Transcription
I can predict when hurricanes are going to happen and I could place a position in 2025 about something that's going to happen in 2029.
Today, we're joined by Katherine Monson, CEO and co-founder of Hail SWX, a leader working at the intersection of science, national security, and high stakes decision-making. With experience spanning defense, international negotiations, and frontier technology, Katherine now helps industries forecast solar activity and manage real-world risk.
Why do we need to know about solar radiation? The sun spits out bursts of energy shooting a bunch of electromagnetic force at you. Problem with that electromagnetic energy is it'll impact anything that is electronic that's coming through its wake as well as people like the human safety piece. We would worry about radiation.
I've built space businesses for the last 12 years and people say hardware is hard. Space people say space hardware is even harder. Yes, you could build a super hardened satellite, but that's going to drive $10 million per satellite. And then if I said to you, I can make that cost go cheaper and all of that's now profit. That's how you're making money. I like these businesses where you make a bad decision with a chip design, you go bankrupt. Space is very similar. You know, you make some bad decisions, you lose several satellites. Most people, that's game over.
Welcome. Welcome back to Dallas. How long has it been since your last visit? I was last here when I was 16 years old to go to debate workshop. So mean green.
Yeah. Uh one of the best debate programs in the country. So shout out to the mean green. Last month one of our guests Brent Ryan who the business school at North Texas is now the Brent Ryan and maybe his wife's name's in there as well. Just the Brent Ryan. Just the Brent Ryan School of Business. So was lifechanging for him. He's built one of the world's great businesses. had increasing revenue for 41 consecutive years since he started it.
I don't know how many businesses would qualify on that metric, but not many. But yeah, let's jump in. Uh solar radiation forecasting methodology. Why do we need to know about solar radiation?
Yeah. So, let's back up to the sun. Yeah, we're all used to seeing it. Yes, the sun spits out bursts of energy. So, it's actually not that dissimilar to um anyone who's worked in defense tech and things that we would call jamming when someone is doing it who's a hostile actor, right? Shooting a bunch of electromagnetic power force at you. The sun does this semi-regularly. So, it'll be, you know, if we say the word solar storm or solar flare, and that's the sun spitting out a bunch of electromagnetic energy. Problem with that electromagnetic energy is it'll impact anything that is electronic that's coming through its wake as well as people like the human safety piece we would worry about radiation. So people who would care about understanding what the sun's going to do anyone who operates satellites anyone who operates rockets that includes hypersonic vehicles so any of the golden dome folks are working on that kind of defense apparatus um anyone who's flying regularly a polar route so if you are the pilot who, you know, 5 days on, 5 days off. You do the San Francisco to Amsterdam route or you do the Tokyo to New York route. Um, those folks are flying through potentially they're always flying through some base level of radiation, but during a solar storm, those folks could be flying through a 100x, a thousandx more radiation in a given flight than a base level. The other kind of group of folks who would care about solar activity are folks who rely on GPS. So this has become an increasing
Which is everyone right? More and more right so um you know I said I'm from Iowa so I'm from the land of a corn and soybeans frankly the land of pork production as well so I'm comfortable in this room. Um so but precision a is fascinating now right we've got combines that have a map so you know the farmer can go and literally map their field they can then plan where each of the rows is going to be they can avoid different waterways and then they know exactly from a GPS set of coordinates where each seed went. Wow. Which allows folks to be even more precise when they're fertilizing, for example, because rather than, you know, what happened when I was a child where you might do kind of large spraying um or even some of the like the plane, you know, the crop dusting spraying. Um the reason that folks are now so precise is fertilizer is an is a very costly implement or input. So the cost of fertilizer keeps going up. So folks want to be really efficient about how they're using that fertilizer. So now they know where each seed is. They can spit fertilizer on each seed, which works great when your GPS is working. You end up having problems if you have any type of high solar activity. And all of a sudden where your combine thinks it is, even if it's, you know, 3 centimeters, let alone 3 feet off, you're going to have problems. So this is why folks like John Deere already have a heat map where they'll be able to say like what's happening right now red yellow green on a map of the country who may be having red zone issues the GPS isn't going to be working. What the hail technology can do hail SWX is our company name is help forecast. So rather than just being able to say hey you know it's raining right now um which would be the earth weather analogy we would be able to say hey next Thursday you're going to have a problem with your GPS. So if you're running a big commercial a production and you're going to, you know, have a team of people that are working for 10 days, you have to have, you know, folks are going to need to rest at some point, you can build in your schedule. Next Thursday is not going to be a great day for fertilizing. Let's try to get all that done ahead of time. Like let's, you know, work on maintenance things next Thursday when our GPS isn't isn't going to be ideal.
When Connor was first telling me about all this, if you deal with anything precision that uses precision GPS, this will be affected. But then listening to 15 20 minutes of you this morning, it felt like that is like the very very top surface level of this conversation because then you got into the fact of well look at how much agriculture uses automated uh uh uh tractors and and and vehicles whatnot or Tesla. Um, can you go into the effects like how many because obviously the precision of a fertilizer or drilling in oil and gas that's obvious, but can you kind of go into how expansive this technology and what effects could have like because it sounds like there's just so much more.
In some ways, I think that's the beautiful challenge we have when we're talking about our company is that most companies I think folks are like, "What industry are you in?" Okay, I'm in oil and gas. I'm in real estate. And when folks ask us like what industry are you in, I have to be a little careful to answer the industries that we can help because it is so expansive. So we're helpful in oil and gas. We're helpful in mining. We're helpful in agriculture. We're essential for spacecraft operation. We're essential for human and avionic safety in commercial airlines. Um there is a financial services as part of our business that we're still exploring. So early stage we're actually actively looking for a quant hedge fund partner. One of the things that blows my mind as I first started, you know, meeting Scott, my business partner, understanding what he had built over the last 14 years was, oh my gosh, the sun is the single energetic variable into Earth's systems. It's like I just have to stop and pause for a second, right? That's a kind of a mind-blowing thing to think about that the Earth, you know, is like a closed ecosystem. The only energy variable coming into the system is from the sun. So what that means is if you understand that key, you can start to say, okay, I can predict when El Nino Leninia is going to happen. I can predict when hurricanes are going to happen. I can predict that it's going to be cold in Michigan, Wisconsin, Ohio in 2029. Okay, from a financial perspective, that means I could go do LG futures trading and I could place a position in 2025 about something that's going to happen in 2029. Kind of an insane thing to say, right? Like we're so used to working on more human time scales. What Scott, my business partner, who is an astrophysicist, what he discovered was how the sun works. So how the sun generates magnetism at the poles, how that magnetism processes to the equator, it's opposite polarity, so it cancels out and the the process happens again. And so once he understood how the sun works, he realized we can understand what the sun is going to do and predict it.
