The a16z Show - Rebuilding America's Industrial Backbone

Starting point is 00:00:00 Manufacturing is just death by 1,000 paper cuts, and it's also just 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 like 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.

Starting point is 00:00:40 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. 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.

Starting point is 00:01:20 We have Jordan Black from Senra Systems, Chris Power from Hadrian, and Ryan Hargeus from Castellian. That was Oliver Arsou. partner on our American Dynamism team who moderated this conversation with I'm Jordan Black, CEO's Center Systems. We designed to manufacture wire harnesses and probably everyone in this room is asking themselves what the hell is a wire harness. Just thinking of it as like an iPhone charger, but really, really, really complex, very manual and labor-intensive thing to manufacture,

Starting point is 00:01:49 25% that cost your car, and almost every company hates building it. You might also recognize Chris, who was on the podcast in 2022. We'll link that episode in the show notes. 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. And finally, Brian, who's building something entirely different. At Castellian, we are actually developing hypersonic weapons systems.

Starting point is 00:02:18 National power stems from central cores, whether it's economic, cultural, industrial, as well as military strength. None of us at Castellian actually hope to use what we're building, but by the very fact that the U.S. has it actually acts as a deterrent. 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? Listen in to find out. As a reminder, 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.

Starting point is 00:02:58 and is not directed at any investors or potential investors in any A16C fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A16C.com slash disclosures. Why don't we start with the present? And 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. I think the one word answer is a complex. I think manufacturing is just death by a thousand paper.

Starting point is 00:03:32 and it's also just really, really overlooked. I've been in manufacturing for a while, and I was the kid that was made fun of in college to work 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,

Starting point is 00:03:49 the design of it, but I think it's the most exciting but also a 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. So you look at a company like SpaceX and takes a lot of money and a lot of time to develop something that amazing. And so I think we are in a really, any exciting, pivotal point, but I think the one-word answer is

Starting point is 00:04:10 complex. 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. So 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. Financial power is a bad proxy for military power, and military power is all. 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

Starting point is 00:04:39 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 exists. And the reason why real estate market crashes happen.

Starting point is 00:05:01 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? So what happened in the 70s, 80s and 90s is we were so wealthy, that generation who ended up doing a lot of financial engineering, and you can talk about this with baby boomers with houses, or you can talk about this with cocaine New York, was we stretched the rubber band really far to spreadsheets

Starting point is 00:05:26 and super far away from reality, and started using the big stick of financial warfare and weaponry, and that became like a lot of America. The problem with that is it's like being Mike Tyson in your 50s, but you've got some brain disease that you believe you're still 25. So what happens is everyone operates like we're still the industrial superpower and we're making really poor decisions because of it. But this happens to every great company nation. It's like IBM used to just make the best products and happens to countries and people as well. and it's largely because you're so successful, you get abstracted away from reality,

Starting point is 00:06:02 and then you forget. Now, the roads aren't getting paved. Like, how did that happen? So the current state is bad for many reasons. One is people in the government or people in power have not updated their mental models that we are super close to retiring age and still picking bar fights with 22-year-olds.

Starting point is 00:06:21 It's a really, really bad idea. And then on the practical side, it's like trying to wave a magic wand and saying we have no software engineers in this country at all, someone's going to start open AI from a talent perspective, right? And you don't get really good AI researchers without having millions and millions and millions of software engineers to train each other and build on top of these abstraction layers

Starting point is 00:06:41 and the whole industry gets better over a long period of time. And that's where manufacturing is out, which is why nothing's coming out of those intel plants for semiconductors for like a decade. Because you can't just wave a magic wand and push yourself up to the top of the abstraction stack. And it really all is a cultural problem. I mean, you can ask the question why are we so behind on shipbuilding.

Starting point is 00:06:59 One big answer is no one cares and there's bad government incentives. The other answer is like, ah, leadership doesn't really know anything about shipbuilding. The workforce kind of forgot to care because no one has been unimportant for such a long time. The rate of what we can produce things in this country for defense or space or anything outside of very rare companies like SpaceX is several orders of magnitude worse than the public believe or the government believe. and our adversaries know that, which is why they're just pushing and keep boiling the frog. Because here's an example. In most wargame scenarios, if a carrier fleet went across Taiwan and we had to ship a bunch of missiles over there and fire them,

Starting point is 00:07:38 our entire inventory of every munition in the country would last three days. And then it would take us three years to replace it. That's how bad it is. There are many answers on how to solve this, but that's the main story here. So there's this financialization piece that led to a lot of abstraction with, real world power. And then there's the culture piece, which is mutually reinforcing. We see a lot of headlines about things like the environmental hurdles that SpaceX gets put in front of them, or this tweet that we saw about how wire harnesses in airplane seatbacks were constantly breaking,

Starting point is 00:08:08 and they cost $10,000 a piece to replace because of an FAA approval process. I'm curious, how does regulation play into the state of affairs in making these things? And how does that affect costs, timelines, things like that? Yeah, I think you 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 and out. That's how I would put the analogy together.

