Invest Like the Best with Patrick O'Shaughnessy
· Shyam Sankar
[00:00:00] S1: There's two incentives. One is recognition that we need the heretics. I think Hyman Rickover enjoyed his celebrity for a big period of time, and just being known as the guy who did this is itself a sort of reward. Then the second part of this is definitely financial. One of the arguments I've been making is the cynical view of the defense industrial complex in particular is something like, these are greedy warmongers. Well, they picked the wrong industry then. Because on the greedy side, you should be in tech. You should be in some other business. These are crappy businesses. They have 9% operating margins or something. They're valued at less than two times revenue. So we actually need to make our primes more valuable. That would help us continue to attract the heretics. How do you make the primes more valuable? The facile critique of the primes is somehow they're the problem. The system's the problem. The primes are just downstream of the consequence of the incentives the government gives. And I think the worst incentive is cost plus contracting. Your upside is capitated. You're not supposed to take any risks. The government basically pays for your R&D. So you have no skin in the game. And yeah, you're still able to make a small number of exquisite things, but that system is anti-heresy. You can only do the conventional thing that the government's agreeing that you should do. You think about the Higgins boat. Andrew Higgins built that boat on his own. There was no spec. In fact, that's why the Navy kept rejecting it. It wasn't the Navy's idea. But then 92% of all boats in World War II are the Higgins boat. The heresy is the boat that won the war. How do you create an economic incentive where that's the case? And I think companies like Anduril are pioneering that on the hardware side where it's like, hey, I'm building a product. These are my specs. These are my opinions. I'm absorbing the risk. You should buy it if you like it or not. Part of the reason for profound optimism right now is I would not have started all this advocacy if I thought I was just screaming into the wind. It's like, having done this for 20 years, for the first solid 10 years, we were alone in the darkness. It was SpaceX on the launch side, and us.
· Shyam Sankar, Patrick O'Shaughnessy
And then if you look at the present moment, there are now hundreds of founders who are building in the national interest with a U.S. capital stack – one of our other advantages – of over $100 billion invested in the projects that they're doing that are actually changing how the department thinks about the future. This is the window and the moment for this stuff to happen. Increasingly in conversations that I have in the Pentagon, I hear some of these new entrants are talked about as plan A. It's not plan B, it's not hey we'll see, maybe this will work in the future. It's like no, this is the plan and we'll have to have backups if that doesn't work. That is unrecognizable from the world I started in in 2006. [00:00:00] S0: If you were the president for a day tomorrow, what would be your executive orders? What would be the things that you think could carry the most freight to create some of the change that you want to see?
· Shyam Sankar
[00:00:00] S1: I have narrow ideas. This is a narrow idea, but I would try to blow it up. Okay, you want to bring pharmaceutical production back to the U.S.? If you try to do that for generics, the business case will never work. It's too hard, it's too much of a subsidy. But what you really want is you want to redevelop a skilled workforce that understands how to make drugs again, and you want the production capacity that, in a time of crisis, you could go from making branded drugs to generics. So why don't we manipulate patent length and say look, drug companies, if you make your worldwide supply of your branded drugs here in the U.S., I will extend your patent length such that you recover 2x your capex investment to go do that. That's a simple business case that every pharma company would underwrite in a heartbeat, and it provides the catalyst to go generate that capacity. I think there are a lot of things in the American economy that look like that. If we go back to the story I was saying, between prosperity and freedom, that Chrysler built minivans and missiles, and Ford built satellites until 1990. General Mills, Kodak, you just go down the list. The entire economy looked like that. I think it's a consequence of being the sole superpower and the Pentagon – the old Pentagon in particular – being the last bastion of communism except for Cuba. Every country gave up on communism, including Russia and China, except for Cuba and the Department of Defense. That made it both a bad business, and then seemingly no threat. So you could just be a prosperity company. You'd be a single purpose company that just cared about being a company. I'm not sure that's actually a stable or healthy society or civilization that we have to recognize that we have obligations across freedom and prosperity.
· Patrick O'Shaughnessy
[00:00:00] S0: You mentioned the notion that we are crazy and can pivot and attack opportunity is an amazing part of the U.S. culture. What do you think is the other side of that coin? What are the negative aspects of U.S. culture in your view? And I'm gonna ask the same question zoomed in on Palantir specifically of how to cultivate the culture that you want. Palantir seems to have an incredibly distinctive culture. I'm gonna ask about Shyam bombs and things like this inside the company. But first at the U.S. level, what are the things that you wish were different here about our culture?
· Shyam Sankar
[00:00:00] S1: Some problems required sustained effort. So if you can pivot really quickly, maybe you pivot it to solving the problem, but that means you can pivot away from solving the problem, and get distracted and lose sight of what you're trying to accomplish here. It's like a feature-bug. It's not an unequivocal feature, but if you're in a competition, you want to play to your strengths. And that usually involves things that the adversary is unable to do. It helps that with the nature of populating the U.S. was that all the heretics from the old world came here. So we have an unfair advantage on that. In terms of maintaining a culture, the critical lesson I've learned over and over again is the entropy of the universe is against you. If you don't invest in your culture every single day, you will lose it. There's nothing about culture that is self-sustaining. That's as true for America, the country, as it is for your company. And then, the best cultures are really almost cult-like. Your culture is highly differentiated. It should actually kind of be hard for someone to inorganically insert into your culture, otherwise it's not a very differentiated culture whatsoever. That requires flag bearers. It requires people who are true believers. So it starts with recruiting. Not every human has a disposition that they want to be part of a cult, essentially. Some of them are just structurally mercenaries and they're evaluating everything in life really through the lens of "what's my next job." You want to try to build your company with people who really think of the present job as the calling. That engenders the primacy of winning. They're always thinking about how to win today because that's the whole game. And if you win today, you have the right to win tomorrow, rather than – the other side of that is getting lost and I wish the world could be this. I wish the company could be this way or that way or something, which is unmoored. It's an aesthetic of how you wish the world would work rather than both how the world does work and what is required to win today.
· Patrick O'Shaughnessy, Shyam Sankar
[00:00:00] S0: In a company like Palantir, what do you personally wrestle with the most? What are the trade-offs that – I'm always fascinated by trade-offs. It just seems like so much of what happens hinges on a couple of key choices. Can't do everything for everyone. What do you personally wrestle with the most? [00:00:00] S1: The most important decisions for my seat is really, what projects are worth outsized investment that we think are gonna define the future of what our customers need and therefore the future of the business over the next five years. So then how do you get the right talent on those projects? How do you discover what those projects are? I like to think about it, it's like my backlog is something I reprioritize dynamically relative to reality. Here's my roadmap. Here's all the things I want. It's like an approximation at a point in time of what I think are the most valuable things to build. The second some new data comes in, I'm going to rip that up and reprioritize it. Having a culture that lets you do that – because that is really fucking painful, people don't like it, their world is shaken up. It generates a lot of chaos, but it's the right thing to do. So then managing that so that your culture enables you to do that, the cost of doing it is worth it because the return is so outsized. That's the whole business.