends think I’m crazy.

Tim: You talked before about role models. So when you were younger in high school or even in college, who were your role models? Who inspired you?

Yuya: Actually I didn’t have such kind of that role model.

Tim: Really?

Yuya: That’s why I decided to make a startup company at the very end of my decision.

Tim: As the last choice?

Yuya: Yes, that was the last choice. Actually, I haven’t imagined establishing my own company. Now, the university has an education for entrepreneurs but there weren’t any when I was a student. I had no idea about establishing a company. I was just thinking about which company would make me develop more satellites or something like that. But I realized it’s difficult. So without the fund for startup company from the university, I don’t think I would imagine making us a company.

Tim: The US has dominated the aerospace industries since the Wright brothers really with recent advances by Mitsubishi, Honda, and of course Axelspace. Do you think Japan will be able to become a global player in the aerospace industry?

Yuya: It’s difficult for Japan to win in every field of the space but if we focus on some part like microsatellites or private jets or something like that, it’s possible for us to win.

Tim: Other than obviously microsatellites, what do you think that the Japanese aerospace industry has the best chance of becoming a global player in it?

Yuya: I think they should give up the full support from the government. And that’s the only way to win in the global market because they are so accustomed to gaining funds from the government. So they didn’t take risks in doing business.

Tim: It goes back to that same problem you talked about before and why satellites cost a hundred times more than they have to.

Yuya: So it’s true. Honda is doing business by themselves. They don’t get any subsidies from the government, right?

Tim: That’s right.

Yuya: So that’s why they are focusing on business and they are selling many private jets in the US. But the Mitsubishi is getting so much money from the government to develop even MRJ. I understand that it’s very difficult to develop by themselves. It’s a huge project, but with the government fund…

Tim: You think they’ll rely on the government money rather than relying on innovation to move the company forward. Your money is on independent companies like Honda and Axelspace to move forward in aerospace. That makes a lot of sense. Well the government clearly has a role to play in both promoting aerospace and promoting startups. What kind of things do you think the government should be doing?

Yuya: In the case of microsatellites, I want them to become a client. What they were doing is just give us some money to develop a satellite. But the satellite is useless because we don’t have a customer. Just developing a satellite. It’s meaningless.

Tim: You’d rather have them give you a project. Well that you’ve been on a project.

Yuya: Actually, what we need is not the money. We want a customer and it’s very important for us to have a government customer because they’re improving our credibility.

Tim: Right.

Yuya: If the government is using our products, other companies in the private sector are very easy to buy our products as well. So it’s very important for them to show that we are supporting this company or this industry.

Tim: Right. Now the Japanese government launches a fair number of satellites. Is Axelspace able to bid on those jobs or do they go straight out to Mitsubishi and the big companies?

Yuya: Currently the Japanese government is planning to make large satellites only because they need to give jobs for Mitsubishi and NEC in turn. So I think they need to change the strategy. They need to define what they want.

Tim: Right.

Yuya: Not supporting the company. I think that’s the only way for the private sector to cut the cost and shorten the delivery time and win the customer in the real market.

Tim: I think that’s the key like say there has to be a real market for it. This has been a great conversation. Thanks so much for sitting with me. I really appreciate it.

Yuya: Thank you.

And we’re back.

It’s kind of amazing that Yuya’s first approach was a small step above door to door satellite sales. But they seem well underway now. And it will be interesting to see that if they’re better on the commercial sector rather than the government sector will pay off and whether their decision to go with the 2.5 meter resolution will enable them to achieve widespread adoption without governmental interference. But you know, one of the most optimistic points that Yuya made was that we really do seem to be at the beginning of a huge leap forward in aerospace worldwide, whether it’s the result of governments being more hands-off or the technology finally becoming affordable enough for commercial companies to innovate on. It’s debatable, but there’s no question that something big is starting to happen here. Hopefully these advances will force governments to rethink the way they develop satellites and to let the little guys to actually compete in the market.

 

If you have a passion about satellites or space technology, come on by disruptingjapan.com/show038 and tell us about it. Or drop by the Disrupting Japan Facebook page. We’d love to hear from you. And when you drop by the site, you’ll see all the links and sites that Yuya and I talked about and much, much more in the resources section of the post. And if you get a chance, please leave us an honest review on iTunes. It’s really the best way you can support the show and help us get the word out. But most all, thanks for listening and thank you for letting people interested in Japanese startups know about the show. I’m Tim Romero and thanks for listening to Disrupting Japan.