AI transcript
0:00:05 Manufacturing is just that by a thousand paper cuts and it’s also just really, really overlooked.
0:00:12 When America was crushing it in the Apollo era, we got to the moon quick. We can’t go back to the
0:00:17 moon decades later at the same speed that we did when a computer was like the size of the room.
0:00:22 Everyone operates like we are still the industrial superpower and we’re making really poor decisions
0:00:27 because of it. There’s another phrase, “When you’re fed, you’re not hungry.” And I think this is why
0:00:32 we don’t build things fast enough in the U.S. If a carrier fleet went across Taiwan and we had to
0:00:36 ship a bunch of missiles over there and fire them, our entire inventory of every munition in the
0:00:41 country would last three days and then it would take us three years to replace it. If we don’t do it
0:00:47 now, it was going to do it 30 years later. America is a country of immense wealth, but we’re also
0:00:53 a country that’s gotten used to wire harnesses on the back of airline seats that cost $10,000 a piece.
0:01:00 Or as of 2022, building one commercial ship compared to nearly 800 comparable ships in China.
0:01:06 Or going Starliner that cost over a billion dollars and the heavily reported on failure.
0:01:10 You’ll hear more about all three of those things in today’s episode, but of course it’s not all
0:01:16 doom and gloom. There are tons of companies working toward rebuilding our industrial base,
0:01:20 including three founders you’ll hear from today, from this recording at LA Tech Week.
0:01:28 We have Jordan Black from Senra Systems, Chris Power from Hadrian, and Ryan Harjes from Castellian.
0:01:34 That was all of our Sue. Partner on our American Dynamism team who moderated this conversation with.
0:01:39 I’m Jordan Black, CEO of Senra Systems. We design and manufacture wire harnesses and probably everyone
0:01:43 in this room is asking themselves what the hell is a wire harness. So think of it as like an iPhone
0:01:49 charger but really, really, really complex, very manual and labor intensive thing to manufacture
0:01:52 25% of the cost of your car and almost every company hates building it.
0:01:58 You might also recognize Chris, who was on the podcast in 2022. We’ll link that episode in the show notes.
0:02:03 We build autonomous factories for aerospace and defense. The product that you get is either a
0:02:07 factory or a bunch of high precision components, but really we’re a manufacturer masquerading as a
0:02:13 software company, like fully vertically integrated. And finally, Brian, who’s building something
0:02:18 entirely different. At Castellian, we are actually developing hypersonic weapon systems.
0:02:24 National power stems from central cores, whether it’s economic, cultural, industrial,
0:02:28 as well as military strength. None of us at Castellian actually hope to use
0:02:33 what we’re building, but by the very fact that the U.S. has it actually acts as a deterrent.
0:02:38 So what will it take to revive the industrial base and build the next generation of manufacturing?
0:02:42 What role has regulation played here and how can vertically integrated companies
0:02:51 turn this ship around? Listen in to find out. As a reminder, the content here is for informational
0:02:56 purposes only. Should not be taken as legal, business, tax or investment advice, or be used
0:03:00 to evaluate any investment or security and is not directed at any investors or potential investors
0:03:06 in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the
0:03:11 companies discussed in this podcast. For more details, including a link to our investments,
0:03:14 please see a16z.com/disposures.
0:03:22 Why don’t we start with the present? And I know all of you have a lot of thoughts
0:03:27 about this. So expand on how you see the state of affairs right now in your field.
0:03:30 I think the one word answer is a complex. I think manufacturing is just
0:03:35 death by a thousand paper cuts. And it’s also just really, really overlooked. I’ve been in
0:03:38 manufacturing for a while and I was the kid that was made fun of in college to work at the plants
0:03:42 at Ford and it’s like, why aren’t you behind the computer? And now it’s really amazing that we’re
0:03:48 making it sexy again. But overall, it’s the most complex thing and it’s from not only processes,
0:03:53 raw materials, the design of it. But I think it’s the most exciting but also challenging problem ever
0:03:57 because it’s bits and atoms and you can only make something so cheap or so fast and
0:04:01 you need the world’s greatest minds working on it. So you look at companies like SpaceX and it takes
0:04:06 a lot of money and a lot of time to develop something that amazing. And so I think we
0:04:11 are in a really, any exciting pivotal point. But I think the one word answer is complex.
0:04:15 I fully agree that we are on the up as far as the cultural change that needs to happen to make
0:04:19 manufacturing more robust and more resilient. But we’re not out of the woods yet by any stretch
0:04:23 of the imagination. So I love to understand, Chris, your thoughts on how we got to where we are
0:04:29 and what you see as the road that took us here. Financial power is a bad proxy for military power
0:04:35 and military power is ultimately a bad proxy for industrial power. So basically the story is
0:04:41 we kicked ass in World War Two in the 1920s because we were really good at domestic manufacturing.
0:04:44 We pivoted all to the industrial base. We kicked the shit out of everyone else.
0:04:52 Even though we had worse technology, we just built more of everything. We just outbuilt everybody.
0:04:56 And what ends up happening over multiple generations is it’s like real estate traders
0:05:01 forgetting that market crashes exists. And the reason why real estate market crashes happen
0:05:05 is because there’s a bunch of 27-year-olds that don’t know the anxiety of losing their shirt.
0:05:09 And then everyone keeps clicking the buy button and it all falls apart.
0:05:13 And that happens over multiple generations, right? So what happened in the ’70s, ’80s, and ’90s is
0:05:18 we were so wealthy that generation who ended up doing a lot of financial engineering. You can
0:05:23 talk about this with baby boomers with houses or you can talk about this with cocaine in New York
0:05:29 was we stretched the rubber band really far to spreadsheets and super far away from reality
0:05:34 and started using the big stick of financial warfare and weaponry and that became like a lot
0:05:39 of America. The problem with that is it’s like being Mike Tyson in your ’50s, but you’ve got
0:05:46 some brain disease that you believe you’re still 25. So what happens is everyone operates like we
0:05:50 are still the industrial superpower and we’re making really poor decisions because of it.
0:05:56 But this happens to every great company, nation. It’s like IBM used to just make the best products
0:06:00 and happens to countries and people as well. And it’s largely because you’re so successful
0:06:04 you get abstracted away from reality and then you forget. No, the roads aren’t getting paved.
0:06:10 Like how did that happen? So the current state is bad for many reasons. One is people in the
0:06:17 government or people in power have not updated their mental models that we are super close to
0:06:23 retiring age and still pick and bar fights with 22-year-olds. It’s a really, really bad idea.
0:06:27 And then on the practical side, it’s like trying to wave a magic wand and saying we have no
0:06:32 software engineers in this country at all. Someone’s going to start open AI from a talent
0:06:37 perspective, right? And you don’t get really good AI researchers without having millions and
0:06:40 millions and millions of software engineers to train each other and build on top of these
0:06:45 abstraction layers and the whole industry gets better over a long period of time. And that’s
0:06:48 where manufacturing is at, which is why nothing’s coming out of those Intel plants for semiconductors
0:06:52 for like a decade. Because you can’t just wave a magic wand and push yourself up to the top of
0:06:58 the abstraction stack. And it really all is a cultural problem. I mean, you can ask the question
0:07:02 why are we so behind on shipbuilding? One big answer is no one cares and there’s bad government
0:07:07 incentives. The other answer is like the leadership doesn’t really know anything about shipbuilding.
0:07:13 The workforce kind of forgot to care because no one has been unimportant for such a long time.
0:07:17 The rate of what we can produce things in this country for defense or space or anything outside
0:07:23 of very rare companies like SpaceX is several orders of magnitude worse than the public believe
0:07:28 or the government believe. And our adversaries know that, which is why they’re just pushing and
0:07:35 keep boiling the frog. Because here’s an example. In most war game scenarios, if a carrier fleet
0:07:39 went across Taiwan and we had to ship a bunch of missiles over there and fire them, our entire
0:07:44 inventory of every munition in the country would last three days. And then it would take us three
0:07:49 years to replace it. That’s how bad it is. There are many answers on how to solve this, but that’s
0:07:54 the main story here. So there’s this financialization piece that led to a lot of abstraction with real
0:07:59 world power. And then there’s the culture piece, which is mutually reinforcing. We see a lot of
0:08:03 headlines about things like the environmental hurdles that SpaceX gets put in front of them,
0:08:08 or this tweet that we saw about how wire harnesses in airplane seatbacks were constantly breaking and
0:08:13 they cost $10,000 a piece to replace because of NFAA approval process. I’m curious, how does
0:08:17 regulation play into the state of affairs in making these things? And how does that affect
0:08:22 costs, timelines, things like that? Yeah, I think I kind of look at history where we had to build
0:08:29 one or two or a lower quantity of planes or missiles, and we had all these crazy requirements.
