00:10:45 · Ty Morse, Chris Power
[00:10:45] S0: I remember two and a half years ago when I first interviewed you, we were having some conversation afterwards. I asked you, like, what do you think the probability is that Hadrian makes it? And you said something along the lines of 20%. And I I remember thinking that's fucking wild. Like, that's crazy that you think that. But since then, you know, you've continued to... If you're saying like a 50,000,000,000 scale, suddenly you're not going to die every time. Right now, you're still on that like Yeah. Curve. [00:11:10] S1: Yeah. Because each each year to grow, you have a time constant that your CapEx build is two years outside of the revenue curve. So every bet you make, you're dead. So the risk doesn't trade until you stop growing. [00:11:24] S0: How do you think the risk has changed over the past two and a half years from, like, has has the, like, risk of, you know, death gone from, you know, very, very high at eighty percent to, like, thirty percent? No. [00:11:37] S1: Or how does [00:11:38] S0: that change?
00:11:38 · Ty Morse, Chris Power
[00:11:38] S0: that change? [00:11:39] S1: It's straight at eighty percent. Crazy. And it's not because we're risky. It's because the fundamental construct is that if you want to continue having venture returns and a relatively decent cost of capital, which is required for the reindustrialized mission, Therefore, you're always growing your risk balance sheet, let's call it CapEx or r and d, by double the same amount. And the only reason the risk retires is if you slow your growth to 20% because then your cash flows catch up to your CapEx bets. Now you can get extremely good at forecasting, tracking. Like, we're not yellowing a billion dollars of CapEx. It's very intentional. But if you if you deploy 2,000,000,000 in CapEx now, today, that gives you the opportunity to grow to 5,000,000,000 in revenue in 2028. Now if you don't grow to 5,000,000,000 in revenue in 2028, you don't have any venture returns. If we also don't grow 5,000,000,000 revenue by 2028, the CapEx bill is such that, you know, you're turbo fucked. So the only option is to do both at once. So until such time as you're growing 20% year over year, then the risk doesn't retire.
00:11:39 · Chris Power, Ty Morse
[00:11:39] S1: It's straight at eighty percent. Crazy. And it's not because we're risky. It's because the fundamental construct is that if you want to continue having venture returns and a relatively decent cost of capital, which is required for the reindustrialized mission, Therefore, you're always growing your risk balance sheet, let's call it CapEx or r and d, by double the same amount. And the only reason the risk retires is if you slow your growth to 20% because then your cash flows catch up to your CapEx bets. Now you can get extremely good at forecasting, tracking. Like, we're not yellowing a billion dollars of CapEx. It's very intentional. But if you if you deploy 2,000,000,000 in CapEx now, today, that gives you the opportunity to grow to 5,000,000,000 in revenue in 2028. Now if you don't grow to 5,000,000,000 in revenue in 2028, you don't have any venture returns. If we also don't grow 5,000,000,000 revenue by 2028, the CapEx bill is such that, you know, you're turbo fucked. So the only option is to do both at once. So until such time as you're growing 20% year over year, then the risk doesn't retire. [00:13:10] S0: There's this amazing line that Jeff Bezos once talked about where there's this idea of two way doors and one way doors, and two way doors, you can go in and make a decision and then walk that decision back if it doesn't work. One way doors, you basically go and if the thing doesn't work, you've committed. Yep. But Isaiah from Valor has this other idea where he's like, in order to move fast, I've had to sprint through some one way doors.
00:13:10 · Ty Morse, Chris Power
[00:13:10] S0: There's this amazing line that Jeff Bezos once talked about where there's this idea of two way doors and one way doors, and two way doors, you can go in and make a decision and then walk that decision back if it doesn't work. One way doors, you basically go and if the thing doesn't work, you've committed. Yep. But Isaiah from Valor has this other idea where he's like, in order to move fast, I've had to sprint through some one way doors. [00:13:33] S1: Yes. [00:13:34] S0: How do you think about sprinting through one way doors in order to maintain a high pace?
00:13:38 · Chris Power
[00:13:38] S1: I think about it in two modes. One is... And it's mostly about time. And so I'll give you a practical example. And we try to teach the same all the time. So let let's say you're building a automated welding line, and you have to deliver a working prototype in month 10, but your CapEx lead times are nine months. And to be a 100% accurate around what robot is it, what's the station look like, is it the right weld, it's gonna take you three months. Best team in the world, it's gonna take you three months. Okay. That doesn't work because then you're in month 13. So how do you hit the timeline while minimizing the risk hedges of of what you can't control, which is time? The answer is if you break down that automated welding station, maybe it's a million dollars. Maybe $800 is single skew things like the particular machine, and the rest of it is a robot arm, a couple other things. If you're running a big platform like Hadrian, what you can do is say, hey, guys. You need to spend three weeks out of four weeks being a 100% sure that this big block of CapEx is 100% because that... You can't change that. But let's hash in a rough idea of what robot arms are gonna fit. And if you're wrong, it's gonna cost us $50 because we have to reuse the robot arm for something else. But if you miss the timeline, the company's dead because the customer cancels the contract. So you gotta think about it as CapEx CapEx and long engineering projects are all one way doors, and you're better off spending 30% more to bake in hedges. Because the one thing you can do is... Shit. We ordered all the CapEx, and we got some of the engineering predictions wrong, so it cost us three weeks because we screwed up an API integration or... Okay. That happens all the time. But then you're three weeks late. What you can't do is order nine months worth of CapEx. It arrives, and on nine months and day one, you realize you're wrong, and then you're at eighteen months risk. So you have to balance execution timelines against bets. But if you're dealing with... The the thing about software or sales or whatever is it's bad to miss a month. It's bad to miss a quarter. But you can recover from it because you can observe the problem and then pivot. And your correction time is maybe maybe maybe maybe you burnt 10,000,000 in runway, but you can you can pivot. CapEx is a whole different ballgame.
00:16:31 · Chris Power, Ty Morse
And if you don't have a 100% certainty that the CapEx you're buying is correct, then you have to hedge. And then you have to financialize that hedge across different trade spaces. So that's that's the way we think about it. The second most important way is... One of my favorite lines of all time is sometimes you just gotta roll a hard six. [00:16:56] S0: What does that mean?