One of the things this morning again and I have a little leg up on you because I got to hear it this morning. Yeah. You got to pray to how much the sun actually affects because like it it feels like there's only two there's two variables. There's gravity from the moon and and also the sun as well. But then there's the the energy from the sun and everything can kind of float up and how uh until recently it's you know you kind of go halfway because you only give half information. But now with y'all your company and your technology, it's the other half of that that that uh um that information.
Yeah. I mean, I think it goes back to, you know, I'm not sure when you guys learned about solar systems, but I remember viscerally here like today, but today we learned about the solar system, right? But like, you know, being an elementary school kid and you have a, you know, your little diarama model of each of the planets and learning, you know, in the second grade for me, wow, we live in the Goldilocks planet. Like we live at the perfect distance from the sun for life to exist. So like we all kind of intuitively know that the sun really matters for all of the things that we take for granted. And this is Ryan to your point the next step for us to say not just do we feel grateful that we live in the Goldilock zone. We can start to characterize just how dynamic the sun is and we don't just, you know, it really for me puts me back into like what it might have been to be living in, you know, the year 1500 and to then have all this science happen in the 1500s that says wow, we're not the center of the galaxy, we're actually part of a solar system like what does that even mean? And all of these kind of fundamental ways that our understanding of the universe changed. That's kind of what we're hap what's happening again here with the research that Scott has discovered. And let me just ground for a second to the work that Scott has done. This was such a breakthrough in the field of physics that the initial discovery is published in nature. So this is a sea change in the understanding of how the sun works. We're then lucky to be able to say okay once we understand how it works who cares like what can we do with this information. Uh what is the opportunity to help people with real problems and help people with the scale of problems that are millions of dollars per an individual company such that they're willing to then come to us and spend hundreds of thousands millions of dollars with us to help us help them solve their problem.
Hopefully the pope won't come arrest you uh for your blasphe right of changing our perspective. I hope we're past that. We'll see. I don't think Leo is interested in that. He's a good Chicago guy. Oh. Yeah. I think he's probably learned the same in elementary school. I'm sure he has a diaram of his own. Yeah, probably.
So, from a practical standpoint, um, uh, I'm a farmer in Iowa and I now have this incredible technology and I can put that, uh, seed exactly where I want or I can have it put exactly where I want because of this technology and you can tell me that I shouldn't be planting, I shouldn't fertilize it on this particular day because there's going to be sun activity that would throw my GPS off. I get that. So you're going to optimize um uh the use of that technology for and that's makes them money. What about aircraft? So uh are airplanes at risk of crashing? I've I've not thought of that as a risk because of solar activity. Are they going to take the information you provide and alter their flight schedules or how how does that play out in aviation?
Yeah. So I want to be clear, it's not an issue of crashing per se. It's uh the sun activity creates radiation and radiation is harmful for electronics so avionics boards as well as people right. Airlines have very detailed maintenance schedules already. What we can help with is that the radiation environment is dynamic. So it is a function of the solar cycle. So actually where we are in the cycle right now we're ramping up on radiation. So if folks are looking at a log and saying well for the last five years this particular aircraft uh like a 787 we needed to replace this avionics board every 9 months every year and a half whatever the right time period is for a given set of electronics that's not static. So if you have a plane that's flying polar routes, it's going to get exposed to much more radiation than other planes in the fleet, but then in any given day, it's a variable amount of radiation. We can we have the inputs to say to the airline, here's the total radiation load that's going to happen on this board for the next 6 months. So the problem that we can help them with there is that they don't have things fail on the ground in Amsterdam, right? And all of a sudden now you're canceling, you know, three flights because you're trying to get this plane fixed that's stuck in Amsterdam. You don't have a spare 787 and take those people, you know, back to San Francisco. So, that's a piece of the radiation. Um, we've also had some interesting conversations with um let's talk about the regulatory aspect of this. So, the FAA is responsible for safety. That's that's their function in our economy. The FAA has a radiation model called KI 7. So having great conversations with those folks to be able to again help them anticipate different levels of radiation for different um types of work is really what it comes down to. So like if you're a pilot and you're flying 5 days on 5 days off San Francisco to Amsterdam, you're going to get a different exposure in radiation than someone who maybe flies the same number of flight hours but they fly Miami Dallas. Helping them understand the dynamic nature of radiation and incorporating that into the guidance that we give people to be able to operate in these roles safely.
From your company standpoint, how are y'all operating? Are you operating like a SAS? Are you operating like a newsletter and like, "Hey, I pay you money." And then you just say, "Hey, on Tuesday next week, there's going to be a solar wind, so don't do anything that day." How do I do business with you? Or how does Lane and his farm and his autonomous uh vehicles, how do they pay you money?
Yeah. So it is a SAS business model. Um our short-range product is an API. So most of the customers, I should say all really exclusively the folks who use the short-range model, they have machine-to-machine setup. So they're pulling the forecast data directly into an existing model that they're using to understand radiation or to understand drag for spacecraft for satellites. Um we do provide more of a white glove service. Part of that is this moment in time that is transition. So folks haven't had access to this type of data before. This is something new that folks are realizing. Wow. Before we kind of did a shrug like the sun does crazy things. Um and let me just kind of ground this in an example that um I find that often folks have seen in kind of more tech business media. SpaceX and again an very high quality operator. So I say this with kind of the grounding of like even folks who play this game at the highest level have run into problems. SpaceX launched a hundred satellites directly into a solar storm. So, you know, rough order of magnitude. This is a $2 to5 million asset. Frankly, it could be more, but let's just be conservative. Let's say it's a $5 million asset. Hundred of these assets. You think they're going to be on orbit for 5 years. That's your business model. They burn up in 5 days.
