00:47:34 · Chris Power
[00:47:34] S1: Oh, yeah. I mean, the first eighteen months of the company, for sure, we raised $1,300,000, and then decided to build $200,000,000 worth of software and yeah. And then definitely in the last nine months. But I think I'm much better at it now. And I can self judge like, wow you know that team is actually doing really good and I just fucking blew them up like I'm pretty sure I haven't slept, you know. It's like drinking too many beers. Right? By the time you had the sixth beer, you're not gonna be able to judge whether it's a great idea to like leave your keys at home or not. The only way to do it is write down a rule that is once I have my third beer, no matter how confident I'm feeling, the keys are staying, know, put aside. Because when you're tired, or when you're manic, or when you're winning or losing or whatever, you actually degrade your judgment so much. So you have to write down a series of what I call Ulysses contracts with yourself. Because when you're in the state of sleep deprivation or or hype, and actually actually I think it's more hype, is is what kills people. A great phrase a big hedge fund investor told me is, and this is how I think about it is, why do real estate cycles exist? Real estate cycles exist because all new real estate investors are 25 years old and have not felt the physical pain of losing their shirt on real estate bets, And therefore, the cycle continues because they they literally don't emotionally feel like they're in a real estate bubble. So... Which which is obvious because... Why is the market growing? Because the market is a poor proxy for mania and depression. So... And the new wave of real estate investors are going like this. And it's it's not the fact that there's a risk book that says you're over leveraged. It's that like you have not felt the gut punch of losing your shirt. Okay. So if you're really serious about it, then there's a couple of things... There's a couple of rules you don't break. And the point of it is you have to write them when you're clear headed so that when you're tired or over your skis or whatever, you don't you don't suddenly decide that the rules are no longer valid because you're incapable of nurses do this very well. You know?
00:50:02 · Ty Morse
[00:50:02] S0: Earlier today, you mentioned that when you started the company or even three years ago, you just didn't know almost anything, especially on, like, the government sales side and how that worked. But then you also have this thing where you're like, but you just fucking do it. Sure. And how do you kind of, in your mind, decide what is worth just fucking doing versus, like, oh, I don't know that, and I'm probably not going to know that?
00:50:28 · Chris Power
[00:50:28] S1: Well, I think if you are starting the company, and let's say that I think a common pattern is you're you're great you're a great engineer, but you're terrible at recruiting. And the number one thing you need to do as an engineering CEO is recruit great people. And let's say you've never recruited anyone in your life. Well, most people are wrong. You can ask people for advice, but the best way to get good at weightlifting is just lift weights. Okay. So so what I did literally in the first twelve weeks of the company, and I've never really recruited before, is, you know, I I read a couple of blog posts, and then I was just on 20 screening calls a day. I was doing outbound. I was screening people. I was interviewing people, blah blah blah. And very quickly after eight weeks, you pretty much get it. What most people prevent themselves from doing is being completely okay with... It's not failure, you're just learning really fast, but it's like bodybuilding. Like if you've never lifted, if you've never done a bench press before and you can't lift 200 pounds, that's fine. You just need to start with 20 and ramp up. But for some reason in business, whether it's product development or engineering or manufacturing or go to market or recruiting or finance, All this stuff is super learnable, but the... Like these people get very afraid that like, I'm not great at this in two weeks, and suddenly their whole constructive, are they a good human being or not collapses. That's point number one. Point number two is if you're a really good CEO, apart from the basics, which I struggle at every day, I think if you're running a complicated company, you have to be the second best person in the company at every function. The reason why I say second best is you want your CFO to be the best accounting leader, capital markets. You want your VP of talent to be the best recruiting leader, etcetera. But if you wanna hire the best people, the best people report to the best CEOs, which means you've gotta have empathy for the function, and you've gotta be able to partner with them on being world class.
00:52:32 · Chris Power, Ty Morse
I'm not the best engineer of the company by a long shot, but I am good enough that I'm probably one of the best engineering CEOs that people have worked for, which means I can make real trade offs with staff engineers in real time and make decisions instead of being like, oh, write me a spreadsheet. Same thing with finance, same thing with m and a. That doesn't mean you're doing it yourself, but you have to be good enough to be able to judge what is a good executive or IC or none. And the only way I found to do that is, you know, you don't have to be the best engineer, but you better fucking be able to write some level of code to be able to judge what good or bad looks like. It's like, who's the best jazz musician? Like, I don't know. Like, not me. But I know enough to be like, that's world class versus that's like a poor Rembrandt, you know? [00:53:24] S0: If you think through, like, the competitive advantages of a business like this, I think one of them is the finance side and Yeah. Being able to just raise unimaginable amounts of money and on good terms. How did you kind of think through building out the finance function so that you guys can raise huge amounts of debt and all these weird wacky structures in order to pay for all this build out?
00:53:44 · Chris Power
[00:53:44] S1: So first principles. And the first principles of CapEx heavy businesses is there are only two successful CapEx heavy businesses. Number one is you happen to be in a market like early SpaceX where the customer set is already prepaying for your build out. So NASA prepaid all their contracts. The Pentagon doesn't do this. Retail customers of base power or solar city don't do this. It's very rare. Data centers don't do this. If that's not true, then you have to architect your business model such that you can access long duration infrastructure credit at some point at some point. And you have to be able to be smart enough for predicting that over a four year time horizons that you can tell your investors, where's my cost of capital and duration curve coming down? Because one of the things you have to subsidize... So... Alright. What is engineering? Engineering is a subsidy of gross margin because you're saying like, I'm I'm inventing this new, I'm not picking on Jordan wire harness business, and at some point, we're gonna be faster and cheaper. There is at least a year, probably a two year period, but that's a lie. So... But everyone's used to the fact that, hey, hire software engineers, and at some point, it's gonna be more efficient because you're building more software. Okay? That is a subsidy of your gross margin. Now as a good CEO, you don't wanna be more than six months off that because if you say it's two years and ends up being six, then, know, you're thereiners. It's the same with CapEx. CapEx duration and CapEx cost. So we spent a lot of time saying, what are the business metrics have to be, and what is the business stability, contract duration, CapEx, useful life, CapEx uptime, such that we would be able to scale factories using low cost of real estate or infrastructure credit. And every round, you know, we started off with venture debt and then equipment leasing and then, you know, a couple of rungs down. But we were underwater on our financing costs until this late series b. And the only reason why people let us do that is because we were good enough financial engineers to be able to paint that paint that picture and paint it accurately. So if you called someone that may fund you in year four and he said, hey. If there's a sort of business that looks like this, and they...
00:56:14 · Chris Power, Ty Morse
They're doing a 100,000,000 in revenue and the durations look like this, you know, is this financeable at this rate? People that we never met before. And a venture investor calls, you know, someone in a big credit fund, they say, yeah. Then there's trust that you'll get down that curve. You have to run the curve, like you're running a software engineering curve or a cost of customer acquisition curve, you know. But it's first principles because it has it has to happen. Otherwise, it's not a venture scale business and eventually the game doesn't work. Was there some process that you had [00:56:53] S0: to go through where you were like educating venture investors? [00:56:55] S1: Yeah. Every round. What is [00:56:58] S0: that like story or narrative been like throughout the different rounds? [00:57:01] S1: Well, there's like big demand signal, what's changed, etcetera, the normal venture stuff. The financial side was mostly... I would argue until us, there is no... I think every venture capitalist that understands manufacturing or CapEx heavy business is invested in Hadrian. And every round we have to teach people that our way of cost accounting is correct. [00:57:28] S0: What is your way of cost accounting?