0:08:33 And just no one is taking a stance at any of these big primes saying we really should
0:08:39 stop doing that. It’s like trying to do an x-ray test on every single burr that comes out of it
0:08:43 and out. That’s how I would put the analogy together. And those wire harnesses, there’s
0:08:47 probably some guy who comes to that shop and inspects it for three hours and then makes
0:08:51 sure it goes into plane versus a shop like ours. We have a lot of automation processes to do that.
0:08:57 And so you can provide a better solution to these companies and no one is actually saying,
0:09:01 okay, we should probably lower the cost, lead time, the quality. Overall, I think these companies
0:09:05 aren’t getting the pressure. And so there’s this new age of companies like Andrew are coming in the
0:09:09 space where now I think the aerospace and defense primes are starting to get a little pressure.
0:09:15 Hopefully in five, 10 years there will be cheaper wire harnesses, but that is a ludicrous cost.
0:09:19 And I think just no one’s actually waiting the finger. Yeah, Brian, I want to turn to you for
0:09:24 a second because Chris and Jordan are building companies that are expanding our manufacturing
0:09:29 capabilities of things that exist today and that we are making just in a horribly inefficient and
0:09:33 cost-effective way. What you’re building is actually in many ways like a net new capability
0:09:40 for the country. Do you see any differences in making something that is net new in that way
0:09:45 versus making things that exist far better? So I’m going to actually build off of the previous
0:09:51 question and get to the new one all over. So when you look at not only just regulation,
0:09:56 but how do you do aerospace engineering? Why is it that traditional companies and
0:10:02 especially Boeing right now is really just eating it hard? Why is it going so poorly
0:10:08 for them? And why is the regulatory environment so harsh? My opinion is what’s happened over time
0:10:13 is with any process or experience, eventually something goes wrong. Somebody makes a bad decision
0:10:19 and they replace that bad decision with process to basically accommodate the lowest common
0:10:25 denominator. So if all your decision is making process so that you can’t do anything innovative,
0:10:30 you can’t move fast because there’s a presumption that you might screw it up which is always true
0:10:37 when you do anything. You end up going incredibly slow and now you are the lowest common denominator
0:10:42 and that’s what we have done to ourselves as a country both on the regulatory front. It’s also
0:10:47 what traditional aerospace has done to themselves in terms of how they do their internal engineering
0:10:53 culture. And so why is traditional aerospace so awful at developing new capabilities without
0:10:58 sight of certain exceptions like SpaceX and some other newer companies? Well, it’s because they
0:11:03 have 50 years of process they’ve layered on top of themselves that has literally killed their ability
0:11:09 to innovate and to move affordably and to build its scale. And this just happens with age unless
0:11:14 you actively work to keep it out. And so the most important thing whether you’re building a wiring
0:11:19 harness or whether you’re doing something new is how do you not layer on process that basically
0:11:25 turns everybody from an individual who has skills and the ability to make a mistake to just paper
0:11:30 pushing. You have to look at that at every level and in regulatory it’s the same way. It’s not
0:11:36 unreasonable that the FAA wants to keep people safe from something falling on their head but it
0:11:42 is unreasonable to take 180 days. That’s holding the progress of the country. We have to do better
0:11:46 than that but there’s a process they put in place because some point somewhere somebody made a bad
0:11:53 decision. It’s like if you filled your company with lawyers nothing’s going to get done because
0:11:58 everyone wants to keep their job and now every report coming up to the CEO is like look how many
0:12:02 legal compliance processes they put in place. So one of the reasons why people are absolutely
0:12:07 correct about government overspending is because if you have regulatory agencies with thousands of
0:12:13 people they get promoted by blocking stuff. 100% true. Yeah. It’s rare you get promoted because
0:12:18 hey I did a good thing and I saved money like especially with good this is like really bizarre
0:12:22 with the government. If you don’t spend all the money that you were given that year they literally
0:12:29 give you less as punishment next year. See what incentive structure is that? We spent so much time
0:12:35 thinking like how do we prevent becoming what we’re complaining about and it’s not easy because
0:12:40 things creep in constantly. You have to look at everything with an unbiased opinion of like why
0:12:44 are we making this decision? Why are we putting in place this process and is it more damaging than
0:12:50 what it’s supposedly fixing? I think what people miss about SpaceX and you can override me here
0:12:55 but I think people miss that a big chunk of the value of vertical integration is just not dealing
0:13:01 with a bunch of regulatory things with a bajillion different sub tier suppliers or processes.
0:13:06 Oh it’s 100% true like if you build a product and you’ve put in place a thousand legal contracts
0:13:12 with all your suppliers that have been negotiated. God untold number of… Someone’s building the
0:13:15 engine and in fact someone’s building the way. And then you’re determined later from an engineering
0:13:21 perspective that hey man if I change this this would just make everybody’s life easier including
0:13:26 your suppliers but then you have to go and renegotiate every contract you’re just like oh hell
0:13:30 with that forget it we’re gonna make unoptimal now this is the boat we’re on let’s do it and that’s bad.
0:13:34 You hit on something there around vertical integration and this is something I really
0:13:38 want to spend a bit of time on because all three of you guys are building companies
0:13:42 that can be characterized as ones where the factory is the product right to take that
0:13:47 famous Elon saying what do you see as the reasons for doing this aside from that organizational
0:13:52 culture piece from a technology perspective from a sales perspective how do you think about that?
