Anduril: Building the Future of Defense - [Business Breakdowns, EP. 59]

**SPEAKER_1** (0:00)
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**SPEAKER_2** (1:31)
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**SPEAKER_1** (2:15)
Today, we are running a special episode of Business Breakdowns, with geopolitics playing an increasingly important role in society, again, this episode with Anduril's CEO offers an inside look at the state of the defense industry and how it is changing.
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Today, we're breaking down Anduril. Anduril builds high-tech defense systems for the US Department of Defense and its allies. Crucially, it does so with a speed that emanates from Silicon Valley. Founded in 2017 by Palmer Luckey, who previously built and sold Oculus to Facebook, Anduril has achieved the rare feat of challenging the established order in the defense industry. To break down Anduril, I'm joined by the company's CEO and co-founder, Brian Schimpf. We discuss the history of the defense industry, how Anduril's business is counter-positioned against the legacy cost plus model, and what Brian has learned about selling to DoD. Please enjoy this breakdown of Anduril.
So Brian, ever since we met, dinner, I don't know what it was two months ago now, I've been really looking forward to this conversation. I've got a weird fascination with military history. My best friend growing up was a special forces officer. I've just always been around this world without being personally in it. So I'm really excited to try to suck as much information out of you today as I possibly can. And given that Anduril is kind of like Tesla, the first new car company that made it in a hundred years or something, something similar could be said of Anduril in the world of defense. I thought an interesting place to begin would be to have you give us a bit of a history lesson of that industry, as you saw it, maybe when you and your co-founders started Anduril. People have heard names like Lockheed Martin and Northrop Grumman, but give us, from your perspective, what the history looked like from the seat of trying to start a new company in this very intimidating space.

**Brian Schimpf** (4:03)
Might actually rewind a little bit back to 1950s era.
Talk about a lot of the projects there that were incredibly successful. So defense was this scion of being able to move fast, do really innovative things where all the new technology came from. You look at a lot of the past successes, even relatively trivial things like Pentagon, largest office building in the world, built in 13 months. Built anything in 13 months these days. You look at ICBMs and Intercontinental Ballistic Missiles, a lot of the first rockets, those were done within the DoD in a very short time period, just a couple of years going from not existing at all through to having these incredibly capable systems going very, very quickly. We built something like 50 different airplanes and configurations and things like that over just a couple of decades period. Skunkworks was legendary in everyone's mind around building the most advanced technology, pushing the limits, and they did this all with pencil and paper. So there was this period where this was just an incredibly innovative industry, where the best and brightest went to work. It was really generating a lot of novel ideas, the new R&D, it was just moving so quickly, such an impressive pace, building such impressive technology throughout the Cold War. That was really the case. Things started to slow down late 70s, early 80s, where DoD went to a model of much more cost controls, very predictable schedules, trying to drive a little more discipline into the organization, which was hard to argue with. But the result has been just a lot more bureaucracy, a lot more focus on process over what is the most innovative. And then you fast forward through to the 90s, and there was this dinner where they called it the Last Supper in DoD, where there was, I think at the time, something like 50 defense companies that were considered significant players in the space. I think it was the Secretary of Defense at the time said, we are going to go through a period of consolidation, budgets will not be growing. You guys will have to consolidate. I leave it to you to figure it out. And that entered about a decade long period of intense consolidation, where now you end up with about five, six major players capturing the vast majority of the DoD's budget. So you have big names like Lockheed Martin, Northrop Grumman, Raytheon, lesser known ones like General Dynamics, Huntington Ingalls. There's a variety of these companies that have consolidated down nearly every player in the market.