Starting point is 00:08:42 And those wire harnesses, there's probably some guy who comes to that shop and inspects it for three hours and then make 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 giving the pressure. And so there's this new age of companies like Anderrol coming in the space where now, I think the aerospace and defense primes are starting to get a little pressure.

Starting point is 00:09:09 Hopefully in five, 10 years there will be cheaper wire harnesses. But that is a ludicrous cost. And I think just no one's actually waiting a finger. Yeah. 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 and 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

Starting point is 00:09:37 that is net new in that way versus making things that exist far better? 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? My opinion is what's happened over time is with any process or experience, eventually something goes wrong, somebody makes a bad decision, and they replace that bad decision with process to basically accommodate the lowest common denominator. So if all your decisions making process so that you can't do anything innovative, you can't move fast because there's a presumption that you might screw it up, which is always true when you do anything, you end up going incredibly slow.

Starting point is 00:10:34 And now you are the lowest common denominator. And that's what we have done to ourselves as a country, both on the regulatory front. It's also what traditional aerospace has done to themselves in terms of how they do their internal engineering culture. And so why is traditional aerospace so awful at developing new capabilities without sight of certain exceptions like SpaceX and some other newer companies? Well, it's because they have 50 years of process they've layered on top of themselves that has literally killed their ability to innovate and to move affordably and to build at scale. And this just happens with age unless you actively work to keep it out.

Starting point is 00:11:12 And so the most important thing, whether you're building a wiring harness or whether you're doing something new, is how do you not layer on process that basically turns everybody from an individual who has skills and the ability to make a mistake to just paper pushing? You have to look at that at every level. And in regulatory, it's the same way.

Starting point is 00:11:30 It's not unreasonable that the FAA wants to keep people safe from something falling on their head, but it is unreasonable to take 180 days. That's holding the progress of the country. We have to do better than that. But there's a process that they put in a place because at some point somewhere

Starting point is 00:11:45 somebody made a bad decision. It's like if you filled your company with lawyers, nothing's going to get done because everyone wants to keep their job. And now every report coming up to the CEO is like, look how many legal compliance processes I put in place. So one of the reasons why people are absolutely correct about government overspending is because if you have regulatory agencies with thousands of people, they get promoted by blocking stuff.

Starting point is 00:12:11 100% true. Yeah. It's rare you get promoted because, hey, I did a good thing and I saved money. like especially with good this is really bizarre with the government if you don't spend all the money that you were given that year they literally give you less as punishment next year see what instead of structure is that we spend so much time thinking like how do we prevent becoming what we're complaining about and it's not easy because things creep in constantly and you have to look at everything with an unbiased opinion of like why are we making this decision why are we putting in place this process and is it more

Starting point is 00:12:43 damaging than what it's supposedly fixing. I think what people miss about SpaceX, and you can override me here, but I think people miss that a big chunk of the value of vertical integration is just not dealing with a bunch of regulatory things with a bazillion different sub-tier suppliers or processes. Oh, it's 100% true. If you build a product and you've put in place a thousand legal contracts with all your suppliers that have been negotiated, God untold number of billable hours. engine and fucking someone's building the wing.

Starting point is 00:13:14 And then you're determined later from an engineering perspective that, hey, man, if I change this, this would just make everybody's life easier, including your suppliers. But then you have to go and renegotiate every contract. You're just like, oh, hell with that. Forget it. We're going to make unoptimal now. This is the boat we're on. Let's do it.

Starting point is 00:13:30 And that's bad. You hit on something there around 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? What you think about vertical integration is to control schedule.

Starting point is 00:13:56 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-soddering 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 at anything difficult, is a completely unreasonable request to have your engineer

Starting point is 00:14:26 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. And a lot of times what happens in traditional aerospace is your supply chain when you're not vertically integrated, I mean, hell, you'll get 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 mistake

Starting point is 00:15:02 and I'd like to undo it without a two-year penalty? You can't. It's not like one traditional aerospace program is behind schedule and over budget. They all are. It's not because the people are bad or stupid. It is because they work in a process that just fundamentally broken. And vertical integration, in my mind, the control schedule is just what you have to do.

