Paul Eremenko remarks at the A^3 launch event
Delivered at A^3 – San Jose, California
May, 18 2016 (edited)
Good afternoon! I am Paul Eremenko, I am the CEO of A^3 and I am here to warm you up a little bit for Allan McArtor, our keynote speaker today. But before we get there, I’d like to tell you a bit about who we are and why we are here.
You don’t need to look further than this room to see that aerospace is a much different industry today than it was a decade or two ago. We stand at the convergence of several tech trends: the commoditization of navigation sensors — gyros, accels, GPS — thanks to the smartphone industry, a boom in artificial intelligence enabled by Moore’s Law, additive manufacturing, electrification of everything, and so on. These, combined with relatively easy access to capital, and a growing interest in transportation and aerospace among the dot-com generation have resulted in a dramatic lowering of the barrier-to-entry and democratization of innovation in our industry. I think it’s absolutely thrilling! We haven’t seen anything like it since the early days of aviation!
This remarkable pace and volume of innovation inevitably creates opportunities — or risks (depending which side of the table you are on) — for disruption.
I use the term “disruption” not just to mean “cool and new,” but as a term of art as coined by Clay Christensen in the Innovator’s Dilemma. It means displacing an existing market by either:
- Addressing an unmet user need — case and point, the impact of AirBnB on the hotel and hospitality industry;
- Creating a low-end entrant — a great example here, closer to home, is the SpaceX Falcon 9, undercutting most of the existing commercial launch capability, including our own.
And when I say “our commercial business,” I am speaking about Airbus Group. Just to level-set everyone, Airbus Group, formerly known as EADS, is a global aerospace company headquartered in Toulouse, France, with around 130,000 employees, just shy of USD$70 billion in annual revenues, and the parent company of Airbus (the world’s leading maker of large commercial aircraft), Airbus Helicopters (the largest maker of civil helicopters in the world), and Airbus Defense and Space (which makes satellites, drones, launch vehicles, and various defense products). We have the heads of engineering of all three divisions here with us today, as well as the CTO. So be sure to chat with them. They build some amazing products.
A^3 is the Silicon Valley outpost of Airbus Group. Tom Enders, the Group CEO and my boss, created A^3 last summer and charged us with the explicit mission: to disrupt Airbus Group (and of course also the rest of the aerospace industry) before someone else can.
Now let that sink in, because we take this mission quite literally. In some sense the mission is a rather narrow one. We do not, for instance, focus on radical or breakthrough technologies. We do not compete with the R&T efforts of the divisions or the Group CTO organization. Instead, we look for product concepts (sometimes enabled by one or more new technologies), business models, processes/methods/tools that can disrupt the business of making things that fly — and of course in the process create new ones.
You all should’ve gotten a little map when you arrived today. It’s meant to explain how we operate at A^3. So I’ll say a few words about it, and you can follow along if you wish! We do three things: projects, partnerships, and seed venture investing.
We run a small portfolio of projects which are designed to foment disruption. Our projects utilize a DARPA-inspired model of execution. They are led by Project Executives who are, in essence, empowered to be the Chief Executive of their project, once they pitch it to me and Eduardo Dominguez Puerta, our COO, and secure project approval. They stay only for the duration of the project.
We fondly call our Project Executives “jackalopes” — we recently pivoted away from “unicorns” — because they are that mythical creature that embodies world-class technical expertise, management acumen, passion and evangelism for their project idea, and the urgency to get it done. And they can jump really high. Which is pretty much indistinguishable from flying.
We optimize our projects — and, in fact, the whole A^3 organization — for speed of execution, both to outpace the competition, but also to incentivize risk tolerance. When the Project Executives arrive, we remind them that each week of delay constitutes one percent of their base tenure with A^3 — and that they are not here to build a career. So if they have the choice between burning down risk, playing nice, and asking for permission versus running like hell, parallel-tracking, taking risks, and pissing off whomever they need to — guess which option they pick?
We also strive for maximum openness. This manifests itself in two ways. First, our default is transparency rather than stealth. So as our projects progress, you will see a lot of open source development, frequent updates, and opportunities to engage with them. And second, we seek to utilize the ecosystem of startups, universities, and other partners wherever possible, rather than trying to vertically integrate our project teams. We believe that we have a better chance at capturing world-class talent and leveraging the Silicon Valley community this way.
Now, you might say, this is squarely in tension with our first goal: optimizing for speed. And I agree. So we are focusing tremendous efforts on what I call “frictionless contracting” — devising a system of contract vehicles, templates, and tools that allows us to engage with external partners quickly, on terms that are equitable and pragmatic, and that doesn’t scare away startups and academics.
So, speed, openness … and the last major element of our project model is a laser-sharp focus on product. This means that our projects have a solid business model and business case that are regularly re-evaluated and calibrated by an independent party. And we structure our projects into two phases. The first — the alpha phase — culminates in a first prototype. And we have the autonomy to undertake it without asking for anyone’s permission. If it’s truly disruptive, it’s unlikely to garner a lot of enthusiasm from our core business.
And if we were like most corporate labs, we’d stop there. We’d take our prototype, we would go to the product organization and we would say, “Look! It’s amazing! You should take it and make it into a product.” And they would say, “Meh. It wasn’t invented here. It’s not very robust. You’ll never certify it. There is no proof that there’s a market for it. And by the way, we don’t think our users really want it.” This is the typical valley of death between lab and product.
So for successful projects, we take them into a beta phase. In the beta phase, we require skin in the game from the transition customer: be it talent, money, facilities … whatever. And if we can’t find an internal customer and don’t see a new line of business for Airbus Group, we have the option to spin out the project. In which case we would want skin in the game from an external customer or investor just so we know we are not just drinking our own bathwater.
But in either scenario, by the end of the beta phase we want to get to a productizable demonstrator — or demonstration at convincing scale — which usually means at least a limited market pilot. While we can’t build an entire product organization here at A^3, we aim to retire not just the top technical risks, but also the major regulatory, manufacturing, market, and user acceptance risks by the end of beta.
Today, we have three projects that were approved and started in the last few months. Each of them will be quite open and quite visible just as soon as they have all of their ducks in a row. But in general terms, we have:
- Ponton, run by the talented Uma Subramanian — A project to pilot the business model for on-demand access to helicopters in urban areas.
- Vahana, led by Rodin Lyasoff — a vehicle project at the convergence of electric VTOL flight and autonomy. It will be open, including an open-source software stack in the coming months once we’ve had a chance to coordinate with the regulators.
- Picard, led by Jason Chua — a clean-sheet rethinking of the passenger experience in large commercial aircraft, which hasn’t changed much since the dawn of commercial aviation. It’s as much a technical and design challenge, as one of business model and value chain. But in the end, I want my in-flight experience to be delightful and maybe even magical. Something I look forward to.
And we have several other projects in various stages of development, including a focus on human performance in engineering organizations, advanced design and manufacturing, and microspace (that means really small satellites).
The second main thrust of what we do at A^3 is scouting of new technologies and companies that can be disruptive to our core business. The goal there is to become early adopters, and so our partnerships team, led by David Fishman, facilitates rapid pilots between Silicon Valley companies and our core businesses.
Additionally, David puts on events like this one, which we aim to repeat regularly, with a different thematic focus each time, to bring together the industry here, and provide updates on our projects. And while we’ve started with a focus on Silicon Valley, we have global ambitions and expect to expand our reach into other innovation hubs such as Shanghai, Berlin, and Tel Aviv.
A^3-AV VENTURE INVESTING
Our third, and newest thrust at A^3 is seed-stage venture investing. Most of you probably heard that Airbus Ventures was created at the same time as A^3 last year with a $150M in capital from Airbus Group. Well the majority of those funds are going toward financially-driven investing in Series B (+/- a series) financing rounds with an aerospace-focused investment thesis.
More recently — just in the last month, in fact — we’ve created a $10M seed-stage fund that is jointly run by A^3 and Airbus Ventures. A^3 is responsible for deal flow generation, much of the due diligence, and the post-investment engagement with the portfolio companies, be it mentorship, board seats, or partnerships on A^3 or other Airbus Group projects.
Our investment thesis for the seed fund is basically the plot of a solid, physics-based, hard sci-fi novel. We are interested in future energy and propulsion technologies, quantum computing and quantum communications, artificial intelligence, and deep space exploitation. Maryanna Saenko just joined us today and she will run the seed fund from the A^3 side.
There are very few — perhaps none at all — examples of an established company disrupting itself without going through a near-death experience. There is usually neither incentive nor imperative to do so. But Airbus, although our established businesses are doing very well, is not just any company.
Not so long ago — and indeed very recently by aerospace industry standards — we were the disruptor. In spite of unlikely odds as a multi-national, multi-cultural company — in a time long before that was cool — our arrival drove Lockheed out of the commercial aircraft business, and ultimately McDonnell Douglas to sell itself to Boeing.
From introducing fly-by-wire and digital flight controls to commercial aviation in spite of widespread industry skepticism… to building the world’s largest commercial aircraft… to humanity’s first landing on a comet… teaming up with an intrepid group of aerospace renegades to fly a glider to 90,000 ft… or blanketing Low Earth Orbit with a constellation of 700 satellites to provide ubiquitous affordable broadband, we are not a company that shies away from taking a big bet. So if any major industrial player in aerospace can disrupt itself and disrupt the field, my bet is on Airbus.
And that’s why we are here, and looking forward to working with all of you!