From Silicon Valley to the Pentagon: The Future of Defense Innovation

The last few decades have been a period of transition for defense. An increasing number of startups have begun to rival large defense primes, the industry has gradually become a calculus of both hardware and software, and exponential technologies have forced the DoD to rethink how it has traditionally done business. These changing conditions were some of the inputs to resulting in the DIU – Defense Innovation Unit – starting in 2015 within the Department of Defense, focused on accelerating the adoption of technology. In this episode recorded at a16z’s American Dynamism Summit in January, a16z General Partner Katherine Boyle is joined by the Director of the DIU, Doug Beck, plus two critical founders ushering in this new era of defense: Brian Schimpf, cofounder and CEO of Anduril and Brandon Tseng, cofounder of Shield AI. So what does the next wave of defense innovation really look like? Let’s find out. Topics Covered: 00:00 - The Future of Defense Innovation 03:30 - The Defense Innovation Unit (DIU) 05:45 - Adoption of Startup tech by the DoD 07:42 - Acquisition, Budgeting, and Contracting 13:17 - Traditional Primes vs Startups 14:25 - Cost-Plus Fixed Fee Contracts 20:11 - The Replicator Program 22:26 - The New Threat Environment 27:11 - Scale and Readiness for Modern Warfare 32:15 - Procurement Reform and Feasibility 39:30 - Success Metrics for Defense Resources: Learn more about AD Summit 2024: www.a16z.com/adsummit Watch Brian’s stage talk at AD Summit 2024: https://a16z.com/securing-americas-future-how-technology-companies-and-washington-are-building-a-safer-world/ Watch all of the stage talks at AD Summit 2024: https://www.youtube.com/playlist?list=PLM4u6XbiXf5pAKmk1AeZ9964KGScf4lHM Find Katherine on Twitter: https://twitter.com/KTmBoyle Find Brandon and Shield AI on Twitter: https://twitter.com/shieldaitech Find Brain on Twitter: https://twitter.com/schimpfbrian Find Doug and the DIU on Twitter: https://twitter.com/diu_x Stay Updated: Find a16z on Twitter: https://twitter.com/a16z Find a16z on LinkedIn: https://www.linkedin.com/company/a16z Subscribe on your favorite podcast app: https://a16z.simplecast.com/ Follow our host: https://twitter.com/stephsmithio Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  If we were designing a defense procurement system from scratch today, we would not design the one that we have.

• 0:07Speaker 01

  When you talk about two, three, four years to build an aircraft carrier in $2 billion and it being destroyed on week one of any hot conflict with an adversary, you say, is that really the force that we want to build?

• 0:22Speaker 00

  It's innovative approach and innovative technology versus not.

• 0:27Brian Schimpf?

  The authorities and policies all exist. You can do it. It's about making it so that this becomes more commonplace, more understood, and these patterns of how to acquire differently become kind of established.

• 0:38Speaker 00

  Artificial intelligence, biotechnology, autonomy, energy, the pace of change in those spaces is, and frankly, likely always will be faster than it is in a purely bespoke, defense-oriented way.

• 0:53Speaker 01

  When you talk about how prepared we are, I don't think you'd be asking that question. And we wouldn't be all here if we felt really prepared.

• 1:00Steph Smith?

  The last few decades have been a period of transition for defense, and increasing number of startups have begun to rival large defense primes. The industry has also gradually become a calculus of both hardware and software. And exponential technologies have forced the DOD, of course, that's the Department of Defense, to rethink how it's traditionally done business. In fact, these changing conditions were some of the inputs that resulted in the DIU, the Defense Innovation Unit, starting in 2015, within the DOD, focused on accelerating the adoption of technology. And today, you'll actually get to hear it from the director of the DIU, that's Doug Beck, alongside founders and funders equally looking to advance

• 1:45Steph Smith?

  this partnership between Washington DC and Silicon Valley. In fact, joining Doug for this conversation, recorded in the heart of Washington DC back in January at A16Z's American Dynamism Summit, are A16Z general partner and co-founder of the American Dynamism Practice, Katherine Boyle, plus Brian Schimpf, co-founder and CEO of Andorl, defense technology company specializing in advanced autonomous systems, and finally, Brandon Sang, a company building the world's best AI pilot.

