The Entrepreneurial Journey: Interview with Our Founder Kraettli L. Epperson
I recently had an opportunity to be interviewed by The Boston Computation Club, organized by several aspiring entrepreneurs and grad students at Northeastern University. I was interviewed by my long-time friend and PhD student at Northeastern, Max von Hippel.
In this interview, as the founder of JumpPhase Ventures and Vigilant Aerospace Systems, I discuss with Max the intricate balance of commercializing tech innovations while maintaining regulatory compliance, particularly in the aerospace sector. Kraettli, CEO and co-founder of Vigilant Aerospace Systems, shares insights from his diverse career journey, which spans entrepreneurship, venture capital, and navigating high-security tech industries. They explore topics such as the challenges of scaling a startup, the importance of standards in innovation, and the role of Small Business Innovation Research (SBIR) grants in driving early-stage tech development. The conversation offers a deep dive into the complexities of managing technical, regulatory, and market demands when transitioning innovations from R&D into viable commercial products.
Enjoy!
TRANSCRIPT:
Max von Hippel:
Awesome, so Kraettli. Thanks for joining us today. You and I have sort of a funny relationship. I’ve worked for you off and on part-time for almost, I think maybe even close to six years now throughout part of undergrad and grad school, which my global recommendation to peoples don’t do grad school, but if you do have a job because it’s much nicer when you’re not poor. But you’ve also done a lot of stuff before that. So I think this is a cool opportunity for us as grad students to learn a little bit about what it means to actually commercialize tech instead of just making things that go on GitHub, run once for a paper and then never get run again, which is what many of us do. So thanks for joining us and you should be able to share screen now if you want for your introductory slides since I’ve made you co-host.
Kraettli L. Epperson:
Alright, I’ll do that. All right, here we go. All right, so you can still see me hopefully?
Max von Hippel:
Yep.
Kraettli L. Epperson:
Hey, all right. So Max, thanks. I am delighted to be here and talking with you, and I really want you all to have the opportunity to direct this however you want and ask whatever questions you want. But I have this PowerPoint that provides a little bit of background about some of the things that I’ve done, just to give you some context for how I might answer questions. And if you don’t mind, I’ll just take a couple of minutes, five minutes or so to go through a few of these slides, and then we can start into q and a and then I can grab other slides if I want to answer a question with a slide. So as Max said, I’m currently Epson. I’m currently the CEO and co-founder of a company called Vigilant Aerospace Systems. And we do software for safety for mostly drones, but also for other types of aircraft and collision avoidance, aerospace management.
So you want to track where all the aircraft are. Our software does those things, and we’re increasingly doing it for a wide variety of people. So that’s what I do right now, and I think that’s why Max invited me on here. Max and I have worked together for a long time. He was a NASA intern when I first met Max, and he worked for the inventor of the patents that underlie this technology. And so we’ve moved beyond those patents in many ways, and we’ve actually done three agreements, licensing agreements with NASA at this point over the course of that relationship with nasa, but we also do a lot of other stuff in addition to what’s in the patents, but that’s how we met Max. And so he was obviously very competitive, got that internship at nasa, did work for Ricardo, and then we were extremely lucky to be able to hire him while he’s been working on his PhD to do work for Vigilant.
So okay, I’ll talk a little bit about myself. I have multiple sections to this, including a section that you may find interesting. It’s about entrepreneurship, business model questions, go to market questions, practical questions and capital and exit questions around startups. If we get into any of that, I’m happy to jump to some of those slides and maybe provide some coherence to my ramblings. So a little bit about the theme, this presentation, which I won’t make all of, but the theme is about democratizing access to technology because across my career, that’s really what I have focused on and it’s really become the theme for me. So my career journey, again, just to give some real quick context, graduated from Rice University as an undergrad, did a thesis in internet public policy, which was just an emerging idea at that point, and that was a lot of fun, learned a lot doing that.
Actually worked as a software developer while I was putting myself through school the last two years, and then subsequently graduated and joined a company called Reliant, which was an early internet application host. Before this was much of an idea, we did a lot of high security data hosting and other things. I was the first product manager there. So transitioned from software development work, product development work into the product manager for all of the new internet products at that company. And it was an early stage tech startup. I think I was technically the third employee, although I was part-time. I taught myself a lot of what I used in that job while I was answering the phone when their regular receptionist was out. That was my student status there when I first started. And then I went on after that and was very fortunate to found a company in London called Man Net that was also doing secure encrypted communications and database hosting for a wide variety of users, including some Middle East peace negotiators and for a lot of international trade and shipping companies and some manufacturing companies.
So that was a high speed lesson in building a company, not a huge company, highly specialized boutique, but we did encrypted communications in a pretty demanding kind of environment. So I got some background in security, a lot of background in security, setting up the data center and running that at a time when you just couldn’t go out and sort of buy into a data center and download tools. You really had to build a lot of it yourself. After that, I was very fortunate. I exited that company and I had an opportunity to co-found a company called Questia Media in the early two thousands. This started out with two friends and a one room apartment in a bad part of Houston. And I pulled my checkbook out, bought a server, and we kind of wrote the MVP version of our product for this. We ended up hiring 300 people, having dedicated data centers in multiple cities.