0:13:58 We think about vertical integration is the control schedule because if you look back at
0:14:03 when America was crushing it in the Apollo era we got to the moon quick we can’t go back to the
0:14:08 moon decades later at the same speed that we did when a computer was like the size of the room
0:14:15 when they’re hand soldering discrete components onto a board how is that possible? But a large part
0:14:23 of it is because to do engineering of anything difficult or manufacturing of anything difficult
0:14:28 is a completely unreasonable request to have your engineers just sit down and design the perfect
0:14:34 system through analysis the first time through the first design is complete crap and you’re
0:14:39 going to do it again and so the only thing that’s important is optimizing for pace of learning
0:14:46 vertical integration can allow you to go so much faster because everybody’s incentives are now aligned
0:14:51 to the speed that you want especially in development and a lot of times what happens in traditional
0:14:55 aerospace is your supply chain when you’re not vertically integrated I mean hell you’ll get
0:15:01 like a new rev it’ll be a year or two years well how can you learn and how can you say oh I made a
0:15:07 mistake and I’d like to undo it without a two-year penalty you can’t it’s not like one traditional
0:15:14 aerospace program is behind schedule and over budget they all are it’s not because the people
0:15:20 are bad or stupid it is because they work in a process that just fundamentally broken and vertical
0:15:26 integration in my mind a control schedule is just what you have to do because in the polar
0:15:32 area they would launch multiple rocket flights a day to test I mean SpaceX is getting back to that
0:15:39 but I mean we had that decades ago so when you look at from an adversarial perspective China
0:15:46 North Korea Iran they can’t afford to do aerospace the way the US does aerospace what are the best
0:15:49 things that could ever happen to them is they get wealthy enough they’re like god we’ve got to do it
0:15:53 like the Americans and they just destroy their ability to go fast but right now they approach
0:15:58 aerospace the same way the US did in this in like the 60s and they’re kicking our butt they’re going
0:16:05 much faster and that’s what we have to bring back to the US my opinion one of the big thesis is for
0:16:10 our company is no one bothered to put software engineers in manufacturing for like 40 years big
0:16:16 macro statement and by proxy all the software is terrible and one of the reasons why all software
0:16:21 manufacturing is bad as a SaaS vendor is because the context you need from the customer is so deep
0:16:25 that almost every SaaS company builds the wrong product so the counter example for that is if I
0:16:30 gave anyone in this room a couple of software engineers and you interviewed 10 HR managers
0:16:35 and said build an onboarding workflow you’ve all been onboarded as employees you naturally get it
0:16:39 manufacturing has been such a hidden problem for such a long time that vertical integration for us
0:16:45 it just means that one it’s the only way to build the correct system and software because you’re
0:16:50 really feeling the right problem and pain and then the rapid iteration or one of our rules is
0:16:55 automators operate which is like you can’t build software for the factory until you can run that
0:16:59 part of the factory yourself there was literally the only way to build automation that works in the
0:17:04 real world versus a cool industrial robot that people buy and put on the shelf it’s a context problem
0:17:10 and you got to own your own pain I love that phrase own your own pain that’s 100 true it is
0:17:15 what Boeing used to do when they first invented autopilot for landings on the three last test
0:17:18 flights they just made all the chief engineers who built the autopilot software go on all the test
0:17:24 flights that’s the best bug fixing process in the world and that’s what you get with too many layers
0:17:28 removed it just doesn’t work for us it’s we need to be the fastest and highest quality contract
0:17:33 manufacturer and we look at what software what solutions are out there and we realize that the
0:17:39 design of wire harnesses is also incredibly fucked up and so when we get like excel spreadsheets and
0:17:43 PowerPoint slides from some of the largest companies out there and have to tell them this thing won’t
0:17:48 work yeah so you all touched on software there sometimes there’s this misconception that companies
0:17:53 like your guys’s are not software companies because you are primarily building physical
0:17:58 products and running physical processes I’d love to have you guys comment on that I don’t know
0:18:04 this is contrary anymore but selling sass software to hard tech companies is almost impossible it’s
0:18:09 very very difficult because it’s always going to be a unicorn solution I agree that way center makes
0:18:13 money is because we sell like a physical product that’s what the world needs more of versus some
0:18:16 of these other sass tools I mean the second thing that might be more contrary is like software is
0:18:20 not going to solve all your problems sometimes writing it on a post-it note and giving to the
0:18:24 first and next year it’s going to be a faster process than having all the software overhead I
0:18:29 think the way software helps manufacturer companies for us is to be scalable I call like the McDonald’s
0:18:34 approach which is if you want to work at McDonald’s within an hour you could start flipping burgers and
0:18:38 start building something and that just goes from just being able to like look at a screen and just
0:18:44 execute versus all the manufacturing companies I’ve worked at from large companies like Ford to
0:18:49 smaller companies like it is going to take you months and almost years to be just like really
0:18:52 skilled in a craft and actually know what the hell you’re doing and so I think that’s the whole
0:18:56 like plug-and-play unscalable model that in software is really really important I couldn’t have said
0:19:01 it better the reason why we have five software companies is because there’s two big problems
0:19:05 to solve in autonomous manufacturing one is the task layer which is someone takes 40 hours to do
0:19:10 something make it two hours and the second one is the coordination layer and we don’t believe in
0:19:15 full automation what we do all across the company is take a 40 hour task down to two hours and then
0:19:20 make the two hour task in software so that it’s de-skilled enough that we can train anyone in 30
0:19:24 days and that’s the only way to build fast enough and you also get a really resilient workforce the
0:19:29 other thing and probably why we’re going to win this market is every single deep tech company
0:19:34 in the history of trying to automate manufacturing has looked at four to ten big stages of really
0:19:39 expensive labour or coordination across a factory system whatever product you’re trying to build and
0:19:44 said this is too aggressive I’m going to build one of these bits first and then venture capital my way
0:19:49 and eventually I’ll build all five of them and it doesn’t work so one I think we had the right
0:19:55 culture but secondly you literally just have to build six products simultaneously at a ludicrously
0:19:59 aggressive pace otherwise you end up with a system where the front end is really really efficient
0:20:03 but the backside is really inefficient or you haven’t built that muscle and there are so many
0:20:08 problems in manufacturing that have real cost and schedule and quality ROI and by the way when I’m
0:20:12 talking about scarce labour I’m talking to like some of these roles we hired 20 experts from
0:20:17 manufacturing and then ran out of talent in the entirety of LA it’s that scarce but the big thing
0:20:22 for us of like full stackers we literally have to build everything one thing you touch on there is
0:20:28 the users of the software you develop are often employees of Patreon and there’s this dynamic
0:20:33 then because you’re doing everything vertically integrated you have in your case machinists
0:20:38 and software engineers and roboticists and so on all working in one organization can you talk
0:20:43 a little bit about bringing all those different disciplines together under one roof it’s extremely
0:20:49 complicated and an example is so there are I think five distinct cultures at Hadrian one is
0:20:55 Colet Silicon Valley software engineers our technician base which is going to be the
0:20:59 largest and most important part of our company over a long period of time kind of expert
0:21:04 manufacturers like very technical experts in machining or quality or whatever and then everyone
0:21:10 else and what you want to do as a leader of a company is say we’re all running in the same
0:21:13 direction right but often that has clashing incentives so if it comes out of the CEO’s
0:21:19 mouth like your job is to automate everything people in manufacturing have been burnt for
0:21:23 20 years by really bad bosses really bad leadership of you’re going to lose your job if I make you
0:21:28 more efficient I’m going to fire you so this is huge 30-year build up of oh I really hate everything
0:21:33 about this but we started from day one with culturally equal footing and then an economic
0:21:39 equal footing to the extent that California allows me to everyone is on a salary and if you are one
0:21:43 of those manufacturing people who are helping operate and develop software you have the same
0:21:47 equity bar as like a software engineer because we’re growing so fast like you’re never going to
0:21:52 lose your job unless you’re underperforming but we really had to build the kind of level set economics
0:21:56 and the culture from day one was and this is the biggest mistake private equity in Silicon Valley
0:22:02 makes the private equity version of this is you wear camo pants and I wear a suit so screw you
0:22:06 I know what you’re doing and the Silicon Valley version of that is I have a PhD I know what I’m
0:22:12 doing and both completely disrespect the core of manufacturing which is there’s nothing new
0:22:16 that needs to be invented here you’re just you got to pick 10 smart people and get the knowledge
0:22:20 out of their heads from 30 years of experience and get it into software and scale the hell out of it
0:22:24 we knew that coming in but it is a constant fight and every communication move you make
0:22:29 has to continually reinforce that and it comes down to really little things it’s not just the
0:22:35 executive of that operating division like machining or quality is giving product feedback
0:22:41 there is at least two to three literally hourly workers or experts that have to use that software
0:22:45 yelling at a software engineer being like your product isn’t good enough across the whole company
0:22:51 that does seem like a version of own your pain but I actually think that when you’re
0:22:56 putting in software or any kind of automation you can go too far too fast and just create more
0:23:00 process and work especially if you’re just taking something out of the box and shoo horn it into your
0:23:05 business and then productivity is down and everybody’s miserable one of the things that
0:23:10 we’re trying to do is actually look at from like a efficiency productivity aspect you bring in
0:23:16 automation where it has the most impact and then you fine tune that so it’s not painful
