--:-- Oliver Hsu: Manufacturing is just death by a thousand paper cuts, and it's also really, really overlooked. When America was crushing it in the Apollo era, we got to the moon quick. We can't go back to the moon decades later at the same speed that we did when a computer was the size of the room. Everyone operates like we're still the industrial superpower, and we're making really poor decisions because of it. There's another phrase: when you're fed, you're not hungry, and I think this is why we don't build things fast enough in the U.S. If a carrier fleet went across Taiwan and we had to ship a bunch of missiles over there and fire them, our entire inventory of every munition in the country would last three days. And then it would take us three years to replace it. If we don't do it now, who's going to do it 30 years later? America is a country of immense wealth, but we're also a country that's gotten used to wire harnesses on the back of airline seats that cost $10,000 a piece. Or, as of 2022, building one commercial ship compared to nearly 800 comparable ships in China. Or Boeing Starliner that cost over a billion dollars and the heavily reported on failure. You'll hear more about all three of those things in today's episode. But of course, it's not all doom and gloom. There are tons of companies working toward rebuilding our industrial base, including three founders you'll hear from today. From this recording at LA Tech Week, we have Jordan Black from Senra Systems, Chris Power from Hadrian, and Ryan Hargis from Castellion. That was Oliver Hsu, partner on our American Dynamism team, who moderated this conversation with...
--:-- Jordan Black: I'm Jordan Black, CEO of Senra Systems. We design and manufacture wire harnesses, and probably everyone in this room is asking themselves, what the hell is a wire harness? So think of it as like an iPhone charger, but really, really, really complex, very manual and labor-intensive thing to manufacture, 25% of the cost of your car, and almost every company hates building it.
--:-- Oliver Hsu: You might also recognize Chris, who was on the podcast in 2022. We'll link that episode in the show notes.
--:-- Chris Power: We build autonomous factories for aerospace and defense. The product that you get is either a factory or a bunch of high-precision components, but really we're a manufacturer masquerading as a software company, like fully vertically integrated.
--:-- Oliver Hsu: And finally, Ryan, who's building something entirely different.
--:-- Ryan Hargis: At Castellion, we are actually developing hypersonic weapon systems. National power stems from central cores, whether it's economic, cultural, industrial, as well as military strength. None of us at Castellion actually hope to use what we're building, but by the very fact that the U.S. has it, it actually acts as a deterrent.
--:-- Oliver Hsu: So what will it take to revive the industrial base and build the next generation of manufacturing? What role has regulation played here? And how can vertically integrated companies turn this ship around?
--:-- Oliver Hsu: Why don't we start with the present? I know all of you have a lot of thoughts about this. So expand on how you see the state of affairs right now in your field.
--:-- Jordan Black: I think the one word answer is complex. I think manufacturing is just death by a thousand paper cuts. And it's also really, really overlooked. I've been in manufacturing for a while, and I was the kid that was made fun of in college for working at the plants at Ford. And it's like, why aren't you behind the computer? And now it's really amazing that we're making it sexy again. But overall, it's the most complex thing, and it's from not only processes, raw materials, the design of it, but I think it's the most exciting but also challenging problem ever because it's bits and atoms, and you can only make something so cheap or so fast, and you need the world's greatest minds working on it.
--:-- Chris Power: I fully agree that we are on the up as far as the cultural change that needs to happen to make manufacturing more robust and more resilient. But we're not out of the woods yet by any stretch of the imagination.
--:-- Oliver Hsu: I love to understand, Chris, your thoughts on how we got to where we are and what you see as the road that took us here.
--:-- Chris Power: Financial power is a bad proxy for military power, and military power is ultimately a bad proxy for industrial power. So basically, the story is we kicked ass in World War II in the 1920s because we were really good at domestic manufacturing. We pivoted all to the industrial base. We kicked the shit out of everyone else. Even though we had worse technology, we just built more of everything. We just outbuilt everybody. And what ends up happening over multiple generations is it's like real estate traders forgetting that market crashes exist. And the reason why real estate market crashes happen is because there's a bunch of 27-year-olds that don't know the anxiety of losing their shirt. And then everyone keeps clicking the buy button, and it all falls apart. And that happens over multiple generations, right?
--:-- Oliver Hsu: [pause] You bring up an interesting point about regulation. How does regulation play into the state of affairs in making these things and how does that affect costs, timelines, things like that?
--:-- Jordan Black: Yeah, I think I kind of look at history where we had to build one or two or a lower quantity of planes or missiles, and we had all these crazy requirements, and just no one is taking a stance at any of these big primes saying, we really should stop doing that. It's like trying to do an x-ray test on every single burr that comes out of it in and out. That's how I would put the analogy together. And those wire harnesses, there's probably some guy who comes to that shop and inspects it for three hours and then makes sure it goes in a plane versus a shop like ours. We have a lot of automation processes to do that. And so you can provide a better solution to these companies, and no one is actually saying, okay, we should probably lower the cost, lead time, the quality. Overall, I think these companies aren't getting the pressure.
