Wide Not Deep: Anduril's Strategy for Modern Defense Manufacturing with CBO and President Matthew Steckman

Lauren Bedula 0:02 Welcome back to Building the Base. Lauren Bedula and Hondo Geurts here recording live from the Reagan National Defense forum and beautiful day here in Simi Valley. And we've got our current guest with us, Matt Steckman, who is President and Chief Business Officer of the one and only Anduril, has a really interesting background. And Matt, I know we've got a lot to talk about today. Thank you so much for joining us. Matthew Steckman 0:22 Yeah, thanks for having me. Appreciate it so appreciate it. Yeah. Hondo Geurts 0:23 So Matt, we usually kind of open up with a little bit of background on you and kind of, you know, Where'd you grow up? How'd you get involved, and what, you know, what brought you all the way here to, you know, Anduril and, the Reagan and in the national security world. Matthew Steckman 0:36 How do we find ourselves where we are today? Yeah, yeah. I mean, super quick background. I'm a child of upstate New York, went to school in DC. Have lived in DC ever since with my family. Was very early at Palantir, when there were 12 of us in DC in a room that was painted in the worst color of sea foam green you could possibly imagine, honestly, kind of like, grew up with Palantir, in a way, and then helped start Anduril. We ran Anduril's DC office out of my house for a few years, which was interesting. You know, I think when you're at a software company like Palantir, you can work remotely from a home when you're dealing with hardware, it's a bit, a bit of a different story. I think we ran out of storage pretty quickly in my shed, and then had to, had to grow up, but it's been a wild ride. So we're now 7000 people international. We have 20 product lines. The same software core has backed all 20 of those products the entire time. And this year has been great. Next year's also looking great. So lots to look forward to. Hondo Geurts 1:56 And were you kind of a techno geek as a kid, or were you you know what kind of what attracted you to the Palantir in the early days. Matthew Steckman 2:04 I was always kind of a science geek type of a kid growing up. I grew up in a town that was a commuter to New York, and so my senior year of high school was September 2001 and it was very like, I think only in hindsight Do you realize how formative these things are. And so I could, could have gone to a bunch of engineering schools, but ended up going to Georgetown instead. So kind of changed the path a little bit. Still studied computer science, but wanted to learn a bit more about the world. And, yeah, it just got me into some really interesting areas, the blend of how technology and government interacts. I've kind of made a career out of it. Lauren Bedula 2:51 So can we talk a little bit about, like, the really early days at Anduril or really, what gave the vision for doing what you're doing? Like, what does that look like to be in the room and thinking through like, Yeah, let's do that. What was the vision? It was early too, for the defense tech space, and very much defining. Matthew Steckman 3:08 Yeah, I think we forget, really, how crazy of an idea starting Anduril was in 2017 you know, our founder, Palmer Luckey, he likes to say people thought it was the end of history in 2017 you know, there were know, there were no wars. There were no was no conflict. Why do we need strong military? I mean, we It wasn't that long ago, and like we were all this was the thing, right? And I think that, because of all of our backgrounds, how we all came together to start Anduril, we disagreed, and by the way, more interesting for all different reasons, we disagreed with that common thought. But in that disagreement, we all believed the same thing, which was sort of the capacity of the US foundationally, is our technical capacity, and how do we bring that back to the fight? And when we started the company, I mean, when we went and raised our first round most I mean, the bylaws of most VCs wouldn't even allow an investment in defense. And again, this was not that long ago. That is very different. Now all of those bylaws have since changed, and we found a few good early investors, and off we went. But it's never one thing to start a company. It's always a combination of interesting things that have to happen all at the same time. I think that that original team, though, it was very special. Hondo Geurts 4:44 And so we've got a ton of you know, founders new to defense tech folks in the audience. What advice do you have for them, if they've got their idea of an Anduril, or a couple of them have an idea like, what are some of the kind of core, early lesson learned to kind of get your from cool idea whiteboard, maybe early funding raised to, you know, building a mature, scalable organization and product line. Matthew Steckman 5:17 Yeah, I mean so many things. I think maybe the biggest one. And I talk to a lot of founders, helping out where I can. I truly believe in a rising tide lifts all boats in this industry. And so where we can help, where I can always help. Personally, I do. I think it is in Silicon Valley, there is this idea of a purist meritocracy, where sort of the rules that govern are, if you have the best thing, you will win. And that is generally, I think, empirically true in the commercial technology markets, in government and doing business with the government. What is weird is, at the end of the day, that also is true, but getting yourself into a position where you can be at the table, such that the government actually considers your piece of technology, and therefore you are considered within America, a meritocratic competition to be a winner is a totally different ball game. And so a lot