0:23:20 there’s a line that says if you want to get something done give it to a lazy person and so
0:23:24 I think I’m very happy I’m a lazy person because I didn’t get manufacturing you really have to do
0:23:27 the least amount of steps and the least amount of work to get something done
0:23:33 well off so not a deterring from the quality I think the culture et cetera is that our best
0:23:37 technicians the people actually building the stuff they’re not going to actually say what’s a
0:23:41 better process and you watch it in and out and you see someone just they’re cranking through
0:23:46 those potatoes and putting it on the fryer their whole goal is to not get fired and it goes fast
0:23:50 as possible it’s really on the manufacturing engineering team when I’m politely saying
0:23:55 we need to get this build from one week to one day what are all the inefficiencies because at
0:23:59 the end of the day people just want to put their head down from the labor force side and even at
0:24:04 SpaceX we did a time study and wire harnessing is a very labor intensive part there’s no machines
0:24:09 or tools to actually do it about 40% of the process of just a technician was just looking at a
0:24:12 computer and figuring out what the hell should I do when reading specifications and if you took
0:24:17 someone from a manufacturer and not from a data driven side you would say oh we should like
0:24:21 buy this machine and have it do this and that’s how I think software can really effectively
0:24:26 change any manufacturing flow there’s a word that’s come up a couple times now in this conversation
0:24:31 and that’s scale and I think intuitively people understand that with the kinds of processes
0:24:36 that you guys are building like a lot of the gains are fully realized at scale there’s different
0:24:40 models of this that you see around like scaling up versus scaling out like more modular approaches
0:24:47 and so on and so forth but what do senra, hadrian and castellan look like as manufacturing operations
0:24:51 at scale I believe for us we have a never-ending customer base and it always fits me as a founder
0:24:55 to say no to work because we don’t have the capacity and I think you have to scale with
0:25:01 machines automation and a cheap labor force ultimately in manufacturing right now people
0:25:05 ask me like what’s the best wire harness factory in the world and it honestly is not a contract
0:25:09 manufacturer it’s like a space x or a Boeing or someone else who vertically integrate into their
0:25:13 shop can pay people a little bit more because it goes into their end product and be able to
0:25:18 handhold the whole process we’re in a little bit different position because what scale looks like
0:25:24 for us is how many guided missiles will the us buy in a year it’s actually a published number
0:25:31 but it’s not as many as you would think a large order would be like a thousand a year and compared
0:25:36 to almost any other manufacturing industry that’s a joke of a number and so there are different
0:25:43 choices that will make because you don’t necessarily put in the expenditure to drive your manufacturing
0:25:49 system to the utmost best efficiency because the capital cost of implementing that would be so high
0:25:54 you would actually raise your cost of goods sold on you know a unit quantity of a thousand so we
0:25:59 actually have to try to look at where that balance is and I think where traditional aerospace
0:26:04 does this horribly is when they’re developing something new they make a bunch of decisions to
0:26:09 actually say well I’m only building one or two or five prototypes during this development and they
0:26:14 make a ton of design and manufacturing choices and then you get to the end of that and it works
0:26:20 and the government’s like okay I want to buy some they’re like whoa we can’t do 50 that’s crazy this
0:26:25 is impossible we only made this to build five and fundamentally they built the wrong product and so
0:26:28 we try to look at it from the other example but always holding the quantity of what we’re going
0:26:32 to build in mind as we’re designing it I think that’s absolutely critical but it’s also more
0:26:38 thoughtful than just saying I want to go for unlimited quantity and the hell the cost so
0:26:43 it’s an interesting balance. I would say everything that we build is built for scale not in the sense
0:26:48 of we’re building systems it’s just you got to get it as close to order comes in and order goes out
0:26:52 and the only problem is market share and growth and because there’s so much complexity in manufacturing
0:26:56 that is a tall order but this is why manufacturers don’t scale is because everything is a human’s
0:27:02 brain getting the job done so that’s how we think about it is every single error or process handover
0:27:06 or whatever slows the growth curve down because it just causes friction in the whole system.
0:27:09 I actually think that’s a great point how do you scale your engineering talent and how do
0:27:16 you make sure your thousands employee is as productive as your like 50th which if you’ve
0:27:21 noticed generally it starts to go down till you get to a certain company size and you can add
0:27:26 infinite people and you’ll probably get less work done how do you actually scale that that’s I think
0:27:31 one of the toughest aspects of running a business. We’re coming up on the tail end of our time here
0:27:36 and I want to bring it back to a very similar place to where we started around the big picture
0:27:42 of geopolitics and the future of the industrial base and how those two things fit together.
0:27:46 Brian you have on your website the phrase piece through deterrence and we talked a little bit
0:27:50 about how what Castellian is building is a non-nuclear deterrent but I would love to get
0:27:56 your thoughts on how our production capacity and how the manufacturing processes that you guys are
0:27:59 building that as a part of our industrial base how does that function as a deterrent.
0:28:05 Yeah so the stat that Chris said earlier about basically if we go to fight against China we’re
0:28:10 going to have weapons for three days and then we’re out are you scared of that? So when you look
0:28:15 at industrial capacity it’s not just a soundbite it’s literally what keeps the country safe and
0:28:20 keeps the ability for the country to do all these other things that have nothing to do with not
0:28:25 only industrial power or military superiority and I think to take care of the democracy you
0:28:30 have to actually have military strength economic strength cultural strength industrial strength
0:28:36 you have to have all of them we’re focused on actually enabling through an industrial renaissance
0:28:40 which is what I think a lot of the hard tech companies these days are actually trying to do
0:28:45 but that fundamentally keeps everything else in the economy humming along because if you don’t
0:28:50 have that like the US is on top for a number of reasons but not the least of which is that
0:28:54 a lot of countries would be stupid to mess with us but I think looking towards the future it’s
0:28:59 completely fixable we have everything we need to bring this back you just have to actually care
0:29:04 and focus on it and get back to the basics and I think the good news is I feel like people have
0:29:08 woken up to this is really a problem and they’re actually willing to invest time and energy and
0:29:14 effort to do something about it. Chris we spoke on the A16Z podcast about two years ago and we
0:29:19 discussed how fragile this ecosystem is and especially the average age of a machinist is 55
0:29:23 you know it’s probably higher now I would imagine and those are the ones that supply most of the
0:29:27 primes with their parts have there been any changes since then in the two years since and I know
0:29:30 that two years is a very short amount of time in the areas we’re talking about but have you observed
0:29:38 any kind of shift in the ecosystem? The vibe shift in state DOD in congress so two years ago everyone
0:29:43 was talking about procurement cycles and why can’t the government buy products at least over the last
0:29:48 12 months everyone is oh crap like we could buy all the products we want but there is no production
0:29:54 capacity across shipbuilding munitions vehicles whatever which is very good because at least
0:30:00 now we’re talking about what I think is the right problem on everything else honestly not really
0:30:06 to give you a statistic there is something like just in shipbuilding like just at Huntington Ingalls
0:30:11 and by the way China is building I think 20 to 50 times more ships than us every year
0:30:15 and to give you a personal story as an Australian who moved to five years ago
0:30:22 if the US Pacific fleet cannot defend Australia’s trade lanes the country runs out of food
0:30:28 in 27 days and runs out of oil and gas in 60 days to your point around resiliency it’s like
0:30:32 how rich is this country and how much do all of us in the room not have to deal with the
0:30:37 problems of bad guys or geopolitics and the answer is we have Coachella and Burning Man
0:30:44 it’s the most ridiculous safety abstraction of welfare hardistry whatever you want to call it
0:30:47 but anyway the macroeconomic picture gets worse every day because people get older and the
0:30:52 replacement rages isn’t anywhere near catching up the good news is I think over the last 12 months
0:30:57 there’s been a real vibe ship to oh shit it’s not just about buying products it’s about capability
0:31:02 capacity and the analogy I keep using is well 12 months ago we were talking about we need more
0:31:07 Netflixes and now everyone’s talking like oh we don’t have any data center capacity like at all
0:31:11 but you know I think there’s more people attacking the problem which is a really good thing but I
0:31:16 don’t think it’s going anywhere near fast enough there’s another phrase when you’re fed you’re not
0:31:22 hungry and I think this is why we don’t build things fast enough in the US and like why Skunkworks
0:31:27 Lockymar and built like the first fire jet in 143 days which is insane and I don’t think anyone
0:31:31 in this country can do that this fast enough but I think there’s going to be a wake up call in the
0:31:36 next few years especially when the labor shortage actually becomes more and more serious and we
0:31:41 might sound like the crazy people up here that’s like the sky is falling down but we’ve tapped
0:31:46 out the most skilled wire harness technicians in the LA area and it is really really difficult to
0:31:50 start scaling that but I think if we don’t do it now who’s going to do it 30 years later
0:31:57 all right that is all for today if you did make it this far first of all thank you we put a lot
0:32:01 of thought into each of these episodes whether it’s guests the calendar touchers the cycles with
0:32:07 our amazing editor Tommy until the music is just right so if you like what we’ve put together
0:32:13 consider dropping us a line at rapethispodcast.com/a16z and let us know what your favorite episode is
0:32:27 it’ll make my day and I’m sure Tommy’s too we’ll catch you on the flip side
0:32:28 you
0:32:28 you
0:32:29 you
0:32:39 [BLANK_AUDIO]
0:00:12 When America was crushing it in the Apollo era, we got to the moon quick. We can’t go back to the
0:00:17 moon decades later at the same speed that we did when a computer was like the size of the room.