Oh, painful. Yeah. SpaceX is well capitalized. So, they were able to say, "Wow, that was a real bummer. But we we're self-insured. We'll go back to the capital markets. We've got, you know, the war chest that we keep going. A lot of companies wouldn't be able to shrug off a $500 million loss in a single day. That's the type of status quo problem that we're coming in to help solve, which is we can now help you understand when you should be launching, where you should be launching. So, if there are periods of high solar activity, it's almost uh sometimes the analogy I use is if you think you're going to swim through chicken broth and then you're swimming through clam chowder. So if you have clamp chowder, more friction, more drag on that satellite, it's going to come down faster.
Well, earlier you brought up the buckets of helpful and essential. That sounds like more like critical. Yes. Maybe you should expand your buckets where it's not just helpful and essential, but there's More buckets. More buckets. Yeah. But like the CR because obviously if you're dealing with satellites or anything that's going to be in space, there's a critical need for your type of information.
It's existential, right, for some of these companies, you know? Again, for SpaceX, they can probably take the they have taken the $500 million loss and they keep moving. Most companies don't take the $500 million loss and say, "Ah, cost of doing business." Most companies end up in a situation where they're raising on really bad terms. They're potentially making an acquisition play to, you know, offload assets because their business model isn't viable if you add an extra $500 million of cost to the cap table.
I presume that the that solar forecasting was occurring before you and your partner got together and he had a insight um into solar activity that was new changed the dynamic. And I'm curious though, the accuracy uh before this change that you guys had brought about, was it just not there just wasn't accurate information that a SpaceX could act upon? Uh and how accurate is your forecast?
So status quo, the way that people have tried to solve this problem previously is, you know, kind of the normal way that humans look at problems, which is okay, we're in a moment in time. Let's look backward. Let's see what happens. So we have observed data points. Let's see if we can figure out any patterns. So folks um essentially are doing have been doing statistical regression. So they've been taking measurements of solar flares or sunspots and they've been saying okay let's see if we can fit these to a curve. So statistical regression to fit it to a curve and then let's propagate that curve forward and just see if that kept happening in the way that we fit it to a curve. What would it look like? Right? The challenge is that the sun um doesn't operate that way. Right? So what's happening right now? Dynamic, super dynamic. Um, and the piece that we understand is like a second third order driver than the symptom that you're seeing on the surface of the sun. Um, and I won't say more than that because that is the secret sauce of the physical model, right? The sunspots are predictive in about a 4-day window. So, it's not that dissimilar from Earth weather, right? So, if I say it is 90 degrees here in Dallas, if I had to put money on the table, it's going to be 90 degrees tomorrow. In Dallas, it's probably a safe bet to say it might be 90 degrees again next week, right? Um, with the sun, you know, you can make that kind of comparison of like what's happening right now is predicted for about four days, but then it really drops off a cliff.
So, the status quo public offering. So, Noah through the Department of Commerce has a space weather prediction center. The space weather prediction center is the national service that says, "Here's the space weather forecast." They do a perfectly adequate job for about 4 days. Our model is a little tighter. We're hitting it about 15% more accurate than Noah on that 0 to 4 day window. At that 4-day window is where that statistical regression is not helpful. It's not indicative of what's what's going to come beyond the Noah model drops to negative0.5 which is when I say skill score mean standard square error to ground that it's a scale from you know one perfectly high fidelity you nailed it to negative one which is like you were exactly opposite wrong score of negative exactly a negative.5 you're better off guessing yeah like it's not a helpful set of data right so when we're coming into these conversations with folks in industry and we're saying, "Hey, that data set that you were given that wasn't helpful, so you kind of stopped asking the question, and this is where I go back to SpaceX, they are top-notch operators." It's not that they don't care about space weather. It's that nobody was able to give enough of the data set to say, "Hey, you're going to have a problem that they have to just kind of shrug and say, well, that's the cost of doing business." Like, we're going to operate in space, and this is a dynamic environment, and it's challenging. I've built space businesses for the last 12 years, and people say hardware is hard. Space people say space hardware is even harder. There's so many things that can kill you in that operating environment.
So what would you tell the people that are like we've had all of human existence without the utilization of this technology or information. Um totally understand the 100 satellites $500 million loss. I'm just saying it is once in a blue moon that that happens. Why should I pay you or what's different? Like what is the multiple factor? Like what is the the huge wins? Like am I going to improve 5%, am I going to improve a,000%. Like what is the oh my god where have you been all my life? I need you in in my operation. Yeah. Like what is what is that element?
Let me ground for you that it's not once in a blue moon. So the solar cycle is an 11-year cycle. We are coming down from solar maximum. The last three, four, fiveish years were really challenging. So, it's not just SpaceX that had problems. Um, all of the customers that we've converted on the space side, they all have scar tissue. When we come to them and say, "Hey, we can help you." They're like, "Oh, thank you. That was really rough. That was deeply unpleasant. We had to have a number of really tough conversations with our board of directors because it looked like we didn't know what we were doing cuz we didn't." The sad thing then is that nobody did. So it's hard to hold, you know, one group more accountable than others, but these folks like, "Wow, you can help us avoid a capex management problem." So it's, you know, the $500 million is a catastrophic event, but even things like, is this $5 million asset going to be revenue generating for eight years or is it going to be revenue generating for two years? So one of the ways that we help customers in the space industry is that they planning horizon. So we're actively working with folks right now on a long range forecast. So we can give them 3, 5, 10, 15 years of what's going to happen in terms of the baseline that allows folks to make decisions like should I launch to an 800 kilometer altitude because you know there's going to be a lot more like the what I said clam chowder it's going to be more friction so I'm going to come down faster so I want to start higher because I want that revenue generation for eight years that's a choice that they could make if they understand yep this is going to be a higher friction higher drag environment some folks have the opposite problem So there's a whole set of licensing that you need to get from the regulatory side where there is now a streamlined process through the FCC, Federal Communications Commission that says you have to be de-orbited within a particular time period. And if you don't de-orbit, this is all kind of trying to prevent space trash. Like we don't want satellites lingering forever and creating frankly like collision obstacles for people. The problem with that those folks have is if we don't come down soon enough, we lose our million dollar per satellite bond. So that creates a different problem where they want to come to us and say, "Hey, Katherine, hey Scott, can you guys help ensure that with this particular form factor of satellite, if we start at this altitude, are we going to get low enough fast enough in this next period of time?"