• 2:17Steph Smith?

  So what does the next wave of defense innovation really look like? Where does America realistically sit competitively? And how do we build a technology pipeline that poisons us to effectively defend against our adversaries? Let's find out. Oh, and if you'd like to get an inside look into A16Z's American Dynamism Summit, you can watch several of the stage talks from the event, featuring policymakers like Congressman Jake Auchincloss or Senator Todd Young, and of course, both founders and funders building toward American Dynamism. You can find all of the above at a16z.com/hadisummit. All right, let's get started.

• 3:00Steph Smith?

  As a reminder, the content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see a16z.com/disclosures.

• 3:30Katherine Boyle?

  So Doug, DIU was founded as DIUX in 2015. Why was it founded and how has it evolved over the last several years?

• 3:38Speaker 00

  So back when DIU was founded, which was back in 2015, as you said, Secretary Ash Carter was truly prescient in seeing that there was no way for us to effectively counter the rising challenge of the people of China, as well as the other challenges around the world, without fully harnessing the power of the incredibly vibrant commercial tech sector that we have in the United States. And back then, it was sort of ironic, because the Silicon Valley that many of us grew up in was actually formed out of the collaboration between government, the private sector, and academia in support of national security. That's actually how Silicon Valley got its start. But despite that, we had lost that connection largely.

• 4:19Speaker 00

  And so DIUX then was really started in order to build that bridge kind of at all between the commercial tech sector and the department in order to begin to harness that. And I think of that as DIU 1.0. DIU 2.0, which followed on it relatively quickly, was about proving that you could take a real military problem and commercial or commercially derived technologies, bring those things together, use other transaction authorities that we already had on the books but didn't know how to use, and use all of that in order to put real, concrete prototypes in the hands of the warfighter and do it within weeks or months, not years and years. And that has now been done lots and lots and lots of times.

• 5:02Speaker 00

  DIU's done it between 16, 80 times, depending on how you think about it. And we've built all these other innovation entities around the department to help do it, too. And that is amazing, but it's not good enough yet. Because what we have to do now is take that capability and apply it for true strategic impact. Which means that, first of all, we've got to focus on those most critical problems that we need to solve in order to ensure that we can deter major conflict or win a force to fight. And then we have to do the hard work across the department of scaling those solutions so that they can have that level of impact. And doing that is what DIU 3.0 is all about. That's why the secretary elevated DIU to be a direct report. It's why I messed up my perfectly good life to come join the team and why I'm so excited to be here doing it.

• 5:47Katherine Boyle?

  Yeah, and what you're describing, I mean, it's so remarkable for people who founded companies in 2015, 2017. The interactions with startups was very, very different at that time. Brandon, I know Shield was founded in 2015. I'd love to hear what it was like interfacing with the department just as DIU was being founded, before there was really any emphasis on startups.

• 6:05Speaker 01

  There's a lot of hesitation back in 2015 and 2016 around this idea that small companies, you know, we had just raised a seed round in 2016, could actually make a material impact for the warfighters. But by working with organizations like DIU, with some of the forward-leaning organizations in SOCOM who are willing to take a risk, take a chance with these smaller, call it more agile, more software-focused companies, I think they started to see the return that they were getting on their money. And that's not just in terms of the product, but the heft of... Venture capital that was followed, you know, whenever we would close these contracts, you'd see more money flow in from the venture capital. That would allow us to build better products for the customers.