0:00:22 Everyone operates like we are still the industrial superpower and we’re making really poor decisions
0:00:27 because of it. There’s another phrase, “When you’re fed, you’re not hungry.” And I think this is why
0:00:32 we don’t build things fast enough in the U.S. If a carrier fleet went across Taiwan and we had to
0:00:36 ship a bunch of missiles over there and fire them, our entire inventory of every munition in the
0:00:41 country would last three days and then it would take us three years to replace it. If we don’t do it
0:00:47 now, it was going to do it 30 years later. America is a country of immense wealth, but we’re also
0:00:53 a country that’s gotten used to wire harnesses on the back of airline seats that cost $10,000 a piece.
0:01:00 Or as of 2022, building one commercial ship compared to nearly 800 comparable ships in China.
0:01:06 Or going Starliner that cost over a billion dollars and the heavily reported on failure.
0:01:10 You’ll hear more about all three of those things in today’s episode, but of course it’s not all
0:01:16 doom and gloom. There are tons of companies working toward rebuilding our industrial base,
0:01:20 including three founders you’ll hear from today, from this recording at LA Tech Week.
0:01:28 We have Jordan Black from Senra Systems, Chris Power from Hadrian, and Ryan Harjes from Castellian.
0:01:34 That was all of our Sue. Partner on our American Dynamism team who moderated this conversation with.
0:01:39 I’m Jordan Black, CEO of Senra Systems. We design and manufacture wire harnesses and probably everyone
0:01:43 in this room is asking themselves what the hell is a wire harness. So think of it as like an iPhone
0:01:49 charger but really, really, really complex, very manual and labor intensive thing to manufacture
0:01:52 25% of the cost of your car and almost every company hates building it.
0:01:58 You might also recognize Chris, who was on the podcast in 2022. We’ll link that episode in the show notes.
0:02:03 We build autonomous factories for aerospace and defense. The product that you get is either a
0:02:07 factory or a bunch of high precision components, but really we’re a manufacturer masquerading as a
0:02:13 software company, like fully vertically integrated. And finally, Brian, who’s building something
0:02:18 entirely different. At Castellian, we are actually developing hypersonic weapon systems.
0:02:24 National power stems from central cores, whether it’s economic, cultural, industrial,
0:02:28 as well as military strength. None of us at Castellian actually hope to use
0:02:33 what we’re building, but by the very fact that the U.S. has it actually acts as a deterrent.
0:02:38 So what will it take to revive the industrial base and build the next generation of manufacturing?
0:02:42 What role has regulation played here and how can vertically integrated companies
0:02:51 turn this ship around? Listen in to find out. As a reminder, the content here is for informational
0:02:56 purposes only. Should not be taken as legal, business, tax or investment advice, or be used
0:03:00 to evaluate any investment or security and is not directed at any investors or potential investors
0:03:06 in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the
0:03:11 companies discussed in this podcast. For more details, including a link to our investments,
0:03:14 please see a16z.com/disposures.
0:03:22 Why don’t we start with the present? And I know all of you have a lot of thoughts
0:03:27 about this. So expand on how you see the state of affairs right now in your field.
0:03:30 I think the one word answer is a complex. I think manufacturing is just
0:03:35 death by a thousand paper cuts. And it’s also just really, really overlooked. I’ve been in
0:03:38 manufacturing for a while and I was the kid that was made fun of in college to work at the plants
0:03:42 at Ford and it’s like, why aren’t you behind the computer? And now it’s really amazing that we’re
0:03:48 making it sexy again. But overall, it’s the most complex thing and it’s from not only processes,
0:03:53 raw materials, the design of it. But I think it’s the most exciting but also challenging problem ever
0:03:57 because it’s bits and atoms and you can only make something so cheap or so fast and
0:04:01 you need the world’s greatest minds working on it. So you look at companies like SpaceX and it takes
0:04:06 a lot of money and a lot of time to develop something that amazing. And so I think we
0:04:11 are in a really, any exciting pivotal point. But I think the one word answer is complex.
0:04:15 I fully agree that we are on the up as far as the cultural change that needs to happen to make
0:04:19 manufacturing more robust and more resilient. But we’re not out of the woods yet by any stretch
0:04:23 of the imagination. So I love to understand, Chris, your thoughts on how we got to where we are
0:04:29 and what you see as the road that took us here. Financial power is a bad proxy for military power
0:04:35 and military power is ultimately a bad proxy for industrial power. So basically the story is
0:04:41 we kicked ass in World War Two in the 1920s because we were really good at domestic manufacturing.
0:04:44 We pivoted all to the industrial base. We kicked the shit out of everyone else.
0:04:52 Even though we had worse technology, we just built more of everything. We just outbuilt everybody.
0:04:56 And what ends up happening over multiple generations is it’s like real estate traders
0:05:01 forgetting that market crashes exists. And the reason why real estate market crashes happen
0:05:05 is because there’s a bunch of 27-year-olds that don’t know the anxiety of losing their shirt.
0:05:09 And then everyone keeps clicking the buy button and it all falls apart.
0:05:13 And that happens over multiple generations, right? So what happened in the ’70s, ’80s, and ’90s is
0:05:18 we were so wealthy that generation who ended up doing a lot of financial engineering. You can
0:05:23 talk about this with baby boomers with houses or you can talk about this with cocaine in New York
0:05:29 was we stretched the rubber band really far to spreadsheets and super far away from reality
0:05:34 and started using the big stick of financial warfare and weaponry and that became like a lot
0:05:39 of America. The problem with that is it’s like being Mike Tyson in your ’50s, but you’ve got
0:05:46 some brain disease that you believe you’re still 25. So what happens is everyone operates like we
0:05:50 are still the industrial superpower and we’re making really poor decisions because of it.
0:05:56 But this happens to every great company, nation. It’s like IBM used to just make the best products
0:06:00 and happens to countries and people as well. And it’s largely because you’re so successful
0:06:04 you get abstracted away from reality and then you forget. No, the roads aren’t getting paved.
0:06:10 Like how did that happen? So the current state is bad for many reasons. One is people in the
0:06:17 government or people in power have not updated their mental models that we are super close to
0:06:23 retiring age and still pick and bar fights with 22-year-olds. It’s a really, really bad idea.
0:06:27 And then on the practical side, it’s like trying to wave a magic wand and saying we have no
0:06:32 software engineers in this country at all. Someone’s going to start open AI from a talent
0:06:37 perspective, right? And you don’t get really good AI researchers without having millions and
0:06:40 millions and millions of software engineers to train each other and build on top of these
0:06:45 abstraction layers and the whole industry gets better over a long period of time. And that’s
0:06:48 where manufacturing is at, which is why nothing’s coming out of those Intel plants for semiconductors
0:06:52 for like a decade. Because you can’t just wave a magic wand and push yourself up to the top of
0:06:58 the abstraction stack. And it really all is a cultural problem. I mean, you can ask the question
0:07:02 why are we so behind on shipbuilding? One big answer is no one cares and there’s bad government
0:07:07 incentives. The other answer is like the leadership doesn’t really know anything about shipbuilding.
0:07:13 The workforce kind of forgot to care because no one has been unimportant for such a long time.
0:07:17 The rate of what we can produce things in this country for defense or space or anything outside
0:07:23 of very rare companies like SpaceX is several orders of magnitude worse than the public believe
0:07:28 or the government believe. And our adversaries know that, which is why they’re just pushing and
0:07:35 keep boiling the frog. Because here’s an example. In most war game scenarios, if a carrier fleet
0:07:39 went across Taiwan and we had to ship a bunch of missiles over there and fire them, our entire
0:07:44 inventory of every munition in the country would last three days. And then it would take us three
0:07:49 years to replace it. That’s how bad it is. There are many answers on how to solve this, but that’s
0:07:54 the main story here. So there’s this financialization piece that led to a lot of abstraction with real
0:07:59 world power. And then there’s the culture piece, which is mutually reinforcing. We see a lot of
0:08:03 headlines about things like the environmental hurdles that SpaceX gets put in front of them,
0:08:08 or this tweet that we saw about how wire harnesses in airplane seatbacks were constantly breaking and
0:08:13 they cost $10,000 a piece to replace because of NFAA approval process. I’m curious, how does
0:08:17 regulation play into the state of affairs in making these things? And how does that affect
0:08:22 costs, timelines, things like that? Yeah, I think I kind of look at history where we had to build
0:08:29 one or two or a lower quantity of planes or missiles, and we had all these crazy requirements.