I'm a little confused. Well, a lot confused usually, and that's my standard operating procedure, but you you just talked about a longer term forecast. Um, and you earlier you talked about a four year 4day forecast. um and said that your models are 15% more accurate than Noah. I didn't hear you say what happens beyond 4 days other than it falls off a cliff. Yeah. In terms of the predict the predictive value of of what of that 4-day window on the next four days. So help me understand how does your model improve beyond those four days and how do you make a long range forecast? Do you lose the accuracy um which you must right over a longer term forecast? Well, I say you must you make
Well, this is where we go back to the nature of our model is a physical model. So, it's based on how the sun works, you know, at a kind of fundamental level like why does the sun do what it does in terms of electromagnetic forces. Um, our scale score for our long range model. So, that's again, we can run it out two solar cycles. If you lane were like, "Hey, tell me what's going to happen 22 years from now." We could generate a long range forecast for you, right? You know, it would be a hefty price tag because we're making a we're calling a shot that's 22 years out, right? Um that long range forecast, we have a version of that model that we locked in 2022 that is tracking at 0.8 in terms of scale score. Okay. So, we do have an operational customer um a beta user who started using that forecast in 2022. Um those folks, we just checked in with them and said the company's planet, they're very public about working with us. We've published some papers together. fantastic constellation of small satellites that images the Earth every day. So they they've had a pretty bold mission that they've been successful in achieving. They we checked in with them and they said, "Hey, you know, we we don't want to upgrade to the newest version of the model." So we're always, you know, making tweaks to the model to say, are there things we want to lock in even more? They said, "No, our operational flow works great. This has been so highly predictive. Like we're good. Good work. Thank you." Yeah. Uh which is a huge compliment, right? I mean this is something that you know we called the shot three years ago and to get the feedback from the customer that things have played out exactly as have shown in the forecast. Um the just to kind of go back and be more clear on our products we have a short range offering which is a rolling 14-day window. So folks who have access to the API they get an update every day with the next 14 days. Okay. There's then the long range forecast which is a separate product. That's a static moment in time where someone says, "Tell me what's going to be a baseline solar activity every month for the num the next x years." You know, again, you could say we want a 5year forecast or we want a 10year forecast. Uh most folks are kind of in that 5 to 10 year range from a planning horizon. There are very few industries where people are trying to make plans, you know, 10, 15, 20 years out. Um so those are the two service areas is the short range and the long range. Some of our customers use only the short range because they're concerned with more tactical operational problems. That'd be more what we would expect to see in, you know, precision agriculture, right? Farmers aren't worried right now about what day of the week they're going to plant, you know, in spring of 26. They're worried, hey, am I going to have issues with, you know, precision related impacts for harvesting. So that that shorter range model is more for people of operational tactical problems. The long range forecast is for folks who need the planning horizon. So they're making decisions about design. They're making decisions about what hardware is going to be, you know, built and flown. Um, that's a big piece of the space world. You know, satellites, even with new space, with things moving faster than more traditional prime contractors were moving, it still takes a year, two years to design, build, launch the satellite. And you want that satellite on orbit typically for at least three to eight years to be able to, you know, monetize something that cost you $5 million to get it up there. So those planning windows are where we're working with folks because we want to help them design for the operating environment that they will experience.
Couldn't I just make a satellite or spacecraft or whatever that was more uh protected against radiation? Absolutely. And then therefore it doesn't matter what crazinesses the sun is giving me.
That's exactly how it was done before. Right. So folks who are operating geo satellites, those satellites typically have decadesl long tenure. Um those satellites then need to be prepared for solar maximum, solar minimum. And that was exactly how we approached aerospace kind of in a more of a legacy mindset which is like you prepare for the worst case scenario. But it's no different than if you were preparing for the worst case scenario in your personal life. You're going to throw money at the problem. So what changed is when folks started to operate in a more cost-effective way building smaller form factors flying in lower orbits. So low earth orbit LEO is a term you often hear for folks operating kind of in this new space model. Um all of that is about can you create a business model that wouldn't have been viable before because you can do it at such a lower cost basis. So if all of a sudden you said, "Oh, Katherine, like I'm going to try to go, you know, operate in VIO, which is operating at a super high drag environment, and I, you know, want that satellite to last 10 years. Okay, you're now hardening that spacecraft. You're adding so much propulsion capability that you could be adding $20 million of cost and also just doing something that's operational risk
And then probably is way more uh heavy, which means the rocket is way more expensive. All so material cost and logistic cost skyrocket. Exactly. Um versus if you said my business model is I'm going to take beautiful images of the earth from Vio for all sorts of you know intelligence type purposes. Um and I just need this to work for three years. If you're operating in the next three years that's going to look very different from a drag environment than what would have been true the last three years. So, we can help our customers by making decisions that are going to be true of the operating environment they're actually in.
From the forecasting standpoint, I'm assuming that, hey, we've got this solar wind or whatever, it's going to affect um this rotation above North America on X date. So therefore, maybe make the satellite go on the other side of the world so it avoids it.
So, can you spacecraft? It's pretty global. Okay. Um so, typically what you're thinking about with satellites is just altitude. So, where are you in terms of your orbit? Um, it doesn't so much matter if you're in an orbit that's going, you know, north pole, south pole, north pole or if you're in an orbit that's going around the equator, that is not going to change your drag. For aircraft, the way that our uh magnetosphere, so the the magnetism around the Earth that shields us from radiation, there's a reason why astronauts are more exposed to radiation than those of us here on Earth. It's because of our atmosphere. It's because of this magnetosphere at the poles. Um, all of that radiation that gets kind of uh in our earth sphere, our our zone of operating gets sucked up to the poles. So, when you're an airplane and you're flying through that and there's a high solar storm. Um, actually, you know, I should have started with this. The aurora, right? People think it's beautiful. Um, I used to think it's beautiful. I still think it's beautiful. Honestly, it is. It's gorgeous. It's super interesting.
Sounds like it makes you money, though, is what you're telling me. It's not something you'd want to put your body through. Right. Right. It's radiation. It's electromagnetic power. Um that would not be a safe place for a human body to be. Oh wow. So if you are a person and you are flying a polar out in the middle of a solar storm, you're getting exposed to a lot more radiation. And that's the type of thing that we're able to help airlines predict. Don't go flying directly through this solar storm. Maybe that's a day that you want to change your flight plan to go either lower altitude and let more of the atmosphere protect you or you want to go lower latitude and stay out of kind of where all of the radiation is getting concentrated.
