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%?
01:01:02 · Ethan Thornton
[01:01:02] S1: You and I talked earlier about how deeply successful companies of one generation will form these, like, rules or laws for the next generation that don't actually hold that true given how different the next company needs to be. SpaceX has been so successful that I think everyone is vertical integration obsessed right now. I don't see vertical integration as a metric for success in manufacturing. Like, if I were an investor looking at a company, I would not mark that company up if they were vertically integrated. Vertical integration, like anything, is a is a tool, and depending on your industry, it makes varying levels of of sense. Like, Apple's superpower is their vertical integration philosophy, which is where it's nuanced. It's not a it's not a binary thing, by the way, vertical integration. They form excellent, excellent partnerships with suppliers that they help get to rate, that they help define processes on. And because of that, as as technology changes, they can change with it. Like, when you track Apple's CapEx investment compared to basically any other, like, scaled hardware manufacturing businesses CapEx investment, it's so shockingly low, which is just... It's beautiful. Because it's so easy to end up upside down on vertical integration. Like, if you go and build a factory and the process changes under you, you're you're screwed. And so that's how Apple has been able to ride the wave of radically changing manufacturing, both in terms of location and technology for decades now. Contrast that with SpaceX. And so I guess all that to say Apple, like, makes sense for their pistols. For SpaceX, they're operating in an industry where, like, ULA's industrial base was screwed. There's nothing that you would wanna touch out of that. And so there's there's nothing good. It's a super rotten industrial base They they had to vertically integrate.
01:02:55 · Ty Morse
[01:02:55] S0: Is this similar for, like, Boeing where they have... At one point, I watched this interview where the guy was excited about having a 120,000 suppliers.