300 Pages on Anduril: Inside Modern Warfare
Watch on YouTube ↗Summary
Kyle’s second appearance on Sourcery with Molly O’Shea (the first was two years earlier), this time built entirely around The Anduril Thesis — the 300-page book that grew out of a Contrary Research company deep dive begun in late 2023 and took roughly three years, 35 drafts, and 500+ sources to finish. The framing claim opens the episode and never lets go: “in order to understand Anduril as a company, you genuinely have to understand 100 years of military history that it is being counter-positioned against.”
The history is a story of a self-own. The U.S. exited World War II with 40%+ of global manufacturing capacity, and by the Cold War the DoD alone was funding 36% of global R&D. Then Robert McNamara arrived in the 1960s convinced America was overspending on defense and introduced PPBE — a budgeting regime Ben Rich describes in Skunk Works as a plague of auditors and bean counters descending on the lab. Spending did fall for a few years. What it actually did was strangle the golden goose: not one tax but “a million taxes of friction,” which made experimentation so expensive that the rational response was to stop iterating and build only the biggest, most exquisite assets. That logic made sense under Cold War day-one framing — bring the biggest stick and conflict never starts — and it is the logic the U.S. is still running today, producing programs decades late and, in the F-35’s case, headed toward a trillion dollars against a $13–15B plan. The deeper cost isn’t the money; it is the loss of the iterative cycle, which leaves the exquisite assets not just expensive but obsolete: China’s carrier killers cost $15–20M and can destroy a multi-billion-dollar ship, invalidating naval assets the U.S. can no longer risk anywhere near the fight.
Modern conflict runs the other way — high-volume, low-cost, attritable. Kyle’s clearest example is Ukraine’s Operation Spiderweb: roughly a million dollars of drones smuggled in under a truck’s false floorboards, autonomously identifying high-value targets, producing ~$7B in damage and destroying about a third of Russia’s long-range bomber fleet. “That is modern conflict… and we as a nation are not good at that.” Ukraine, he argues, is the military-industrial complex running in production — build, field, learn, repeat.
Anduril is a point-for-point inversion of that broken system. Fixed-price instead of cost-plus (where a guaranteed 10% margin means 10% of $3B beats 10% of $150M, so you are “deeply incentivized to reinvent the wheel from scratch every single time”). Built-to-mission instead of built-to-spec, because the DoD’s share of global R&D has fallen from 36% to under 1% and no longer knows where the frontier is — Palmer’s line: listen to the customer about the problem, never about the solution. Company-funded R&D instead of government R&D dollars, so Anduril carries the capital risk and gets paid only if the mission is satisfied. The origin story is the proof: a prime spent years and a fortune telling Customs and Border Protection that a digital border fence would cost $5–10B, take 15 years, and probably “defies the laws of physics”; Anduril assembled commercial cameras, sensors and batteries into “perimeter security on a stick,” and its first customer was a private rancher with drug traffickers crossing his land.
The product tour is the hub-and-spoke thesis. Lattice is the AI sensor-fusion brain; every product exists to plug more of the world into it — Sentry towers → UAVs and Ghost drones → counter-drone and loitering munitions (Altius) → Roadrunner → Seabed Sentry and the Dive line → Copperhead torpedoes → Fury, the autonomous fighter jet → EagleEye, the ballistic-shell AR helmet that came out of the $22B IVAS contract Microsoft lost after Palmer was talked out of competing for it in 2017. DARPA calls the pattern mosaic warfare; Christian Brose calls it a military internet of things. The undersea section is the sleeper: the ocean is the largest addressable domain outside space, harder to build for than space, and the world’s undersea data cables run exposed through the Baltics — knock them out and you knock out transportation, energy grids, data transfer and satellite comms at once. (Kyle’s throwaway on the first Anduril product ever prototyped: not the tower, but an autonomous firefighting tank.)
Founders need mavericks. Extending a frame from The Kill Chain: Bernard Schriever built ICBMs because Eisenhower ran interference; William Moffett had Hoover; Ben Rich at Skunk Works had Richard Bissell and the U-2. The 1980s–2000s produced plenty of would-be mavericks — “prophets of urgency” warning that warfare was about to change — but nobody was listening, and a warning without a solution can’t rally anyone. What is new is that both halves finally exist at once: founder-level energy inside defense, and great-power conflict rearing its head.
The philosophical third is the part Kyle says gets least attention and matters most. The mission is not building cool things; it is conflict deterrence, via Trae Stephens’ just war theory and the Thucydides trap (16 historical cases of a rising power threatening an established one; 12 ended in mass-scale conflict). “Pacifism really is a privilege of the protected” — someone has to be willing to protect the right to opt out, and China affords its citizens and companies no such right under military-civil fusion. The answer to the perverse-incentive charge is Palmer’s original pitch-deck line inverted into an ethic: make billions by saving the government tens of billions, then “reallocate a significant amount of our resources to things that make life worth protecting.” Kyle’s tell for the whole company: across a dozen founder interviews, the word “hope” appears 44 times. It closes on Faramir — “I love only that which they defend” — as the thing that actually informs every product, hiring and funding decision.
On the market. The vibe shift ran through a dip: 2017 was so unpopular that engineers ghosted Palmer and an early lead investor got hate mail from friends; 2022 brought both the Ukraine wake-up and the post-ZIRP collapse, and Anduril had a genuinely hard round before Palmer’s “I told you so” tour. Kyle’s warning for the defense bubble: bubbles do fund innovation, but there will be capital destruction and there will not be thirty new defense primes — the long tail is specialists who plug into an ecosystem (Anduril as an API into the DoD, per Packy McCormick) and, longer still, dual-use supply chains and manufacturing. “Military superiority is front-run by industrial superiority.” His parting alpha is to watch second- and third-order effects instead of the current thing — someone noticed the small public manufacturer supplying EagleEye’s ballistic shell and bought it. And his hottest take: fewer people should be raising venture capital — plenty of great businesses are terrible venture-backed businesses, illustrated by a friend building industrial metal shelving at $17M revenue, $3M profit, 3% growth, full ownership, and a great life.
Transcript
Published April 29, 2026 on the Sourcery YouTube channel; ~1h44m. ASR errors, names and stutters cleaned and the text paragraphed — nothing reordered, tightened or summarized. Proper nouns the transcription mangled have been corrected (Anduril, Palmer Luckey, Trae Stephens, Matt Grimm, Brian Schimpf, Christian Brose, Robert McNamara, Bernard Schriever, Packy McCormick, Byrne Hobart, Shyam Sankar, Thucydides, Faramir). Words that remain uncertain are marked [?]. Sponsor reads are marked rather than transcribed.
Cold open
Kyle Harrison: In order to understand Anduril as a company, you genuinely have to understand 100 years of military history that it is being counter-positioned against. Since the end of the Cold War, we have been constantly tripping over ourselves into the hubris of thinking that we have officially become the only great power left in the world and things will never change — when the reality is that was a very brief period of time.
Ukraine snuck a million dollars’ worth of drones into Russian territory and basically were responsible for like $7 billion of damage, and destroyed about a third of Russia’s long-distance bomber fleet. That’s a million-dollar cost to generate $7 billion of damage. That is modern conflict. We as a nation are not good at that.
Palmer Luckey talks about this a lot — in their very first pitch deck he said we are going to make billions of dollars by saving the government tens of billions of dollars. They called their shot early and basically nailed it.
Military superiority is front-run by industrial superiority. We did that in World War II. The problem is now that China is doing that today.
Pacifism really is a privilege of the protected. There is somebody else who is willing to do those things and build those capabilities to protect our right to say “I don’t want to be involved in that” — because anybody who can do something who doesn’t do something is ultimately responsible for the outcome.
Writing the book
Molly O’Shea: Kyle Harrison, welcome back to Sourcery.
Kyle Harrison: Thank you for having me.
Molly O’Shea: Thank you for writing a 300-page book on Anduril — we’ve been waiting for this.
Kyle Harrison: I did it just for you.
Molly O’Shea: Thank you. Okay, so what is going on here? When did you start writing this?
Kyle Harrison: We started working on a deep dive for Anduril honestly towards the end of 2023. So it’s been several years evolving into what it looked like.
The original idea came out of — we’ve gotten to appreciate Anduril first as an investor. Contrary has been an investor in Anduril since the early days, and then as we started to build out the firm, Contrary Research basically grew out of that. That’s our public-facing research arm, where the goal is, rather than writing blog posts about how smart we are — which is the normal sort of VC marketing fodder — to actually try and contribute something valuable to the ecosystem. Contrary Research has grown to 100,000 subscribers. We’ve written about 500 different companies, and we’ve been working our way through really in-depth reports of some of the most influential companies. We’ve done OpenAI, we’ve done Stripe, things like that. So we basically worked our way towards Anduril.
We’ve tried very hard to be objective, even despite — obviously we’re biased towards Anduril as an investor, but we want all of our research to be fairly objective. As we dug into it we realized that in order to understand Anduril as a company you genuinely have to understand 100 years of military history that it is being counter-positioned against. In order to do that, it did not lend itself to our typical sort of long-form online writing. So a book sort of morphed over the course of several years, and then we started collaborating with them on it and it got even bigger. It’s been a very big lift for the last couple of years for our team.
Molly O’Shea: Wow.
Kyle Harrison: We’re very excited to have it out.
Molly O’Shea: So who was involved, and what was the actual process?
Kyle Harrison: It started as each of us writing. We have a research team within Contrary — I run the research team, we have an editor, we have a research associate, and we have basically a small army of research fellows who are more people working in the industry. They’re engineers, they’re working in investing, whatever it might be. But in order to get exposure on the writing side, they will come and write with us about things they’re interested in. So we have this massive army, and over the years there have been a lot of contributors to that project. I have been sort of the main driving force in trying to get it across the finish line.
In terms of process, it started out very much as me just consuming everything there was — reading every Anduril blog post they’ve ever put out, every press release, listening to dozens of interviews with each of the individual founding members, all kinds of different reports and white papers and stuff like that. Reading several books. Eventually, once you get into the deeper military history, it’s not enough to watch a YouTube video. You actually have to go back and read the literature. So a lot of it was just immersing myself in a ton of the underlying resources.
Then the team collaboration really came from: okay, how do you take this mountain of context and structure it into a narrative? That became very much a collaborative process with me and our editor and several folks on the team. And then over the course of several months, getting it to a place where we had all the context in the right place. Then it was a function of collaborating with the Anduril team and making sure we were getting the details right — that we were understanding how things actually evolved, technical details, things like that.
Molly O’Shea: Wow. So before we go too deep into this — what were the biggest surprises you took away from the military history, or both?
