Spotlight: Enterprising Star Seeker

Until December 1982, Philip Salin was president of Starstruck, Inc., a fast-growing space-transportation firm that was started in 1981 by Salin, Gayle Pergamit (to whom he is married), and a handful of other associates. The venture was, in part, the culmination of ideas Salin had been developing for some time.

As a teenager, Salin had become interested in the ideas of liberty through the controversial and challenging work of individualist science-fiction writers like Robert Heinlein and Poul Anderson. In 1967, he entered UCLA to study economics and music. While there, he started reading philosophical works—especially those dealing with questions of knowledge—including the writings of Ayn Rand, Karl Popper, Michael Polanyi, and Friedrich Hayek. These led Salin to a personal belief that academic theories, if they are true, ought to be of some use in the real world.

When Salin graduated from UCLA in 1971, he moved back to the San Francisco area, where he was raised. After stints at various jobs, he went to work at Systems Applications, where he contributed to a study of the potential impact of competition on the phone industry—at a time when it was still illegal for nonphone companies to sell phones and when there was no such thing as competing long-distance services.

In that 1975 study, Salin predicted that long-distance rates would go down and local rates would go up with deregulation. Though many in the phone industry reacted to the study with ridicule and outrage, AT&T admitted the study was valid—and used it as justification for continued regulation. Salin now beams about the episode, because "it was the first time that [AT&T] ever admitted that they priced above cost."

What disturbed Salin about the phone-study experience was his discovery that much economic theory—such as the theory of natural monopoly—seemed to always support the status quo. But, influenced by the Austrian School theory of the inefficiency of planned economies and industries, Salin decided to examine "natural monopoly" industries for entrepreneurial opportunities.

In order to prepare for profiting from those opportunities, Salin went back to school in 1977, at Stanford, to work on an MBA. There, he developed his own theory of cost that was unlike any of the work he had been exposed to.

"The old theory [of cost] is based on figuring out and getting close to 'natural cost,'" Salin says, "but I see cost as a measure of ignorance. I'm interested in how to lower costs. The Austrian insight is that any industry run as a planned economy for any time should be fertile ground for an entrepreneur."

While Salin and Pergamit were both students at Stanford, they happened to attend a seminar on space colonization. The subject interested them, but they found the speakers and attendants to be fundamentally naive about economics and the real business world. So Salin and Pergamit cofounded the Stanford Center for Space Development, a student group for people interested in learning about space. The center brought in lecturers, and as Salin and Pergamit followed the space industry, they discovered that most space technology was developed for the military. Salin grins as he recounts this realization and says, "We found the classic test case for the theories I had been studying and developing [about entrepreneurial opportunities in a planned industry]."

Eager to become an entrepreneur, Salin dropped out of a Ph.D. program that he had entered at Stanford. And in 1980, he, Pergamit, and four other people decided to explore the possibility of developing space-transportation services—such as launching satellites into orbit and ferrying supplies to space stations—in competition with various national-government enterprises (such as NASA).

Salin, Pergamit, and one other partner eventually pulled out of that first venture and started another. With Bevin McKinney, a naval architect who had taught himself rocketry, on board to supervise technical development of the rocket, the group formed Arc Technologies (whose name, for copyright reasons, was later changed to Starstruck).

The firm concluded that the demand for space transportation had been generally underestimated. Salin and his colleagues determined that they could provide space-transportation services at costs 50 percent—or even 75 percent—below those of the various government providers.

"We had two goals—to do it and make money at it and to prove that others could do it," says Salin. Starstruck has not yet developed its services to a marketable point; the first suborbital test flight of its Dolphin rocket is expected in the near future. And Salin has not made money at the enterprise. But the venture has helped pave the way for other space-transportation businesses (see "Further & More," Oct.).

Now that the business and the industry have been established, Salin and Pergamit have started looking around for other entrepreneurial opportunities. In December 1982, Salin and the rest of Starstruck's founding team hired Mike Scott, former president and CEO of Apple Computers, to replace Salin as head of Starstruck, which now has 50 full-time employees, including top executives and engineers hired away from other firms.

Having resigned his post at Starstruck, Salin now is enjoying a retirement that has him working as a consultant to the firm. But his connections to the business are loosening. He won't say what he's getting into next, but he admits that several areas interest him. I think I'm going to keep track of Philip Salin.

Patrick Cox is a frequent guest columnist for USA Today and public affairs director of the Pacific Institute for Public Policy Research.