We had offices in Manila, Manhattan, London, anywhere that either there were major publishers in the world that we had to negotiate with because we had an online library. It ended up being the world’s largest academic online library or where we had to have back office processing of books, so scanning, labeling, all kinds of stuff. That was in Manila and elsewhere. So that grew extremely quickly. Over a few years, I was eventually able to exit that. It was actually acquired by Ngage, which is kind of an umbrella company that owns Gale Publishing, which is one of the largest textbook publishers in the world. And you may have even used this product at some point. This is a picture of what one of the user interfaces looks like from a few years ago. It’s probably gone on from here, but there are a lot of people, millions of people use this product now.
And I find that kind of funny. I literally designed this terrible clunky version in a one room apartment in Houston when we started. So after exiting that was able to do some other things, I created an organization first called the Epperson Group, and then eventually it became Jump Phase Ventures and spent some time as a Rice University adjunct professor and entrepreneurship. This was before there was a lot of entrepreneur education going on, particularly not outside business schools. So this was really focused on helping young engineering students, for example, to think about entrepreneurship and whether that would be part of their career, give them some sort of practical experience, putting a business plan together and things like that. And then co-founded several other companies are some solutions. And then I’ll talk about briefly and then ran a couple of seed funds doing investment, and then some of the investors.
And one of those seed funds actually are the backers of Vigilant Aerospace. So it’s kind of a continuous string of startups. R seven solutions was one of these. We built geospatial management systems for workflow. So tagging of items on, for example, the National Natural Gas Pipeline system. Several of those companies that run those pipelines were major customers of ours. So we built systems to manage those pipelines using really detailed mapping systems. This is how they used to do it. You’d put it up on a wall, print it out on one of these massive plotters, and you’d have all of your infrastructure, all of your pipelines, everything, and you’d mark it up and then eventually you’d print it out again and throw the old one away. And so we created systems to allow ’em to do all that online, particularly for what’s called right of way where you’re figuring out where your pipeline is going or your power line or where your wind farm is going. And so we moved all that online and allowed them to share it on a website and hosted that for them. So that was really our claim to fame. Learned a lot running that company and won a couple of awards and had big contracts with people who were running major pipeline companies and other things.
In the midst of that, I don’t have a lot in this presentation, but after I actually, while I was running this, I started investing in other companies as an angel investor. So I was very involved in the Houston Angel Network, which is one of the most active angel investor networks in the us. Angel investors of course, are people who invest with their own money into very early stage companies. Usually small checks, 25,000. Sometimes an angel investor will do 150, 200,000, but usually it’s their own money and they’re investing it with a small group of friends. And if they get organized about it, they’ll create a network where they meet with companies regularly and figure out who knows what and how to do those small investments. So I was involved with the Houston Angel network, was on the board of directors there, created their due diligence process and then went on after that to create a couple of seed funds that were doing investment while I was running a venture accelerator. You all are probably very familiar with that. I know Max is very familiar with venture accelerators. So I ran a couple of years of Venture Accelerator, two cohorts that did extremely well. We were able to double our cash and exit multiple companies from that within about 24 months. And so that was pretty exciting. And then after I did that, I was able to go on and co-found this company, vigilant Aerospace. So this is focused on integration of drones into the national airspace. It did start with these NASA patents that I mentioned.
This is a rapidly evolving market. And so even things I talked about two years ago when I first created, those have changed a lot, but a lot of it is about providing that system to be able to see what’s going on around you with multiple sensors saying there’s an airplane, there’s an airplane, there’s a drone. Put ’em all on the screen and warn you with technical standards based warnings that have what’s called a resolution advisory. Basically a command turn right turn left, get out of the way, that guy’s going to hit you. You don’t want that. And so that’s really fundamentally what the software does. Max is extremely familiar with all the ins and outs having developed very important features inside this software. So we have a team that works on that and we do a variety of field testing. This is us picture of us doing some field testing actually at NASA Armstrong, which is where Max did his internship.
So he’s familiar with that Mor Rock field out there. This is a picture of an early version actually of this software. You can see there are circles around this white aircraft that’s you. That’s the one that you are flying, you don’t want to hit other people. And then you’ve got other people predicted coming to close to you. And so the software starts telling you, Hey, this is a danger. You need to do something about this. You need to fly in this case over that other aircraft, and the software tells you what to do. This is a diagram. I won’t go into all this. This is more information about the company. The US commercial drone fleet is growing, although increasingly we’re working with larger military drones like the one that Ricardo, who is back is to us in the left hand picture here. He’s installing some avionics on the Icona, which is a civilian MQ nine Reaper that NASA operates.
And there he is on the right hand side using very early version of some of the software, but that’s what Ricardo does. He is an avionics expert at kind of a national level for nasa. If they have an avionics problem, they will call Ricardo and he’ll come fix it or he’ll install new hardware and make sure it all works. So he’s an amazing national asset. That’s a picture of the akana flying around the desert kind of above where some of the prior photos were. This is us doing our licensing in which we went to Armstrong and actually signed paperwork with NASA and celebrated that. That was pretty exciting. That’s us standing next to that icon there. This is us flying some drones around very small aircraft and us doing a lot more testing. I don’t think, I don’t even have any pictures of Max here.