of the conversations I end up having with with the earlier stage companies is less about the tech. I actually believe that if a founder with the right backgrounds and the right idea, I generally take on faith at this point, like they can build the right needle moving type of technology, the thing they need to do is literally figure out how to get into the room. And if they can do it, and they can do it in the right way, and they can do it in a high integrity way, then the best technology is going to win. But it's that first step where everybody tends to struggle, I think, over the last many decades. And actually, the two of you have been a part of a lot of this. A lot of those things have become easier, but they are certainly not easy. Hondo Geurts 7:12 I think, you know, also in federal government, maybe more so than in commercial, the end customer is not the buyer, and so you not only have to have a product market fit, you've got to have a buyer fit. Can you sell your product or service in a way that government can buy it? I think, you know, Anduril, as I remember early days, was kind of software with maybe a little hardware in the side. And then, you know, struggling against does the government actually know how to buy software. Can you talk a little bit of how you shifted strategy, kind of to figure out how to get into the room in ways that maybe you hadn't thought of originally when you founded the company? Matthew Steckman 7:55 Yeah, I think, well, first, just taking a step back, our book of business is pretty large right now, still about 20, 30% of it is pure software now. And those are, in my opinion, some of the more interesting things we're doing. A good example, army's next generation command and control system. We're the team lead for pure software contract really, really interesting tech, really challenging integration problems, all these kinds of things. The rest of our book of business, we are effectively wrapping metal and plastic. You can call them robots. You can call them whatever you want, around that software for and we're just selling it as a unit cost. It does a thing. It's understandable. There's slip sheets. You know what you're getting. The sustainment is quite obvious for how you do it. Interestingly, even the even the evergreening of those products, right? Because when we sell a robot, we're going to constantly update it so that it's going to do new things no matter what, right? Because that's how we think about the world, right? So that's our background. That's, in our opinion, how you make a good technology company. Even contracting for that evergreening is hard, right? Because, because the government is just not used to receiving software upgrades in a sustainment package, right? And, and so we've had to do a little bit of invention around business model. We've had to honestly find creative government counterparts to work with us. Because at the end of the day, everybody understands this is the right way to do it. Everybody wants it, right? There's no hesitation that this is like no one thinks this is a bad idea. I would say 15 years ago, 20 years ago, when I started in defense tech, that might actually have been a different answer. And so now you just have to find the creative folks, industry, government, to partner together to figure out how to get it done. Lauren Bedula 9:58 Something I think Anduril has done, really well. And I think back to, I think it was the In-Q-Tel CEO Summit in 2018 so I think right around the time, or before Google pulled out of project Maven, there was DHS leadership there talking about andril In the early days in the work. And I think Anduril has done such a good job identifying not how to fit technology into certain use cases or applications like think AI you you need focus on what you're going to deliver, but really creative about fitting fitting needs of the national security landscape into your roadmap. So kind of identifying that and being very focused and persistent on what you're you're delivering. How are you thinking about that from a business perspective, and how is it even impacting your take on, like, growth of the company is M&A part of that? Or just writ large? Matthew Steckman 10:47 It's a big question. So a couple of different pieces to it. So I think the first piece, going back to your question around, like, advice for smaller, newer entrants, don't sell a product. It's not actually what the government buys, right? The government buys a solution to a problem that they have, and sometimes the product is a part of it. It's usually not all of it. I also think that if you're an outsider to to this world, you often underestimate the complexity of how technology must integrate into the service, and if you do that, you're going to lose trust. The buyer's not going to think that you really understand their problem. You're just going to be on the outside looking at it. So that's like the first piece. The second piece is sort of this, like trend thing. So for us, we self fund all of our product development. So still, I mean, 80, 90% plus of our business is, is internal research and development. We're spending our own capital to create the thing because we believe there's a solution or a problem, and we're not going to get it all the way there, but we're going to get it 50, 6070, 80% there, then we're going to try and, like, understand its fit. And I think we've become, like, pretty well known for that. I think because we never complete the product, it's also an advantage, because we're again, we're not going and saying we've solved the whole thing. We know everything, but we're saying we think we have an interesting idea if this fits or has merit, can we work the problem with you guys? And I think we've had a lot of success