00:30:49 · Ethan Thornton
[00:30:49] S1: Yeah. 100%. So how do you how do you do that? Well, so the first thing I'll say, the app, the OpEx CapEx part is actually not part of that. So supply chains actually tend to move slower than things that are vertically integrated. And so all that to be said, the the first optimization on the CapEx side is maximal flexibility of CapEx. Like the factory we're in today, my my goal and generally what we're able to do is to retool the factory in like two or three weeks to produce a new type of aircraft. And we've done that successfully for the last two years or so now, but ideally that pace also comes down a lot. And so you gotta build flexibility in your factories. Now there are trade offs to doing this, and the trade off is just cost. Like, if you're trying to get your machines to do more, there's no free lunch. Your products will be slightly more expensive. That's where your products have to be just excellent on the design for manufacturing side, but you want flexibility on CapEx. Next, you want a functions based engineering org and not a verticalized engineering org. So generally, it is the same electrical engineers, same software engineers, same aero engineers who work across the product stack. Now for some period of time, they will specialize on the product they're working on. I don't let them work on, like, three products at a time. You end up with consultants, so it's very important that you're working on one thing at a time, but you actually sit in the electrical work. And what that creates is that the learning, and in many cases, the actual hardware, and certainly the tooling you use to do it, generalizes to all of your products. So each product that you take gets incrementally cheaper. So, like, all of our products fly generally, I guess, minus start and eventually minus Atlas with very similar, if not completely overlapping avionics. They all use the same error design software. It's in many cases the same aerodynamicist that designed them. So the next thing is, like, how do you design your engineering org? The other nice thing about doing that, and it's really a matrix org, functional org, whatever you wanna call it, is I don't have to go and build a team for I just have to reallocate resources. And that accomplishes two things. One, on the front end of a product, I can stand it up a lot faster.
00:32:41 · Ethan Thornton, Ty Morse
Two, if you wanna if you wanna, like, truly change the way someone buys something, you have to be able to take risk by building something that they're not directly asking for today. And so you're gonna have some batting average. Now that batting average for us so far is quite high. Like, we're we're going into rate on all of our products because we will have customers for them, but you have to also be willing to spin down bets. And if you're verticalizing your engineering org, it's all a function you just built around just that product. So it's extremely painful to, like, take those employees and put them in different places in the company. Whereas if it's functional, it's like, hey, you worked on Pike for the last, like, three months, but your boss isn't changing and your tooling's not changing. And it's the same, generally, go work on Viper for three months. [00:33:22] S0: Let's say that you're fast forwarding, you know, twelve to twenty four months and you're trying to figure out what is the next platform that your system that you guys need to build in order to be in a position where however the world looks, you're... You you basically have both the system that's able to do like a strike or something, but also like counter other strikes from Yeah. You know, adversaries. How do you figure out what to go pursue? How much money you're willing to invest in one of those programs before there's an obvious, you know, here's the contract for that system?
00:33:52 · Ethan Thornton
[00:33:52] S1: One, I'll say being good at that is probably the most important thing you can be as a defense company, given how unclear stuff is right now where tech is heading and how long it takes to engineer one of these products and stand up a pipeline. So you wanna obsess over it. I think you wanna start with geopolitics. So everyone's mind instantly goes to, like, hyper specific conflicts at their certain period in the way you think about design programs. You have the Taiwan situation of how do you deter Taiwan. You have the Ukraine situation of how do you win the current war in Ukraine. You have the Iran situation. What you find is that the the golden rule of aerospace is very, very specifically design your vehicle to do what it needs to do. So you have to start with, like, at a geopolitical level, how am I looking to provide advantage to the West, and what sort of mission sets will that require? And sometimes this is, like, top end kinetic. Like, I need to go and shut down a near peer competitor's ability to fight a war if they choose to invade. Sometimes it's actually very, very low end. Right? It's it's light force per... Projection. So you start with geopolitics. Next, you really, really, really wanna obsess about logistics. Like, even before you know what the product looks like, how how is this thing gonna be launched? How is it gonna be... Like, how is it gonna be fueled? How is it gonna be manufactured? How is it gonna be maintenance? At that point, then you get into actual, like, product requirements. You still don't actually know that. You know nothing about what the aircraft looks like, but you go in war game. So you look at these are the capabilities the adversary has or can be expected to have for this specific mission set. In our case, here are the capabilities we have. One of the things I'm trying to do is kind of close the loop where you're actually wargaming against yourself. And that's how I think one of the key things it will take to just rapidly accelerate.
