00:53:28 · Ethan Thornton
[00:53:28] S1: The cost is almost always cheaper on average to build more vehicles than you think you will need and test. Now you have to balance this with the fact that this... As soon as the engineers have a bunch of vehicles on hand, they wanna fly them. And so you have to, like, you have to make sure that you're going into tests with everything understood so that you don't start discovering ground test things and flight tests. But, dude, if I... Like, if we build two pikes more than we need in testing, that is not the cost. The cost is if I build too few, and suddenly it's four weeks to go and build the next batch of pikes. So we usually overbuild there. So that's that's the number you choose to build. And then in prototype, you want your prototypes to look distinctly different than scale. I think early in the process of company building, I used to try and brag about how similar my prototypes look to my mass manufactured units. I tried to force that. I think you wanna do basically the exact opposite of that. You need to make sure that you're not expecting to manufacture something that is not manufacturable. So you have your manufacturing engineers there the whole way, but if you have a part and it's like, is this part gonna be cast or is it gonna be machined from a billet? Choose the latter every single time and proto. That said, in scale, I think people... And who who knows? I haven't stood at... Like, we manufacture some things. We don't manufacture a ton yet, so I'm sure I'll eat my words and change this principle over time. What it what it seems to me though, based on conversations with good manufacturers, we made like a thousand aircraft probably in the last twelve months. What it seems is that the the stack ranking of importance on how to get excellent at manufacturing is first DFM. Like, DFM is the truly power law thing, like on glide. Glide block three versus block four. Same aircraft, same exact specs, but literally one process change, one redesign is taking us from, like, fifty operator hours to zero operator hours on that specific airframe and from probably several thousand dollars per airframe down to, like, $7 airframe. And so folks tend to obsess with the fourth step, which I'll get to, which is manufacturing operations, but you really, really wanna focus on DFN. The next is supply chain. I think... And I I I was guilty of this.
00:55:32 · Ethan Thornton, Ty Morse
I think I think supply chain is not as sexy of a thing as it needs to be in company building. Like, I think when most people hear supply chain, they assume, like, the function that, like, goes and buy stuff. I'm fortunate to work with my COO who led supply chain for Tesla, which I think is probably the most, like, exciting supply chain effort that's that's been built in the last [00:55:52] S0: At least in The United States.
00:55:53 · Ethan Thornton
[00:55:53] S1: Yeah. And probably last decade, two decades. He he led that function. And I very quickly realized, oh, crap. Like, I am completely mischaracterizing supply chain. Supply chain is looking at every ounce of the bomb and making... Okay. Maybe there's something off the shelf that is, like, slightly different than what I'm buying today. Let me buy that. Rare, at least in our industry. Much more often, it is like, okay. There's not a company that that builds this today. Do I want to go and invest in a company? Do I wanna go and, like, license that company's IP and build the thing myself? Do I wanna pay that company a $10,000 check to stand up a factory next to my factory? Maybe there's a good company that doesn't have the capital. I'm gonna acquire that company. That's how Exquadrum came to be. Like, they quoted us a lead time for SRMs. It was, 10 times faster than anyone else in the industry. And we're like, okay. Like, we talked with them, and they... Like, it made sense, and so we acquired them. Or the final step, do I really, really wanna build this thing myself? But all that to say, supply chain, the second thing, supply chain is many, many, many times the thing that gates rate. And it is probably after DFM, the single most important thing for for bomb cost. So then third thing, at least to me, again, who knows, is is capital stack. And this ties into the asymmetry piece, but, like, OpEx versus CapEx trades. And then are you selling a product that, like, actually financially makes sense to... Like, is it a deeply, deeply exciting product? You very rarely see commoditized things today have successful manufacturing ramps in The US. You see stuff like SpaceX, stuff like Tesla that is, like, wildly different than what's been seen before. So one, you wanna be selling a product that you can just afford to kind of eat a bit because it's so good, but you need to manufacture in The US. And then you wanna make the right OpEx, CapEx trades, and you wanna finance the business correctly. So what's your debt equity stack? By four, you get into manufacturing operations. So I think that's... What I mean is if you if you screw up the the first three things, you're you're doomed by the time you get to that thing.
00:57:46 · Ethan Thornton, Ty Morse
Now 99% of the work happens in the fourth thing, and that is the most painful thing and the hardest to execute, but the pain of that thing scales radically with how well you did the first three things. And that is that is actually building the factory, running the factory, hiring the technicians. Again, this is 99% of the pain. I'm not making an argument that this is an easy thing. It's actually the best thing you could do for these people though is to get the first three things right. [00:58:11] S0: I imagine most companies will probably set out with like a thesis and they'll go after it for maybe like a couple years and then start working on the second product. Whereas you are working on multiple products in parallel, and I assume that the first thing you set out to do, your process for, you know, designing, testing, iterating, all those things is completely different than the process that you have today. So how has that process, like, evolved?
00:58:34 · Ethan Thornton
[00:58:34] S1: It's a long answer. It's everything I've described. It's like the... It's the it's the principles of how do you test, how do you design, what are the design goals, how do you simulate, How do you prototype? How do you compare prototype to mass manufacturing? And again, I I hope no one takes this, is what I'm saying, is anything they should apply. Like, the the key thing is that this process changes so much company to company. And, like, I would not I would not advocate even another defense company trying to trying to roll this process. You have to, like, chisel it out into the the business you want to build. But, yeah, you're in this act of, like, one, how do I think about these things? Because most of these are optimization functions. Where on the optimization function do I need to lie? Two, actually building the teams. Three, those machine... Those teams functioning as well oiled, like, while well oiled cohesive groups. And then not... Like, acceleration naturally happens if you keep your if you keep your foot on the gas pedal. One thing I'll say, though, if you want to be a multiproduct company, it is, I think, very, very, very hard to start as a single product company. This is not conventional wisdom, and I I I'm actually likely wrong here. But what I think based on having done it so far is that if I had only been a single product company and then tried to be a multiproduct company, which is usually the way people try and tell you to do it, the pain between being a single product company and a multi product company would be about as large as between a zero product company and a one product company. Because the choices you make really, really, really depend on how many products you wanna build. Like, I would not be vertically integrating all my prototyping stuff if I was building one product. I'd like cut POs to vendors. Like, I would care a lot less about systematization of these things. And so for us, I wanna be an excellent multi product company. I think that is absolutely needed to be an excellent defensive rep company. And so it actually makes sense to get good at doing that early in the process.
01:00:26 · Ty Morse
[01:00:26] S0: I think you talked a little bit about vertical integration at the beginning, but I think it's good to go deep on that a bit because the first time that you build your first product to actually get that out quickly, it just takes a very long time, and you don't necessarily wanna be inventing every single wheel from scratch. But on your, like, twelfth product, you probably have a lot of learnings and also a lot of supply chains already set up to make it way faster, and you can do it in one roof. So when you think about vertical integration for your business, what is the process from going and how far do you wanna take that? Like, do you wanna be 90% vertically integrated or, you know, 50%?