Kyle Harrison: First, I think the history is the most important context. It’s one of the things that is missing from the conversation. Everybody talks about Anduril the same way that we talk about a Stripe or OpenAI or a Databricks — it feels very similar. The reality is that while all of these other companies have a technological history, most of them don’t have the same deep cultural, industrial, military, geopolitical history that they actively are defined by today, where Anduril does.
So when I think about the history, one of the things that is both the most frustrating and the most surprising is that it’s just been multiple decades of a self-own. Basically since the end of the Cold War, we have been constantly tripping over ourselves into the hubris of thinking that we have officially become the only great power left in the world and things will never change — when the reality is that was a very brief period of time that that was true, and it’s never been true in history. But everything about military and industrial policy operated on that assumption. That assumption was just deeply wrong.
It’s honestly heartbreaking, especially when you find the nuggets throughout history of “man, this guy was calling it in ‘97, he was saying this is going to be a problem and this is going to catch us off guard” — and nobody listened.
So in the historical context, that’s the most surprising. On the Anduril side — Palmer Luckey talks about this a lot, where in their very first pitch deck he said we are going to make billions of dollars by saving the government tens of billions of dollars of costs. That revenue-cost equation has always been the process that Anduril has pursued as a company. I think probably what is most surprising is that they called their shot early and basically nailed it. We’ll talk more about the details, but in their first pitch deck they basically had five things, and they had all these weird ways to describe them — VR for warfighters, perimeter security on a stick, all these things that I’m sure sounded insane to their early seed investors. And one by one they have nailed every single time they’ve tried to build it out. It’s a pretty impressive example of calling your shot.
Molly O’Shea: Going into the 100 years of military history, what were some of the sources you pulled from?
Kyle Harrison: There are probably two big buckets. The biggest bucket is actually white papers. The DoD is prolific in trying to do studies, war games, postmortems, exercises, evaluating different things.
Molly O’Shea: So there was access?
Kyle Harrison: I mean, you can access all of this. These are on the internet. There’s a massive amount of context on the internet. Things like CSIS — a lot of think tanks have put out reports on different things. That was probably the largest corpus of stuff: you drill in and you say, why don’t we build ships anymore? And then you dig in and there’s a specific law that was passed 150 years ago that has basically screwed us ever since. There are all these big problems that have caused issues. So that’s the biggest corpus.
The second bucket is some pretty incredible books written by people who were boots on the ground involved in different aspects of these processes. Probably the two we reference the most — one is by Christian Brose, who when he wrote it, I think he was in the process of joining Anduril, but he wasn’t at Anduril as he was writing it. That’s The Kill Chain.
Molly O’Shea: You mentioned you looked back and he’s the most-mentioned source.
Kyle Harrison: By far. The Kill Chain, I think we referenced over 150 times.
Molly O’Shea: Oh my god.
Kyle Harrison: It is the best introduction to the problem set. The gap that this book ideally fills is that there’s so much context of history, but then also mapping Anduril’s trajectory onto that. And I would imagine it’s a function of both — he wasn’t at Anduril yet, but also you don’t want it to feel biased. You want it to be able to stand independent of Anduril. Everything in The Kill Chain is true. What we do is say all these things are true, and there’s additional context you need to know, and now let’s map Anduril against that and say: okay, this thing is broken, here’s why, and Anduril operates this way; this thing sucks, here’s why, and Anduril does it right — back and forth. So The Kill Chain is by far the most referenced piece in the book, because it’s one-to-one exactly what we’re trying to describe in the first half.
The second book is by a guy named Ben Rich — a book called Skunk Works, which is one of the best books just in terms of high-performance teams building incredible things. It’s a lot about the journey of building the stealth bomber, but there’s also a lot about the U-2 spy plane. Kelly Johnson is the guy who originally founded — so Lockheed is the company, Skunk Works is the lab, and Kelly Johnson founded Skunk Works. He is probably one of the most impressive people in industrial history.
Those two books together — there’s a handful of others we list in the sources — but those two laid a lot of the foundation of how did we get ourselves into such a mess when we were so capable.
How the system broke: McNamara, PPBE, and the exquisite asset
Molly O’Shea: So walk through some of the specifics there. What happened post-World War II?
Kyle Harrison: If you set the stage for what things looked like at the end of World War II, the US was 40-plus percent of manufacturing capacity globally. Just a massive powerhouse. And even in World War II, they say we basically just outbuilt the enemy. A lot of the time they take cases like the tanks we were making — our tanks were technologically inferior to the tanks of the Germans. We just built so many of them and threw so much industrial capacity at it that that is literally how we won. So we’re just this powerhouse industrially.
Then you look at the DoD specifically. At one point, during the Cold War into the ’50s and ’60s, the DoD alone represented 36% of global R&D. So all of the research and development being done the world over — 36% of it was coming from the DoD funding different projects, going through the Cold War and stuff like that. So there’s this massive capability, and you look at all the things we accomplished. We were spitting off one bomber plane basically per day — just spitting out massive amounts. So it’s this industrial powerhouse.
Then we go into post-World War II, we’re getting into the Cold War, we’ll have spats in Korea and Vietnam. But in the ’60s there was a guy named Robert McNamara who became the Secretary of Defense. And he came in with this hypothesis that we were just spending too much on defense. So while you had this industrial powerhouse that was important, in his perspective it was too much. We were just spending too much. So we need to control spending.
He introduced a system called PPBE — planning, programming, budgeting and execution. Ben Rich, who wrote Skunk Works, describes it as a plague descending upon Skunk Works — of auditors and bean counters. It was just this army of people who came in to not just say “you need to build this and you need to try and do it with the lowest-cost labor,” but literally counting every single purchase, every single order — was it absolutely the cheapest we could get it? So it introduced this disgusting level of bureaucracy, thinking that will control spending, that if there’s so much friction it will control spending.
And it worked for a couple of years — our spending did go down.
Molly O’Shea: But then we rip into Korea and Vietnam.
Kyle Harrison: We go back into conflict phase, and basically McNamara has strangled the golden goose that we had of industrial capacity. He’s made it so high-friction to build anything that now every single individual project is dramatically delayed, significantly over budget. It’s just so expensive to do anything, and that becomes the new paradigm of building things.
Molly O’Shea: But what makes it so expensive?
Kyle Harrison: When you think about bureaucracy — if I ask you to build something that you don’t know how to build, it requires a ton of experimentation. But if you have a bean counter along the way where every time you try and run an experiment they’re introducing 3 to 5 to 12 weeks of process to say “well, you need to fill out these forms in triplicate to make sure we’re evaluating these vendors appropriately, and you can’t look at these vendors, you have to look at these vendors because there might be a cheaper vendor” — it’s just so much friction.
It’s not any one thing. It’s not any one tax. It is a million taxes of friction. So that breaks the process.
And now you go into these conflicts. The problem is we get used to: okay, well, now everything is just way more expensive. So if we’re going to spend money, and we’re going to spend all this time, and everything’s going to be over budget and behind deadline, then what we should do is just build the biggest things.
During the Cold War that mentality kind of made sense, because we were doing a lot of what is effectively day-one framing — what you want is to have the biggest, baddest stick. The biggest ships, the biggest navy and army and air force, and you want to bring that to bear day one, so that conflict is just too expensive. Don’t forget about even nukes — you want to have so much big stuff.
So we retrained our ecosystem to build these large, exquisite assets and to pour all of our time and money into that stuff. And that is largely what you have now. Fast-forward to today: we are probably pretty good at building massive aircraft carriers and nuclear submarines and stuff like that, but everything is ungodly expensive, way behind deadline — in some cases literally decades behind deadline. And you have projects that should have cost $13–15 billion that could cost a trillion dollars, like the F-35 program. Dramatic overages. That’s the broken system that we largely have today.
Molly O’Shea: And it’s also completely outdated because of how much backlog there is. I think with the Pentagon asking automakers to start helping build missiles and more advanced drones, there was some citing — and I’ll probably get this wrong — but we’re throwing $2 million Ferraris at 50K frisbees, and there’s just a big disconnect there. So how do you see that technological disconnect over time, and how we’ve actually lapsed in what we quote-unquote have been as the superiority in the military complex?
Kyle Harrison: It is even worse than just a cost imbalance. You actually lack the iterative cycle to stay anywhere close to the cutting edge. So to your point, it’s not only that everything is super expensive and super delayed — it’s actually not anywhere close to the cutting edge either.
For example, we’re really good at building big, expensive aircraft carriers. The Chinese have developed missiles that they affectionately refer to as carrier killers, that — I mean, these still might be fairly expensive missiles, these are $15–20 million missiles — but they can destroy a multi-billion-dollar ship. And that’s kind of at the cutting edge, right? Such a destructive power that has been developed over time. Whereas our munitions are dramatically delayed.
So it’s an imbalance not only because ours is more expensive, but also because it’s more old school. And the problem with that is that if we get into any conflict with China, there’s suddenly a huge swath of our naval assets that we don’t want to put anywhere near China, because they could just demolish it. So it invalidates even a lot of the exquisite assets we have. They become invalidated. So we’re really stuck behind.
We don’t have as much iterative feedback cycle in the assets that we are building. Conflict is change. You look at Ukraine — somebody described Ukraine in a tweet as the military-industrial complex in production, where they’re live-testing stuff way more rapidly even than the US at its best, even China or whoever. In Ukraine it’s just: we try something and we immediately field it, and you get a ton of experience.
Molly O’Shea: Well, I think even Neros — Neros went directly to Ukraine to just start testing.
Kyle Harrison: Yeah.
Molly O’Shea: Which is a good new-case example.
Kyle Harrison: And I think Ukraine is a good illustrative case study of this new age of modern conflict, where it is increasingly becoming all about high-volume, low-cost assets — what people call attritable, where it’s just a thing you can burn through a lot of, and make them very quickly.
In Ukraine there was something I think was called Operation Spiderweb, where under false floorboards of a truck they snuck about a million dollars’ worth of drones into Russian territory. The drones basically took flight, were able to autonomously identify high-value targets, and engaged — and were responsible for like $7 billion of damage, and destroyed about a third of Russia’s long-distance bomber fleet.
So that’s a million-dollar cost to generate $7 billion of damage. There are several other cases of this, but that is modern conflict: you have to be capable of spitting out a high volume of these low-cost assets to be able to engage. And we as a nation are not good at that.
Molly O’Shea: Taking the technology point out of the equation — are we capable? What have you been seeing with the new administration and the DoD and how they’re embracing this? How are they embracing it, and how is policy changing?