0:08:33 And just no one is taking a stance at any of these big primes saying we really should
0:08:39 stop doing that. It’s like trying to do an x-ray test on every single burr that comes out of it
0:08:43 and out. That’s how I would put the analogy together. And those wire harnesses, there’s
0:08:47 probably some guy who comes to that shop and inspects it for three hours and then makes
0:08:51 sure it goes into plane versus a shop like ours. We have a lot of automation processes to do that.
0:08:57 And so you can provide a better solution to these companies and no one is actually saying,
0:09:01 okay, we should probably lower the cost, lead time, the quality. Overall, I think these companies
0:09:05 aren’t getting the pressure. And so there’s this new age of companies like Andrew are coming in the
0:09:09 space where now I think the aerospace and defense primes are starting to get a little pressure.
0:09:15 Hopefully in five, 10 years there will be cheaper wire harnesses, but that is a ludicrous cost.
0:09:19 And I think just no one’s actually waiting the finger. Yeah, Brian, I want to turn to you for
0:09:24 a second because Chris and Jordan are building companies that are expanding our manufacturing
0:09:29 capabilities of things that exist today and that we are making just in a horribly inefficient and
0:09:33 cost-effective way. What you’re building is actually in many ways like a net new capability
0:09:40 for the country. Do you see any differences in making something that is net new in that way
0:09:45 versus making things that exist far better? So I’m going to actually build off of the previous
0:09:51 question and get to the new one all over. So when you look at not only just regulation,
0:09:56 but how do you do aerospace engineering? Why is it that traditional companies and
0:10:02 especially Boeing right now is really just eating it hard? Why is it going so poorly
0:10:08 for them? And why is the regulatory environment so harsh? My opinion is what’s happened over time
0:10:13 is with any process or experience, eventually something goes wrong. Somebody makes a bad decision
0:10:19 and they replace that bad decision with process to basically accommodate the lowest common
0:10:25 denominator. So if all your decision is making process so that you can’t do anything innovative,
0:10:30 you can’t move fast because there’s a presumption that you might screw it up which is always true
0:10:37 when you do anything. You end up going incredibly slow and now you are the lowest common denominator
0:10:42 and that’s what we have done to ourselves as a country both on the regulatory front. It’s also
0:10:47 what traditional aerospace has done to themselves in terms of how they do their internal engineering
0:10:53 culture. And so why is traditional aerospace so awful at developing new capabilities without
0:10:58 sight of certain exceptions like SpaceX and some other newer companies? Well, it’s because they
0:11:03 have 50 years of process they’ve layered on top of themselves that has literally killed their ability
0:11:09 to innovate and to move affordably and to build its scale. And this just happens with age unless
0:11:14 you actively work to keep it out. And so the most important thing whether you’re building a wiring
0:11:19 harness or whether you’re doing something new is how do you not layer on process that basically
0:11:25 turns everybody from an individual who has skills and the ability to make a mistake to just paper
0:11:30 pushing. You have to look at that at every level and in regulatory it’s the same way. It’s not
0:11:36 unreasonable that the FAA wants to keep people safe from something falling on their head but it
0:11:42 is unreasonable to take 180 days. That’s holding the progress of the country. We have to do better
0:11:46 than that but there’s a process they put in place because some point somewhere somebody made a bad
0:11:53 decision. It’s like if you filled your company with lawyers nothing’s going to get done because
0:11:58 everyone wants to keep their job and now every report coming up to the CEO is like look how many
0:12:02 legal compliance processes they put in place. So one of the reasons why people are absolutely
0:12:07 correct about government overspending is because if you have regulatory agencies with thousands of
0:12:13 people they get promoted by blocking stuff. 100% true. Yeah. It’s rare you get promoted because
0:12:18 hey I did a good thing and I saved money like especially with good this is like really bizarre
0:12:22 with the government. If you don’t spend all the money that you were given that year they literally
0:12:29 give you less as punishment next year. See what incentive structure is that? We spent so much time
0:12:35 thinking like how do we prevent becoming what we’re complaining about and it’s not easy because
0:12:40 things creep in constantly. You have to look at everything with an unbiased opinion of like why
0:12:44 are we making this decision? Why are we putting in place this process and is it more damaging than
0:12:50 what it’s supposedly fixing? I think what people miss about SpaceX and you can override me here
0:12:55 but I think people miss that a big chunk of the value of vertical integration is just not dealing
0:13:01 with a bunch of regulatory things with a bajillion different sub tier suppliers or processes.
0:13:06 Oh it’s 100% true like if you build a product and you’ve put in place a thousand legal contracts
0:13:12 with all your suppliers that have been negotiated. God untold number of… Someone’s building the
0:13:15 engine and in fact someone’s building the way. And then you’re determined later from an engineering
0:13:21 perspective that hey man if I change this this would just make everybody’s life easier including
0:13:26 your suppliers but then you have to go and renegotiate every contract you’re just like oh hell
0:13:30 with that forget it we’re gonna make unoptimal now this is the boat we’re on let’s do it and that’s bad.
0:13:34 You hit on something there around vertical integration and this is something I really
0:13:38 want to spend a bit of time on because all three of you guys are building companies
0:13:42 that can be characterized as ones where the factory is the product right to take that
0:13:47 famous Elon saying what do you see as the reasons for doing this aside from that organizational
0:13:52 culture piece from a technology perspective from a sales perspective how do you think about that?
0:13:58 We think about vertical integration is the control schedule because if you look back at
0:14:03 when America was crushing it in the Apollo era we got to the moon quick we can’t go back to the
0:14:08 moon decades later at the same speed that we did when a computer was like the size of the room
0:14:15 when they’re hand soldering discrete components onto a board how is that possible? But a large part
0:14:23 of it is because to do engineering of anything difficult or manufacturing of anything difficult
0:14:28 is a completely unreasonable request to have your engineers just sit down and design the perfect
0:14:34 system through analysis the first time through the first design is complete crap and you’re
0:14:39 going to do it again and so the only thing that’s important is optimizing for pace of learning
0:14:46 vertical integration can allow you to go so much faster because everybody’s incentives are now aligned
0:14:51 to the speed that you want especially in development and a lot of times what happens in traditional
0:14:55 aerospace is your supply chain when you’re not vertically integrated I mean hell you’ll get
0:15:01 like a new rev it’ll be a year or two years well how can you learn and how can you say oh I made a
0:15:07 mistake and I’d like to undo it without a two-year penalty you can’t it’s not like one traditional
0:15:14 aerospace program is behind schedule and over budget they all are it’s not because the people
0:15:20 are bad or stupid it is because they work in a process that just fundamentally broken and vertical
0:15:26 integration in my mind a control schedule is just what you have to do because in the polar
0:15:32 area they would launch multiple rocket flights a day to test I mean SpaceX is getting back to that
0:15:39 but I mean we had that decades ago so when you look at from an adversarial perspective China
0:15:46 North Korea Iran they can’t afford to do aerospace the way the US does aerospace what are the best
0:15:49 things that could ever happen to them is they get wealthy enough they’re like god we’ve got to do it
0:15:53 like the Americans and they just destroy their ability to go fast but right now they approach
0:15:58 aerospace the same way the US did in this in like the 60s and they’re kicking our butt they’re going
0:16:05 much faster and that’s what we have to bring back to the US my opinion one of the big thesis is for
0:16:10 our company is no one bothered to put software engineers in manufacturing for like 40 years big
0:16:16 macro statement and by proxy all the software is terrible and one of the reasons why all software
0:16:21 manufacturing is bad as a SaaS vendor is because the context you need from the customer is so deep
0:16:25 that almost every SaaS company builds the wrong product so the counter example for that is if I
0:16:30 gave anyone in this room a couple of software engineers and you interviewed 10 HR managers
0:16:35 and said build an onboarding workflow you’ve all been onboarded as employees you naturally get it
0:16:39 manufacturing has been such a hidden problem for such a long time that vertical integration for us
0:16:45 it just means that one it’s the only way to build the correct system and software because you’re
0:16:50 really feeling the right problem and pain and then the rapid iteration or one of our rules is
0:16:55 automators operate which is like you can’t build software for the factory until you can run that
0:16:59 part of the factory yourself there was literally the only way to build automation that works in the
0:17:04 real world versus a cool industrial robot that people buy and put on the shelf it’s a context problem
0:17:10 and you got to own your own pain I love that phrase own your own pain that’s 100 true it is
0:17:15 what Boeing used to do when they first invented autopilot for landings on the three last test
0:17:18 flights they just made all the chief engineers who built the autopilot software go on all the test
0:17:24 flights that’s the best bug fixing process in the world and that’s what you get with too many layers
0:17:28 removed it just doesn’t work for us it’s we need to be the fastest and highest quality contract
0:17:33 manufacturer and we look at what software what solutions are out there and we realize that the
0:17:39 design of wire harnesses is also incredibly fucked up and so when we get like excel spreadsheets and
0:17:43 PowerPoint slides from some of the largest companies out there and have to tell them this thing won’t
0:17:48 work yeah so you all touched on software there sometimes there’s this misconception that companies
0:17:53 like your guys’s are not software companies because you are primarily building physical
0:17:58 products and running physical processes I’d love to have you guys comment on that I don’t know
0:18:04 this is contrary anymore but selling sass software to hard tech companies is almost impossible it’s
0:18:09 very very difficult because it’s always going to be a unicorn solution I agree that way center makes