there. oO the M&A side, and we've done, I believe, 11 acquisitions. Where does it fit? So we always have sort of a similar set of theses when we consider acquisition, it's, does this get us into a market that we're not currently in, or within a large market where we already exist? Does this put us into contention for something large and material coming up and then sort of foundational. Do we believe that we can hit an extreme growth rate through the integration of this company into ours, such that it's not a drag on our existing growth rate, and our existing growth rate is insane. It's basically 60 to 80% a year. And so I can't, we can't acquire a company and not have a thesis for how to go from 10, 15% growth, which a lot of sort of defense companies exist within, to 4050, 60% right? And we have to have a very, very credible set of overlapping thesis for why a buy makes sense. And I think to date, we're very happy with the ones that we've done. I think the companies coming in, those employees have had excellent experiences, and it continues to sort of underpin how we approach the acquisition market. Hondo Geurts 14:04 So I think, you know, Palantir had a very kind of dual use thesis, right? Very strong commercial market, very strong federal market. And that's kind of grown this, I guess, hypothesis that to be successful in defense, you've got to be successful in commercial. Anduril, to me, is kind of taking that hypothesis on a little bit and say, we can have a defense oriented company that operates that speed and scale of commercial, efficiency of commercial, is that something you guys think a lot about and are comfortable kind of being very kind of defense heavy, or is commercial still something kind of you'd like to think about, or you think you need to to achieve the scale and growth moving forward? Matthew Steckman 14:50 Yeah, we'll do commercial deals as sort of draft off of our defense portfolio. The thing we will not do is we will not change our product roadmap. Uh, to to in particular, go after a commercial market. A good example there is, we've become pretty well known for our air defense technology. We just won the IBCS maneuver program with the Army, right? We're getting into all of these programs of record. We're already the performer for SOCOM and the Marine Corps for air defense, sort of low, mid tier. There are lots of commercial opportunities for counter us, things like that. Our systems are designed for exquisite threats, and so in many cases, we price ourselves out of the commercial world, and we will not create a down market piece of tech. It's just, it's sort of against how the company is structured, and sort of against the corporate strategy as a whole. The difference is, in order to sort of go big in defense, you have to go really wide. Going really wide is really hard and exceptionally capital intensive, and so it sort of limits the number of contenders that could make a similar play in Palantir case, right? They still really only have a handful of core products, and so they need the largest possible markets for those products, and have been wildly successful in this strategy. For us, we've gone from 2017, 18, one product to now 20, really over 20 products that we go to market with, realizing that to be a modern defense prime, you got to be really wide, and you have to be able to really be able to go after every part of the defense structure in order to create a large book. So for us, that's what we're going to keep doing. I think again, if commercial comes as draft off of that awesome, but it's not going to be a focus. Hondo Geurts 16:54 So now the big challenge right is production at scale. And have you guys been thinking about it's great. Why you got a lot of products? You know, it's really hard to produce a lot of products in quantity, at scale, fast, yeah, super hard, you know... Matthew Steckman 17:10 Especially in this kind of like, high mix, low ish rate, right? And then even on top of that, the government love our customers. They basically make it impossible to forecast demand, right? And so it's like, so what do you do? So the solve that we were sort of kind of centralizing our strategy around is at the design phase, try and already design for that problem in mind. So not a lot of exquisite parts, not a lot of defense or aerospace parts. Try and use commercial kind of commercial plus plus style sourcing that opens up a wider supply chain for you, and it makes everything easier once things are hitting the manufacturing floor. That's a piece of it. Try and not design for single use, single lines, such that if this unforecastable demand does change, you don't just have this line and these employees hanging around at like miserable utilization, which just eats money, right? How do I how do I design products in such a way where as demand is ebbing and flowing between product lines, I have general elasticity between lines, process machines, technology and the people that make them, and the more common I can get across that crazy Venn diagram, the more elasticity I have, the easier I can handle this crazy dynamic you have in high mix, Low, Medium ish rate problems. It's part of the reason we're centralizing most of our manufacturing at Arsenal one our manufacturer, 5 million square feet of manufacturing in Ohio. It allows us to centralize, again, people process technology into one spot. All of that is useless if we're not designing products that can take advantage of that. And so we think if we get this flow right, it's going to give us a really large advantage, and that advantage will basically materialize in our ability to deliver really, really quickly. So none of this I order in two years from now, you get the thing like, I want a customer to be able to order. And