Kyle Harrison: The good news is the defense bill every year is one of the most bipartisan passages each year. It is representative of the fact that it actually spans across partisan politics — it’s not like Republicans love defense and Democrats hate it. I think it was in 2022 that even President Biden openly acknowledged that China represented an existential threat, which was something that candidly, even five, six, seven years ago, was not openly talked about. It was kind of taboo. We didn’t acknowledge that risk.
So I think increasingly what has changed is it’s less about the current administration doing something unique. I actually think you go back to Ukraine as sort of a wake-up call for a lot of people, or even Chinese posturing in the South China Sea and stuff with Taiwan. A lot of those actions are acting as wake-up calls. So it’s more a function of people acknowledging that there is conflict whether we like it or not, and we do have to be capable of responding to it — and we are not, despite continuing to have a lot of the “on the scorecard” largest things or biggest things. In practical terms we are not the biggest dog at the party, so we have to acknowledge there are some strategic changes we have to make to stay relevant.
Molly O’Shea: Yeah. We put out this clip interviewing Chris Power at Reindustrialize last year — he talks a lot about the Davidson window, the time in which China is going to attack Taiwan. And so he makes it part of his mission to make sure that we’re able to fulfill manufacturing capabilities to meet that. It seems like we’re getting into a tested area. But going back to Ukraine as the wake-up call — how does this then inflect on timelines, and what’s coming up next?
Kyle Harrison: You look at increased conflict — and this is one of the hardest parts about writing the book. Call it from the end of 2023 through the end of last year, basically we were iterating on it, and in that time alone you have escalation in Ukraine, you have Israel and Palestine — October 7th happened while we were writing. You have Trump’s and Israel’s action in Iran, you have stuff going on in Venezuela. So even just over the course of writing the book, global conflict has changed shape.
Molly O’Shea: Whenever a new war breaks out, do you have to go back to the drawing board and edit? What was that like?
Kyle Harrison: I’ll tell you what — it was dueling forces of urgency. On the one hand, the global climate was changing frequently and there were frequent things we had to change. At the same time, Anduril is probably one of the most prolific shippers of product — new iterations of things, new versions of stuff, entirely new projects, things they weren’t talking about that we thought we had a sneak peek at, and then by the time we got around to putting it in print they’d already talked about it. So Anduril’s pace of execution against the backdrop of a global environment that’s changing super fast.
I think we were on draft 35 by the time we were like, okay, at some point we have to actually print the book. But it was a lot of iteration.
The Anduril thesis: counter-positioning, cost-plus, and built-to-mission
Molly O’Shea: Okay, so let’s get to it. The book is literally the Anduril thesis. So what is the Anduril thesis?
Kyle Harrison: The core crux of the thesis behind Anduril is understanding that 100 years of military history, and then systematically walking through every aspect of Anduril that is deliberately counter-positioned to the way the defense department and the US military is set up today.
So that is how we acquire new capabilities. There are things like fixed-price contracting, which is what Anduril does, versus cost-plus — there’s a rich history there of why we do that, and why it made sense briefly but why it doesn’t make sense anymore, and yet we continue to do it.
Why does the DoD believe in a built-to-spec approach of “we will tell you exactly what to build”? That grew out of — back in the ’40s and ’50s and ’60s, like I said, the DoD was 36% of global R&D. They had a pretty good handle on what the cutting edge was when they were controlling almost half of all of the latest technology. Silicon Valley literally was born out of the defense industry. So at that time, that made sense. Today it is sub-1% of global R&D. So the DoD doesn’t really know what the cutting edge is.
Palmer has this great line where he says: we absolutely want to listen to our customers, because they understand their problem. We don’t necessarily listen to them about what the solution should be, because they don’t have a good framework for what the possible solutions are.
So where the military is trying to acquire things built to spec, the goal of Anduril is to acquire things built to mission. They fund their own R&D. They put their own money up rather than asking the government for R&D dollars to go spend and build some brand new thing. Anduril is saying: we’re going to put our capital at risk, and the goal is that we so effectively satisfy the mission that you will want to pay for it without you having funded the R&D yourself.
There are so many aspects of Anduril as a business that you don’t appreciate why they are so important unless you go back and map it to the 100 years of history that have gotten us into this wormhole mess.
Molly O’Shea: So what did you learn about the actual roadblocks and bottlenecks within the government DoD contracts? Did it come down to “oh, they already did thousands of pages of paperwork with one supplier, so they’re just going to stick with that one, they don’t want to bring on new ones, and that’s why they’re not trying new innovative things”? Or is it really cost? What is the problem there?
Kyle Harrison: The shape of the innovation block in military contracting, defense contracting generally, has really flipped on its head.
In the early days, when we talk about McNamara and introducing all this friction, you have guys like Ben Rich who over the course of their career might work on 20, 30, 40 iterations of different types of planes and bombers and all kinds of different things. You get to this place where it becomes standard that you’ll maybe work on one over the course of your entire career. Everything just slows down.
And so what you have now is — you don’t have the existing primes being an army of Ben Riches who wish they could be unfettered by this bureaucracy. It is people who were born and raised in the bureaucracy. So they like it. It’s comfortable. They have reshaped their entire business to be purpose-built for that bureaucracy.
Now you go back to the fixed-price contracting that Anduril is trying to push, saying we want to be rewarded for our outcomes. The standard is cost-plus, where you say: whatever it costs you, we will guarantee a certain percentage. It’s usually high single digits, low 10–15%, whatever — we’ll just tack on that margin.
Okay, so think about the incentives in that. If the incentive is “no matter what it costs you, I will give you 10% on top of that, that’s your profit” — well, 10% of $3 billion is a much bigger number than 10% of $150 million. And so as a traditional prime you are deeply incentivized to reinvent the wheel from scratch every single time. You’re not going to pull anything off the shelf. You’re not going to use any commercial products. You’re going to go to the government and say, what you’re asking for is a multi-billion-dollar project — and maybe it’s not even possible.
So take Anduril’s first fielded product, the Sentry Tower. Originally — I’m trying to remember, I want to say it was Boeing, but that doesn’t sound right; maybe it was Lockheed — there was a contractor who had a contract back in the early 2000s with border control to build effectively digital fences, to be able to observe and monitor the border. And they said: we think this is going to cost $5 to $10 billion, take 15 years, and probably it defies the laws of physics and we can’t do it. And they tried and tried and tried and spent a ton of money on it, and eventually they just said, sorry — the military is trying to get us to break the laws of physics and we just can’t do it. No one could do it. It’s impossible.
Because their incentive is: take as long as you possibly can, make it as expensive as humanly possible, build everything from scratch, and get this fat fee on top of a much bigger number.
Then the Anduril team comes along and says, well look — you don’t need to reinvent sensors and cameras and batteries from scratch. There are some very effective tools in the commercial market. Let’s get cameras and sensors and batteries, build a pack, put it on a stick, and stick it out on the southern border. And their first customer, if I remember correctly, wasn’t even the government. It was a private ranch owner who wanted to monitor his land because there were drug traffickers coming across it. So originally it was a private citizen just paying to put up these towers so they could demonstrate it. But eventually Homeland Security and others became a large customer of the Sentry Tower — and it was dramatically cheaper than anything this prime was trying to do.
It didn’t have to cost billions of dollars, because Anduril was incentivized to make it as cheap as possible, as quickly as possible, as effective as possible, and then go and sell that pre-packaged capability — rather than trying to convince the government that they should pay them a billion dollars to play around with the possibility of a product.
The founding story
Molly O’Shea: So the Sentry Tower was the first product that they went after. Can you talk about the early days of Anduril and how the team got together? I was really fortunate — I don’t know how this happened, but we went over to Anduril and we spent the day there and I was able to interview four of the co-founders: Matt Grimm, Trae Stephens, Palmer Luckey and Brian Schimpf. And it was amazing. It was so much fun. We did literally everything. So I got a little piece of history from each and every one of them. But to your point, and to your research — what is the outside lens of how things got together, and the climate around that?
Kyle Harrison: One of the things that is most fascinating about walking through the history is that it really is like a deep vein of rich mythology, where the deeper you go the more impressive it is.
One of the things you find out is that Palmer has been thinking about defense since he was in high school. While he was in high school he volunteered at a lab where they were doing research around how to use virtual reality to help soldiers deal with PTSD. So a combination of his loves of VR but also military technology, that goes back as far as pre-Oculus days. There was some basis there.
Then there is this other vein of history — Palmer is one of the younger of the four. The other three, I think, were all in high school during 9/11. And Trae Stephens talks about that the most: that awoke something inside of him. He saw what happened and said, I need to do something to be of service to my country. So he joined the intelligence community — he wanted to go to Georgetown deliberately, went to work as a spook — because of that early sort of patriotism.
Molly O’Shea: He said he had a James Bond dream and then all of a sudden he was trapped in a cubicle in a basement.
Kyle Harrison: That’s right. So each of the founders have these early-days exposures that sparked the passion.
The real linchpin is: Trae was at Founders Fund. Founders Fund had invested in Oculus. There was an event that Founders Fund threw where they invited Palmer to come. Palmer and Trae met and they were talking, and I think the first idea they batted back and forth was: how could we build a force field? That was the first — could we, and how would we do that? And eventually it evolved into: somebody needs to build a real-life Stark Industries.
There are other inspirations — Palmer, I can’t remember the character’s name, but there’s an anime character who is a billionaire, and he builds video games with the money he made as an arms dealer. And so Palmer is like —
Molly O’Shea: So they reversed —
Kyle Harrison: He did it backwards. That’s right, he did it backwards. So he’s literally inspired by that guy. I think he has a dragon-like jet that he flies around in and stuff. So there are all these little passion threads throughout each of their histories.
But the way they come together is very much after Palmer gets fired from Facebook. He says, okay, I’m going to start another company. There’s a handful of things — and this is a deeper mythology, of a bunch of random stuff that Palmer thought about doing — but building a new defense prime, a Stark Industries, was at the top of his list. So he called up Trae and said we should do this.
So you have Trae, who is the sort of like — the recruiter thread, where he pulls in Matt, who he sees as the operational-excellence genius, and Brian, who is the engineering mad scientist. And then Palmer pulls Joe, the other co-founder, who is an engineer at Oculus and I think is the only of the five co-founders who actually served in the military.
So they all come together from their prior experiences. And the story is that they get some Chick-fil-A, they have a bad Google Slides, and they sit down with a handful of people they’ve met from their past — basically a recruiting lunch — to try and lay out exactly what they’re going to do.
This, I think, is where they have this famous experience of laying out five things. I’m not going to remember all of them, but there are five things they laid out to say: these are some of the things that we could do. And they’re good bookends for Anduril’s current product portfolio.