Everything I'm hearing so far like cost mitigation and and saving on potential like almost like an insurance policy. Yes. I think a lot of people make that analogy. How can I be proactive with your technology to actually make money?
I'm going to show my bias as an operator, right? like as as an operator always sitting in the operator seat. All of that cost basis drives whether my business model is going to work or not. And in things like space when we're talking about, you know, I'm saying, "Hey, you know, Ryan, yes, you could build a super hardened satellite, but that's going to drive $10 million per satellite and you're going to own a fleet of 50 satellites." And then I would say to you, great. You want to go find, you know, an extra 10 time 50 million in terms of revenue. And then if I said to you, I can make that cost go cheaper and all of that's now profit. That's how you're making money is you're looking at how does this business want to close and anything I can do to bring my cost basis down that converts directly into profit. My background has been in high capex business. So I like to play on hard mode. Like I like these businesses where you know semiconductor is a good example of this. You make a bad decision with a chip design, you're billions of dollars into building fab lines. If you're wrong, you go bankrupt. There's not a play it again, oops, our bad moment. It's a wow, that was existential. Space is very similar. You know, you make some bad decisions, you lose several satellites. Most people, that's game over. You know, you don't get to go ask folks, hey, I need another hundred million dollars. So, sorry I was irresponsible with the last hundred million.
So this conversation kind of dovtales to a previous episode with Ken Hirs because he was talking about how like it's all about simplifying and it was like you know volume times price minus cost. So for like in this situation if you can increase the amount of satellites you know at a lower price and it's a less cost I mean you're making up for everything. So yeah and I'm saying may not be apples to apples analogy but it makes sense.
No, it's perfect. Exactly. And all we're saying when we go to folks is, "Hey, we can help you save this amount of money and we're going to take a small percentage of it and then you're going to gain the rest of it."
Oh, so you work on points. Typically, the way that we're selling to folks is a flat rate um because we do want, especially in this early go to market stage, we want it to feel really fair to folks like the forecast is the forecast. So, if you have a 100 satellites and Lane has 10, sure, you're going to get more value for a forecast because you're going to be able to take that savings across a fleet of 100. And Lane's going to say, "Okay, but like I'm using the same numbers even if I'm getting less, you know, savings from it." You know, we're really trying to be fair and transparent at this stage to say, you know, Lane, if you keep growing your fleet, great. Then you're going to get even more value from this. And like, you know, Ryan's able to capitalize on day one because he's a little bit ahead of you in building out his fleet. When I say that we're capturing return on like the return on investment from the customer perspective, we are literally sitting down and helping them understand that. So, here is where you are unlocking the savings for your specific set of customers for this specific moment in time.
Before worrying about space weather and and and solar events, we worried about normal weather here on Earth. And I'm from Memphis, Tennessee. Uh which is uh when I was growing up there and early in my career as an investor, we had the world's largest cattle trader, the world's largest pork belly trader, the largest, you know, most of the the AS um and some of them like Sparks Commodities developed their own in-house weather teams. Um and they became they invested significantly into that technology uh those resources and their weather forecasts were so much more accurate they were able to monetize that through effective trading right of the commodity contracts around that. Then they started selling their weather services to farmers and and others. And so I I see the business of weather. This is a new weather for me. But I guess I'm curious about sort of what came first, the chicken or the egg. We interview a lot of entrepreneurs and I've met a lot of entrepreneurs and a lot of times they have a passion play and they become really passionate about something and they turn it into a business before they've really figured out what the business model is. Elon Musk is known for that. At least that's the reputation he has if he kind of falls in love with something and and then he worries about how to make money out of it later. So which came first for you guys? Did you see it sounds like the science um and this sort of breakthrough science came and then there was an epiphany and he went wait a minute this could be valuable is that how it played out
Absolutely. You know, Scott's journey with this company started 14 years ago um and it started in a place in time where, you know, Hail SWX as a corporation didn't even exist as a like an imagination vision. It was Scott is a scientist and you know, he's grappling with why doesn't this make sense. Why can't we understand this? You know, there's something I think that drives people who are, you know, called into science, which is I need to understand why like why is this happening? And he wrestled with that problem and was able to have, you know, this big breakthrough in terms of the field of physics. And then it organically started to unfold. So I mentioned this period where a lot of the space operators have scar tissue. Those folks reached out to Scott. So they found him at his you know role as the deputy director at ENCAR the national center of atmospheric research. So he was an administrative role but they found his papers and they said we are getting burned out here. Quite literally. Yeah. Can you help us? Like you seem to be on to something here. We desperately need help. So that was a very organic process of people who are having this problem coming to find somebody who they thought could help. I met Scott last last year about a year from now. Um my background is commercializing new frontier technology. So really working in these places that are high capex, working in places where we've never done this before, like do we know if it's going to work or not? Scott and I started talking and to me it was like layers of onion. So I thought I understood it. I said, "Okay, great. I understand the space piece of this. I've come from space. Oh, okay. This aviation piece of it. Interesting. Radiation. Hadn't thought about that. Oh, interesting. You can predict when hurricanes are going to happen. Wait, what? How is the sun related to hurricanes? Oh, interesting. This is tied to earth weather net large. Oh, interesting. We could start to make a commodities play. We could start to, you know, there are all sorts of ways we could take this technology with futures trading, with being our own insurance company if we thought we would have more actuarial accuracy than anybody else. And that's what really got me intrigued is we need to simultaneously run down each of these industry verticals and make sure that we stay focused that we don't try to boil the ocean. So that's the moment in the company's journey that we're in right now, which is doing all of the go to market capture in product work in the industries that I just mentioned and we're at different places in different industries. So space we have, you know, the legacy all the way back to 2022. People who had a very real pain point. We just got started in aviation this Q3 just got started with precision and Q3 and I would say we're still dipping our toes in for precision oil and gas and we have the idea to start with precision mining. We've had a couple of interesting product calls but haven't had any real, you know, we haven't really chased any customers in that domain.
So it's a very early stage for the business. You know, we were just talking earlier about the commodities trading and the futures trading. We're actively looking for a partner in that realm. So, I have been taking meetings with different folks who may be our partner. At this stage in my life, I'm not going to come up to speed and try to be a quant trader. Like there is a real skill set to understanding how you would take an idea and make a position in the marketplace. We want to partner. So, we want to have our model be an input for somebody else's trading strategy.
