The a16z Show
00:32:20 · Connor Love
[00:32:20] S2: So something really interesting is happening, I believe, the industrial base. Like we talked about earlier, you get this top down demand signal from these new systems companies, like we're building new military systems, but oh by the way, you know, Joby and Archer, we're building new planes too, like we're building new end systems, that is a fact, like cars are being built different, planes are being built, military systems are being built different. When you build these new systems, inherently the inputs of those systems need to change as well, and when you look at the industrial base in America today, like historically, if you go look at how Boeing makes a seven thirty seven, you know, Boeing's a great company, important to the fabric of America, they but just pick up the phone and they call Honeywell, and Honeywell helps them kind of build all the different subcomponents. And it's not Honeywell's fault, but what Honeywell does is they say, I don't wanna build a new landing gear again. We have this landing gear that meets the spec and does the thing, so let's just keep going and doing that same thing again and again. And again, it's rational. They're gonna build more seven thirty seven's. They're gonna get paid the same way if it's a... For a 50 year old landing gear or if it's a new landing gear. The problem, is when you keep iterating on these new requirements for end systems, at some point the 50 year old subsystem just doesn't work. And maybe it physically works in terms of meets the requirements, but it's been designed and it's been developed in a way that inherently we haven't innovated on it. And why does that matter? It's because we've developed new materials, like yes, physics hasn't changed, but the inputs to the physics and the inputs to that design has changed. So I think what's happening with the opportunity for a lot of these manufacturing companies, is to do what I call co engineering. And we talked about the long tail of these sub tier suppliers, they've been in receive mode for the last forty years. Honeywell's picked up the phone and they've said, Hey, I need another landing gear, go make that landing gear, and they've executed on the specs with that IP and building it.
00:34:21 · Connor Love
When you want a new requirement, that middle layer cannot think on behalf of Honeywell and change the requirement because, again, they're not in the position to do it. But I think what's gonna happen in the future is you're gonna have this middle layer of supply companies that will effectively be co engineers with the end OEM of rethinking not just what the end system can do by way of speed or kind of, you know, a weight or mass, but the individual sub components will be rethought, will be reengineered, and will be rebuilt. And so, the end system will change from a top level, the individual parts and components will change, and I think that just hasn't happened in the last forty or fifty years, so you're gonna see a completely new wave of what I believe will be called the manufacturing middle, that will be co engineering and pushing design and development upward in the supply chain, as opposed to just being in receive mode and saying, okay, can build the same thing I built forty years from now. And I just, I think that's an opportunity. I mean, I defined it previously as like, we're creating the American manufacturing asset class right now. I mean, private equity has been playing in this ecosystem for a long time, and looking at an asset, and buying it, and improving the cost, and selling it off again, that's not fundamentally changing the things that we build. Right now, companies will change the the the the different things that we'll build.
00:35:40 · Erin Price-Wright, Connor Love
[00:35:40] S1: A good example of this is kind of the... On the on the grid. And when you think about sort of like the electronic stack. And we're about to go through a a huge step change in how we manage and transfer power on the grid, moving from a system of sort of static and mechanical systems that were deployed in large scale across The US in, like, the seventies and eighties to now sort of modern power electronics, battery storage, architectures, which are much more software native and flexible. And, you know, that is is just... When when you have such a complete step change in technology where the technology that's replacing the previous thing is just completely different, you have this opportunity to rethink the entire supply chain behind that and the way all of that design and engineering work happens. [00:36:26] S2: And and in the energy world, it's the same thing that's happening in the defense or the Yeah. The commercial systems world, which is you have this massive amount of demand for, you know, data centers and, you know, new factories and new build. And when you get this top down level, you have the ability to innovate, like Erin's talking about, and rethink the entire architecture. And look like [00:36:42] S1: Because it's a completely new architecture. Exactly. So, you know, you can't rely on these components that worked in the previous world to just reconfigure. Like, you actually have the opportunity to rethink that from the ground up.
00:36:42 · Erin Price-Wright, Connor Love
[00:36:42] S1: Because it's a completely new architecture. Exactly. So, you know, you can't rely on these components that worked in the previous world to just reconfigure. Like, you actually have the opportunity to rethink that from the ground up. [00:36:54] S2: And another important point here is, you know, you can be pessimistic and you can say, okay, Connor, all these new military or end systems, like, not all of them are gonna be adopted. So, like, that that top down demand or or or or Erin, like, we're not actually gonna increase energy by four times, like there's not gonna be that much demand. I actually don't think it matters because I think once you start the snowball of the demand cycle moving in one way, even if you deliver half of that, you know, requirement [00:37:21] S1: You're not going back. [00:37:21] S2: You're not going back. And it doesn't make financial sense. It... And again, it's it's like when you rethink something first principles and you make the, like, new design, new engineering decision, and a lot of times that comes with better cost, better efficiency, You're just gonna buy that thing now [00:37:35] S1: going serviceability, easier to manufacture. Yeah. Yeah. You're never going back.
00:37:35 · Erin Price-Wright, Elena Burger
[00:37:35] S1: going serviceability, easier to manufacture. Yeah. Yeah. You're never going back. [00:37:41] S3: Yeah. I'm curious kind of what you're seeing in terms of founders being second generation Anduril or second generation Palantir or something like that. And maybe they they see some of these learnings and they see the opportunity to be the middle layer supplier in Yeah. Some... Something that has never been touched since, you know, decades ago. And and kind of like what what are you seeing in terms of, you know, those opportunities and those kinds of founders? Yeah. For sure.
00:38:11 · Erin Price-Wright
[00:38:11] S1: I mean, if you you get... A a great way to light a fire under an entrepreneur is for them to be banging their head against the wall on a sort of engineering or supply chain problem where they are, and then they're, you know, they're like, well, okay. I really care about this. This is a pain in my ass. I know bothering other people. I know it's problem a that I don't just have here at Anduril or SpaceX or Tesla is a problem more broadly. I'm gonna go solve that more generally. And the kind of lineage of founders that have sort of lived and breathed this on the manufacturing floor, and not just founders, but even engineering teams who are like, I saw this problem. I solved this, you know, within Anduril or Cyronic or whatever, and I'm gonna actually, like, go out and build this as a company. And then I'm gonna... You know, I know that everyone in the ecosystem, so I'm... I I have, you know, automatic access to a customer base that's captive. Yeah. You know, we certainly see that trend happening. And, you know, this is how ecosystems get built. Like, people make fun of YC for all YC companies kinda selling to each other. But, like, that's how it works because you have... You know, it's it's your friends. They're tolerant. They're understanding. They're willing to like work with you and help you and and, you know, put up with something breaking because they're working on their own really, really hard problem. And if, you know, the thing you're doing is not the most existential thing to them, they're, like, very willing to outsource it to you. That's beautiful. That's how Silicon Valley was built. And what's really... Like, what makes me really optimistic is the extent to which we're starting to see that in these kind of physical world ecosystems and supply chains. Yeah.