One was “perimeter security on a stick” — that’s literally what became the Sentry Towers. Camera and sensors and battery, stick it out there. That was their first commercial product.
But another one of the projects was VR for the warfighter. And at the time — this is 2017, when they’re getting started — Microsoft is actually competing for an IVAS contract, the Integrated Visual Augmentation System, basically AR for warfighters. Palmer desperately wanted to go compete for it, because he’d been doing Oculus. It’s right there. Defense and VR perfectly suited together. And some of his early investors convinced him that you need to bide your time — that’s a thing that is going to be a big thing to chew on, and it’s going to take everything we can to compete for it, versus the rapid iteration process we need to engage in. And so he let it go.
Microsoft got this project, did pretty poorly for several years, and then a year ago Microsoft basically admitted defeat to some extent and the government said we’re going to re-compete the contract. Anduril came in first as a potential partner to Microsoft, and then eventually took over a $22 billion IVAS contract, which has now become their EagleEye product — this ballistic-shell helmet with augmented vision. There are crazy videos of use cases where, with a combination of the AR and a Ghost drone flying overhead, you can literally see through walls. If there’s somebody coming back through this thing, the drone knows where they are, and it can display that visually as they’re moving from behind the wall.
So that product portfolio has expanded dramatically, in large part because from day one it was not about one individual product. It was not about one individual platform. It was about this software-defined, hardware-enabled web of products that can all work together and focus on capabilities they’re trying to enable.
The product tree: Lattice as the brain
Molly O’Shea: Could you walk through the timeline of the products and how they developed? Because they have quite the list of products now. It was so much fun to go see all of them too.
Kyle Harrison: Well, fun fact — do you know what their actual first product was? They never fielded it, never commercialized it, but the first product they ever built and prototyped was called Sentry, but it wasn’t the tower. It was an autonomous firefighting tank that would roll into a forest fire and deploy fire suppression and actually save people. That was the original product — just trying to figure out what was something they could do with autonomy and be able to field a contract.
What is funny about the way their products evolved is you can kind of see these early days of them throwing a lot of stuff at the wall, but Lattice was the consistent through-point in everything they did.
The reason they talk about — even though everybody kind of knows the drones or the munitions or the submarines — the real core product is Lattice. A couple of people talk about it different ways. DARPA has this great phrase where they describe it as mosaic warfare, of pulling all these things together. Christian Brose talks about it as a military internet of things, having all these edge devices woven together. But basically it very much is a hub-and-spoke model of Lattice as an AI sensor-fusion-driven brain — and then the goal is, across every domain and every capability and every force level, how can you plug as many assets into that brain as possible?
So you start with Lattice. One of the advantages is you can start with just monitoring — we just need to get information into the system. So Sentry becomes the first product, and it’s a sensor that can pull everything in, but still Lattice is there to be able to identify and say: hey, this looks like this kind of person, versus this is a known thing, this is a dangerous thing, this is normal, this is just a fox. So there’s actual intelligence there.
From the sensors you start to expand out into UAVs, so you’re getting into actual flight. It’s still a lot about data gathering. They had a quadcopter that they built — I remember in your video you saw the early prototype pieces of it with Matt. Again, it’s very similar: it’s just about gathering information, but doing it from different angles and with different flexibilities. So you have a quadcopter, you have a Ghost drone — a larger, longer-distance drone.
And then eventually you start to get into counter-drone systems. You have systems where not only do you want to go observe, you actually want to be able to intercept a drone. Going back to throwing Ferraris at frisbees, the goal is for that to be ideally with not a multi-million-dollar asset taking out a $20,000 Walmart drone. So they start to get into loitering munitions. Altius is a product they bought, and it’s basically a tube-launched drone that can circle, identify, and then engage with a drone to take it out.
And then you quickly see them expand: okay, we have capabilities, we have sensors, we have monitoring. We’re aerial, but now you get into actual munitions. You have things like Roadrunner, which is a payload-carrying asset that can destroy different threats.
Then you start to get into — originally they had a Sentry Tower that was near the ocean. Eventually you deepen the Sentry product suite into Seabed Sentry, which is a sensor on the bottom of the ocean —
Molly O’Shea: And you can talk to whales.
Kyle Harrison: You can talk to whales, which is the ideal use case, I think, number one.
Molly O’Shea: Get them on our side.
Kyle Harrison: So you start to expand out into all these different things, and then you get into their Dive line of autonomous undersea vehicles.
And now increasingly what is most impressive is that what started as a product suite of adjacencies — these are all things that will augment a lot of existing assets — we’re now getting into potentially asset replacements. There are things we can do instead. So they have Copperhead, which is a torpedo product, and it can replace existing torpedoes, but it is also autonomous. So you have this ability to loiter under sea, identify targets, and then be able to engage.
But you also have what I’d say is probably their crowning product today — I think there’s a lot of things that are on the come that are going to blow people away — but I think that Fury is a very impressive capability, because it is effectively an autonomous fighter jet.
And one of the things that is most important about that is that being a fighter pilot is one of the most difficult, dangerous jobs.
Molly O’Shea: Also, by the way, most of America is completely removed from the military and the industrial complex around it, and they don’t actually understand the training, the day-to-day, the actual combat that goes into being a fighter pilot. You’re literally dodging missiles in active war zones.
Kyle Harrison: And that’s true of the majority of technology-enabled roles in the military. So Fury as an example is not only replacing, in some cases — because there are some missions where we no longer need to send pilots into danger, we can do it autonomously — but there are some cases where you still want human judgment and speed and perspective, and you can extend a pilot’s capability with a small set of Furies that can go out further and identify danger. They can observe things. They can engage in a way that doesn’t put the pilot at risk. That’s a capability.
But even things like just monitoring. We’ve had drones for a long time, but when you think about a drone’s capabilities — if you were to try and send up a drone, have it go a couple of miles’ distance, observe a target, identify where weak points are, where there are things to be aware of, and come back and report on that information — that could take a room full of a dozen people having to switch between several dozen different screens and messaging people.
Christian Brose talks about this in The Kill Chain. He’s seen these distracted, stressed-out, exhausted individuals who have to constantly be trying to say: okay, this is the data point I need here, I need to send it to this person, because that’s what’s going to control the messaging to the force that’s engaging here.
Molly O’Shea: That is not going to lead to ideal outcomes.
Kyle Harrison: And so autonomy introduces this incredible capability where — we are going to do the things we have to do, whether we like it or not, we need to do those things. This way ensures that the outcome is very likely higher quality and puts significantly fewer people at risk in the process.
[Sponsor break — Brex, Turing.]
What’s actually fielded, and building for arsenals
Molly O’Shea: So I’m curious — I’ve had people wonder, and I don’t know if you know this information or not, but which parts of these products are actively ready to use? Which ones are actually ready to be deployed?
Kyle Harrison: The biggest proof point of Anduril’s capabilities — you look at Ukraine. Palmer says that Anduril has had products on the ground in Ukraine basically since day one. They were over there pretty quickly deploying assets.
I think one of the things that is most important to understand about Anduril’s go-to-market is that what you’re doing is trying to enable specific capabilities for both the US forces and our allies. So you look at things like Ghost Sharks in Australia. Anduril went to Australia and set up a factory specifically for production of Dive assets — these autonomous undersea vehicles. They specifically set up shop to produce those because Australia represents — there’s AUKUS, the collaborative group of Australia, UK, US. Australia is sort of the tip of the spear for that effort because they are right there in the Pacific, close to China. Taiwan is nearby. Their need for an undersea capability is the strongest. So you go set up shop in Australia, and that contract they have — I think it’s a multi-billion-dollar contract at this point if I remember correctly, but maybe a couple hundred million — the whole point is to be able to build things where they are most needed. And there it is getting fielded significantly, where it’s like: this is a capability we need today.
There’s a handful of examples of that where there’s a very specific need. Probably the Sentry Towers is the other example — it’s not only now on borders, but it’s also on military bases throughout the globe. You have Sentry Towers protecting those military bases.
So there is a spectrum, an adoption curve, of capabilities: what can Anduril capably do, then what can Anduril capably do that also matches a near-term need, then what can Anduril do that matches a longer-term need where it may not be a thing yet.
For example, on the munitions side, they’re rapidly spinning up Arsenal-1 — they’re going to be building Furies in Ohio.
Molly O’Shea: And they did that ahead of schedule and under budget.
Kyle Harrison: Same thing, I think, with the Ghost Sharks. Palmer tweeted about it — when’s the last time you saw somebody on time and under budget? They’ve done it a couple of times.
But a lot of those things are not necessarily things that you are actively deploying in live combat zones. They are things that you have to build arsenals for, in order to in the future engage in specific conflicts. So I think that’s a thing people misunderstand: these large contracts, these large dollar amounts, these large builds that Anduril is doing — it is not always because we’re going to build a batch of drones and send them immediately to Ukraine for deployment. It is that we’re trying to build these depots.
And I think the other thing to understand is that we are staring down the barrel of a potential large-scale conflict with China. When you look at the existing munitions we have — if we were to engage in a large-scale conflict, I think it’s something like we would run out of munitions in 11 days.
Molly O’Shea: Yeah.
Kyle Harrison: And then we wouldn’t have the capability to rebuild them. Or in war games — we have been effectively losing war games when they model the scenario of US versus China since, I think, 2015. The US loses those war games. And a big part of that is because our naval assets are at risk. I think about half of our naval fleet could be destroyed within the first couple of months of a large-scale conflict with China, and it would take us 25 years to rebuild just to get back to where we were. So our shipbuilding capacity doesn’t exist. Our munitions capacity doesn’t exist.
Molly O’Shea: Meanwhile, every ship in China is regulated to also be dual-use.
Kyle Harrison: That’s right. And really everything in China is regulated to be dual-use — because military-civil fusion means anything you build we immediately get to weave into the military.
Which is why I think it’s important to acknowledge that the US maintains that freedom and ability. Trae talks about this a lot: I’m grateful to live in a country where if a certain company or certain individuals don’t want to work with the military, or don’t want to work on military projects — great, I’m glad they have that freedom. But pacifism really is a privilege of the protected. There is somebody else who is willing to do those things and build those capabilities to protect our right to say “I don’t want to be involved in that.” And that’s fine. China does not afford that right to its citizens and its companies.
Molly O’Shea: Yeah. I think in our interview he said pacifism couldn’t exist without a monopoly on violence.
The undersea domain
Molly O’Shea: So to dig back into Seabed Sentry a bit more, and even Dive — what are the biggest misconceptions about undersea warfare? I know Palmer is really interested in subterranean warfare, but let’s just talk about the sea first. What’s going on there, and why is that so critical?