0:18:13 money is because we sell like a physical product that’s what the world needs more of versus some
0:18:16 of these other sass tools I mean the second thing that might be more contrary is like software is
0:18:20 not going to solve all your problems sometimes writing it on a post-it note and giving to the
0:18:24 first and next year it’s going to be a faster process than having all the software overhead I
0:18:29 think the way software helps manufacturer companies for us is to be scalable I call like the McDonald’s
0:18:34 approach which is if you want to work at McDonald’s within an hour you could start flipping burgers and
0:18:38 start building something and that just goes from just being able to like look at a screen and just
0:18:44 execute versus all the manufacturing companies I’ve worked at from large companies like Ford to
0:18:49 smaller companies like it is going to take you months and almost years to be just like really
0:18:52 skilled in a craft and actually know what the hell you’re doing and so I think that’s the whole
0:18:56 like plug-and-play unscalable model that in software is really really important I couldn’t have said
0:19:01 it better the reason why we have five software companies is because there’s two big problems
0:19:05 to solve in autonomous manufacturing one is the task layer which is someone takes 40 hours to do
0:19:10 something make it two hours and the second one is the coordination layer and we don’t believe in
0:19:15 full automation what we do all across the company is take a 40 hour task down to two hours and then
0:19:20 make the two hour task in software so that it’s de-skilled enough that we can train anyone in 30
0:19:24 days and that’s the only way to build fast enough and you also get a really resilient workforce the
0:19:29 other thing and probably why we’re going to win this market is every single deep tech company
0:19:34 in the history of trying to automate manufacturing has looked at four to ten big stages of really
0:19:39 expensive labour or coordination across a factory system whatever product you’re trying to build and
0:19:44 said this is too aggressive I’m going to build one of these bits first and then venture capital my way
0:19:49 and eventually I’ll build all five of them and it doesn’t work so one I think we had the right
0:19:55 culture but secondly you literally just have to build six products simultaneously at a ludicrously
0:19:59 aggressive pace otherwise you end up with a system where the front end is really really efficient
0:20:03 but the backside is really inefficient or you haven’t built that muscle and there are so many
0:20:08 problems in manufacturing that have real cost and schedule and quality ROI and by the way when I’m
0:20:12 talking about scarce labour I’m talking to like some of these roles we hired 20 experts from
0:20:17 manufacturing and then ran out of talent in the entirety of LA it’s that scarce but the big thing
0:20:22 for us of like full stackers we literally have to build everything one thing you touch on there is
0:20:28 the users of the software you develop are often employees of Patreon and there’s this dynamic
0:20:33 then because you’re doing everything vertically integrated you have in your case machinists
0:20:38 and software engineers and roboticists and so on all working in one organization can you talk
0:20:43 a little bit about bringing all those different disciplines together under one roof it’s extremely
0:20:49 complicated and an example is so there are I think five distinct cultures at Hadrian one is
0:20:55 Colet Silicon Valley software engineers our technician base which is going to be the
0:20:59 largest and most important part of our company over a long period of time kind of expert
0:21:04 manufacturers like very technical experts in machining or quality or whatever and then everyone
0:21:10 else and what you want to do as a leader of a company is say we’re all running in the same
0:21:13 direction right but often that has clashing incentives so if it comes out of the CEO’s
0:21:19 mouth like your job is to automate everything people in manufacturing have been burnt for
0:21:23 20 years by really bad bosses really bad leadership of you’re going to lose your job if I make you
0:21:28 more efficient I’m going to fire you so this is huge 30-year build up of oh I really hate everything
0:21:33 about this but we started from day one with culturally equal footing and then an economic
0:21:39 equal footing to the extent that California allows me to everyone is on a salary and if you are one
0:21:43 of those manufacturing people who are helping operate and develop software you have the same
0:21:47 equity bar as like a software engineer because we’re growing so fast like you’re never going to
0:21:52 lose your job unless you’re underperforming but we really had to build the kind of level set economics
0:21:56 and the culture from day one was and this is the biggest mistake private equity in Silicon Valley
0:22:02 makes the private equity version of this is you wear camo pants and I wear a suit so screw you
0:22:06 I know what you’re doing and the Silicon Valley version of that is I have a PhD I know what I’m
0:22:12 doing and both completely disrespect the core of manufacturing which is there’s nothing new
0:22:16 that needs to be invented here you’re just you got to pick 10 smart people and get the knowledge
0:22:20 out of their heads from 30 years of experience and get it into software and scale the hell out of it
0:22:24 we knew that coming in but it is a constant fight and every communication move you make
0:22:29 has to continually reinforce that and it comes down to really little things it’s not just the
0:22:35 executive of that operating division like machining or quality is giving product feedback
0:22:41 there is at least two to three literally hourly workers or experts that have to use that software
0:22:45 yelling at a software engineer being like your product isn’t good enough across the whole company
0:22:51 that does seem like a version of own your pain but I actually think that when you’re
0:22:56 putting in software or any kind of automation you can go too far too fast and just create more
0:23:00 process and work especially if you’re just taking something out of the box and shoo horn it into your
0:23:05 business and then productivity is down and everybody’s miserable one of the things that
0:23:10 we’re trying to do is actually look at from like a efficiency productivity aspect you bring in
0:23:16 automation where it has the most impact and then you fine tune that so it’s not painful
0:23:20 there’s a line that says if you want to get something done give it to a lazy person and so
0:23:24 I think I’m very happy I’m a lazy person because I didn’t get manufacturing you really have to do
0:23:27 the least amount of steps and the least amount of work to get something done
0:23:33 well off so not a deterring from the quality I think the culture et cetera is that our best
0:23:37 technicians the people actually building the stuff they’re not going to actually say what’s a
0:23:41 better process and you watch it in and out and you see someone just they’re cranking through
0:23:46 those potatoes and putting it on the fryer their whole goal is to not get fired and it goes fast
0:23:50 as possible it’s really on the manufacturing engineering team when I’m politely saying
0:23:55 we need to get this build from one week to one day what are all the inefficiencies because at
0:23:59 the end of the day people just want to put their head down from the labor force side and even at
0:24:04 SpaceX we did a time study and wire harnessing is a very labor intensive part there’s no machines
0:24:09 or tools to actually do it about 40% of the process of just a technician was just looking at a
0:24:12 computer and figuring out what the hell should I do when reading specifications and if you took
0:24:17 someone from a manufacturer and not from a data driven side you would say oh we should like
0:24:21 buy this machine and have it do this and that’s how I think software can really effectively
0:24:26 change any manufacturing flow there’s a word that’s come up a couple times now in this conversation
0:24:31 and that’s scale and I think intuitively people understand that with the kinds of processes
0:24:36 that you guys are building like a lot of the gains are fully realized at scale there’s different
0:24:40 models of this that you see around like scaling up versus scaling out like more modular approaches
0:24:47 and so on and so forth but what do senra, hadrian and castellan look like as manufacturing operations
0:24:51 at scale I believe for us we have a never-ending customer base and it always fits me as a founder
0:24:55 to say no to work because we don’t have the capacity and I think you have to scale with
0:25:01 machines automation and a cheap labor force ultimately in manufacturing right now people
0:25:05 ask me like what’s the best wire harness factory in the world and it honestly is not a contract
0:25:09 manufacturer it’s like a space x or a Boeing or someone else who vertically integrate into their
0:25:13 shop can pay people a little bit more because it goes into their end product and be able to
0:25:18 handhold the whole process we’re in a little bit different position because what scale looks like
0:25:24 for us is how many guided missiles will the us buy in a year it’s actually a published number
0:25:31 but it’s not as many as you would think a large order would be like a thousand a year and compared
0:25:36 to almost any other manufacturing industry that’s a joke of a number and so there are different
0:25:43 choices that will make because you don’t necessarily put in the expenditure to drive your manufacturing
0:25:49 system to the utmost best efficiency because the capital cost of implementing that would be so high
0:25:54 you would actually raise your cost of goods sold on you know a unit quantity of a thousand so we
0:25:59 actually have to try to look at where that balance is and I think where traditional aerospace
0:26:04 does this horribly is when they’re developing something new they make a bunch of decisions to
0:26:09 actually say well I’m only building one or two or five prototypes during this development and they
0:26:14 make a ton of design and manufacturing choices and then you get to the end of that and it works
0:26:20 and the government’s like okay I want to buy some they’re like whoa we can’t do 50 that’s crazy this
0:26:25 is impossible we only made this to build five and fundamentally they built the wrong product and so
0:26:28 we try to look at it from the other example but always holding the quantity of what we’re going
0:26:32 to build in mind as we’re designing it I think that’s absolutely critical but it’s also more
0:26:38 thoughtful than just saying I want to go for unlimited quantity and the hell the cost so
0:26:43 it’s an interesting balance. I would say everything that we build is built for scale not in the sense
0:26:48 of we’re building systems it’s just you got to get it as close to order comes in and order goes out
0:26:52 and the only problem is market share and growth and because there’s so much complexity in manufacturing
0:26:56 that is a tall order but this is why manufacturers don’t scale is because everything is a human’s
0:27:02 brain getting the job done so that’s how we think about it is every single error or process handover
0:27:06 or whatever slows the growth curve down because it just causes friction in the whole system.
