Invest Like the Best with Patrick O'Shaughnessy
· Palmer Luckey
[00:00:00] S1: I think we've had two really good outcomes from a few decades in the Middle East. One of them has been that we need to be very, very strategic about which things we're going to get involved in at a large level, then I think that's a very productive development. I think it's led to a lot of real politic thinking that is good. For example, I personally support democracy in Taiwan. I like the idea that Taiwan is able to self-determine and self-govern. But let's be real, the reason that the United States is interested in Taiwan is because they are critical to our economy and they are critical to the economy of all of our allies. If it were not for their semiconductor industry and if it were not for a few other aligned industries, I think the United States would probably not be nearly as inclined to spend a lot of money to take on the risk of going to war with a nuclear superpower. That's a very productive thing. I'm glad the United States is not spreading resources thinly across the entire world to achieve nebulous aims. I'm glad that the focus is on what would a war in the Pacific over Taiwan look like. It's a strong alignment of our plan with our interests. I think another really important factor for the U.S. to be considering and that we are considering is that the days of U.S. boots on the ground being the primary component of our aid, they're gone and over. Politically, people don't want it. Economically, people don't want it. Globally, I think people don't really want it. I think that the role of the United States in the future is going to be less being the world police and more like being the world gun store. We're going to build all the things that turn our allies into really prickly porcupines that nobody wants to screw with. We're going to sell them the tools that they use to defend their homes. And if they're not willing to use their own manpower and their own resources to defend themselves, the United States probably shouldn't be going out of the way to do that. I think we've learned a lesson, "Don't try to defend countries that aren't willing to defend themselves." But I think that giving arms to people, I mean that's good economically for us, it's good strategically for us. It maintains that level of shared interest where they still really want to make sure that they're in the good graces of the United States.
· Palmer Luckey, Patrick O'Shaughnessy
I think that that's a really big factor. We don't need to be sending people. We need to be sending arms that they can use to defend themselves and deter invasion. And then, if they do get into a fight, win very swiftly. And of all the things I've criticized the government on, I think actually this is one where The Pentagon is pretty aligned, the politicians are pretty aligned. Everyone buys into this idea. [00:00:00] S0: If you think about the capital allocation or resource allocation or call it an Anduril. I saw a joke on Twitter the other day that people need to understand that Anduril for access is just going to be Anduril. You started with one thing, and now you're doing many things. And you said earlier that listen to problems, but not then come up with your own solutions. How do you prosecute that? How do you know which problems to prioritize and tackle first when you started the business, tackle next when you're thinking about it today? What's your framework for deciding on how to allocate resource?
· Palmer Luckey
[00:00:00] S1: Oh, this one is actually pretty easy. We decided to build Lattice, the AI core that powers all our hardware systems and a bunch of systems that other companies make now because that was a foundational platform technology that could be reused over and over again. Unlike, let's say, investing $1 billion into one hardware platform, where the value largely stays locked up in that hardware platform, putting $1 billion into something that is inherently cross applicable means you're basically multiplying the effect of that money. It means I get to now use it in 20 products. In a way, it's almost as if I spent $20 billion. Or at least in the current incentive structure of the DoD, that's what other people would have to do to make it happen because they don't want to reuse things where they can justify doing otherwise. Product-wise, that was an easy decision in terms of the things we build on top of that now and what areas we decide to go into. So how do we prioritize? The first step is actually just -- we actually don't have to make that decision is actually the great thing. These priorities are laid out. The joint chiefs have a list of priorities, things that are of utmost importance for the United States to get better at. This is one of the reasons we got into the rocket motor business. It's because there's been huge consolidation. There's only two vendors. Neither are very good. There are no independent vendors that are not owned by an existing prime, which is really bad for startups, really, really bad for the primes that don't own their own rocket motor vendors. And even the ones who do own rocket motor production capacity are not stoked with their ability to produce all of the different things that they need. So that was an area where we didn't have to come up with that thesis from the beginning. You had Congress saying, "We desperately need more rocket motor vendors." You had the Pentagon saying, "We desperately need more rocket motor vendors. Please, won't somebody do something?" And they've been doing so with minimal effect for many years. So when we do something, I think there's four things that need to be true. First, it has to be something that The Pentagon cares about. It has to be something they think is a priority because if they don't think it's a priority, it doesn't even matter if it should be a priority.