Kyle Harrison: It is all about surface area. How much surface area you have represents the threat vector of a specific domain. When you think about it, aerial has a certain amount of volume. When Palmer talks about subterranean warfare — that is actually, I think, the largest domain outside of space, but it is largely untraversable today. Several people are working on that, including Anduril, much to the surprise — I don’t know if you’ve heard this story, but there was a story of Palmer talking about subterranean warfare and the marketing person at Anduril was there and said to the journalist, “just to be clear, we’re not working on that.” And Palmer was like, “oh no, we are, we’ve been working on some stuff.”
So even Anduril is working on it. But the ocean is the largest surface area that is addressable outside of space. One of the reasons it is so important is that it is one of the highest-friction domains to engage in. It’s very easy when you have a large land space — there’s a million different ways you can monitor that, satellites and sensors and radar and everything. The ocean is really difficult to navigate and understand and make sense of where everything is, and it’s just really freaking big. So it’s really difficult to pinpoint things. Even if you can identify and articulate them, it’s really difficult.
The second reason the ocean is so important is — this is probably another aspect most people don’t appreciate — there are massive undersea data cables. Originally a lot of these, if I remember correctly, were invented and created by Bell Labs. Go back to this massive industrial capacity in the ’50s and ’60s — they literally invented this way to digitally connect different parts of the world.
But today, the numbers feel so stupid that I always feel like I’m getting them wrong, but I think it’s something like ten trillion dollars a day, maybe an hour. There are massive amounts of transactional data and volumes and information transacting across these cables that are just sitting at the bottom of the ocean. And a lot of them run up through the Baltics. They’re literally just exposed for Russia to do what they will with them.
If you wanted to interrupt the global economy, taking out some of those cables is a pretty effective way to do it. You could literally knock out transportation, energy grids, data transfer, satellite communications — there are so many aspects of the global economy you could just knock out.
So you have to understand that it’s not just individual assets, where yeah, we want to be careful of enemies or less-than-friendlies who have submarines. We also want to understand those. But we have to map a massive volume of the ocean surface to be able to protect those assets.
So a combination of Anduril’s products in the ocean-faring realm come together for that defense. Starting with the Sentry Towers that were in proximity to the ocean; now they have these Seabed Sentries, which are an incredible product. When you think about difficult environments to build a product for — candidly, in some cases the ocean is actually harder to build for than space, because space has a lot of neutralizing effects. It’s just there, and as long as it’s maintained it can be maintained. You have satellites that have been in orbit since the ’60s. Whereas the ocean is relentless in how hard it is to field an asset there. So these Seabed Sentries are incredible products, and they generate a significantly difficult-to-achieve level of insight to be able to understand what’s going on.
And then in terms of what you do as a result of that information — the entire Dive line of products. Some of them are for monitoring, but increasingly they have munitions variants of their Dive product, so it can carry weapons. And they have things like Barracuda, a small autonomous underwater vehicle that you can maneuver and that can be munitions-carrying. And then Copperhead is their torpedo product, so they have munitions variants they can do things with.
And then just recently — this is what’s awesome about Anduril, both as a cultural artifact and as a massive products company — the last couple of product announcements they’ve made, they’ve made with anime-like prototype videos. And I don’t know if you knew this, but in the last two of their videos they have teased future products at the end. I think if I remember correctly the first one was for Fury, and at the end of the Fury video it basically showed the camera panning under the ocean, and you had these products that were moving but you didn’t know what they were, and then it cut away. And then whatever, six, nine months later, they announced the Copperhead products. So the video for the Copperhead products literally picked up where that video ended, and it shows these Copperhead munitions moving around, and they can be deployed from a Dive-XL, and then they can loiter and engage.
And then what happened in this video was you saw all of these assets moving towards a target under the water, and then the camera panned up above water and you saw the slight hint of an above-water vehicle, and then it cuts away. Right now, just this week, Anduril’s announced a partnership with HD Hyundai where they are officially starting to build autonomous surface vessels — starting to compete with folks like Saronic.
It literally goes back to this idea of mosaic warfare, of a military internet of things, of you want every domain, every surface, every force level to have some relevant asset that you can weave into this network of potential responses that somebody could control and command.
Molly O’Shea: Wow. Okay, key takeaways: don’t mess with the undersea cables.
Founders and military mavericks
Molly O’Shea: So I want to weave back into the history. You studied 100 years of history — that must have taken a really long time. But one of the key parts you took out of that was that throughout these generations and these waves, these founders are often paired with mavericks. Can you walk through some of those, and how that relates to current day?
Kyle Harrison: This is a concept that I would say is not unique to us, but it is expanded in the book and hinted at originally in The Kill Chain, in Christian Brose’s book.
The example they give is Bernard Schriever, who was basically put in charge of inventing intercontinental ballistic missiles — ICBMs — which was a thing we absolutely did not know how to do. This was a missile that needed to travel basically across the entire planet within a matter of minutes, carrying munitions, in a targeted way. It was a very difficult technical lift to pull off.
And as they are building ICBMs, President Eisenhower is this military maverick. If you think about Schriever as a founder-style builder, there are a lot of obstacles to working with the government and building such a complicated thing — it’s expensive, it’s complex, you have to experiment, it’s dangerous. Eisenhower ran a lot of interference to make sure they had the assets and the resources they needed.
So this one-to-one pairing of people who are doing hard things and military mavericks who are protecting and enabling their ability to execute — that has been a very important capability throughout the history of military innovation in the US. You look back at modernizing the Navy — William Moffett, I think, was his name, and he had President Hoover. You had Ben Rich, we’ve talked about at Skunk Works — he had Richard Bissell, I think was his name, who was working for the CIA and basically made the U-2 spy plane possible.
So you have a lot of these things that, if left to bureaucracy, probably would have never gotten off the drawing board. But because you have these military mavericks who are willing to enable people to innovate, that’s where things actually get done.
And Anduril, I think, introduces the founder DNA, where you didn’t have a lot of people building truly innovative products for defense use cases. You had a lot of traditional primes, but they are mired in this broken system of inefficiency. So you don’t really have founder-level energy. Anduril brings that founder-level energy.
What is awesome is that you had a generation of people who would have been willing military mavericks. You had these prophets of urgency in the ’80s and ’90s and early 2000s. You had different admirals and military leaders who were saying: warfare is going to change, it is going to start to look like this high-volume, low-cost style of conflict, it’s going to be significantly more intelligent, and we have a lot of hubris and we’re building these big assets that are not going to be able to carry their weight. You had people saying that — just nobody was listening. Nobody was doing anything about it.
So those people would have been military mavericks if they had had either institutional buy-in or founder-level innovation solving the problems. Because one of the problems with complaining and trying to send up a flare is that if you don’t then have a solution, it’s difficult to rally people. And also you didn’t have a lot of urgency, because you didn’t have China rising as a great power, potential conflict and stuff like that.
So today you have both. You have Anduril bringing the founder energy, you have great-power conflict rearing its head, but importantly you have people in the military. There are countless people the Anduril team would point to as saying: these are the individuals who have been really valuable compatriots unlocking the things we need to actually adopt these capabilities.
Molly O’Shea: A really good example of this that I have just read, and I watched a bunch of podcasts on, was Shyam Sankar’s book Mobilize — on Hyman Rickover. His point being that Hyman Rickover was kind of the key pioneer behind the nuclear submarine, and it took a lot of fighting and founder mentality and backing up against people. He was also a strong-willed person and had a strong personality. But it was kind of the same kind of fight of working against a system, and also being innovative ahead of your time when everyone’s kind of telling you no, but doing it otherwise.
And then he also had the point — similar to the same theme — that America is actually not… I hope this doesn’t get bleeped out on YouTube, but it’s not the worry of inflicted homicide; it’s that the US is more vulnerable to suicide of itself, just because we keep shooting ourselves in the foot with these things. Again, I might have to take that out because YouTube kind of sucks. But I thought that Shyam’s book Mobilize was quite good, and had a really nice perspective on that.
Kyle Harrison: There’s actually — this might go filter into the bleeped-out part — but that concept comes from an Abraham Lincoln quote, where he says: if all of the greatest armies in the world were to form against us, with a Bonaparte at its head and the treasures of the world funding it, none of them could take a drink of water from the Mississippi, none of them could cross the Alleghenies. None of them could have an impact on the US, because the US has such a unique capability in history and in geography among nation states. The US has a lot of unfair advantages.
And so what Lincoln says is: if we are to die, we are to die by suicide. It will be our own undoing — that we fail to generate the capabilities we need to be successful.
The Department of War, the defense bubble, and supply chains
Molly O’Shea: I guess bringing it back to today — we are in the throes of an amazingly progressive new administration, and one of those being the Department of War. We’ve now rebranded and we’re the Department of War.
I’ve had the opportunity to interview the Under Secretary of the Department of War for Research and Engineering, the CTO — lots of titles there — Emil Michael. One of the most amazing things talking to him about this was how he is rethinking that organization entirely. He’s collapsing unnecessary parts of it, streamlining it, making sure that there’s not 14 billion levels of bureaucracy, that we’re just focused on the main critical points. He even put out critical interest areas where he’s going through different categories. He and Hegseth are actually going to these new sites of all these competitors.
People say we’re in a defense bubble. Well, turns out it’s kind of a good thing, because we’re at a point where we’re looking for automakers and new people to be making missiles, to be helping supply the military complex. But I think that while there is a lot of doom around our positioning and how it all led up to this point — thank god we had this kind of renaissance in defense tech, because there are new entrants, there are people who have been working in the military for a while who are now taking the technological bend to it and are working with VCs, different kinds of funding, using their expertise, their on-field experience, and creating this new generation of companies.
There is a long tail of companies that have received these government contracts — whether it is Palantir, which has gotten a lot of them, and Saronic; I just did a series at Skydio [?]. There is a long tail of these companies, and then there’s also a long tail of these new generational companies that are trying to build off of an American supply chain versus ones that do rely on adversarial nations, whether it is China, which does touch a lot of things. But to your point — you also research all of this, so what kind of companies and what other broader themes are you seeing within the tech ecosystem?
Kyle Harrison: I think one of the most important things is that the DoD — the Department of War — starts to put up real, legitimate adoption of specific solutions.
I do think the defense bubble that we’re in is very timely, very important. There’s a great book called Boom by Byrne Hobart. Very good book. It talks about this idea that these bubbles are necessary to fund innovation, and that is true. There is also, though, a lot of huckster speculators. There are a lot of wannabes and fakes. There is also a lot of capital destruction. Even if there are legitimately earnest people who want to build for defense, they will be unsuccessful, and there will be capital destruction in that.