• 6:48Speaker 01

  And customers, it really started to click with them. I remember the conversation in 2017, after our Series A round with Andreessen Horowitz, the customers like, holy smokes, I just want to recreate this 100 times over because we just let a $1 million contract, you're getting 10x in terms of the product development capabilities behind the company that's working with the customers. So it's fundamentally changed over several years. I still think we haven't penetrated all of DoD, certainly. But instead of being 1% of the customers, maybe we're at 10% of the customers in DoD. So I think about that, that adoption curve of technology, of processes too. And we're starting to make real headway and great credit to the venture capital community,

• 7:32Speaker 01

  the defense community, organizations like DIU. And then, yeah, certainly I think the work of companies actually following through and delivering capabilities that are making a difference matters as well.

• 7:42Katherine Boyle?

  Brian, I'd love to hear your take on this because I know one of the things that DIU and other organizations were really focused on was not only having more education about how startups work within the DoD, but also really educating founders who maybe had never worked in defense. They didn't have, say, your background of having previously worked in defense. Walk us through how that ecosystem has changed and how DIU has been a part of that since 2017, when you founded Anduril.

• 8:03Speaker 01

  Yeah, the business model side, I think, is probably the least obvious to anyone who doesn't live in this world, but is probably the most important, which is the way that the government typically acquires technology is a very planned view to what technology needs to mature over a very long period of time. And the whole system was predicated on a belief that you can curate and know where technology needs to be to accomplish your military ends. That was sort of the whole genesis of the current system.

• 8:31Brian Schimpf?

  What has changed is the percentage of R and D happening in the commercial world, the vibrancy of the startup sector. All of these things have completely changed the dynamic where there's a huge amount of innovation to harvest that does not come from this sort of very planned, structured approach. So while the kind of planned approach might still be correct for battleships where we've got to plan this a decade in advance and it's a very systematic thing, there's a very broad swath of technologies that now can be done in a much more commercial fashion. And "commercial" here meaning the way every other industry in the world buys, right? Companies invest their own capital at risk to do R and D and if they have a product that works and it meets the market need, they are successful and if they don't, they go out of business. It's a very simple and efficient system.

• 9:13Brian Schimpf?

  And I think companies like SpaceX have dramatically transformed the perception of what are those technologies that are achievable in this new model. I don't think anyone would have believed rocket launch and the largest satellite operator by several orders of magnitude was possible on a commercial basis a handful of years ago. But just doing that shows that the space of things you can go after in this different approach is massive. The capital is there, the possibility is there, the risk-taking is there. Now, where I see the gap for a lot of companies is understanding the warfighting problems. These have gotten increasingly challenging and increasingly opaque in a lot of ways around the type of adversarial environment we're going to need to fight in, the ranges we need to operate, the complexity of the threat.

• 9:55Brian Schimpf?

  These things are very, very hard if you don't live in this world to really understand how to make this work. And then the second part of this is sort of that acquisition, budgeting, contracting process and how does this play out? You really have to marry those things and really deeply understand what problems are going to have real warfighting impact and then how do I align that to limited resources, priorities and all those things to be able to go out and scale these technologies? So I think DIU has been an excellent bridge at kind of solving a lot of those ladder problems of how do we take these commercially modeled business models and apply it to war fighting problems, but try to bridge that gap with education, support, process to enable these companies to actually be successful.

• 10:38Speaker 00

  First thing I'd say is yes, yes. And really, where do we need to go from here? Because if you think back to those days when a lot of us kind of grew up together helping make this happen, and I was a part-timer at the time while I was in my day job at Apple, there's been an enormous amount of progress in moving the ball forward. And back then, there was a relatively, you know, when I thought about, for example, friends who were saying, "I'm going to go and start an investment focus in defense tech," kind of at this intersection, it was a relatively small group of people, super pioneering. Now, there's a ton of capital, a ton of interest, and a lot of people who really want to be part of this. So we've really reached a tipping point on that. But we still have a long way to go on taking

• 11:22Speaker 00

  some of what Brian was just talking about really to the next level. Because while now, if capital's not really the scarce commodity, and interest isn't the scarce commodity, there are plenty of both founders and funders in this space or toward this space. We have to be a much better counterparty for them. And that's really about clarifying the demand signal so that you don't have to have a PhD in how the Pentagon works, or what exactly the need is in order to get there. And it's just about a couple of very simple things. First, it's about clarifying the demand signal. First, which problems matter? Because it's kind of hard to tell if you're out there, even if you're reasonably well-educated, which things matter the most to the department. So it's which things really matter. Second, it's about clarifying the demand signal, not necessarily in terms of a very specific