Max has pictures of himself here. And then this is, NASA’s subsequently used this. This is them using it actually on a kneeboard when they fly their F eighteens around. We do some F 18 supersonic tracking. We do small aircraft tracking, et cetera. This is us with a field-based system. This is a more modern version of this software actually tracking a bunch of aircraft. This is us doing the same thing in Alaska. So we got an FA contract to deploy our system up there and test it. And increasingly, we’re now the leader in multi-sensor airspace management technology. So that’s really what our focus is. That’s the system onboard, which is pretty fun. So take everything we do and put it in a little tiny box.
Won a variety of awards. I won’t go into all of those. The highest award was NASA’s commercial invention of the year award 2021. And that was really the culmination of our journey with NASA where they recognized this as the top commercial product that had emerged from nasa. So that was pretty exciting. Have published some papers. We’ve gotten quite a bit of press. I speak regularly. That’s an important part of our outbound marketing. And so that’s my presentation. I’ll stop there and jump back in if you all have anything I should jump back to, but that’s the background and history there.
Max von Hippel:
Awesome. Thank you Kraettli. Okay, so I’ll get us started with a couple questions and then people feel of inspiration, just unmute and jump in. So a commonality across a bunch of the businesses that you’ve created or worked at is that you’re kind of a hot target for malicious actors. If I want to hack Amnesty International boy, it’s much easier if I can hack the people providing the security software to Amnesty International. If I want to hack the Predator drone, it’s easier if I can hack the people who make the code that stops the predator drone from crashing into something. So how do you think about this kind of supply chain problem as a person who is the supply chain? I would think a big part of the business is delivering that sense of security to the customer and actual security to the customer. And I wonder how you approach that, how you think about it from a business perspective as well as a technological perspective.
Kraettli L. Epperson:
Yeah, so that’s an interesting question Max. So we do think about that and we do think about security. I’m kind of a fundamentalist when it comes to security, and I’ll talk to you about what I mean by that. We increasingly vigilant in particular is a company that is increasingly subject to military and government regulation about how we do security. It’s very checklist driven. And so we’re moving into a world where it’s less checklist driven and it will be more automated so that you’ll actually have a process where there’s some automation and hopefully some AI and machine learning that’ll actually test your systems and help you determine. And those services are already emerging. But right now, the kinds of things that we’re subject to tend to be checklist driven. And so we follow the checklists. Fortunately, having built secure data centers and run security software, I have some idea of how to do that and what it means to check a box on that list, what the government is asking and how to interpret that.
So we do some of that and increasingly we have professionals that handle that kind of thing. So I think when I say I’m a security fundamentalist in terms of the supply chain question of product that we are putting out for other people to use and how we go from a blank page to a product to something we’re testing to something a third party has to trust and use, I mean that’s really important. We focus on knowing that code inside and out and knowing what tools we’re using. So we’re not using any black boxes when I say that we’re really looking at it. That’s step number one is we’re not using stuff we don’t trust and if we use something, we have to get to know it. That’s kind of the nature of what we’re writing. And if we’re using open source code, that’s very defensible because it’s been looked at by a lot of people, particularly stuff that relates to hardware integration or aviation.
That tends to get a lot of scrutiny if you’re using an open source toolkit, which some of which we do. And then in some cases we’re using other specialized tools that also have a high degree of security. Things from Microsoft, things from Oracle and Java, for example, that have a lot of built in security. They have a long pedigree of being used in big government projects. And so we’re able to follow that pedigree and use systems and use them in the way that they’re recommended. So that’s just kind of a general answer, but that is how I approach it and it’s how we approach it as a company is we don’t have a lot of black boxes essentially attached to what we do. And when we go out, we’re very intimate with how it’s going to be used and how it’s installed and what people are doing with it. And that’s not only for security, but it’s because the code is proprietary. And so we don’t really hand it out. We’re in a position where we have a high degree of control because of the nature of our business, we really have to have a high degree of control. Ultimately, we are complying with industry regulations. And so that has additional heightened requirements over say a consumer product or even a business product, like a typical business product. We’re subject to much higher degrees of regulation and scrutiny.
Max von Hippel:
Yeah, that’s interesting. So I had never encountered regulatory documents until I worked for you, and I think they’re fascinating. And on Kit, who’s on this call also studies formal methods. I do. And the two of us write in our papers about how great it would be if other industries would bother to have regulatory documents. And here you are in this industry that has them. And so from our perspective as academics, that’s rad and incredibly cool. It makes everything nice, but I could venture to guess that maybe business people would have a different perspective. I don’t know, maybe they like it for different reasons. Having worked in a bunch of different industries, how do you feel about having things like RTCA that write these regulatory documents people agree to? And that becomes sort of like pseudo-government things, right? Because they get accepted by regulatory agencies to some degree, right? So can you comment on that? When is it useful? When is it not useful? Both in terms of saving life, but also just from a purely financial perspective, when is it a positive or negative thing?
Kraettli L. Epperson:
Yeah, sure. So I serve on several A STM subcommittees. They’re actually working groups. They’re part of a subcommittee called F 38 that focuses on UNC crewed aircraft and autonomous systems. And then I serve on the SC special committee 2 28 for RTCA. I don’t have as much time for that, but we do follow what they do because it’s very important to our industry. And they write a lot of the regulations for larger drones of various kinds and how they would do collision avoidance basically. So from my personal point of view, there’s two things, right? There are regulations and there are industry technical standards. And this is something I knew nothing about this until I joined A STM and started doing this work week by week. And there’re actually fantastic. They’re really interesting things and there are people who don’t like them, and I’ll talk a little bit about that.