I think one of the most important things is that you build this ecosystem that can actually put up solutions and put points on the board and prove out some of their solutions.
One of the obstacles — you’re talking about cutting out a lot of the bureaucracy. That is accurate. That is a problem, and there’s a lot of streamlining you can do. But there’s another thing to think about, which is a lot of the large purchases and assets and things like aircraft carriers. I think there’s one specific example where — I think it was the F-35 — but it has components from 1,900 different vendors spread across 350 different congressional districts. That is not the most efficient way to build anything. There’s no way that that is streamlined.
And so one of the things I think Anduril is leading the charge on is that you have to build not just capable products, you have to build capable supply chains.
When I think about what people need to enable to fund this defense bubble — yes, it is great to have companies that want to be new defense primes. And if you are ambitious and strong-willed and effective at not only building product but also selling into the government — the bummer of any conversation about Anduril is that there’s so many things you can’t talk about, but people like Matt Steckman, who’s their CRO, is one of the most effective people at selling to the government probably alive today. If you have those people, yes, you can be a new defense prime. But there’s not going to be 30 new defense primes. There’s probably going to be a very small handful of companies that can check all the boxes you need to do that. Obviously I think Anduril can be one of them, and there’s maybe a few others.
But the vast majority down the long tail is people who are building specific capabilities that can plug in. One of the things Packy McCormick talks a lot about is that Anduril can be almost like an API into the Department of War. They have this established ecosystem. There’s a lot of examples of companies they’ve been able to acquire and then immediately plug into that system, where the company independently would never have been able to get the same type of contracts and success. So there are going to be some companies building specialized capabilities that plug very well into the Andurils and the neo-primes.
But then the even longer tail is going to be people who are building supply chains, manufacturing capabilities, industrialization in general. And that is not going to come from defense alone. You have to build this dual-use industrial base. Because you look at the history of defense — every single time, military superiority is front-run by industrial superiority. We did that in World War II. The problem is now that China is doing that today. And if we are going to have any semblance of a chance in any potential conflict, we have to have some commensurate industrial capability.
It doesn’t have to be exactly the same. We don’t have to build the exact way they have built. We don’t have to spend the next 30 years replicating their way of building. You look at Anduril as one comp for how we can build things significantly more efficiently. We have to do a ton more of that.
Molly O’Shea: Going back to World War II, when we were using different manufacturing facilities, automakers, cereal makers, literally everything to help build up our capabilities — the thing is, now with the Pentagon asking for that same call-out, to your point of supply chains, those companies don’t have the supply chains ready to fulfill any type of order of that capacity.
Kyle Harrison: Yeah.
Talent density
Molly O’Shea: But I want to go back to — one of the parts of Anduril that I got exposed to was their talent density. It is so clear. I’ve been at many of these defense forums and conferences at this point, whether it’s Reindustrialize, which touches on it, the Reagan National Defense Forum, Hill & Valley as well.
Between all of those conferences, there was one point that I never considered before, because I’m not in the throes of this — but Ross Fubini, who I had on for Hot Take, the founding partner of XYZ Ventures, said at Hill & Valley: there’s probably 40 people in the US that are capable of selling to the government. It is extremely hard. That is a clear bottleneck for lots of these companies and the ecosystem in general. Matt Steckman is one of those 40 people who’s capable of selling to the government. He’s very good at it. And Anduril has built out this world-class team of talent. Is there anybody else at Anduril that caught your eye when you were doing this research, of “wow, I can’t believe they grabbed that person”?
Kyle Harrison: I think one of the things Anduril does well — there’s probably two buckets of people they pull from.
One is a mission-driven foundation of just sharp engineers. Palmer talks about this: the way to recruit really sharp people who are working in tech is to go to them and say, “hey, probably the thing you are working on does not really matter. Do you really want to be — maybe you’re making a ton of money, but you’re optimizing buttons and ad spend for massive platforms. Is that what you want to do with your life?”
There’s another one of our portfolio companies, Base Power in Austin, where they have a campaign that says: don’t tell your grandkids that all you did was B2B SaaS. There is this mission-driven inspiration that the foundation-layer people really resonate with.
Then there’s a second layer, where I would describe it as very strong capability. You look at — and I can’t remember his name — but Anduril, in setting up Arsenal, went and got the person who at Tesla built out the manufacturing. The head of manufacturing at Anduril came from Tesla, has seen this streamlined experience, and is applying the same logic to the way they’re building Arsenal.
You look at from a strategic perspective — what projects do you want to field at what time. You look at Christian Brose and his experience working with the armed services committee. Those types of people — you’re finding these real hotbeds of very specific types of knowledge and experience.
And I think the reason the Anduril team resonates with that kind of background is because that is the insight they had. Palmer’s experience came from building hardware — he is very capable at that and can plug in that capability. But it’s the same thing as having a team that is largely coming from Palantir. I think even in your interview with Trae, he said this: Anduril on day one got to start where Palantir was in year 10. That level of experience and knowledge. That is the kind of specialty they had and resonated with.
And so when they go to find people to plug into specific capabilities, those are the type of people they build around. I actually think that informs a lot of their acquisitions as well. You look at the companies they acquire — you’re basically saying, is this an Anduril competitor? No. They are a specialist at a very specific type of capability or a very specific domain, and acquiring that and plugging it into the ecosystem resonates with their ability to understand what quality skill and specialization looks like.
The philosophical third: deterrence, just war, and hope
Molly O’Shea: One of the things I noticed when I interviewed four of the co-founders was that the company itself, especially on Twitter, is known for hype and being cool and the vibes and all that — but they take this really seriously, as they should. It’s a huge responsibility to be helping serve the military and armed services, but also to be preventing lives being lost, to make sure that any conflicts are actually very precise and very efficient. What were some of the misconceptions that you started to see the more you went deeper into the research? I would say you might be one of the most well-researched investors of theirs at this point.
Kyle Harrison: It’s a really good question, because I think there are three buckets, if I had to take everything out of my head that I’ve learned about Anduril the last couple of years and put them into three buckets conceptually.
The history is a core piece, and we’ve talked a ton about that. The products and the process and product philosophy is a big piece, and we’ve talked a ton about that. The piece we haven’t talked as much about — and that I think is one of the most important elements of understanding the company — is the philosophical and almost spiritual element of trying to understand why.
When I talk about the mission-driven engineers — what is the mission? Because if the mission is build cool stuff and blow stuff up, that’s not a mission. That’s a neat trick.
The mission revolves around conflict deterrence. Trae talks a lot about just war theory. There is this concept that the only way to effectively prevent conflict is to have the force capable of engaging in that conflict to begin with. If you wait and you say “we’re pacifists, we’re not going to do anything, we’re not going to build anything, we’re not going to build any capability” — and then suddenly the enemy shows up on your door, you’re done. You don’t have the choice. You don’t have the freedom, the flexibility to be able to respond to that conflict on the day of. You have to be credibly building that deterrent effect very early on.
And the reason you do that is not because you love war. It’s not because you love conflict, and it’s cool, and you grew up playing Call of Duty. It is acknowledging the fact that innocent lives are lost when people who can do something don’t do something. That idea of pacifism being a privilege of the protected — there has to be a group of people who are willing to protect those pacifists, or else they no longer become pacifists, they become victims.
The most critical aspect of conflict deterrence — the only way to prevent this — it’s what I think is called the Thucydides trap, this very old historian. It’s this idea that anytime a rising power threatens an established power, it ends in large conflict, great-power conflict. And when you look throughout history there are 16 instances where that happened. Of those 16, 12 of them resulted in mass-scale conflict. And we don’t want that. We don’t want that to happen.
And Anduril’s entire ethos is this idea of presenting that capability — not only to the US, to be able to say we are capable of deterring conflict, it will be expensive and painful for you if you engage in conflict — but also for our allies, where we want to make them what Palmer calls prickly porcupines. We want Taiwan to be prickly enough that China doesn’t think it’s worth it to step on them.
And a lot of people who get angry — they call people like the team at Anduril warmongers and think that they want this. Even a misunderstanding about the military-industrial complex inherently: Palmer will say, the famous line where military-industrial complex comes from is this idea that every dollar we spend on munitions is a dollar we’re not spending on education and preventing poverty and doing all these things. And Palmer doesn’t, as a person who is making money building those weapons, stand there saying “well, but I really want to make more money, so let’s make more munitions.”
He’s saying: I completely agree — and so let’s stop spending tens of hundreds of billions of dollars on weapons. Let’s improve the efficiency curve of everything we’re doing, actually achieve the means that we need, actually achieve conflict deterrence in a profitable way, in an efficient way, so that we can reallocate a significant amount of our resources to things that make life worth protecting.
That is inherently — every time you listen to an interview from any of the founders, there is that fundamental sort of hopefulness. They want to prevent those conflicts so that we can enjoy a life worth living.
[Sponsor break — VCX by Fundrise, Public, Merge, Deel.]
The funding history and the vibe shift
Molly O’Shea: A track we haven’t gone down yet is the funding history behind Anduril. And there’s a lot of deep lore there. They’re rumored and reported to have doubled their valuation from the last round — it was around $30 billion and it’s rumored that it’s going to be around $60 billion now. Who knows when that announcement’s coming out, and if there is one. But could you bring us through the funding history of Anduril? I know your firm Contrary got in at a very interesting time. Could you walk us through that, and why it wasn’t — it might look entirely hypey and very obvious now, but it wasn’t that obvious in hindsight.
Kyle Harrison: I can speak very high level to publicly what’s known, but I think what’s underappreciated is the story and evolution of the narrative.
You look back at when Anduril was first getting started. Even though Palmer had been a successful founder and sold Oculus for two and a half billion, it was a very unpopular decision to work in defense in 2017 when they started. There are stories of Palmer having a lot of engineers he’d worked with at Meta who said “hey, I think you were dealt with unjustly, and whatever you build next I’d love to follow you.” And then he says “well, I’m building in defense” — and then everybody ghosts him. Nobody wants to.
I can’t remember if it was the Series A or the Series B, but Elad Gil led an early round, and I think there’s a story that he got — I mean, maybe not death threats, but very angry messages from people he considered friends saying “how could you, this is immoral, what you’re doing.”
There were things like Palmer went to give a talk at a university campus and he literally had to get security because people were threatening physical violence against him, because they wanted to promote pacifism. There’s all of this deeply anti-militarism thought process early on.
So a lot of the early investors, if I remember correctly — I think it was primarily Founders Fund and General Catalyst that were the main early investors. Contrary comes along a little bit later; we first invested I believe in the Series C, and we have invested at least a little bit in every round since.