Starting point is 00:15:26 Because in the polar era, they would launch multiple rocket flights a day to test. I mean, SpaceX is getting back to that, but I mean, we had that decades ago. So when you look at from an adversarial perspective, of China, North Korea, Iran, they can't afford to do aerospace the way the U.S. does aerospace. One of the best things that could ever happen to them is they get wealthy enough. They're like, God, we've got to do it like the Americans, and they just destroy their ability to go fast.

Starting point is 00:15:52 But right now, they approach aerospace the same way the U.S. did in like the 60s. And they're kicking our butt. They're going much faster. And that's what we have to bring back to the U.S., my opinion. One of the big thesis is for our company is no one bothered to put software engineers and manufacturers. for like 40 years, big macro statement. And by proxy, all the software is terrible. And one of the reasons why all software in manufacturing is bad as a SaaS vendor is because

Starting point is 00:16:19 the context you need from the customer is so deep that almost every SaaS company builds the wrong product. So the counter example for that is if I gave anyone in this room a couple of software engineers and you interviewed 10 HR managers and said, build an onboarding workflow. You've all been onboarded as employees. You naturally get it. Manufacturing has been such a hidden problem for such a long time that, Vertical integration for us, it just means that, one, it's the only way to build the correct

Starting point is 00:16:43 system and software because you're really feeling the right problem and pain. And then the rapid iteration or one of our rules is automators operate, which is like you can't build software for the factory until you can run that part of the factory yourself. That was literally the only way to build automation that works in the real world versus a cool industrial robot that people buy and put on the shelf. It's a context problem and you've got to own your own pain. I love that phrase. Own your own pain, that's 100% true. This is what Boeing used to do when they first invented autopilot for landings.

Starting point is 00:17:13 On the three last test flights, they just made all the chief engineers who built the autopilot software go on all the test flights. That's the best bug fixing process in the world. And that's what you get with too many layers removed. It just doesn't work. For us, we need to be the fastest and highest quality contract manufacturer.

Starting point is 00:17:29 We look at what software, what solutions are out there. And we realize that the design of wire harnesses is also incredibly fucked up. And so when we get like, sell spreadsheets and PowerPoint slides from some of the largest companies out there and have to tell them this thing won't work. Yeah. So you all touched on software there.

Starting point is 00:17:46 Sometimes there's this misconception that companies like your guys is are not software companies because you are primarily building physical products and running physical processes. I'd love to have you guys comments on that. I don't know if this is contrary 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 Senora makes money is because we sell like a physical product because that's what the world needs more of versus some of these other SaaS tools. I think the second thing that might be more contrary is like software is not going to solve all your problems.

Starting point is 00:18:18 Sometimes writing it on a post-a note and giving to the person next year is going to be a faster process than having all the software overhead. I think the way software helps manufacturing companies for us is to be scalable. I call it the McDonald's approach, which is if you want to work at McDonald's within an hour, you can start flipping burgers and start building something. and that just goes from just being able to look at a screen and just execute versus all the manufacturing companies I've worked at from large companies like Ford to smaller companies. It is going to take you months and almost years to be just like really skilled in a craft and actually know what the hell you're doing. And so I think that's the whole like plug and play and scalable model that in software is really,

Starting point is 00:18:55 really important. I couldn't have said it better. The reason why we have five software companies is because there's two big problems to solve in autonomous manufacturing. One is the task layer, which is someone takes. 40 hours to do something, make it two hours. And the second one is the coordination layer. And we don't believe in full automation. What we do all across the company is take a 40-hour task down to two hours and then make the two-hour task in software so that it's deskilled

Starting point is 00:19:18 enough that we can train anyone in 30 days. And that's the only way to build fast enough. And you also get a really resilient workforce. The other thing and probably why we're going to win this market is every single deep tech company in the history of trying to automate manufacturing has looked at four to ten big stages of really expensive labor or coordination across a factory system, whatever product you're trying to build and said, this is too aggressive. I'm going to build one of these bits first and then venture capital my way and eventually I'll build all five of them and it doesn't work. So one, I think we had the right culture, but secondly, you literally just have to build six

Starting point is 00:19:52 products simultaneously at a ludicrously aggressive pace. Otherwise, you end up with a system where the front end is really, really efficient. but the backside is really inefficient or you haven't built that muscle. And there are so many problems in manufacturing that have real cost and schedule and quality ROI. And by the way, when I'm talking about scarce labor, I'm talking to like some of these roles, we hired 20 experts from manufacturing and then ran out of talent in the entirety of LA. It's that scarce. But the big thing for us of like full stack is we literally have to build everything.