Yes, you're experts in this thing over here. And it's more like identifying what's the impact everywhere else and not just what the impact is because obviously if you could be like, "Hey, by the way, um we have this giant hurricane coming in a couple weeks. It's called Katrina. It's going to wipe out the bottom half of the United States." Okay, but then what? That's cool that we have information, but what's the And then obviously I don't have an information, but but if I'm the insurance company and I'm going to be out billions of dollars, okay, I I see the truck coming. Thank you for know letting me know the truck's coming, but it's like how do you or is it even in your purview to assist them and to avoid that truck?
So can hurricanes, right? Like we don't have change. Yeah. What we could do and what we can do is um the hurricane thing is so funny to me. So Scott casually in February of this year he was like oh we were talking about something we were going to be doing down at Cape Canaveral. There's a big um satellite launch that is related to now casting space weather. So there's a big NASA satellite called space
weather follow-on. All of this context just to say we're talking about hurricanes of the cape. This is a national asset, you know, a multi-hundreds of millions of dollars satellite that we're going to launch with taxpayer money. We don't want this thing to get hurt by a hurricane. Scott said, "We don't have to worry about that. It's going to be a light hurricane year." It's like, "How do you know that? It's February." He's like, "Oh, well, because we're in a period of high solar activity. The high solar activity means we have high stratospheric winds. High stratospheric winds means that things are moving, so nothing has time to build up, you know, force into a storm cell." And I said, "That'll be super interesting to see how that plays out." Like noted that you said that in February. And Connor and I were just chatting. Gosh, we're halfway through hurricane season. We've had one storm in the Caribbean. He called it.
>> Yeah.
>> So, if you're an insurance company and we had picked up the phone in February, I could have said, "Hey, your capital allocation, you could be a little bit more um aggressive with putting it into things that are less liquid because you're probably not going to need to do a lot of payouts this year. So, if you want to go grab a couple of extra basis points with the capital that you have, you know, ready to deploy, this is the year to do it. If the converse were true, um, and I think we're going to head, you know, there's going to be periods in the forecast that show the opposite. We would say, you know, if you're going to go re-up policies for '26, '27, '28, we would recommend that '28 extension, you need to price that differently. I think we would expect that you would see a lot more activity. So, can we change the storm happening? Absolutely not. You know, that's force majeure for a reason. Act of God. Uh what we can do is help people understand, characterize the risk and price it accordingly.
>> Billions of dollars at stake there. I became aware recently of a um a model that was developed by a female mathematician, statistician that really revolutionized how insurance industries underwrote weather events. And this is in the last 10 years.
>> Mh.
>> Um, and one of the things she did was she sort of created a a value map of the areas. So, it's not just what's the likelihood of a storm hitting, which you may have been able to forecast that more accurately, but it was if the storm does hit, let's use our aerial photography, our mapping to figure out what's the value, what do we have insured on the ground there? So, what's our exposure? By doing that,
>> one of the things is you re-price it. The others, you re-insure it, right? You sell off that risk.
>> Let somebody else take that on.
>> Let somebody else take that on. So, it was uh it was intel that allowed insurance companies to make or not lose billions of dollars. It's really fascinating when somebody sees something in a different way. Um, that really improves outcomes. I want to pivot a little bit because I'm I'm really intrigued with part of your background. Um, when I was doing some homework on you, uh, it said, "Early career included work as a fellow at the US Department of Defense and international negotiations." So, I'm this lower middle market M&A advisor and I work deals and I have to negotiate deals and I'm always fascinated with am I negotiating right? Am I using the right style? Where do I push? Where do I pull? When when do I shut up? Um, and there's all sorts of different schools of thought on on how to negotiate. So, you can read one book that says you don't give an inch, right? You you just hammer them, you know, all the way through the process. And then Harvard has a a group that studies this that's published work that says no, you want to figure out what a win is for them and you want to let them win over here and you win over there. Um, so if you have a background with the US Department of Defense and international negotiations, what do you find to be and is there a single style or does it is it dependent upon the specific negotiation and who you're negotiating with?
>> So I definitely have a pedagogy. Um, and it's great that you bring up the Harvard Center for Negotiation. So after I left the Pentagon, had a great experience as a fellow there,
>> I decided that the thread I wanted to pull was negotiation. So to me, negotiation represents how do you solve problems with other people,
>> right?
>> And I did then and desperately do still care about solving the type of complex problems that one person can't solve alone.
>> Uh, you know, I don't need help tying my shoes. I got that one. But, you know, Lane, if you and I are going to go try to figure out how we're going to put positions in liquid, natural gas futures markets, I'm going to need your help. I'm not a finance person. You know, I work hardware, technology, frontier capex businesses. like I'm going to need help navigating, you know, Ryan, finding the right people who would be experts at that that problem-solving. I use the word negotiation. So, I think a lot of people think, you know, like put your hand on the table, we're going to arm wrestle, right?
>> It's like, no, no, no, we just need to figure out how to get all these group of people to decide like we want to go there together, but also decide, no, I don't actually want to go there. I'm going to go with that other group that's going to that other hilltop. That's also a helpful outcome in a negotiation, right? Coming out of the Pentagon, I went to go work for one of the two consulting firms that spun out of Harvard Law School. Uh so I worked for Vantage Partners. So if you've ever read the book Getting to Yes. I worked for that team.
>> Yeah.
>> Um I did some amazing work at the firm. You know, we worked with a lot of high capex companies, a lot of Fortune 500 people who have billion-dollar scale problems so that they're willing to spend a million dollars to get very bespoke help. I do think that that informs the way that I see negotiation, which is what are you trying to do? So, I think when people call me and say, you know, you get you get known in your social community as the negotiation person, which is fun because then people call you when they have deals. It's really fun to just get in and help people.
>> Um, folks will say, well, you know, I need help and I'm like, great, what are you trying to do? So, if you've taken any of the Harvard negotiation kind of framework,
>> interests, like what do you care about? What does success look like for you? I am shocked by how many, and I shouldn't be now, right? I've seen this so many times, but I am still surprised by how many really smart people when they're asked that question, they're like, I don't know, I just want to win. I'm like, great. What does that mean to you? Is that, you know, X million dollars deal size because that's going to look great, you know, for you to go get the next big deal.