Anduril as a company — I would say the vibe shifted hard in 2022, around the time of the Russian invasion of Ukraine. But what’s interesting is there was a sort of one-two punch dip, where the narrative was starting to shift, where people were acknowledging: man, this is a large-scale conflict, this is significant, this is not something we see very often, this type of conflict. And people are starting to wake up to the idea of, well wait, we don’t want these types of conflicts to be happening.
Well, at the same time in 2022, the broader market is collapsing. You have this post-ZIRP hangover of stocks plummeting and everybody’s struggling, everybody feels very painful. And Anduril even had a round around 2022 where — even despite this Ukrainian conflict going on — it was difficult for them to raise at that period. You had some investors that had pulled out and promised to invest and things like that.
So there was this dip before a real takeoff. And then Palmer calls the rest of 2022 his “I told you so” tour, where he literally gets to go around and say: listen, we have been saying this from the beginning.
And what’s crazy — again, going back to my most surprising experience studying the history — it is true across the board, even until very recently. In 2017, even look back at the 2014 Russian invasion of Crimea. By no means was everybody saying “oh yeah, no, we’re good, no more conflict.” There was actively still conflict. People chose not to see it, because they believed in their hubris. They thought it was just a matter of time until countries like Russia or even China would eventually acknowledge, “man, America is so great, this market free-market economy” — like they love us, don’t they want to be like us, look at our culture and Hollywood and everything is great. That hubris was very pervasive for a really long time, and the vibe shift didn’t happen for a long time.
And in 2017 you had Putin saying whoever controls AI will control the world. And it’s the same idea that in 2017 Anduril gets started and they’re saying, listen, from day one —
Molly O’Shea: Acronym is AI.
Kyle Harrison: That’s right. From day one they acknowledge that autonomy and AI have to be front and center in any viable force solution. That was not the popular conclusion post-2022; that has largely become the conclusion — acknowledging that conflict is increasing, tensions in Taiwan are increasing, Iran is going to continue to be a struggle, things in Venezuela. There’s going to be global conflict.
I think the next wave we have to deal with, where the vibes will — and Palmer says this — he says, listen, this is a point in time where people are acknowledging the value and importance of what we’re doing. There will be ebbs and flows in that shift. And there’s a lot of politicization of specific conflicts that make people not in favor of particular positions or allies that the US may have, and increasingly we’re going to have to deal with that, where there’s going to be people who say we shouldn’t be in the business of conflict, of deterrence, of whatever — we should just let it go, because they don’t like the politics of the underlying conflicts.
But the problem with that is that you don’t have that privilege to just say that, because anybody who can do something who doesn’t do something is ultimately responsible for the outcome. If we don’t do something that we were capable of doing, and if we rest on our laurels and we say “well, we’re just going to stay inefficient” — that is the same as doing nothing, and we will be responsible for larger-scale conflicts that will not only hurt human rights, that will not only hurt individual lives, but also economically. You look at a conflict over Taiwan — I think people say it could be a $10 trillion hit to the global economy. Bigger than the financial crisis, COVID, anything, in some cases combined. There are so many reasons why we need to have effective deterrence, that it’s not a vibe that we can continue to ignore.
LP mandates, philosophical debt, and secondaries
Molly O’Shea: A really good point of that is the conflicts for investors. For some people who might not know: investors have LPs, and sometimes there are certain provisions or clauses within their LPA where you can’t invest into vice categories or war and that kind of thing. Back in the day there were a handful of funds that could not invest into these companies because of those clauses. I wonder how that — I think the vibes have shifted for sure.
Kyle Harrison: But not for everybody. There are still a lot of firms — when I was at, before Contrary I was a partner at Index Ventures, and Index as far as I know still to this day has a clause where they can’t invest in anything that is a weapon or could be used as a weapon. And I remember they had investments in companies like a drone company where they uniquely contracted a provision when they funded it saying you will never allow this to be armed with weapons. So they’re actually not only avoiding weapons — they are going to exert influence over the companies they invest in to make sure they also don’t engage in weapons and defense cases. In this case it was a policing use case.
So there are still definitely firms, even major firms, that are not comfortable funding weapons. And candidly, I think that is good. I think there should be people who remove themselves from this environment, because either you are willing to do the work to weigh and measure the philosophical implications of what you’re doing and acknowledge the weight of the burden that it is to engage in this type of technology — I think more people would be better suited if they engaged with that philosophical debate.
But candidly, I think that’s true of most technology. I think about that as well with addictive social media, or even AI girlfriends — having things that can be destructive to human psychology. Everybody should be having more philosophical debates about the things that they are investing in. We don’t have nearly enough philosophical debates about the implications. We just say “hey, this is a hot technology and it looks like it’s ripping and people really like it, or it has a big market” — and it’s just blinders on, big market, let’s do it. I think more people should have to embrace the philosophical stick that they’re picking up, because there’s consequences at the other end of that stick.
Molly O’Shea: Philosophy is back. Do you know one of the largest and hottest philosophers right now?
Kyle Harrison: I don’t.
Molly O’Shea: It’s Alex Karp.
Kyle Harrison: Oh boy. [laughs]
Molly O’Shea: I had to pull that. To close out on the funding side of these things — one of my biggest surprises throughout all these conversations I’ve been having, with people from all corners, whether it’s in the admin, whether it’s investors, founders… I’ve been an investor my entire career, that’s the only way I think, and so I’ve built up a book of all these different relationships and now they’re all kind of converging in this cool way.
But with Sourcery — this just happened to be a stance, and I have to share this because they are a sponsor — when I was interviewing Ben Miller of VCX: they got their position way back when people were trying to sell off their positions. There was an LP who didn’t want to be a part of it, it was this whole contention point, and they sold off, and they were like, “we’ll take it, we’re in.” And so now you can access it through the VCX fund on the public markets. There’s obviously this hype around democratized access to private assets — that’s an entirely different story, there’s just so many different things like that now. But that was a story I hadn’t heard, because you think of these big hypey companies as always this clear-cut narrative. But there are many twists and turns along the way that actually become really lucrative.
Kyle Harrison: There’s a really good quote from Chris Paik, I think, at Pace Capital, where he says: people want to not just be right, they also want to be clever. And so you look at these things that feel obvious and you say, well, I don’t want to do the same thing.
Whereas a couple of years ago, buying Google would have been a pretty good decision to make. As people were thinking it was like, ah, it’s just slow and steady wins the race, big hyperscaler or whatever — there was actually a lot of underappreciated tailwinds that would advantage the company in the long run.
I think it is the same, but some of those are forced through negative narrative. Again, 2022 — there’s a great story of, I think it was Sequoia and Brookfield starting a secondaries fund in the heat of 2022’s collapse, and they went around just buying and saying: hey, there’s a bunch of these companies that we think are just generational companies, but they’re going through a hard time, people want to sell, they’re freaking out about the market, the public markets are getting demolished. And so they went around and bought a bunch of positions in these companies. And turns out, yeah — these instances are often not indicative of the long-term success of a good business.
So I think it’s also one of the advantages of paying very close attention to a specific moment in time. A lot of people — we were talking about our good friend Leopold —
Molly O’Shea: Our good friend Leopold. [laughs]
Kyle Harrison: — making a ton of money off of just paying attention to the underlying thing. You have memory chips. That is a logical second- and third-order effect of the different things that we’re focused on. But because you’re paying attention to the loudest and proudest, spiciest name, the current thing, you get distracted from the broader ecosystem of stuff that exists.
And I think that’s the same thing of people underappreciating a lot of the second- and third-order effects from a supply chain perspective around defense, because they’re so focused on “well, who’s going to be the next Anduril?” You can make a lot of money investing in things — I saw a story about, I don’t remember what the specific stock was, but somebody had paid really close attention to the vendor of the ballistic shell for Anduril’s EagleEye. It was a small publicly traded manufacturing company, and they paid attention and were like, hey, they’ve got this contract with Anduril, this is likely going to rip. It’s a $22 billion contract — as they start to go into production, they’re going to start ripping. Bought a ton of stock in that random little manufacturer. I think it was maybe a $100–200 million market-cap stock, a very small company. And that stock has ripped, because it’s paying attention to what those second- and third-order effects are, rather than getting caught up in what is the current thing.
That’s what bugs me about so much VC fodder of “the internet is real life and all that matters is the current thing.” You pay attention to this thing and that’s all. I think you miss a lot, because you’re missing out on the compounding nature of context — gathering lots of context over time and being able to make decisions based on ecosystem, instead of what’s the hottest new AI lab for X or whatever. It leads a lot of people astray.
Molly O’Shea: Alpha — you heard it here first.
Leadership, hope, and the hottest take
Molly O’Shea: So as we wrap up — after reading this book and writing this book, what are the key takeaways that you learned from Anduril’s leadership and their ability to perform over and over again?
Kyle Harrison: When I reflect back on the last couple of years of spending a lot of time with the Anduril founders — indirectly, hearing what they have to say and how they think about things and how they articulate things in different contexts — throughout the book we had, I think, over 500 individual sources that we’ve referenced a thousand-plus times.
But specifically, if you look at the dozen or so interviews with the founders — I went back and looked at transcripts of those things — the word “hope” appears 44 different times. There is this fundamental hopefulness in everything that Anduril the company builds, and the mission behind the company is this idea that if we thought all hope was lost, we wouldn’t be doing this. We’re doing this because we continue to have hope.
And I think that speaks fundamentally to what a real mission is. Trae Stephens has an incredible essay about choosing good quests. He talks about it all the time. I think this speaks truth to what a good quest is — and it is not a specific product. It is not a specific solution. Even for Anduril, it is not defending a specific nation. It is not just making the US capable of protecting itself. It is protecting a specific subset of ideals and values that represent this idea of Western democracy, this idea of human rights, checks and balances, strong rule of law — those fundamental elements. You believe in those things, and so you want to defend those things, and you anchor your mission to that specific worldview and belief.
The founders of Anduril believe that those ideals and values are worth defending even if Anduril didn’t exist. Even if they weren’t making a dollar from it, they would continue to believe fundamentally in the hopefulness of protecting those values.
And what is awesome is that speaks directly to the name of the company — Andúril, the Flame of the West, from The Lord of the Rings. There is a quote from The Two Towers said by, I think, Faramir, who Tolkien even said he most resonates with — the character he most feels a kinship with. And I’m paraphrasing, but what Faramir says is: I don’t love the blade for its brightness or sharpness. I don’t love the arrow for its swiftness, or the warrior for his ferocity. I love only that which they defend.
