Invest Like the Best with Patrick O'Shaughnessy
· Palmer Luckey
[00:00:00] S1: That's actually a really good analog for what we did with Oculus too. I mean we spent a ton of time engaging with the press, engaging with game developers, engaging with computing companies because we were trying to shape the way that this technology would be received. And we're trying to tell them, here's what we think the world should look like, and it wasn't always easy. Anduril has been doing a lot of the same things. I mean I hate to admit this, but Anduril, when we started in the first few months, we hired more lawyers and lobbyists than engineers. That's not the case anymore, obviously. That was, I think, because we were actually more concerned about the shaping of the institution's side and compliance of the institution's side than the building of technology side. We felt good on the engineering side. We're going to be fine. We knew we were going to build Lattice. We knew we were going to build these products on top of it. What we were most concerned about was getting people in DoD and on the political side to believe in what we were doing, to believe that cost-plus contracting was broken. I believe that a small player could be a large player in the space, if given the chance. Obviously, it's worked out pretty well. But I think Anduril probably has done just as much on the government relations and institutional engagement side as we have on the tech side in terms of what contributed to our success.
· Patrick O'Shaughnessy
[00:00:00] S0: Is it oversimplifying it to say that more inventors should work backward from existing systems rather than forward from like their ideas about how things should be?
· Palmer Luckey
[00:00:00] S1: I think you need to think about -- existing systems in terms of the institutions and the people and the traditions and the politics, yes. The technology, probably no. Obviously, you can learn from existing technology. But in my experience, it's good to trust people when they tell you what their problems are, but don't trust what they think the solution is. There's so many companies that look at the solution space that exists and then say, "Oh, I can do that somewhat better. I can do that somewhat cheaper." And the reality is, is that rarely our impactful business is built on doing something a little better or a little cheaper. If you're not that different from those guys, it means they're going to have an easy time adapting from you whatever you come up with because you're not competing with what they have today. You're competing with what they're going to have after they look at what you're doing and then cross-implement it or learn from what you're doing. That's a thing that a lot of start-ups miss. They say, "Oh, look at this, like Oracle division doing this thing, the small side of Oracle, I think I can do better than that service." And I have to remind them, first of all, guys, let's say it takes you 2 years to build that. You're not competing with what they have today. You're competing with what they have in 2 years. And then what you're really competing with is what they have in 3 years after they look at what you've built as you start to eat some of their customers and then they're going to build something in response. So you got to kind of think 2 or 3 steps ahead with these things. And if you build something that's totally different, they're going to have a very hard time adapting to it. Maybe one good way to look at it is a lot like bacterial infection. If you build something that is the same shape as existing things, it's going to be a lot easier to get infected. If you can build something that is a radically different structure, it's much harder for people to copy what you're doing or attack what you're doing.
· Patrick O'Shaughnessy
[00:00:00] S0: When you first approached the problem, what was most broken about national security?
· Palmer Luckey
[00:00:00] S1: It mostly comes down to an incentives problem. Everyone has the wrong incentives and organizations and people and organisms usually do what they are incentivized to do. So government bureaucrats don't get fired for doing things the way that their predecessor did them even if that's the wrong way to be doing them. There's no competition in many of these government agencies. So it's not like they're worried about a more efficient competitor. There's no FDA 2 and Pentagon 2 that's competing with them and trying to drive down costs and accelerate schedule. The incentives on the government side are out of whack. The incentives on the private contractor side have been created by government, which largely is awarding cost-plus contracts, which incentivize contractors then to have high costs to build the most expensive systems they can justify to never reuse work. Because if you reuse something you've already built in the past, you're not getting the plus on the cost of building a brand-new thing. And so I'm not saying that people wake up saying, "Oh, I'm screwing taxpayers today." But you naturally build an entire organization that is incentivizing people to spend as much as possible and to do work over and over again as many times as it can be justified. That combination of things was really the problem. It was government giving private companies the wrong incentives. And then bureaucrats not being willing to do things that are outside of that existing set of incentives because they're worried it's going to be bad for their career. Why would you take a bet on a small company? If you bet on Boeing and then they spend hundreds of billions of dollars and fail, that's how it goes, sometimes you fail. If you bet a 1,000th of that on a small company that has never delivered a product but has a very promising path to making something that is much better and then that fails, everyone's going to say, "Wow, that was a really stupid bet, why did you ever even think about doing that? Of course, that was never going to work. They have no proof of performance." This is a problem that is self-reinforcing. The United States used to be very good, taking small companies that were building powerful things and turning them into large companies that could do those good things at scale. But since the end of the Cold War, we've lost that muscle.
· Palmer Luckey, Patrick O'Shaughnessy
There's been massive consolidation in the defense industry. 80% of the money goes to just 5 companies, 30% of major weapon systems contracts have literally one bidder, meaning no competition even on the private side. How can you have good outcomes in a world like that? [00:00:00] S0: Just trying to think about a framework to discuss the state of weapons technology or the history of weapons technology with you. And the cleanest I could come up with a stupid consultant 2x2, where on one axis, you have offensive versus defensive technologies dominating. And on another, you have democratic versus very non-democratic. Musket's on one end, everyone has the same amount of power. And on nuclear weapons on the other, one person has a gazillion times as much as the Musket guy or something. Is that a good way to think about where we might pop through history and weapons technology? Is there some other way that you would approach thinking about an era and weapons technology?