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
01:23:47 · Ethan Thornton
[01:23:47] S1: when you're balancing these two things in your like, I want to embarrass myself in front of everyone by making a decision that makes myself look like an idiot over the last year? Or do I want to do something that is like, hopefully gonna be very, very, very good for America and humanity? It becomes very easy to make the latter decision. And so I made that decision. People also misunderstand this. I actually novated all of the IP to Eric and took the contracts we had at that time and novated them to Eric and helped him stand up his own company. I could have sold that company. We could have spun down those contracts, but I wanted to deliver for the customer. I wanted the employees working on that to be well taken care of. And so a lot of people think... Anyway, this is like old, old stories. A lot of people think he quit. I actually, like, came to him with this decision. He very much disagreed with this decision. He asked to stay at the company and work on something that wasn't hydrogen. He'd been working on hydrogen for the last three decades of his career. The dude is literally the world expert in aluminum fuel hydrogen generation, which I want to see be successful at some point. Like, I really think if you extrapolate ten years, there's a good chance that this is what's happening at the soldier level in, very austere specific locations. So the warfighter needs that technology, and so you you derisk the bet in the right way by by by pushing it off from a moral perspective. And I also set up the company to have float capital, we survived that. And that was very hard to survive as a business. But we we had to make those decisions as a company, and I think because I've done... I think one of the hardest spin downs you can ever imagine doing. Like, 5,000,000 in capital at the company, you're on track to burn it in the next six months, your entire narrative is tied to this one specific niche thing, it's what you've spent the last year of your life working on. Like, that was a very hard decision, but I saw it's actually just not that painful to spin things down if you build your company the right way and if you're willing to to chew the glass to do it. If you're willing to say, you know what, I was wrong. Right?
01:25:38 · Ethan Thornton, Ty Morse
And if if you're willing to, like, just start back where you start or go back to where you start and rebuild your thing, that makes it very, very easy to think about spending down specific product lines or specific ventures we take as a business. Like, at some point, I fully plan to be manufacturing commercial aircraft. Like, I think it is an embarrassment that Boeing is the company that does this for America. I think it's an embarrassment that that has actually gotten worse, the commercial air travel experience over the last few decades. Like, I plan to do that. And I'm starting to line up bets in that direction. But if I have to spend that down, that will be significantly less painful. And so you can only earn the right to do these things if you're okay spinning them down at the right time and if you're the most aggressive about it. But folks folks usually overestimate the risk of doing stuff like this and underestimate the risk of not getting done the mission that needs to get done because you've been so cautious about, like, this is my one thing for the next five years. I think in a [01:26:33] S0: lot of situations, the biggest danger to most companies is inaction and not taking actions that may be tough short term, but are the right move with the mission in mind and with the long term focus in mind. Have there been any other like major decisions where you had to decide this is not going to be pleasant, people are not going to like this, but I know it's right?
01:26:53 · Ethan Thornton
[01:26:53] S1: I'd started the business in Austin. This is like three months after the hydrogen thing. So like already a very hard time, but I had started the business in Austin. And this was back when Austin was like this new emerging hub post COVID. I'm from about an hour and a half from Austin. Again, why it's important to separate decisions. I did make that decision partially because of that, and I think that's part of what led me to make the wrong decision. And Austin was cheap. I had like $5,000,000 to employ, so I was like, I need to be in Austin because I'm gonna run out of money in California. And so we built in Austin. We got to, like, 40 employees in Austin. I stood up a shop. It felt like a huge shop at the time. Small shop, 20,000 square feet, probably a couple million dollars of... No. Probably a million dollars of CapEx. And we're hiring and hiring is so brutally painful. And it starts... A theme starts to emerge and it's like, LA is where the talent is. And I I go into our applicant tracking system and 98% of our talent is in LA. So I'm like, crap. This is the wrong decision. So then I flew to LA every Sunday for, like, three months in a row. I... This is hard hard time in life. I was like, I still do this, I guess, but six hours a day... Six days a week, and then I'd fly Sunday morning to LA, fly back Sunday night, and I'd meet with, like, 10 or 15 candidates. And it wasn't interviews. It was literally, like, discussing, hey. Here's my company. How attractive is this company in Austin? How attractive is this company in LA? And overwhelmingly, people are like, I want to join this company, but I have kids, and I I just cannot leave and and pull my kids up. And so then I was like, okay. We need to be in LA. This is one of the weakest moments of leadership I've had in the company. I said, I wanna be in LA, but I need everyone to want to be in LA. I'm gonna try and bring people along for this decision. And folks have been watching me go to LA. They knew that this was the dynamic.