But at the end of the day, they perform two or three really, really crucial functions. So the first function that they perform is that they provide the product developer ultimately the commercial thing that you’re going to use, whether you’re Boeing or whether you’re the person putting their jeans on in the morning, they provide a technical standard for what product you bought. And so that’s incredibly important and it allows what the regulators do with all of these standards for aviation. And in other industries, they do this as well. If they’re regulated industries, they create what’s called a means of compliance where they declare that a particular standard can be used to meet a regulatory requirement. That’s really magical. It’s really interesting. The way that it works is Congress tells FA, create a regulation, regulate this FAA, then as essentially a civil service function creates those regulations.
They have a lot of experts on staff that do that. And then they say to industry, you need to meet these regulations whether you’re a manufacturer or an operator. And so industry shrugs and says, wow, that looks really hard. This is really complicated. And a bunch of engineers wrote this very complicated regulation. Or sometimes it’s the opposite. Sometimes the regulation is be safe. It’s like, okay, how do I do that? What does that mean in the context of this subsystem? How do I be safe? And so that’s where the standard writers show up. So other people with varying degrees of expertise, A STM for example, every working group has three components. It has to have some regulators. So we have people from the us, people from Canada, people from Europe, France, eu in that a third of it has to be manufacturers, essentially suppliers, and there can be academics and others as well.
And then a third of it needs to be system integrators and end users needs to be people who are ultimately part of the end user group somehow. So we fall in that category. Typically we’re system integrator technically, and we typically are included in, and they like to have us because they don’t have very many end users that want to do this kind of work. And so that’s how A STM figures out how to put together a standard is by having those groups come together. And then they have what’s called a consensus standard where you have representatives from the industry who voted on it and said, this is a useful standard, and it’s between 10 and a hundred pages and it’s very fine print. It’s typically supposed to be performance oriented. That’s a philosophy. And a lot of regulatory groups, in other words, don’t tell me exactly the type of fabric and metal the seatbelt needs to be made out of. Tell me what the strength of the seatbelt needs to be and roughly how big it has to be and where it has to be installed, and I’ll figure out the rest of it. And so those tend to be the well-regarded standards that people like to use
Max von Hippel:
In essence, because it should leave room for competition.
Kraettli L. Epperson:
It leaves room for innovation. If I want to use spider silk to develop your seatbelt so that it’s super strong and is the best on the market and it’s the lightest weight for your aircraft, I should be free to do that. Whereas if I’m dictated I can only use canvas, then I can’t use any spider silk. So that’s the push and pull of these things at the same time. That can be really frustrating when you end up with a standard that says essentially be safe again, where it’s not specific enough. And then it’s like, how do I follow this standard? I have to write a standard for the standard. And in fact, there is a process where you write a testing standard for a standard where you say, in order to comply with this standard, these are the reporting artifacts you as a company must produce to demonstrate that you’re actually following the technical standard, which then allows you to say, you stamp it with approval and then in many cases, the FAA or somebody else has to stamp it with approval, and then you’re actually officially following the regulation, which is magical.
So anyway, that’s a big explanation. Standards are an interesting area of practice, and I think absolutely max, when it comes to formal methods, there should be strong overlap between the way these technical standards work and how you would approach this from a formal methods point of view. From a practical point of view, I’ll just say a couple of other things. Standards allow venture capital investment. That’s really what it comes down to. They allow investment into industries that are otherwise very nebulous. So if you go out and say, I’m going to develop this magical thing to fill this need that the FA currently regulates, and you should give me a million dollars to do that, right? It happens every day all across the US in the world, people are walking into rooms and pitching their idea. And if you are in a position where you can say, there’s actually a technical standard for how you do this, our product is designed to meet that technical standard or with your million dollars, we’ll make it meet that standard, and then we have a path to actually get our product onto an airplane or a boat or into a store or into a pharmacy, then suddenly people are like, I can invest in that.
So that’s really the magic of standards. And what’s crazy is when you don’t have standards, you end up with these massively weird kind of things where you have people who will invest in something, it’ll turn out that was a really bad approach that was never going to get approved by anybody, and nobody could figure out how to use it, even if it’s a really interesting concept or product or you have, nobody will invest in it. And this happens in our industry. You have investors who are like, well, we’re going to wait until they publish the next version of the standard, and they will know what the market should look like and what you’re going to have to develop for sure. And we totally see that. So that’s kind of the practical aspect of it. And the same for the engineering of the product. If you don’t have any type of roadmap, you’re making it up. And so standards really, really help a lot in establishing certainty. It’s really all about certainty. That’s the magic word.
Max von Hippel:
An example of that sort of popped into mind while you were talking about that was the 1911 pistol, which is nobody really uses anymore, but a historic pistol was designed around a standard that the military came up with for the cavalry. Chris has a 1911, so he’s smiling right now that he inherited from his father, but part of the standard was that you had to take it apart and seven or eight of them put them in a bucket, mix it up and put it back together. The idea being that it would still function even if the tolerances were a little off, you swapped parts. And that was an innovation in standards at the time. Nobody had done that. And then it made this phenomenal pistol that was used for a hundred years because it was so functional, because they were making something to that standard that had an innovation at the standards level, which is kind of fascinating. Right? Yeah.
Kraettli L. Epperson:
My brother has one, and I fire it pretty regularly. It’s actually amazing. I mean, yeah, totally.