Starting point is 00:20:21 One thing you touched on there is the users of the software you develop are often employees of Hadrian. And there's this dynamic then because you're doing everything vertically integrated. You have, in your case, machinists and software engineers and roboticists and so on, all working in one organization. Can you talk a little bit about bringing all those different disciplines together under one roof? It's extremely complicated. And an example is, so there are, I think, five distinct cultures at Hadrian. One is, call it Silicon Valley software engineers, our technician base, which is going to be the largest to the most important part our company over a long period of time, kind of expert manufacturers, like very technical experts

Starting point is 00:21:02 in machining or quality or whatever, and then everyone else. And what you want to do as a leader of a company is say, we're all running in the same direction, right? But often that has clashing incentives. So if it comes out of the CEO's mouth, like, your job is to automate everything. People in manufacturing have been burnt for 20 years by really bad bosses, really bad leadership. If you're going to lose your job. If I make you more efficient, I'm going to fire you. So this is huge. 30-year buildup of who I really hate everything about this. But we started from day one with culturally equal footing and then an economic equal footing. To the extent that California allows me to, everyone is on a salary. And if you're one of those manufacturing people who are helping

Starting point is 00:21:40 operate and develop software, you have the same equity bar as like a software engineer. Because we're growing so fast, like you're never going to lose your job unless you're underperforming. But we really had to build that kind of level set economics. And the culture from day one was, And this is the biggest mistake private equity in Silicon Valley makes. The private equity version of this is you wear camo pants and I wear a suit. So screw you, I know what you're doing. And the Silicon Valley version of that is I have a PhD. I know what I'm doing.

Starting point is 00:22:07 And both completely disrespect the core of manufacturing, which is there's nothing new that needs to be invented here. You've got to pick 10 smart people and get the knowledge out of their heads from 30 years of experience and get it into software and scale the hell out of it. We knew that coming in, but it is a constant fight. then every communication move you make has to continually reinforce that. And it comes down to really little things. It's not just the executive of that operating division, like machining or quality, is giving product feedback.

Starting point is 00:22:35 There is at least two to three literally hourly workers or experts that have to use that software, yelling at a software engineer being like, your product isn't good enough across the whole company. That does seem like a version of an own your pain, but I actually think that when you're putting in software or any kind of You can go too far too fast and just create more process and work, especially if you're just taking something out of the box and shoehorn it into your business and then productivity is down and everybody's miserable. One of the things that we're trying to do is actually look at from like a efficiency productivity aspect. You bring in automation where it has the most impact,

Starting point is 00:23:13 and then you fine tune that so it's not painful. There's a line that says if you want to get something done, give it to a lazy person. And so I think I'm very happy I'm a lazy person because I didn't in manufacturing, you really have to do the least amount of steps and the least amount of work to get something done while also not deterring from the quality. I think the culture at CENRA is that our best technicians that people actually building the stuff, they're not going to actually say what's a better process. If you watch it in and out and you see someone just, they're cranking through those potatoes and putting it on the friar, their whole goal is to not get fired and it goes fast as possible. It's really on the manufacturing engineering team. When I'm politely saying,

Starting point is 00:23:50 we need to get this build from one week to one day, what are all the inefficiencies? Because at the end of the day, people just want to put their head down from the labor force side. And even at SpaceX, at time study and wire harnessing is a very labor-intensive part. There's no machines or tools to actually do it. About 40% of the process of just a technician was just looking at a computer and figuring out what the hell should I do when reading specifications. And if you took someone we're not from a manufacturing, not from a data-driven side, you would say, oh, we should, like, buy this machine and have it do this. And that's how I think software can really effectively change any manufacturing flow. There's a word that's come up a couple times now in this conversation,

Starting point is 00:24:26 and that's scale. And I think intuitively, 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 Castellian look like as manufacturing operations at scale? 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

Starting point is 00:25:05 manufacturer. It's like a SpaceX or 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. We're in a little bit different position because what scale looks like for us is how many guided missiles will the U.S. buy in a year? It's actually a published number, but it's not as many as you would think. A large order would be like a thousand a year. And compared to almost any other manufacturing industry, that's a joke of a number. And so there are different choices that we'll make because you don't necessarily, put in the expenditure to drive your manufacturing system to the utmost best efficiency,

Starting point is 00:25:46 because the capital cost of implementing that would be so high you would actually raise your cost of good sold on a unit quantity of a thousand. So we actually have to try to look at where that balance is. And I think where traditional aerospace does this horribly is, when they're developing something new, they make a bunch of decisions to actually say, well, I'm only building one or two or five prototypes during this development. And they're They make a ton of design and manufacturing choices. And then you get to the end of that and it works. And the government's like, okay, I want to buy some.