>> Is it profitability? You know, I'm going to be able to get this at, you know, you know, X what it should have cost this and I'm going to get it on a price that I can flip. Yeah, it doesn't actually matter what the overall cost or the transaction value is. Is it that you want to build relationships in this industry because you're just getting into it and it's helpful to just put your toe in and any win in this domain is a step toward you know ongoing relationships and expansion of value you can create together. So I would say I always start with the question of like what are you trying to do here? Like what do you care about? What does winning mean to you?
>> Right? and Harvard, if I remember correctly from from reading their literature, um, and Getting to Yes. Um, is, you know, they would differentiate between that and positional bargaining where, you know, Ryan wants to sell me that pad for $100 and I want to pay him 50 and one of us is going to lose, right? Unless we meet in the middle, I guess, and that's okay with both of us. For me as a as a guy working deals, the challenge is I get a letter of intent or an indication of interest and it's got these 15 different deal points, right? This price, these terms, uh the, you know, this employment agreement that and so there 15 points and we disagree with all 15, right? We want more money, we want uh better terms. Um and you get locked into this uh positional bargaining that's all conflict.
>> Yep. and people yell and scream at each other. I worked in a large M&A shop where there were dozens of dealmakers and it was interesting to see the styles. I had a yeller that sat near me and he yelled and screamed all day at people on the phone.
>> I'm more of a carrot guy. I'm trying to help everybody win. But Harvard's, as I recall, position was find the win. Figure out what they want. What is a success to them? Figure out how without saying no, this is my position. This is your position. One of us is going to win, one of us is going to lose. Is how do we figure out how we both win?
>> Um, now the practical application of that is challenging to me. Sometimes you get so mired in the deal itself and the negotiation that and you get so frustrated. Um, so maybe you could come consult me on uh on negotiations.
>> I'm happy to be helpful where I can. Absolutely.
>> Maybe that's the reason that the close rate in our industry, which I would call the success rate is so low. Um, you know, Fermex, which is a provider, a service provider in our industry, did a does a survey and they interview all the folks like me working deals and and they said that last last year, the most recent 12-month period, they they studied, said 30% of deals fell out between LOI and closing.
>> Um, and the sort of accepted rate in the lower middle market where I work, um, is that only about 30% of deals that go to market actually transact. You think that's because of ego and and unrealistic expectations?
>> I think those are two variables. I think they're more than
>> Obviously, my business is a billion-dollar business.
>> Exactly. I'll offer you a dollar. Uh now we've got a positional bargaining. Uh what's the difference going on here?
>> 500 million.
>> Um but yeah, I mean there there are a lot of variables. I certainly think that when it comes to uh uh privately owned businesses, people have a real misconception of what their business is worth. Uh, and there's really not great data out there, right? It's not like the if you own a house, you can you can get data. You can go online and immediately get data that says, "Well, my neighbor over here and over here and over here sold at this much per square foot. I think I'm the best house in the neighborhood. Maybe I'll get the high end of the range. Maybe I'm the worst house." But if you own a manufacturing company in Denton, Texas, what are you worth? Well, you know, you you pick up the paper and read SpaceX's valuation and you go, "Oh, well, I'm worth a thousand times this thing, right?" Well, no, you're not.
>> Well, going off that conversation, you take a a company like Hail SXW
>> where it's a fairly new startup,
>> right? Potentially billions and trillions of dollars worth of impact.
>> Yeah.
>> How would you even evaluate that? So one, it's a SaaS business uh software as a service and so it's a subscription model and uh this will will be no surprise to our guest. Uh the marketplace is in love um with businesses that have that recurring model from subscriptions. Low overhead. You you're in from a capex heavy industry and now you're in the you've gone a full flip.
>> I gotta tell you, it's making my life a little easier to be on this side of the Yeah.
>> low opex, low capex, just go to market.
>> Absolutely. So, you know, if you were to value it today, um, which they wouldn't want to sell right now because they got the world by the tail and they're going to go, you know, sign up a lot more people. But if they were to value it today, they would take a look at that revenue stream and they put a growth rate on it and they discount that at the present value and then there'd be a multiple applied to it. And right now, the multiples for a SaaS business are through the roof uh for the right SaaS businesses. Um, you know, they don't have a lot of churn. Their customers aren't aren't turning over. wrote a piece the other day for my clients that talked about when business when when businesses and industries are are valued at multiples of revenue. You know, there's something really good going on as opposed to multiples of earnings. Um, and there are a handful of industries that are that are valued at a multiple of revenue and that's they're in one of them. With that said, every dollar that they add, you know, is just a there's a huge multiplier on top of that. So, I don't know where they get to that sweet spot where they go, we'd rather we'd rather sell part or all of the business.
>> Well, what's interesting about this conversation, though, is though
>> because it sounds like, and again, I don't know your field enough, sounds like you're doing something so unique and so new, revolutionary, you're the only one in the space potentially that that model seems a little archaic. Amazon, you know, they made a profit never and but they're still like trillions of dollars or whatever it is. So, it's like
>> I think they made a profit by just I'm being
>> hyper for a long time. Uber,
>> you know, when you got something like this where the impact is billions and trillions and and somebody's like, "Well, you've made X dollars. I'll give you $10 million." $10 million may be a multiple, maybe low,
>> but let's just say it's a hundred million. And if like here's a $100 million offer, it's like that might be a lot or it might be a drop in the bucket because maybe it is a $10 billion business, hundred billion dollar business. I guess at some point has to only be about the numbers, but at what point is it also about the vision and the technology?
>> Vision translates into growth. Growth translates into a higher multiple. Um, you know, I if in knowing this much about what they do, what I would say is if I were trying to assess risk, I'd say, okay, you guys have a secret sauce. How long will you have that secret sauce? When will somebody else figure out what you figured out?
>> Right. So, do you think 50 years from now they'll still be the only people that know what they know and have the ability to make that forecast?
>> Yeah. Well, if it's if it's not 50, is it 20? Is it 10? Is it five? What what is it? It's really not a technology. It's a knowledge-based um thing. They they've they've discovered something that others haven't discovered yet or a way to apply something that nobody else has figured out how to
>> kind of falls into trade secret at this point. I do think Scott has like a three sigma brain.
>> Yeah.