--:-- Oliver Hsu: Brian, I want to turn to you for a second because Chris and Jordan are building companies that are expanding our manufacturing capabilities of things that exist today and that we are making just in a horribly inefficient and cost-effective way. What you're building is actually in many ways like a net new capability for the country. Do you see any differences in making something that is net new in that way versus making things that exist far better?
--:-- Ryan Hargis: So I'm going to actually build off of the previous question and get to the new one, Oliver. So when you look at not only just regulation but how do you do aerospace engineering? Why is it that traditional companies and especially Boeing right now is really just eating it hard, why is it going so poorly for them? And why is the regulatory environment so harsh?
--:-- Oliver Hsu: [pause] You bring up something interesting about vertical integration. This is something I really want to spend a bit of time on because all three of you guys are building companies that can be characterized as ones where the factory is the product, right? To take that famous Elon saying. What do you see as the reasons for doing this aside from that organizational culture piece, from a technology perspective, from a sales perspective? How do you think about that?
--:-- Chris Power: We think about vertical integration as the control schedule. Because if you look back at when America was crushing it in the Apollo era, we got to the moon quick. We can't go back to the moon decades later at the same speed that we did when a computer was like the size of the room and they're hand soldering discrete components onto a board. How is that possible? But a large part of it is because to do engineering of anything difficult or manufacturing of anything difficult is a completely unreasonable request to have your engineer just sit down and design the perfect system through analysis the first time through. The first design is complete crap, and you're going to do it again. And so the only thing that's important is optimizing for pace of learning. Vertical integration can allow you to go so much faster because everybody's incentives are now aligned to the speed that you want, especially in development.
--:-- Oliver Hsu: [pause] You touched on something there about software. Sometimes there's this misconception that companies like your guys are not software companies because you are primarily building physical products and running physical processes. I'd love to have you guys comment on that.
--:-- Jordan Black: I don't know if this is contrarian anymore, but selling SaaS software to hard tech companies is almost impossible. It's very, very difficult because it's always going to be a unicorn solution. I agree that the way Senra makes money is because we sell a physical product because that's what the world needs more of versus some of these other SaaS tools.
--:-- Oliver Hsu: [pause] You bring up something interesting about scaling. I think people understand that with the kinds of processes that you guys are building, like a lot of the gains are fully realized at scale. There's different models of this that you see around like scaling up versus scaling out, like more modular approaches and so on and so forth. But what do Senra, Hadrian, and Castellion look like as manufacturing operations at scale?
--:-- Jordan Black: I think for us, we have a never-ending customer base. And it always hurts me as a founder to say no to work because we don't have the capacity. And I think you have to scale with machines, automation, and a cheap labor force ultimately in manufacturing. Right now, people ask me, like, what's the best wire harness factory in the world? And it honestly is not a contract manufacturer. It's like a SpaceX or a Boeing or someone else who vertically integrate into their shop, can pay people a little bit more because it goes into their end product and be able to handhold the whole process.
--:-- Oliver Hsu: [pause] We're coming up on the tail end of our time here, and I want to bring it back to a very similar place to where we started around the big picture of geopolitics and the future of the industrial base and how those two things fit together. Brian, you have on your website the phrase "peace through deterrence." And we talked a little bit about how what Castellion is building is a non-nuclear deterrent. But I would love to get your thoughts on how our production capacity and how the manufacturing processes that you guys are building, that as a part of our industrial base, how does that function as a deterrent?
--:-- Ryan Hargis: Yeah. So the stat that Chris said earlier about basically if we go to fight against China, we're going to have weapons for three days and then we're out. Are you scared of that? So when you look at industrial capacity, it's not just a soundbite. It's literally what keeps the country safe and keeps the ability for the country to do all these other things that have nothing to do with not only industrial power or military superiority. And I think to take care of the democracy, you have to actually have military strength, economic strength, cultural strength, industrial strength. You have to have all of them.
--:-- Oliver Hsu: [pause] Chris, we spoke on the A16Z podcast about two years ago, and we discussed how fragile this ecosystem is, and especially the average age of a machinist is 55. It's probably higher now, I would imagine. And those are the ones that supply most of the primes with their parts. Have there been any changes since then, in the two years since?
--:-- Chris Power: The vibe shift in state DOD and Congress. So two years ago, everyone was talking about procurement cycles and why can't the government buy products. At least over the last 12 months, everyone is, oh, crap. Like, we could buy all the products we want, but there is no production capacity across shipbuilding, munitions, vehicles, whatever, which is very good. Because at least now we're talking about what I think is the right problem. On everything else, honestly, not really.
--:-- Oliver Hsu: All right, that is all for today. If you did make it this far, first of all, thank you. We put a lot of thought into each of these episodes, whether it's guests, the calendar Tetris, the cycles with our amazing editor, Tommy, until the music is just right. So if you like what we've put together, consider dropping us a line at ratethispodcast.com slash A16Z. And let us know what your favorite episode is. It'll make my day, and I'm sure Tommy's too. We'll catch you on the flip side.