Max von Hippel:
A lot
Kraettli L. Epperson:
Of different types of pistols. It’s amazing. Very
Max von Hippel:
Old, and feels like a modern invention, which is sort of fascinating. Until you
Kraettli L. Epperson:
Fired, you don’t know.
Max von Hippel:
Yeah. Okay, so another question which is about growth. So Vigilant has been a slowly growing company in the sense that it’s not like we got a ton of private equity and it become enormous with 300 people, but you also made a company that did that, right, which you spoke about, and those are different strategies. And I’m curious kind of how you decide on growth strategies and what sort of strategies make sense for different types of businesses, both from an investment perspective and also a strategic one in terms of having a business that can succeed for a long time and survive. We’ve seen some businesses crash and burn that became too big in the aerospace industry. I’m sure it happens all the time. So how do you think about that balancing act?
Kraettli L. Epperson:
Yeah. Yeah. So there’s two or three interlocking questions there. Okay. So you have three or four parties involved in making the decisions that end up impacting when and how a company grows. The story with Vigilant is very much about being in a very early stage in the industry, and there being a lot of change going on very slowly, honestly. So this, to be fair, is really my first highly regulated industry startup. And I had a lot to learn and understanding. So a lot of things I’ve just told you about technical standards and regulations and how it works. And then I’ve actually served on a advisory committees that essentially draft initial regulations that the FAA then adopts. That’s all been a learning process. So the growth model for Vigilant in particular has had to center on r and d, and it’s had to center on sponsored r and d because there was a limited amount of venture capital available for this very early, not very well understood problem of managing drones.
And so it’s really had to do a lot of r and d, and it’s been very fortunate that it’s got some government backing to do that because the commercial backing is for this kind of problem is very limited. So in companies in which you’re delivering a consumer product or a pretty well understood B2B product, it’s really about clearly defining the problem and the market and the market and essentially the go-to market. So with Vigilant, with Questia Media that I was talking about earlier where we were delivering a digital library product, it was completely unregulated. We could do anything we wanted obviously. So that’s an advantage. It’s a really big market. College students spend a lot of money on all kinds of stuff. This is something that a lot of parents would like to spend more money on versus the other things they could spend money on for their college student.
And so it was really just about could we deliver it? So there was some technical risk involved and there was a lot of logistical risk involved. How do you actually get tens of thousands of books online? That’s a huge logistical problem, and it required a lot of money these days. What’s hilarious, we had to build our own data center. This was in the late nineties, early two thousands these days. You would just throw it on the cloud and that reduces your cost of entry hugely. And so now you have companies like this pop up all the time where it’s like Airbnb has probably never owned a server. I mean, why would they own a server? And so the landscape is changing continuously. Eventually it’ll be like, why do you have employees? Don’t you have an AI that can do all that? It’s like not only do you not have servers, you don’t really have any employees either.
I mean, only certain businesses will work that way, but there will absolutely be businesses like that. There are already businesses that are emerging that look like that, particularly around crypto and things like that. So the interlocking parts of this have to do with number one, what problem are you trying to solve? Are you passionate about that problem? Are you knowledgeable or willing to become knowledgeable about that problem? And then is the market big enough to justify anybody else’s interest in that problem? We’ve all got hobbies, but is it a problem that a lot of people have that you have a way to disruptively solve, disruptively to do something? Disruptive is typically defined in sort of VC parlance as being 10 times better than whatever the alternative is. So there are things that end up being disruptive that maybe aren’t 10 times better, but that are five times better, but it has to be multiples better so that it really can grow quickly.
And so that’s typically what VCs are looking for. Not every company can or should be VC backed. That’s its own thing. There’s a lot of interest in VC backed companies because seen as sexy, but most of the economy is not driven by VC backed companies. There’s a lot of other stuff, including a lot of innovation. Up until recently, everything that was done for the military was either really big corporations or really small companies that innovated something and got bought by a really big corporation so that it could be produced and delivered in mass numbers. So that’s an example of there was not a lot of VC money in defense tech, and that’s changing. But those are the things that you look at when you figure out whether and how something can grow. And then you have to figure, then it’s all about strategy. It’s like, well, how are we going to develop this in a way that we can really scale it? Can we scale it in a way that doesn’t require a hundred million dollars? Can we get 10 million or 20 million and scale it rather than a hundred million? And those are the questions that can have a huge, make, a huge difference in your ability to grow, is really about being clever with your strategy. I mean, that’s something with Questia.
I mean, the clever thing that we did was the micropayment system. So what we did is, this is really a strategic question of how you get really big fast with very little money, because when we started, we had no money. We were three guys in a room literally. And yeah, we’d lower our voices and we would have extensions. We didn’t have a phone system, so we’d be on two different extensions across the room from each other. One of the guys was a smoker, so he had the lowest voice of all. And so he would call these publishers and say, we know you’ve got back stock. You have books that if you don’t publish at least a few copies every year, they’re going to go out of print and then they revert to the author and the author may or may not want them back. The author may or may not be alive, and you want to keep all those books in print, don’t you?