now you have it, and you'll see it on the margin right, we'll be able to produce with less expense, you know, less remake all these problems that that that plague large industrials. And at the end of the day, we're feeling pretty good about where we are. Lauren Bedula 19:44 Love it and Hondo and I were chatting earlier. I was looking forward to having you on because we haven't spent a lot of time talking about we have folks really focused on the tech, on the investment side, on the buying side, but not as much on the real strategic business side. So it's interesting to hear you chat through your vision there and how you solve these problems. I'm going to shift gears as we close out a little bit to say, like, Oh my gosh. What a year we're in now. Where? Back to 2017 the difference between then and now, just in terms of the topic of acquisition, you're not sitting in a panel where it's not coming up today, whereas that was certainly not the case in 2017 or even four years ago. What's your take? Is this real? Is this going to be the moment like all the acquisition reform initiatives? Matthew Steckman 20:27 I guess, since you know, you know, I've seen now four waves of this in the 20 years I've been doing this, I would say every wave makes everything better. Every wave does not solve all the problems. It just reduces friction in the system. What, what I have noticed personally is every time something interesting happens in defense, acquisitions and technology, there are specific human beings around that effort that are unique, that care and that use the new powers and acquisition authorities and laws and regulations to the most extreme advantage that they can create for themselves. I think we're just gonna see that more. I think as friction reduces, you potentially mint more of these types of people, because it's easier to take advantage of the apparatus around you to move fast. Are we noticing it yet? No, but it's like early days. I think we at Anduril, I am personally very hopeful that you're going to see again. It's not going to be a sea change overnight. It's going to happen program by program, where you're going to see really unique things happen, where everybody's eyebrows will raise and you're going to say, wow, we really need to do more of that. We're a part of some programs that are structured in these ways now based on sort of the old new acquisition structure, and in the new new I just expect more. Hondo Geurts 22:10 So, Matt, you talked about, I think, 7000 employees now, scaling up production, million plus square feet of production. Talk a little bit about talent. And you know, there's been this narrative that we don't have the talent in or the people in the country. We can't we've lost all our manufacturing capacity. How are you guys seeing talent as you're looking at it and thinking about growing talent to scale at the growth rates you're looking to scale to? Matthew Steckman 22:39 Yeah, there's two different versions, right? So there's sort of engineering and there's manufacturing, and it's a different ball game. So on the engineering side, I think uniquely in defense, we are recruiting against the large technology incumbents, the Googles, the Facebooks, the Nvidias, Netflix even, I think on the software side, the war for talent rages. I think we as a defense company are now in that war for talent, which is unusual, and I think we can uniquely recruit and retain these types of world class software engineers that wouldn't otherwise find themselves working within the defense world huge advantage. I think for us, we're doing quite well there. I think we'll probably end up in 2026 recruiting 1500 to 2000 like really, world class engineers across all disciplines, software and hardware, and feeling pretty good there. I think if you want to work on defense and you are an engineer of that type, we're one of the places you would want to go. Which is, which is, it's sort of exciting to be that place. On the manufacturing side, different ball game. One of the ways we're thinking about it, potentially uniquely, is on the design side. So if we can design our products correctly, such that we can tap into more of a workforce than a traditional manufacturing line might be able to, gives us a huge advantage in Ohio, where we're at, there's about a million employable people in the workforce. If you think about if you design a defense exquisite system, and you immediately crush your ability to go higher because of these specialized skills, or clearances, all these things, right? You've gone from a million down to maybe 1000s, and and then you get all of these problems of hiring and retention, and they cost a lot, right? If you design your products a little bit differently, you you massively open the aperture to your ability to produce. That's our approach. So far, it's working quite well. You. Interestingly, right? It like, kind of doesn't have a scale limit to it if you approach it in this way. But it all starts at design. It all starts at the the government's agreement to the requirements that you're going to fulfill. And if you do this correctly, you can take the government, and you can go. Lauren Bedula 25:20 And on the talent piece, you said it earlier to rising tide lifts all I've seen that firsthand, and I think it's a good reminder for all of us and our listeners like, give back, and I know you're coaching a lot of CROs, I see that firsthand, so I really like that that point, and broadly speaking, thank you, Matt, for taking the time to kind of share this experience. A lot of folks are trying to replicate it, and we really appreciate you taking that time to share yeah with our listeners. Matthew Steckman 25:44 Thanks for having me and thanks for doing this. Transcribed by https://otter.ai