0:27:09 I actually think that’s a great point how do you scale your engineering talent and how do
0:27:16 you make sure your thousands employee is as productive as your like 50th which if you’ve
0:27:21 noticed generally it starts to go down till you get to a certain company size and you can add
0:27:26 infinite people and you’ll probably get less work done how do you actually scale that that’s I think
0:27:31 one of the toughest aspects of running a business. We’re coming up on the tail end of our time here
0:27:36 and I want to bring it back to a very similar place to where we started around the big picture
0:27:42 of geopolitics and the future of the industrial base and how those two things fit together.
0:27:46 Brian you have on your website the phrase piece through deterrence and we talked a little bit
0:27:50 about how what Castellian is building is a non-nuclear deterrent but I would love to get
0:27:56 your thoughts on how our production capacity and how the manufacturing processes that you guys are
0:27:59 building that as a part of our industrial base how does that function as a deterrent.
0:28:05 Yeah so the stat that Chris said earlier about basically if we go to fight against China we’re
0:28:10 going to have weapons for three days and then we’re out are you scared of that? So when you look
0:28:15 at industrial capacity it’s not just a soundbite it’s literally what keeps the country safe and
0:28:20 keeps the ability for the country to do all these other things that have nothing to do with not
0:28:25 only industrial power or military superiority and I think to take care of the democracy you
0:28:30 have to actually have military strength economic strength cultural strength industrial strength
0:28:36 you have to have all of them we’re focused on actually enabling through an industrial renaissance
0:28:40 which is what I think a lot of the hard tech companies these days are actually trying to do
0:28:45 but that fundamentally keeps everything else in the economy humming along because if you don’t
0:28:50 have that like the US is on top for a number of reasons but not the least of which is that
0:28:54 a lot of countries would be stupid to mess with us but I think looking towards the future it’s
0:28:59 completely fixable we have everything we need to bring this back you just have to actually care
0:29:04 and focus on it and get back to the basics and I think the good news is I feel like people have
0:29:08 woken up to this is really a problem and they’re actually willing to invest time and energy and
0:29:14 effort to do something about it. Chris we spoke on the A16Z podcast about two years ago and we
0:29:19 discussed how fragile this ecosystem is and especially the average age of a machinist is 55
0:29:23 you know it’s probably higher now I would imagine and those are the ones that supply most of the
0:29:27 primes with their parts have there been any changes since then in the two years since and I know
0:29:30 that two years is a very short amount of time in the areas we’re talking about but have you observed
0:29:38 any kind of shift in the ecosystem? The vibe shift in state DOD in congress so two years ago everyone
0:29:43 was talking about procurement cycles and why can’t the government buy products at least over the last
0:29:48 12 months everyone is oh crap like we could buy all the products we want but there is no production
0:29:54 capacity across shipbuilding munitions vehicles whatever which is very good because at least
0:30:00 now we’re talking about what I think is the right problem on everything else honestly not really
0:30:06 to give you a statistic there is something like just in shipbuilding like just at Huntington Ingalls
0:30:11 and by the way China is building I think 20 to 50 times more ships than us every year
0:30:15 and to give you a personal story as an Australian who moved to five years ago
0:30:22 if the US Pacific fleet cannot defend Australia’s trade lanes the country runs out of food
0:30:28 in 27 days and runs out of oil and gas in 60 days to your point around resiliency it’s like
0:30:32 how rich is this country and how much do all of us in the room not have to deal with the
0:30:37 problems of bad guys or geopolitics and the answer is we have Coachella and Burning Man
0:30:44 it’s the most ridiculous safety abstraction of welfare hardistry whatever you want to call it
0:30:47 but anyway the macroeconomic picture gets worse every day because people get older and the
0:30:52 replacement rages isn’t anywhere near catching up the good news is I think over the last 12 months
0:30:57 there’s been a real vibe ship to oh shit it’s not just about buying products it’s about capability
0:31:02 capacity and the analogy I keep using is well 12 months ago we were talking about we need more
0:31:07 Netflixes and now everyone’s talking like oh we don’t have any data center capacity like at all
0:31:11 but you know I think there’s more people attacking the problem which is a really good thing but I
0:31:16 don’t think it’s going anywhere near fast enough there’s another phrase when you’re fed you’re not
0:31:22 hungry and I think this is why we don’t build things fast enough in the US and like why Skunkworks
0:31:27 Lockymar and built like the first fire jet in 143 days which is insane and I don’t think anyone
0:31:31 in this country can do that this fast enough but I think there’s going to be a wake up call in the
0:31:36 next few years especially when the labor shortage actually becomes more and more serious and we
0:31:41 might sound like the crazy people up here that’s like the sky is falling down but we’ve tapped
0:31:46 out the most skilled wire harness technicians in the LA area and it is really really difficult to
0:31:50 start scaling that but I think if we don’t do it now who’s going to do it 30 years later
0:31:57 all right that is all for today if you did make it this far first of all thank you we put a lot
0:32:01 of thought into each of these episodes whether it’s guests the calendar touchers the cycles with
0:32:07 our amazing editor Tommy until the music is just right so if you like what we’ve put together
0:32:13 consider dropping us a line at rapethispodcast.com/a16z and let us know what your favorite episode is
0:32:27 it’ll make my day and I’m sure Tommy’s too we’ll catch you on the flip side
0:32:28 you
0:32:28 you
0:32:29 you
0:32:39 [BLANK_AUDIO]
America is a country of immense wealth, but our manufacturing infrastructure is struggling to keep pace.
In this episode, we discuss the overlooked crisis of American manufacturing and what it means for our national resilience. a16z’s Oliver Hsu hosts a conversation with founders Jordan Black (Senra Systems), Chris Power (Hadrian), and Bryon Hargis (Castelion) on why we need to revive our industrial base — and fast.
From outdated regulations to the adoption of automation, they break down the “death by a thousand paper cuts” that has left our production capabilities lagging behind. Yet, it’s not all grim: these founders share how their companies are taking bold, vertically integrated approaches to reinvent the sector and reclaim America’s industrial edge.
Resources:
Find Chris on X: https://x.com/2112Power
Find Jordan on X: https://x.com/jordan__black
Find Bryon on X: https://x.com/hargsb
Find Oliver on X: https://x.com/oyhsu
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Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures.