01:15:43 · Ethan Thornton
The government buying my thing in time is probably still gonna be the rate limiting factor, so I might as well stack that lead time as much as I can. That's the first optimization. The second optimization, if you do this well, is you can get compounding returns across different things. And so I talked a bit about this platforms to components from an excellence perspective. There's also the derisk perspective here. Right? Like, risking... Risk on the upside end. Like, if we end up in a period of maximum peace on earth and we don't need to make many defense platforms, and I hope that world happens, or similar similar end result, the different reason, political headwinds emerge, and suddenly no one is buying these systems. Well, I I I build a lot of solid rocket motors. I build a lot of jet engines. Half my revenue actually comes from supplying these companies, most of them primes. And that in and of itself is a massively growing business. I can survive that winter quite well. Now on the downside end, if if we do have to go to war, because I've done this, I have controlled my destiny on these things, and I can surge them. And so it's basically the reason to do it is lead times and then sort of compounding returns.
01:16:47 · Ty Morse
[01:16:47] S0: One of the things that you mentioned earlier was this idea of sunk cost fallacy. And a lot of people will basically invest heavily in one thing, and then they have a whole lot of biases and tendencies to keep on investing in that thing even if it doesn't work. With you working on, like, multiple programs at the same time, how do you kind of think about if something isn't working, you just cut ties? Like, at what point do you make that decision?
01:17:12 · Ethan Thornton, Ty Morse
[01:17:12] S1: I think the decision is usually objectively very obvious. I think the single thing that stops you from doing it is fear. Right? And and fear internally and cognitively to the degree that you don't even realize it, fear to turn your team, and then in many, many cases, to scare your investors. Your job as a CEO is to make those decisions sooner than anyone else realizes it's time to make them. And this can be this can be bets where the market didn't make sense. This can be bets where the tech didn't make sense. This can be bets that made sense at one point, but technology is changing. This innovator's is dilemma, and I think many companies would be better if they got better at killing programs. But you've got to be pretty ruthless on cutting things. If you want to have the right to stand up many things, you have to be more aggressive than basically anyone else on killing them. And then you have to you have to hedge them correctly. Right? You have to take the bets in the right way that are as is as little damage to the company and the company's reputation as possible. I'm fortunate or unfortunate to have had to do this early in the business. I say a lot Hydrogen was a bad bet. I think I should add nuance to that. I actually think the company wouldn't exist without hydrogen. You and I were talking earlier. Hydrogen is always a bad bet, I think. So far [01:18:24] S0: explain why?
01:18:25 · Ethan Thornton
[01:18:25] S1: So far. So I'll explain why I did hydrogen. I'll explain why it was a bad bet bad bet, and then I'll explain why I killed it. So I didn't actually start with hydrogen. I started with balloons, fixed wing drones, and hydrogen. And I cared about kinda all three of them equally. On the specific hydrogen piece, I cared about two things, a lot. So I cared a lot about high velocity guns. I I thought artillery would be super, super, super important. And keep in mind, this was at a period where we're divesting artillery. Now we're massively surging artillery. So I was somewhat right in the bet. There's the ability to go and fire projectiles hundreds of miles with hydrogen. And so I built a a small cannon, 20 millimeter cannon, fired it, and we also acquired the IP of a company that had successfully back in the nineties during the, like, hydrogen versus rail gun bet. Both were wrong in this case. They had fired hydrogen projectiles 217 miles cheaply. That was one. The second and kind of equally important was austere fuel generation. So with aluminum fuel, in a more energy dense way than diesel, you can make hydrogen in the field as a soldier. Then you can use that hydrogen to power artillery. You can use that hydrogen to run fuel cells, or you can use that hydrogen to run fuel cells on drones. And so the the other big piece of the bet on hydrogen was logistics are gonna be super, super hard in the future. Like, your oil tankers are are gonna get shot at, like, likely won't be able to get in a conflict. And even back in The US or or in your staging areas, your your depots are gonna be taken out. And this bet was also right. We're seeing this like crazy in Ukraine. This is like five years ago. So I was I was right in the general ish sentiment. Now the reason it got so much attention is because I had no capital. Like, you have to keep in mind, when I showed up to MIT, had, like, $7,000 of savings from running my, like, small manufacturing, like, side hustle in high school. It is so difficult as, like, an an eighteen year old freshman with no capital to get someone to take you seriously on engineering or manufacturing. Science was the only thing that, like, captured people's imagination, and so I got pulled super hard by Lincoln Labs. And then that momentum, when I dropped from the idea of working with Lincoln Labs, pushed super hard on the investor side.
01:20:30 · Ethan Thornton
And also for investors, like, with $5,000,000 check, you're not gonna go and out scale Lockheed on cruise missiles. And so it got so much attention. For that reason, you know, hydrogen also always gets attention, and I I wish it got less attention. And then it was successful because we're winning contracts on it. So we built a two kilogram an hour hydrogen generator, like, on two orders of magnitude better power density than the existing hydrogen production systems that Lincoln Labs team joined. Eric Lempacher, who I have a ton of respect for, who's actually gonna be the the guy hiring me at Lincoln Labs. Now the reason it ended up being a bad bet, one, is the engineering reasons. These actually weren't weren't the deep reasons, but there were certainly portions of the reasons. So we had the accident with hydrogen. I think most people assume that happened late in the process of company building. That happened before we were Mach Industries. So it actually happened with my college buddy and I on the $7,000 budget trying to build a hydrogen cannon, which was foolish. We never should have done that. So that's not to justify any of this, but hydrogen is hard to not get to explode, and it wants to leak all the time and you get embrittlement. It's just... It is deceptively hard to get through on the engineering side. That wasn't the real reason, though. I think we could have gotten through that. The the second was the unit economics ended up just not making that much sense. Like, the aluminum fuel was just more expensive than we thought it would be. So we're prototyping with a specific process to make the aluminum fuel, ball milling a a metal with with several... Aluminum with a few other types of metals. I ended up licensing the IP to Eric, so I won't disclose it. We're trying to get to salt ball milling, which would radically decrease cost. There are good papers on salt, so we we continue to work on this, and I think those papers were fake because we never got the cost up. So the cost was such that actually for soldier level, it made a ton of sense, But it was never something you'd fully field. So that was part of the reason. The main reason though, and I think the reason people don't fully capture, is I got a check for $85,000,000 and could stop doing science. And we had to provide deterrence on like a three year timeline.
01:22:34 · Ethan Thornton, Ty Morse
And so doing science was at that point in the journey, a deeply, deeply, deeply unattractive thing to do. And so at that point, I made the decision. It was actually a wildly unpopular decision at the time. Like, had many investors fight me on it, many, many internal employees fight me on it to spend down hydrogen. Hydrogen was a 100% of our revenue. We had, a few million dollars of of government contracts to develop hydrogen, and it was most of our engineering effort at the time. And frankly, most of the talent of the company was just no longer the right thing. And that was that was a super, super, super hard decision to make. One, like my personal reputation had very much been in hydrogen. Two, our investors had bet on hydrogen. Three, it was most of what we had spent time on and most of what our our revenue was on, but I had to make the choice. Right? These choices get really easy to make when they're mission first choices. And this is why this is why mission first companies end up making good financial decisions, think, too. When when the the, like, risk of making the wrong decision is, not providing the right deterrence and a world war starts, or a world war doesn't start and you choose not to defend Taiwan and The US loses the AI race. [01:23:40] S0: But you stuck to the, you know, stuck to the plan that you had in the first round or something? Yeah. But you're