Starting point is 00:26:16 They're like, whoa, we can't do 50. That's crazy. This is impossible. We only made this to build five. And fundamentally, they built the wrong product. And so we try to look at it from the other example of always holding the quantity of what we're going to build in mind as we're designing it. I think that's absolutely critical.

Starting point is 00:26:31 But it's also more thoughtful than just saying, I want to go for unlimited quantity and the hell of the cost. So it's an interesting balance. I would say everything that we build is built for scale, not in the sense of we're building systems. It's just you've got to get it as close to order comes in and order goes out. And your only problem is market share and growth. And because there's so much complexity in manufacturing, that is the tall order. But this is why manufacturers don't scale.

Starting point is 00:26:55 It's because everything is a human's brain getting the job done. So that's how we think about it is every single error or process handover or whatever slows the growth curve down because it just causes friction in the whole system. I actually think that's a great point. How do you scale your engineering talent and how do you make sure your thousands employee is as productive as your 50th, which if you've noticed, generally, it starts to go down until you get to a certain company size and you can add infinite people and you'll probably get less work done? How do you actually scale that? That's, I think, one of the toughest aspects of running a business. We're coming up on the tail end of our time here. And I want to bring it

Starting point is 00:27:32 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 piece through deterrence. And we talked a little bit about how what Castellian 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? 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?

Starting point is 00:28:09 So when you look at industrial capacity, it's not just a sound bite. 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. we're focused on actually enabling through an industrial renaissance, which is what I think a lot of the hard tech companies these days are actually trying to do. But that fundamentally keeps everything else in the economy humming along. Because if you don't have that, like the U.S. is on top for a number of reasons, but not the least of which is that a lot of countries would be stupid to mess with us. But I think looking towards the future, it's completely fixable.

Starting point is 00:28:55 We have everything we need to bring this back. You just have to actually care and focus on it and get back to the basics. And I think the good news is I feel like people have woken up to this is really a problem and are actually willing to invest time and energy and effort to do something about it. Chris, we spoke on the A16D 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.

Starting point is 00:29:21 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? And I know two years is a very short amount of time in the areas we're talking about, but have you observed any kind of shift in the ecosystem? The vibe shift in state DOD in 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,

Starting point is 00:29:45 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. To give you a statistic, there is something like just in shipbuilding, like just at Huntington Ingalls. And by the way, China is building, I think,

Starting point is 00:30:08 20 to 50 times more ships than us every year. And to give you a personal story as an Australian who moved to you five years ago, if the US Pacific fleet cannot defend Australia's trade lanes, the country runs out of food in 27 days and runs out of oil and gas in 60 days. To your point around resiliency, it's like, how rich is this country and how much do all of us in the room not have to deal with the problems of bad guys or geopolitics? And the answer is we have Coachella and Burning Man. It's the most ridiculous safety abstraction of welfare, artistry, whatever you want to call it. But anyway, the macroeconomic picture gets worse every day because people get older and the replacement rate just isn't anywhere near catching up.

Starting point is 00:30:50 The good news is, I think over the last 12 months, there's been a real vibe ship to, oh shit, it's not just about buying. products. It's about capability capacity. And the analogy I keep using is, well, 12 months ago we were talking about we need more Netflix's and now everyone's talking like, oh, we don't have any data center capacity like at all. But, you know, I think there's more people attacking the problem, which is a really good thing. But I don't think it's going anywhere near fast enough. 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. and like why skunk works, Lockheed Martin built like the first firejet in 143 days, which is insane, and I don't think anyone in this country can do that as fast enough.

Starting point is 00:31:29 But I think there's going to be a wake-up call in the next few years, especially when the labor shortage actually becomes more and more serious. And we might sound like the crazy people up here that's like the sky's falling down, but we tapped out the most skilled wire harness technicians in the L.A. area and is really, really difficult to start scaling that. But I think if we don't do it now, who's going to do it 30 years later? 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.

Starting point is 00:32:05 So if you like what we've put together, consider dropping us a line at rate thispodcast.com slash A16C. 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.

The a16z Show - Rebuilding America's Industrial Backbone

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