· Palmer Luckey
If they're not convinced it should be a priority, it's probably not something that is going to get fixed in the near term. If I think something is a priority and The Pentagon disagrees, that's not an engineering effort I need to deploy. That's probably a persuasion effort that I need to deploy. Don't start the engineering on something when you haven't successfully persuaded them. Most of the time, they know what their problems are. Two, it has to be something that Congress cares about. They have the power of the purse. They decide what is going to get funded. They decide what programs are going to get allocation. They decide which ones are going to get killed. And so if Congress believes that something is important, you're probably going to do better than if it's something that they think is a waste of time or the pet project of some billionaire. That's just the way that it is. This is one of those things where perception is reality. If they think it's not important, I have to act as if it isn't or try to persuade them otherwise. I can't just go out and build the Batmobile and say, "Hey, I built the Batmobile, check out how sick it is. You guys should fund this." That happens from time to time, but those are the exceptions that prove the rule. And then the third thing is it has to be something we can do well, that I know that sounds obvious, but doing well often means, "Can we reuse things we already have? Can we move fast? Is this something we can do without totally reorienting our whole business?" Those are going to be the most attractive things. And then finally, the last category is other people have to be doing a bad job. I don't want to spend our money rebuilding things that other companies are already doing well just because I think that I could do slightly better or that I could just make money in that area in a vacuum. This is probably the least rational part of the process. Could Anduril make a lot of money making small tactical quadcopters for surveillance, things like the short-range reconnaissance drone going on U.S. inventory? The answer is yes, we could definitely make a lot of money doing that. I think we'd be very successful at it. But there's a lot of great companies in the U.S. that are already doing this. Skydio is a great small drone company, BRINC, great company, Teal, great company.
· Palmer Luckey, Patrick O'Shaughnessy
So why would I spend my VC dollars, venture capital dollars, fighting their venture capital dollars, trying to solve the same niche that has already been pretty well solved by other good U.S. companies. I don't want to do that. I could use the opposite of the strategy that I have, what if I only went after areas where there are other good companies already doing that. Maybe that means that those are good markets. But how shitty would I feel if the net result of spending $1 billion in R&D is that I've just killed off 10 other companies that could have otherwise done a good job, and the DoD ends up with the same capability anyway. It's not what I want to do. So building things that other people are doing poorly is actually very important to me. I want to be entering areas where the existing people are not doing a good job. They're charging too much. They're working too slowly. Their systems are not highly functional. Beating them is something I can feel good about in the morning. Beating competitive players, not so much. [00:00:00] S0: Make the world a different place.
· Palmer Luckey
[00:00:00] S1: There are people who are not looking at it that way. I think there's been some defense startups where they are getting into the really crowded areas of the market. Or worse, they're working on things that they think are important, but The Pentagon disagrees. I won't name any names specifically, but I'd say like the entire category of defense startups building things that are for door kickers to better clear buildings. Yes, there is a need for door kickers to clear buildings. But The Pentagon doesn't see that as their biggest problem. They don't even see it as on the list of their top 50 biggest problem. They feel like, "We got really good at that. We have the tools. We have the tactics. We're the best in the world at clearing buildings with door-kicking soldiers, and we don't need to get marginally better at that." Same thing with Congress. Congress does not have an appetite to spend a lot of taxpayer money getting slightly better at something that they believe is irrelevant to a fight in the Pacific, that is irrelevant to a great power conflict with China across long ranges. And so I've seen people who say, "I'm a Navy seal and I know that we can do way better at this. The other people out there aren't making great stuff. And I know that this can be a powerful technology." Ideologically, I am aligned with them. I think that they're right, we could be building much better things for that group of people. They have historically gotten much worse gear than they should have. But as a practical person who wants to have impact, I know that's not where I'm going to have it. I know that I'm not going to have a huge many billion dollar impact on that industry given that the people in charge of running that side of things are not going to agree that it's worth investing in.