And that is fundamentally true of Anduril as a company, of Anduril’s founders, of the mission they engage in. And so every product decision, every hiring decision, every funding decision, every marketing decision, every aspect of the company comes back to this idea of: what do we think will enable the protection of democracy most capably? That’s what we want to do. That informs the product decision.
People who go and try and chase a mission and they say “my quest is good because wouldn’t product ABC be awesome? Wouldn’t it be sick if this product existed?” — that misses the fundamental worldview. What you want is this underlying worldview that informs everything you do. And Anduril has that.
Molly O’Shea: Wow. That’s a really good answer. One of my favorite quotes of all time is “hope is a good thing, maybe the best of things” — The Shawshank Redemption. This is great.
Okay, so as we close out, this is just a simple question. It’s not too difficult. What is your hottest take right now?
Kyle Harrison: My hottest take is that fewer people should be raising venture capital.
Molly O’Shea: Wow. Why?
Kyle Harrison: Which is deeply unself-serving of me as a venture capitalist.
Molly O’Shea: Are you seeing too many bad pitches? Is that why?
Kyle Harrison: I think I’m seeing too many companies and too many people — going back to the mission — too many people who want to build things. Venture capital is a very specific wedge. It’s a very specific funding mechanism, and because it’s so legible, as our friend Packy McCormick would say — it’s so sexy and appealing — people overstretch to try and fit their round passion into the square hole of venture capital. And it’s problematic.
And I think the reason venture capitalists allow it to happen is because we have a lot of capital. So much capital that if anybody is willing to try and do something, we would like to be able to throw capital at that thing.
The problem is that there is a large swath of companies that could be very good companies that are very bad venture-backed businesses. They would be very good businesses, full stop, but they are very bad venture-backed businesses. And more people should strive to really deeply understand the mechanism of venture capital and what that requires in terms of the size and scale of outcome, and scale of growth, and requirements of burn and velocity and ambition — and being willing to say, hey, I have to want to build a hundred-billion-dollar company, because if I don’t, it doesn’t justify the VC appetite that I’m trying to stir up.
There are a lot of better ways to build businesses. And that’s fundamentally one of the reasons why I write my blog, Investing 101 — to be able to articulate both the virtues but also the vices of venture capital, and why there are goods and bads, and to help people be more informed.
Because when I look at — even to stay in this conversation we’re having — when I think about this long-tail ecosystem of re-industrialization more broadly, there are a lot of great companies that can be really good venture-backed businesses. Even if they’re not going to be neo-primes, they can still be really great venture-backed businesses. But there is a huge swath of businesses —
I have a friend who builds industrial-scale metal shelves. That is their business: they build the shelves you see in Costco — they build some of those — but they also build things like racks for Tesla to hold different components of the cars. That guy is doing $17 million of revenue and $3 million of profit, and he owns the whole business, and he lives a great life. And we need more people like him to be able to do that.
That would be a terrible venture-backed business, because he’s grown 3% a year, give or take, for the last five, six years. It’s not growing super fast, but he has a deep client base that he does very well with, and there’s a lot of really great opportunities. More people should seek alternative ways of building great businesses, because venture capital does not have a monopoly on great businesses.
Molly O’Shea: Interesting. Sounds like he might have a good supply chain.
Kyle Harrison: He indeed does.
Molly O’Shea: Could be some growth opportunities there. Well, Kyle, thank you so much for coming here on short notice, giving me an advance copy of the book, and letting me read it in due time. No, I really appreciate all the time — seriously, so much work has gone into this book and the research. I’m going to definitely look up some of the sources, because the books that you mentioned throughout the conversation were really interesting. And I hope that writing this got you extra allocation.
Kyle Harrison: Thank you so much. Yeah, we just do it for the love of the game.
Molly O’Shea: Amazing. Well, thank you so much.
Kyle Harrison: Thank you.
[Outro — Molly’s sign-off and newsletter plug for sourcery.vc trimmed.]
Connections
The book and its surfaces
- The Anduril Thesis (Book) — the subject of the episode: 314 pages, ~35 drafts, 500+ sources, co-written with Sachin Maini out of a Contrary Research deep dive begun in late 2023.
- The Anduril Thesis — Kyle’s launch essay for the book; the written “greatest hits” of what he argues here out loud.
- Contrary Research — the public research arm the book grew out of; ~100K subscribers, ~500 companies covered, deliberately not “blog posts about how smart we are.” Prior deep dives on OpenAI and Stripe set the format the book outgrew.
- Contrary — Anduril investor since the Series C, and in every round since.
- Techno-Optimism, Talent Vortexes, & Writing “Investing 101” — Kyle’s first Sourcery appearance with Molly O’Shea, two years earlier.
- The Superhero Theory of Defense — Kyle’s essay on the same terrain; the deterrence-and-responsibility argument here is its spoken form.
Anduril’s people
- Palmer Luckey — the pitch-deck line (“billions by saving tens of billions”), the PTSD-VR lab in high school, the 2017 ghosting and campus security detail, the “I told you so” tour, prickly porcupines, and the listen about the problem, not the solution rule.
- Trae Stephens — 9/11 as the spark, Georgetown and the intelligence community, the Founders Fund event where he met Palmer, just war theory, and the pacifism-is-a-privilege line. Author of the “choose good quests” essay Kyle cites as the definition of a real mission.
- Matt Grimm · Brian Schimpf · Joe Chen — the other three co-founders: operational excellence, engineering, and the Oculus engineer Kyle believes is the only one of the five who served.
- Matt Steckman — Anduril’s CRO; per Ross Fubini, one of maybe 40 people in the country genuinely capable of selling to the government.
- Christian Brose — Anduril’s chief strategy officer and author of The Kill Chain, referenced 150+ times in the book; source of the “military internet of things” frame and the exhausted-operator scene.
The historical spine
- Robert McNamara — PPBE and the “million taxes of friction” that strangled the industrial base while nominally controlling spending.
- Skunk Works · Ben Rich · Kelly Johnson · Lockheed Martin — the second load-bearing book; the plague-of-auditors passage and the U-2.
- Bernard Schriever / Eisenhower · William Moffett / Hoover · Ben Rich / Richard Bissell — the founder + military maverick pairings, extended from The Kill Chain.
- Bell Labs — inventor of the undersea cable network now sitting exposed in the Baltics.
- Abraham Lincoln — the Lyceum-address argument that America can only die by suicide; Kyle traces Shyam Sankar’s framing in Mobilize back to it.
- Cost-Plus Contracting · Procurement · F-35 — the incentive structure (10% of $3B beats 10% of $150M) and its monument.
Anduril’s products
- Lattice — the AI sensor-fusion brain; every other product is an asset plugged into it. DARPA’s mosaic warfare, Brose’s military internet of things, “software-defined, hardware-enabled.”
- Sentry Tower — first fielded product; the prime that declared a digital border fence physically impossible, and the Texas rancher who was Anduril’s actual first customer. (The first prototype ever was a different Sentry: an autonomous firefighting tank.)
- Ghost · Altius · Roadrunner — UAV, loitering munition, and payload interceptor; the answer to throwing Ferraris at frisbees.
- Seabed Sentry · Dive-XL · Ghost Shark · Barracuda · Copperhead — the undersea line; the Australia factory built for AUKUS because Taiwan is nearby and the need is sharpest there.
- Fury / Arsenal-1 — the autonomous fighter jet and the Ohio plant built on time and under budget by a manufacturing lead recruited out of Tesla.
- EagleEye / IVAS — the $22B contract Microsoft lost and Anduril took over, from the VR-for-warfighters idea Palmer was talked out of chasing in 2017.
- HD Hyundai partnership (announced days before this recording) — autonomous surface vessels, the last uncovered domain, putting Anduril head-to-head with Saronic.
Geopolitics and doctrine
- China — carrier killers at $15–20M against multi-billion-dollar ships; military-civil fusion making everything dual-use by law; war games the US has been losing since ~2015.
- Ukraine — the wake-up call and the live proving ground; Operation Spiderweb as the canonical million-dollars-for-$7-billion trade. Neros as the go-straight-to-the-front example.
- Taiwan — the Davidson window (via Chris Power at Reindustrialize); a potential $10T hit to the global economy.
- Deterrence · Thucydides — 16 rising-power confrontations, 12 mass-scale wars; deterrence as the whole point rather than a euphemism.
- Military-Industrial Complex — Kyle’s inversion of the classic critique: Palmer agrees every munitions dollar is a dollar not spent elsewhere, which is the argument for efficiency, not against defense.
- Industrial Policy · Manufacturing · Supply Chain — “military superiority is front-run by industrial superiority”; 11 days of munitions, 25 years to rebuild a fleet.
- Emil Michael · Pete Hegseth — the Department of War reorganization Molly reports from her own interviews.
Venture and markets
- Counter Positioning — the load-bearing strategy concept: every Anduril business decision is an inversion of a specific procurement failure.
- Boom — Bubbles & The End of Stagnation / Byrne Hobart — bubbles fund innovation and destroy capital; both are true of the defense bubble.
- Packy McCormick — “Anduril as an API into the DoD,” and legibility as the reason founders overreach for venture money.
- Palantir — the talent lineage (“Anduril on day one started where Palantir was in year 10”) and Alex Karp as the accidental hot philosopher.
- Founders Fund · General Catalyst · Elad Gil — the early cap table, and the friends-turned-hate-mail cost of leading that round in 2017.
- Index Ventures — Kyle’s prior firm; still carries an LPA clause barring anything that is or could be weaponized, and has contracted that restriction onto portfolio companies. Kyle thinks that’s good, provided it’s a considered position.
- Secondaries — the 2022 dip: Sequoia Capital/Brookfield’s secondaries fund, and Ben Miller’s VCX (Fundrise) picking up an Anduril position from an LP who wanted out.
- Chris Paik (Pace Capital) — “people want to not just be right, they also want to be clever,” the reason obvious trades get skipped.
- Second- and third-order effects — Leopold on memory chips; the small-cap manufacturer supplying EagleEye’s ballistic shell. Kyle’s case for the compounding nature of context over “the current thing.”
- Venture Capital · Investing 101 — the hottest take: fewer people should raise venture. The metal-shelving friend at $17M revenue / $3M profit / 3% growth is the counterexample; venture has no monopoly on great businesses.
- Base Power — “don’t tell your grandkids that all you did was B2B SaaS,” the recruiting line Kyle borrows to explain mission-driven engineering talent.
Culture
- The Lord of the Rings · J.R.R. Tolkien — Andúril, the Flame of the West; Faramir’s “I love only that which they defend” as the sentence Kyle says governs every decision at the company.
- Stark Industries and the anime arms-dealer-turned-game-developer as founding-myth inputs; The Shawshank Redemption on hope, from Molly.