00:35:32 · Ty Morse, Ethan Thornton
[00:35:32] S0: What do you mean close the loop on [00:35:33] S1: So like Dart, we literally designed Dart as a means to shoot down our own products by the time they're copied. And then I will design an asset to bypass Dart. And, of course, if you knew how to do this, you just shoot to the end of that. But you learn in the process, the world changes, and then ideally technology is getting a lot better along the way. And so there is just some speed you can do these things, but you're kind of closing that loop. And so you're literally in software running engagements. Like Dart, we built like a full six off model to like war game against our own products. You look at the economics, you look at the types of mission sets. You do that against other people's assets as well. Viper and Pike are very, very, very hard to shoot down right now compared to a Shahed. And the pricing ratio on them is better than the Shahed, so we chose that as the hard one. But then you anchor kind of the the requirements of the product. And then you take a a full pass on, like, okay, what are the creative techniques I can do to squeeze out this performance? When you think
00:36:28 · Ty Morse
[00:36:28] S0: of, like, asymmetry, this idea of trying to house, like, 232 to one shipbuilding capacity to The United States. But if you're able to go build a new system that like takes out their shipbuilding capacity, suddenly it's even the playing field. Or, you know, if you're able to take out ships. When you kind of have some problem like that and you don't know exactly what, you know, no one's asking for a system that's able to take out those things. How do you figure out here's the actual product that you should build in order to achieve some mission that people don't even realize is the actual mission when there's like other missions that are more obvious but are not the right ones?
00:37:04 · Ethan Thornton
[00:37:04] S1: I think... So look. There are things I'm quite bad at, and I'm I'm happy to get into those and discuss those. I think I... I've been obsessed with thinking about this for a while. So I have... I talk about this a lot. Have two family members who... Whose job this was largely in the air force, this is, like, dinner table conversation my entire life growing up. I'm pretty obsessed about it. And one, like, this is principally one of my things to own is, like, what does this future look like in the limit? I think it's easier to extrapolate than people expect. Like, I'll give you an example on balloons. And I shouldn't touch too deeply on the specific reasons, but, like, in high school, at the farm with my uncle, my uncle and I were talking and we're, like... We started thinking about balloons for some reason. We're, like, wait, balloons are actually very, very likely gonna be super, super important for unmanned warfare. This would have been circa like 2018. And we we go on this long long discussion. I get to thinking about it. I get like massively obsessed with balloons. And I... This is long before Mach, everyone's like, dude, why are you so obsessed with balloons? Like, I'm in high school, I was like... I wasn't a nerdy person, but I had, this very specific obsession that was strange. I went and patented, like, a balloon navigation design, like, was obsessed obsessed with it. Well, probably three years later, China flies a balloon above The US, and we have to spend like a million dollars shooting it down. And then suddenly, this is in the middle of a fundraising process where everyone was actually critiquing me for being too obsessed with balloons. Suddenly, even though that's way out of left field and you wouldn't have considered that, physics is physics. Like, if I put something up for, like, a couple thousand bucks at 80,000 feet and you have to go scramble a fighter jet to go shoot it down or launch a big surface to air missile, the unit economics there just don't work. And I can go and put millions of balloons up. And so this is like an example of, like, a really, really weird out of left field asymmetry that I think myself and my uncle have been passionate about for a while. Ukrainians are waking up to balloons, which is which is quite exciting. I think I think they'll be able to deliver massive asymmetry through that.