And the universal answer was, yeah, that’s our job. But right now for this soles book, we sell 10 copies a year to libraries across the US to replace the ones that got dropped in the snow, and that’s the only publication. We do have this, and we really don’t want to lose access to these works. So we’d say, well, look, we’ll keep it in print for you online and we’ll give you a percentage of the usage. So if we collect 20 bucks a month from students, and we have, this book represents 0.03%, 0.0004% of the usage of our overall subscriber base, we set aside a percentage of that subscription, and we’ll pay that directly to you, and you’ll keep it in print, you’ll make it available universally, and you’ll get paid for it, and you have to do nothing. All you do is sign the paper.
It’s literally a database of the books that you’re publishing through us. You don’t even have to do it exclusively with us. That was one of our initial things like, you don’t even have to do it. You can go do it with somebody else tomorrow if you don’t like us. And then we would literally have to go to eBay and garage sales and stuff like that to get these books and then get them digitized. And then we were the new publisher of that book, and we’d start sending these little checks to the publishers in London and Manhattan and other places. And once you do that with a few thousand books, suddenly you start looking like a business. And so that was a strategy. There were a lot of other things that we did that were pretty innovative there, but it was all about how to leverage. These were underutilized assets. I mean, classic underutilized asset. Airbnb is all about underutilized assets. What are you doing with your house this weekend? Well, I’m out of town. I don’t know. What are you doing with the spare bedroom? Nothing. And so those are ways to grow without having the a hundred million dollars investment. I don’t know if that answered your question max, but when we grow, those are the things. Yeah.
Max von Hippel:
Can you talk about SBIs, maybe first explain what they are and then I’d be curious, how do you think about them from business perspective, right? I mean this kind of free money aspect at first, but then also there’s this obvious issue that you have to do some contractual work, which distracts from the stuff you want to do for your business. And so there’s a strategic question there, and yeah, I’m curious how you think about them and also how hard they’re to get and how much kind of domain expertise goes into that. Sure. You’re much better at that now than you probably were when you started applying for them, I would imagine. Yeah.
Kraettli L. Epperson:
I mean, we’ve gained some knowledge, and I’m kind of at the journeyman level with SBIRs. We’re still figuring it all out.
Max von Hippel:
Oh, wait, we should first explain what an SBIR is because I don’t think that’s common knowledge.
Kraettli L. Epperson:
Yeah. Do you all have any experience interview with using SBIRs? No. Okay. So SB is the small business Innovation research program at the Small Business Administration. And it started out in the eighties in which the SBA said, we need more innovation in this country. We need to compete with other countries, and we need to be better supporting small businesses that are really the engines of innovation. How do we do that? And so what they did is they went out and they created a list of topics, things that were just beyond basic research, but not that far beyond. We don’t want you to develop full mousetrap. We want you to develop the spring system that can be used in mousetraps. And so it’s what’s a spring, but it’s not manufacture mousetraps. It’s in the middle there. And so that started in the eighties, and then they gradually started specializing it.
So NIH, so National Institutes of Health and the Department of Energy and Department of Transportation, and then various branches of the military now have their own flavors of these topics. And so what the government does, and the SBA particularly through these various offices is a couple times a year they publish a bail solicitation that says, these are the things we want to award contracts to small businesses to research for us with the idea that eventually you are going to create as a small business, a great new product that solves the problem of intrusive high altitude balloons or whatever it is that we’re worried about in this country today. And lung cancer, that’s one. There’s a lot of topics on that. So they put these out and they have to be tuned in a way that a small business could do it, which is really hard to do.
And then you apply, and if you win it, then they have a phase one, which is a small contract, and they all have slightly different conditions. The ones that we’ve done, or with the Air Force, and the Air Force has, you do a small contract, usually about 50 to 80,000 bucks, that requires you to develop the concept, mostly meaning creating documents and go out and talk to commands that might buy your product. So it’s really a marketing exercise, and they’re open about that. That’s what they want you to do is create a market for this innovation. Okay? That’s Air Force. Other ones, they have you do a prototype. So if you talk to NASA, for example, they have a larger phase one. And so they do these things in phases. So they have these slices of creating a new technology. And so phase one is always the first slice, and depending on what type you’re doing, who’s sponsoring it, what the solicitation says, it’s somewhere between create a plan, talk to people about the plan, figure out if it’s viable up to we’ll create a really basic prototype and prove that it could work, hook some gear together, take it out in a field, or maybe just in the lab and show us that there’s some legs to this, that it could go somewhere.
And so that’s usually what you do in the phase one. And if you’re successful, they do thousands of those and they’re small amounts of money compared to, and honestly, it’s kind of hard to get a real innovation done. And what’s usually a few months, like 3, 4, 5 months is the initial phase of these things. So that’s how it works. And then I’ll talk to you about what a phase two is very briefly. That’s a couple million dollar contract to do a real prototype, and that’s a very small percentage of those go to phase two. So we, for example, at Vigilant, we’re one of, I think 17 companies in the US that got a phase two, and that’s a really big deal. But within that Air Force program, they’re a larger air force. There’s other things, but within our subset of the A FRL stuff that we do, there were literally only 17 in the us.
This is considered the most successful innovation program in history. It’s certainly the most successful in modern history in the world. And when they started it, they had no idea. Thousands of government programs come and go, but this one has become historic because it has been at the root of so many innovations that have actually gone to market. And so it’s really considered, it’s the reason that it’s last as long as it has and is likely to continue to go on. And it continues to evolve pretty rapidly actually year by year from what we’re seeing. But it’s really considered the most successful way that the government has put money into innovation ever. And if you all work in academia to one year or another, and so you know that there’s a lot of theoretical work that goes on. And so this is a way for the government to steer some of their investment into things that are beyond theoretical that are supposed to have a market.
And that’s really the critical thing, is how do we create a product that’ll actually go to market? So a lot of moving parts, you asked about the contracting, it does require a significant amount of contracting work for a very small business. It requires a significant amount of proposal writing for a very small business. We’ve gotten a lot better at that. And there are services that will help you with aspects of that. But from our point of view, we think it’s a great program generally, but I’ll tell you where the real pitfall is, and this is the thing that anybody who’s been involved with it, and if you read books about it, you’ll find that this is what people talk about, is that getting to the end of that and having a prototype is not the same as having a product, and it’s not the same as the government buying your product.
And so there’s this value of death, right? In venture capital and investment in startups, there’s a value of death where you get really far, but then wow, you need a bunch of money or something to make it to market. And the same thing is true with SBIRs that you get to the point that you have a prototype. Maybe the people you’re talking to in the government really like it and they’re like, wow, that’s great. You should probably go make some more of those, and you probably need to raise some money to do that, and we wish you the best of luck. Call us back. If you find somebody that invests in that and you develop it a bunch more and it’s ready for us to put on every train or every sneaker or whatever it is that you’re developing, and that’s the value of death for the SBIR program, they’re really working hard to try and increase their conversion rate from these research projects into products. And it’s still higher than almost any other program, but it’s still lower than they would like. I don’t know the percentages off the top of my head, but it’s not a real high percentage that go from, certainly from phase ones. There are thousands of those. The phase twos though, those are intended to be a product and they really need to go on, but they don’t always convert. That’s challenging.
Max von Hippel:
I am always blown away, for lack of a better term, bureaucratic innovation that the government is capable of doing. It can be bad, but also that can be really impressive. Cool. Ideas that merge private and public capabilities and SBI are one another would be something like AppWorks, right? Or Intel. Yes. And
Kraettli L. Epperson:
Running. My battery’s running low. Give me two seconds here. Lemme plug this puppy in.
Max von Hippel:
By the way, Chris and I suspect so I didn’t see you for long enough to know for sure. If either of you have any questions, just go for it. We’ll do another 10 to 15 minutes, I think. Okay. So I was just going to ask, FWS and Intel are examples. This other examples, FFRDCs are kind of an example of something that’s not exactly government, but is run by government, is created by government and serves government. And I think that something our government is good at is this type of thing of making organizations that can be nimble and achieve things in ways that are not bogged down by the bureaucracy inherent to the federal government itself. So I’m curious, as a business owner, A CEO, how you interact with these types of pseudo-government organizations and the good and the bad. What are your interactions? When is it awesome? When is it frustrating from both a business and policy perspective? What do you think about these types of organizations that exist in the middle?
Kraettli L. Epperson:
So I don’t have a huge amount of personal experience outside of what we’ve done with Vigilant dealing with what are, they’re usually flavored as economic development efforts. Do you understand what I’m saying?
Max von Hippel:
Totally. Yeah.
Kraettli L. Epperson:
So you have organizations that are not governmental organizations. They tend to either be nonprofits or specialized for-profit companies whose job it is to help develop an industry or help startups or do something. There’s a bunch of ’em in Oklahoma right now that we’re interacting with. There’s a bunch of ’em there. We have offices in North Dakota and other places where we work with these organizations. They get money from the government and then they work in a variety of ways to help technology companies, startup companies of various kinds. And generally, I mean, some of the advantages of those are that they are less bureaucratic. They have a mission to help early stage companies, and that’s really typically all that they do. That’s why they exist. And some of ’em get really good at it. There are companies that just specialize in this, and they’ll run venture accelerators and they’ll run small seed funds and do grant programs and competitions, and some of ’em just run events and help you find venture capital and stuff like that.
And then there’s other varieties. I’m talking about kind of a narrow niche within that range of things that get government money, have a government mandated mission, but are not government entities. They’re like NGOs almost. And we interact with several of those, and it’s complicated. I mean, they have to follow a bunch of rules, but they also have a higher expectation that they’re going to be nimble and get something done. They don’t get the contract renewed if they can’t report to the government what their impact was. It’s all about impact statements. I don’t know if you all have done anything like this, but that you have to say, well, an X number of new employees are now employed in the state in highly paid jobs. That’s an impact statement. We
Max von Hippel:
Actually have to do them for our academic grants.
Kraettli L. Epperson:
Yeah, well, exactly.
Max von Hippel:
It’s a different impact, right? It’s
Kraettli L. Epperson:
A grant. Yeah. Yeah. Typically it’s very similar to that actually. So there’s strong overlap, but essentially it’s for business, it’s the same thing, but for business. And so it’s usually about economic impact. So I don’t know more, I don’t know what question to answer about that. It’s the runs the spectrum, I’m sure good ones and bad ones, and some of ’em are hopefully highly effective.
Max von Hippel:
Okay. Well, we have just a few more minutes. I’ve asked a lot of questions. I’m happy to ask another one, but if either of the other two people here want to ask. Okay. Chris is fine. Okay. Well, I’ll ask a long-term question. So you’ve been working with building Vigilant for what, seven years now? Something like that? Eight
Kraettli L. Epperson:
Years? Yeah, A little more than that actually, but yeah.
Max von Hippel:
Yeah, and I’m sure it’s fun. I mean, I think the work is interesting, but also you’ve built a bunch of different companies and I’d imagine that you may have other ideas that you want to pursue in the future. So I’m curious, what are you excited about doing in the long run? Are you thinking that after vigilant you’d like to go back to venture capital? Are you interested in being a business professor at Rice? What type of things kind of get you excited when you think about the long time horizon without putting any dates on anything, but yeah, what are you enthused about in that sense?
Kraettli L. Epperson:
Max, having done a wide variety of things, I’ve gotten to know myself to the degree that I know that I really like operating and building companies. There are people who come into positions like mine who are really operators, they’re private equity people, and they really want to operate larger businesses that may or may not be changing and growing rapidly and may or may not be innovative. And I really like to be involved in innovative, rapidly growing companies. I think that’s where I provide the most value.
Max von Hippel:
The only CEO I’ve met who attends meetings about what type of database to use, if that gives a sense.
Kraettli L. Epperson:
Yeah, and I have to be careful about that. Yeah, I could attend a lot of those kinds of meetings. But having been a, so it’s actually an interesting thing. If you go out and look at VC firms, and there are people who write about this. You do have venture capital general partners and associates of various kinds. You got all kinds of people involved in VC firms, but there are a lot of firms that have a good percentage of operators who have built innovative startups tend to be very favorable, that tends to be very favorable for VC outcomes. You do have people who have an opinion, they have an opinionated approach to their investments, and you could write many books about why that helps. But that’s my approach. I have an opinionated approach to startups. I have opinions about what works and what doesn’t based on a lot of experience.
And so part of the challenge for me is making sure in keeping my experience up, so I’m involved in a certain percentage of our technical decisions, all of our business decisions, and that’s why I’m a startup specialist. Honestly, I’m kind of a generalist. For better or worse, that’s what I’ve ended up doing. I’ll tell you, in terms of future things, I do think that there are new frontiers. I’m always interested in new frontiers. I spent some time advising a crypto company, for example, and now I think AI is really cool in a way that is really, truly different than what we’ve seen, and that it really can have a potential transformative effect on society at a level that the internet has had. I really genuinely believe that.
And that’s not universally thought, that’s not a universally shared opinion. So that’s an area I’m very interested in, and I think we’ve just begun to think about. Obviously it’s pretty new, but we’ve just begun to think about what AI can really do for us. And then there’s lots of other stuff. There’s massive changes going on in quantum, in quantum computing that’s kind of under the surface. Every two or three years it gets some attention and then it goes underground again. But there’s actually massively interesting stuff going on with quantum computing and then nuclear power generally, and micro nuclear reactors and all the technology that goes into that, just fantastic stuff. So those are really just, that’s my laundry list of interests. But yeah, I mean, I don’t see myself being able to not do startups. That’s kind of what it comes down to. Yeah.
Max von Hippel:
Yeah, that’s fair. What’s funny about the crypto thing is we had this long period of scams and the scams have kind died down, and now I’m starting to see serious people talk about it like Matthew Green, the best cryptographer in the world is an advisor for a crypto company, and he would not sign on to something that’s garbage. It is just fundamentally, somebody like that cares much more about their academic reputation than they do about making a buck. And so it tells me that there are now serious people do this. Also, Castrol, which is a very serious formal verification institute, is deeply embedded with a crypto company that has a hundred million dollars or something crazy. So there are serious people starting to do this stuff now, and it almost seems to me like they just had to wait for the scammy fire to burn out before they could jump in. And they’re like, okay, now the adults in the room can start making real businesses, which is sort of fascinating from the
Kraettli L. Epperson:
Yes. Yeah, exactly. What’s happened. And the unfortunate thing is that crypto was so accessible to sort of the general public at a time before any standards had been developed, any sort of practices had been developed so that there was any sort of realistic governance or ethical approach to crypto. It just didn’t exist. And yet people were like, Hey, come buy my crypto with your PayPal account from your retirement account or your social security check. And it was like, yeah, that was a problem.
Max von Hippel:
Yeah. Cool. Kraettli, this was super fun. Thank you so much for joining us today. I’m sure that it seems, for whatever reason, that these videos get a bizarre number of views on YouTube, so you may have people reaching out to you in the future. My understanding is that you’re hiring, should people just email the info at Vigilant Aerospace if they have questions? What’s the best way to get in touch?
Kraettli L. Epperson:
So if they’re interested in our current hiring efforts, go to LinkedIn and on our LinkedIn page, just like a vigilant aerospace systems on LinkedIn, and you’ll find our page and we’ll find our jobs. And we do have a job listing. It is primarily the person that we’re hiring. People that we’re hiring right now is primarily local, so we need people in Oklahoma because dealing with hardware and dealing with demonstrations for the military and other people in Oklahoma and surrounding states, we do have people in other places as well though. So we encourage people to apply and we will have more job listings that we’ll be posting probably in the next one to two months.
Max von Hippel:
Awesome. Okay. Thank you so much, Kaley. It was a ton of fun.
Kraettli L. Epperson:
Thank you all. Thanks. Bye. Okay, bye.
From TechVentureGeek, post The Entrepreneurial Journey: Interview with Our Founder Kraettli L. Epperson
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Kraettli Lawrence Epperson
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