>> Um do I think other three sigma brains exist? Absolutely. Will those people be drawn to the field of physics? Will eventually someone walk the same path that Scott walked? Absolutely. So I do think that there's a piece of our business which is serving industrial applications where then the strategic mode is you know we've already commercialized this already have relationships with folks. Let's make sure that we do right by our customers that we're giving them accurate data in a format that's easy for them to receive that's priced appropriately for the return on investment that they're receiving. Then we're in a good spot. You know I think that's that's a good place to be as a business. We do, I think, have a unique window of time when it comes to futures trading because currently we are the only people who can, you know, call a shot that says, "Hey, LG prices in the Midwest are going to be more expensive." The dem, let me say it differently, the demand for LG is going to be much higher in 2028. Right now, nobody else can make that position in the same way that we can. So, sure, I'm sure other people have ways that their trading strategies play out, but the uniqueness of our model is the length of time that we're able to start to call some of these shots. And that's where I think when we're talking about valuations, it's delightful to be a private company because we can really, excuse me for sounding crass maybe, but it's a money printing machine if you figure out how to put the inputs into the right uh the right model and then get the right outputs. So I think that's why we're excited about this financial services piece because there is a window of time where we're the only person who can answer that question.
>> So what is the next three months, six months, one year?
>> Yeah. So again, we are customer obsessed right now. So when folks, you know, folks have been so generous. I think that's the beautiful thing about being a person who builds businesses being an entrepreneur is people are always so generous to say how can I help you? And the way that I answer that question is always please if you know someone in space, if you know operators in precision A, if you know operators in precision mining, I want to talk to the customers. So if there is someone that you have heard has this problem, please don't let them suffer in silence. So you're a little melodramatic here, but like don't let them suffer the way they have been status quo. We can help them. So put them in touch. Let's talk to them. Uh maybe that converts to a sale. Maybe that's just helpful product input for us. Uh more specifically, because we're here in Dallas, you know, we're here in the heart of the financial industry, we would love to find a quantitative hedge fund partner that would help us be able to translate our understanding of what's going to happen in terms of space weather, in terms of Earth weather, in terms of liquid natural gas markets. That's probably the one that we think we have the highest there's a direct causal relationship that we can track in the markets. But frankly, we don't know what we don't know in futures trading. So, we'd love to partner with someone who said, "Oh, actually, I think we'd see that signal really strong, you know, here in this commodity." Um, or we're going to see it in insurance, we're going to see it in shipping. So, those are the types of conversations that we're really excited about having. Um, where we'd love to be, you know, 3 months from now, I'd love to have more of a sense of which of these industries do we want to focus on, you know, which ones are like put all, you know, all energy here, move fast. Which ones are like, yeah, interesting, but like we can play it out in phase two. um a year from now I'd love for us to have a really clear conception of you know these are the three industries that we are hyperfocused on these other things sure it's interesting but we don't think the return on investment is so strong to justify spending time on it or we could find the opposite which is go hire a whole big team of people and like kind of a SAS software as a service model and just deploy them in each of these verticals because they're all super interesting and it's just a speed to capture game and we're going to hire the world's best SAS sales team to go sell this super interesting frontier your technology. I think those are the types of questions that we're answering in the next year, but it's all feedback from customers, all feedback from the marketplace.
>> Well, best wishes with that. What a fascinating thing. So, I I guess um as we may get close to to wrapping up, I I would say that it occurs to me you probably when you were 10 years old and some obnoxious parent like me said, "What do you want to be when you grow up?" Um, it wasn't a forecaster of solar weather.
>> I want to be the secretary of defense. So, it was an very obnoxious answer.
>> Really, that was a really That is so cool. I've never met anybody that wanted to be the Secretary of Defense. We got close. I mean, you got got on the playing field there some,
>> you know, and I think I say this with so much respect for public servants. I think I got close enough to realize that, you know, in the same way that you want to be a trash person when you're, you know, 5 years old. You're like, that's a really cool truck. I want to drive it. Got close enough to be like, you know, I don't know that I actually want to do that job. It's a hard job. My my parents always remind me that when I went was young, I always I wanted to be the fire truck.
>> Not the driver of the truck.
>> I want to be the truck. And I'm like, what kid says that? Yeah,
>> that's amazing.
>> The same kind that says I want to be secretary of defense.
>> I don't know. That's an actual attainable position.
>> It it is. I can't be a transformer physically.
>> You know, just wait a couple of decades, Ryan. We'll see what, you know, the biomechanic field can do for you.
>> True. Yeah. you've navigated into a really interesting space. You bring in all the talents you've had from these other iterations uh to it. Um and uh I'm excited to uh uh to to to to watch what happens. True.
>> I'm now going to be really intellectually curious about this area. I'm going to be paying more attention to solar activity.
>> I'll call my shot. You know, because we've been talking about forecasting and calling shots. I think you'll have the potential to be a billion-dollar business.
>> You heard it here first, team. the deal table.
>> Yeah.
>> Hail SWX.
>> Again, when when Connor first started talking about it, I was like, and then every conversation there's more even this morning or even this conversation, you just more and more and more the applications of it and how it affects your current model. I don't know if that's going to be what gets you there, but it's like what Ken Hirs was saying, you got to pivot and you got to figure out how to the pathway to get there. And that's just your classic entrepreneurism. But with what y'all are doing, if you're the only one, you're the only players in the game at the moment at the moment.
>> And if you can, if you're the only one on the field playing the game and the game is, you know, has that billions and trillions of dollars worth of impact,
>> it's like you could be Scrooge McDuck and and swim in the the money pit.
>> McDuck. Wow. The money pit.
>> And you say that, right? I say, you know, thank you. And also, that's why I feel we have such an opportunity, but I say this as a true operator. It's also it's hard game to lose which holds us to a high bar right like we want to be the high performance athletes who you know set a new bar set a new record decide this is frontier technology that is not in the land of sci-fi anymore this is in the land of reality so I think when you interact with me when you interact with Scott when you interact with Connor you see that in the way we approach this which is this is our moment like we need to seize it now and we need to be bringing this information to people to be helpful like we shouldn't all be shrugging at the sun being like Well, that's a bummer. Bummer that we lost $500 million of satellites. Like, bummer that people are maybe, you know, being exposed to too much radiation. Like, bummer that we're going to have hurricanes that, you know, it's really hard to price. Like, these are things that to me just feel so connected to what it means to be human and be in the process of discovering more about our world, which is like we always move toward progress. We always move toward understanding something that, you know, before it's known. It's mindboggling. I think we're right in that moment right now with space weather.
>> Well, thank you so much for being here.
>> Thank you guys.
>> Thank you, Katherine. That's great.