A new era of war

TLDR: The way we fight wars has changed but the way we buy and build weapons hasn't. That's a problem. 

There are people in the world who want in inflict their agenda upon us through violence. It is up to defence companies to design and build systems to deter that violence. But they are failing.

Today we look at the company putting an end to the bureaucracy of defence. The company that is rearming democracy.

The West is perilously close to falling far behind our adversaries' defence capabilities. 

A new company called, Anduril Technologies, is bringing a Silicon Valley style of tech innovation to the weapons manufacturing industry. Today we are going to tell you 4 things:

1. Why you should care about defence and Anduril?

2. How did the defence industry break?

3. What Anduril does differently?

4. What can we learn from Anduril?

Why you should care about defence and Anduril?

We spent the weekend at a defence tech hackathon; with 150 engineers, soldiers, and investors coming together to build new defence solutions. 

What was our key takeaway?

The British military does not have some silo of secret technology ready to deploy on the battlefield to save us - we’re behind.

The nature of war and defence is changing and we need to do something about it. 

Anduril Technologies is trying to change this. Founded only a few years ago by a Silicon Valley multi-millionaire, they have taken a radically different approach to weapons manufacturing and defence contracting.

Here’s an example of Anduril doing things differently

Last week, the Australian military and Anduril announced a new autonomous submarine called Ghost Ship. That’s right an autonomous submarine. This is it:

Other than being a cool piece of military technology, what's interesting here? It was well within budget and 1 year early. 

Within budget and early. A sentence never heard in defence contracting.

How did the defence industry break?

World War II ended in 1945, but it marked the beginning of a new power conflict between the US and the USSR. The US government kept its foot on the floor developing new weapons and defence technologies. 

To illustrate this, in 1950, the US Department of defence was responsible for 36% of global R&D spend. 36% of all dollars spent on research and development of any technology came from the US DoD. The Pentagon was built in 16 months and it took 143 days to build the US’s first jet-powered fighter. Less than 6 months to design, build, and test a fighter jet. 

By comparison, HMS Prince of Wales and Queen Elizabeth took 15 years to build, costing about £2bn more than expected. The F35 fighter jets "total estimated program cost now is $400 billion, nearly twice the initial cost".

What has gone wrong:

1. Legislation

The US was spending an incredible amount of money and it became clear that it was unsustainable. The US Secretary of Defense in the 1960s introduced a bill that implemented a new process for military expenditure called the Planning, Programming, and Budgeting System. This was designed to control costs and have clear timelines. 

This is better known as cost-plus contracting. The government has a weapons proposal, the defence contractor says it will cost this much, and then they add their 10% profit margin. The companies are incentivized to develop products for massive costs as the profit they receive is a fixed % of the contract. This is dumb.

2. Consolidation 

Look at this graphic:

80% of the current defence budget goes to 5 defence primes and “nearly two-thirds of major weapons systems contracts have just one bidder”. There is no competition, so no competitive incentive to innovate. 

Why is Anduril a Change Maker?

How do you combat the inertia of bad government legislation? You carve a different path.

What does Anduril do differently?

1. Skin in the game
   Anduril funds the research and development of its own software and weapons systems. This changes the incentive dynamic. Once you use your own dollars to build defence systems you are incentivized to make them within budget. Anduril spent $70mn of its cash on Ghost Ship (the submarine above), which is unprecedented. 

2. Software first

   Governments are in many ways technologically inept. Anduril is building with software at its centre, something governments have often shied away from. Traditional defence primes have been experts in hardware, but as Marc Andreessen said “Software eats the world” and the new age of war will be software-centric.
   

3. A war for talent

   The quality of your product is directly tied to who is working on them. Anduril realizes this and has hunted for the most talented engineers in the world. Not only that but that has made defence technology cool again. They released brand and mission matter when attracting the smartest minds.

You may have read this and thought “These things seem obvious”. You would be right. Their inability to grasp these axioms of techno-capitalism is a good indicator of how lost the defence industry has become. 

This is one of Anduril's latest weapons systems: Roadrunner

What can we learn from Anduril?

So far this is an interesting story but what can we as Change Makers take away from this? We have three main takeaways:

Incentives matter

Charlie Munger once famously said, “Show me the incentives and I will show you the outcome”. How you incent industries and companies will massively influence their outcomes. We all operate in this invisible framework of different incentives. Bad incentives cause huge distortions within markets and force participants to behave illogically from the view of an outside observer. 

Be contrarian

This is Silicon Valley’s foundation but a true and valuable lesson. Anduril was cofounded in 2017 by Palmer Luckey who had sold his company to Facebook for $2bn but he says it was hard to get funded by venture capitalists. The liberals of Silicon Valley very much viewed us in a post-war era as globalization led to more integrated societies. They thought Anduril was ludicrous. 

It's not good enough to be right. You have to be right when most people think you are wrong. Defence tech now is a very popular and crowded space, precisely because of what a success story Anduril is. 

Built an A* team

This seems obvious. Anduril has some of the best engineers in the world. But on a recent podcast, Palmer Luckey said the first hires Anduril made were former politicians and political aides. People who had experience on Capitol Hill. He has a brilliantly astute understanding of his industry and where the bottlenecks are; particularly who you know. 

A football team full of strikers would be useless despite how good they all might be individually. It’s easy for engineers to misunderstand how crucial the commercially minded can be in scaling a successful startup. True changemakers don’t make this mistake, they assess the field and build the team. 

Where to from here

Defence technology matters. There is no secret futuristic weapon stockpile that we have to defeat our adversaries. Anduril was able to do something the biggest defence companies haven't done since the 1960s. Deliver a system on budget and early. 

The antidote is working and now we need to spread this thinking to other incredible Change Makers to apply to similar industries. 

Some more reading:

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