• 12:06Speaker 00

  requirement of this is exactly what I need you to build, but it's what's that problem that we're trying to solve, and how might we get after it? But then it's about what is the path to scale or is there a path to scale? So that it's clear that if I make the investment, if I'm a founder or a funder upfront, if I make this investment, that there is a pathway to scale there because we need that scale from the department's perspective to deliver the strategic impact. Well, the companies need that scale in order to deliver the ROI. And so we've got to get a lot better at clarifying where the demand is and where there's a true pathway to scale so that those people out there who assess, price, take and then manage risk for a living can do so on our stuff.

• 12:49Speaker 00

  And so that the success models and the reference cases are larger in number and deeper in impact so that that flywheel gets going in a truly American way. And that at its heart is what we've got to do here, which is, as Brian was alluding to, this is about getting that way that is very simple, that normal businesses work all the time, that's built what, for example, Silicon Valley is into this incredible engine for the world, get that online in a way that works for delivering this kind of capability.

• 13:17Katherine Boyle?

  Yep. I want to go back to something Brian said about how there's large exquisite systems, battleships, things that can take 10 years to build. And then startups are really good at that sort of 12 to 18 month cycle, moving really quickly from prototype to production. Where do you see DIU shepherdy companies to say, these are the types of technologies we expect startups to build. The primes can do X, Y, and Z, but we want startups doing this. And how does that relate to something like Replicator, where there really is a focus on startups?

• 13:43Brian Schimpf?

  So I actually don't think it's about a primes versus startup thing. I think it's probably not the right split. I think there's every reason in the world that a Lockheed could show up with counter drone systems or kind of autonomous technologies that DIU is really looking at and be able to be very successful. I think the dissonance often is in the business model piece, where I think a lot of the startups have embraced the business model of, I can prove myself through delivery and I'm willing to take on the risk. That is very different than the incentive structure we, as a country, have put onto the primes and they have built around, right? Which is very much, the government is going to absorb the risk and kind of steer where they want to go.

• 14:25Katherine Boyle?

  And maybe explain CostPlus to those who don't know what it is.

• 14:27Brian Schimpf?

  So CostPlus fixed fee contracts are how a huge percentage of the DoD procures systems. And the basic structure of this is the government will reimburse the contractor for all incurred costs, so bearing all the risk, and pay the contractor a fixed percentage margin profit. So this includes not just what you spent on the thing, but all of your costs for production facilities and overhead and HR and all these things. So what's the natural incentive of this, right? It's to drive you to look at how much labor am I putting onto these projects? And it drives you towards a model of often taking a lot of risk on behalf of the government. And the government values this at times and encourages it, where we have these longer and longer duration programs. And so the natural incentive

• 15:11Brian Schimpf?

  is to shoehorn as much technology as possible into these generational platforms, which makes them more expensive, more risky, and more challenging. And on top of that, when you get into production, there's no incentive to reduce your costs, because you literally will make less money if you reduce your costs. And they're going to buy a fixed quantity. So it's a very challenging incentive structure, where it can work for high-risk programs, where there genuinely is the government saying, hey, I do want to take the risk. But once you get into a lot of these technologies where the cost to actually build them isn't so prohibitive that private capital can't support it, right? That is a very different world that we're living in now. And so I think the class of technologies that DIU has been looking at is how do I take lower-cost, more autonomous systems and make them deploy

• 15:56Brian Schimpf?

  at scale? That is something that does not cost you a billion dollars to invest in, right? We're talking tens to hundreds of millions of dollars of private capital to make these things go. And even a large class of modern weapons fit into that same category, in my opinion. I think there's a much broader array of these technologies where if you had a framework where every three to five years, I'm going to buy the best that exists. So we know a market exists, we're getting clear, consistent demand signal, and there's value to continuing to invest in the space. And also, I know if I don't invest, I'm going to lose next time because someone else has stole my lunch. That is a hugely incentivizing way to get the best out of the industrial base. So I think the incentives on this case really Do matter and so we focus a lot on trying to drive the government and it's very natural with DAU,

• 16:41Brian Schimpf?

  but is less comfortable in other places towards these more firm fixed price where we want to take the risk. And it's notable that actually a lot of the primes right now are saying they will not do firm fixed price contracts anymore. Because they've often taken a significant loss on most of the programs that they're doing with this. So it is a hard model to shift to if you're not used to it, but if you built your company from the beginning, to be good at risk taking and operate in this model, you can operate this way. It is possible. It's how every other company in the world works.

• 17:09Speaker 01

  Can I just add to something you said about these exquisite systems that the primes have built? What's really interesting to me is how the defense market is transforming and moving away from exquisite capital assets like aircraft carriers, like ships, like very, very expensive fighter jets or very, very expensive drones. And they're moving away from it because there's wide recognition that these are some of our most vulnerable assets. And that on day one or week one or month one of any conflict, that they would be targeted and eliminated very, very quickly. And so when you talk about two, three, four years to build an aircraft carrier in $2 billion and it being destroyed on week one of any hot conflict with an adversary,

• 17:53Speaker 01

  you say, is that really the force that we want to build? And I'm not saying you're getting rid of every single exquisite asset that we have in our inventory. But what's happening in the market is this hybrid force architecture where you're getting lots and lots of smaller, more affordable autonomous systems. And you can pair them with larger exquisite assets when required. But that is what's really opened up the opportunity for a lot of companies to make a material impact without as much capital as required to build an aircraft carrier, a nuclear submarine, the F-35, you name it. And so that's something that I think is really interesting in the marketplace and why you see more and more companies able to solve the problems of the Defense Department

• 18:36Speaker 01

  without requiring tens of billions of dollars of CapEx to do so.

• 18:40Speaker 00

  Just to build on that, first of all, I agree very much with Brian that. Prime versus startup isn't, for me, the right way to think about this. It's innovative approach and innovative technology versus not. And so DIU does about 15% of its work with primes and works with startups and works with everybody in between. For me, it's a little bit more about making sure that we're harnessing the very front edge of the very best technology, some of which may be developed with defense in mind in that last mile, but much of which is reliant on, and Brian referred to this earlier, on the incredible innovation that's happening in order to meet the demands of the commercial universe, right?

• 19:21Speaker 00

  The billions and billions of consumers out there and the enterprises that serve them. Innovation in those spaces is driving relentlessly forward speed. In 11 of the 14 areas we track to the department, things like artificial intelligence, biotechnology, autonomy, energy, the pace of change in those spaces is, and frankly, likely always will be, faster in some of those spaces than it is in a purely bespoke, defense-oriented way. And so we've got to be able to harness both simultaneously. We've got to make it easier to do that so that the investment, for example, in leveraging technology that might be, that's why I call it commercially derived, might have been in some ways commercially derived, and put that extra bit that we need on it, for example,

• 20:03Speaker 00

  for hardening in a challenging EW atmosphere, in order to make it be able to serve that critical defense need.

• 20:11Katherine Boyle?

  Yeah. So a lot of the conversation we're having right now seems to be very much the impetus for Replicator. A lot of our listeners have probably heard a lot about it, but might not understand the details, or, I mean, it would be great just to understand, what is Replicator? And what are the measurements for success? What do you expect to see from the program?

• 20:27Speaker 00

  So Replicator is a critical example of how DIU 3.0 is being put into practice, and more importantly, of the broader initiative across the department that the secretary and the deputy are leading for how we bring more transformative capability and much more quickly. And in a nutshell, what Replicator is about is about putting real capability, critical capability that solves a critical operational need, again, that's necessary for us to ensure we can deter major conflict. When they're forced to fight. In this case, this is a tritable autonomous capability in order to counter capability from the People's Republic of China primarily. And to do it within 18 to 24 months, so not years and years, and put that capability out there. That's the first objective of Replicator.

• 21:10Speaker 00

  The second one, which is as important, is to do that in a way that we break down systemic barriers to change, that we identify and knock down things that get in the way of making that happen across the department. And by doing so, make it easier and easier and easier for us to do that again and again and again on other problems. And this is why, in some ways, we talk about Replicator itself all the time. I actually think almost as important is the governance structure for Replicator, which is this thing called the Deputy's Innovation Steering Group, co-chaired by the deputy and the vice chairman directly. We at DIU are the principal staff to that, as well as sitting on the team. And then we chair the Defense Innovation Working Group, which is its next level.

• 21:55Speaker 00

  So basically, the same group without the deputy and the vice. That's the governance structure for Replicator. And the reason that's important is that is the entire department coming together around a table of leadership level. Services, Combatant Commands, the Joint Staff, the Office of Secretary of Defense. We're all there at the table so that we can be driving this forward and knocking down the barriers. And today, speaking here at the conference, the deputy mentioned, we are on track to deliver that capability within that timeframe. And that's 18 to 24 months, something that ordinarily would take three or four years.

• 22:26Katherine Boyle?

  Yeah. And I know when Replicator was announced, Andrew put out a statement about how revolutionary it was. As founders, what was it like hearing that there's this kind of program now? And especially since you were all founded way before something like this existed. How does it affect scaled startups?

• 22:39Speaker 01

  One of the things that I love about Replicator is that it's rooted in first principles as it relates to warfare, as it relates to the customer's problem. And at its core, it's about getting after this concept of mass. And mass has been A fundamental warfighting concept as old as warfare itself, right? If you have more fighters, if you have more equipment, you tend to do better on the battlefield. You tend to do better in conflict. So it's rooted in first principles at its core. What I like about it is it's a push from the top of the department for everybody to start thinking about it. And I was in Abu Dhabi last week and I met with the Afsent commanding general. And one of his quotes, which I love, he's like, look, I'm not interested in 1,000 drones. I'm not interested in 10,000 drones.

• 23:22Speaker 01

  He's like, we need to be producing hundreds of thousands and up to a million drones and munitions to be prepared to deter and if necessary, win the next conflict. And so what I really like about that, again, it reinforces what the deputy is talking about. It reinforces the replicator program. It's rooted in first principles and I think that's fantastic. To give you a sense, right? In terms of one of the challenges when we talk about scale today, when there's a disconnect between the program executive offices and the combatant commanders, the warfighting commanders, et cetera. We're in a program of record. If you ask, this was brought up, they asked the commander, how many of these aircraft that S.H.I.E.L.D. AI produces do you think you're getting? He said, I hope we're getting a thousand. They're getting 60, right?

• 24:06Speaker 01

  Via that program, but that's the disconnect between what is actually required to deter and win conflict versus a program manager who might not necessarily want to raise their hand and say, I think we should build a thousand or 10,000 of these, which is a challenge itself. So I appreciate the top cover, top line message of replicator and that we're moving towards this hybrid architecture. We're going to have thousands, tens of thousands, hundreds of thousands of aircraft, but we'll also have our exquisite aircraft for the missions that require those capabilities.

• 24:38Brian Schimpf?

  And I think the shift in the way that innovation has been talked about in the department since we started, I go every year to the Reagan Defense Forum and you can kind of see how the tone changes year over year. And the tone for a long time was about, here is the sheer volume of small businesses and innovative companies that we are dealing with. Here is the number of prototypes that we have done. And it was completely missing the point, right? The point was not can we come up with technology? The answer is obviously yes, right? Like it is very clear the technology can be invented and we have a very vibrant base that can do that. The shift in messaging and focus towards how do we actually get this as deployed at scale warfighting capabilities is the key one.

• 25:23Brian Schimpf?

  And I completely agree that the focus from the top is necessary to drive change. There's two things that drives change in any organization and especially in the DOD. It is an urgent conflict and it is top-down leadership. And those are the two things that get change to happen. So I think it is the right set of actions. I think looking at this as a sustained, ongoing activity that is going to be a different way of buying and scaling technology is exactly right. And I think it's the exact type of experiment we need to run to just force change into the system. I think a lot of goodness is going to come out of it.

• 25:54Speaker 00

  Just building a little bit on both Brian and Brandon's points. I remember going to Reagan National Defense Forum several years ago and those of us who were there kind of from this world kind of felt like insurgents running around the place. And today, when you go there and you look up at the board of sponsors, like a lot of the top sponsors, there's names all over the place. And technology and commercially derived technology is at the core of every single conversation happening at RNF. And so that's a pretty dramatic shift. But it's connected to a more fundamental shift and where I think we need to change the metric. Whereas the metric under DIU 1.0 and that era that you asked me about at the beginning was how many meetings can we have? And who'll even show up? And do they see any value from being there, people from either side?

• 26:38Speaker 00

  The metric during 2.0 was how many prototypes can we get done? And how fast can we get them done? And are they across the right breadth of technologies? And that's an input metric in a way. We have to shift now to the output metric, which is have we meaningfully changed our O-plans or the adversaries? Have we meaningfully changed the deterrence options? Have we meaningfully put the warfighter in a position to deter that major conflict or win and force to fight? Because that is the only metric at the end of the day that matters.

• 27:10Katherine Boyle?

  Yeah, absolutely. So we've talked a lot in theory over the last few years about how the battlefield has changed. But I think Americans are now waking up and seeing headlines very recently of how a very cheap drone can cause catastrophic effects. How prepared are we for this new type of warfare? It's something we've been discussing for many years, but do we feel like we're actually prepared for what we're seeing now in the news?

• 27:32Brian Schimpf?

  I think there's two lenses to look at this. One is, how prepared is the US to utilize these technologies on offense? So adopt these technologies and fight differently. And then the other lens is more on the defensive side. I'll speak primarily to the defensive side, where we've had an erosion of our air and missile defense capabilities and was built for a very different threat environment. So Patriot missiles are phenomenal. They work very well. The missiles were shooting down drones in the Red Sea. So Standard Missile 2 is a very good weapon, but it's very expensive. And these were all built in an era where primarily we were looking at relatively few high-value targets to shoot down. The change with drone warfare has made it so that all units at all echelons

• 28:16Brian Schimpf?

  are constantly under threat from these attacks. And these have become pervasive technologies, where even under sanction, Iran is able to produce very effective loitering munitions and weaponized drones at very large scales that have caused a huge amount of problem in Ukraine. We see basically homemade rockets and drones in Gaza. Like, all of these things have really shifted in terms of the proliferation of where this technology exists. So it's changed the posture, where now it is no longer there's, you know, an air and missile defense unit that's guarding against high-value threats, like we saw kind of in the Iraq War. It is very much, it is a constant threat environment, where every unit has to be prepared. That necessitates like a pretty big shift in how we think about those defensive capabilities.

• 29:01Brian Schimpf?

  So it's going to be everything from, how do I make sense of what's happening around me in the air all the time or on the surface, right? We've seen Ukrainian drones in Black Sea cause significant problems. Really being able to defend against all of those threats constantly becomes a huge challenge. It's going to require a wide array of technologies and a lot of software to enable you to understand what is happening and respond. Where this is not something where we're going to have exquisitely trained soldiers and operators for anymore. It becomes everyone's job all the time. And that is a huge shift that has happened in terms of how you have to think about defense against these types of threats.

• 29:37Speaker 01

  When you talk about how prepared we are, I don't think you'd be asking that question. And we wouldn't be all here if we felt really prepared.

• 29:43Speaker 00

  Yeah.

• 29:43Speaker 01

  But at the same time, look, our military, they will adapt, given the equipment that they have. And it's our job to give them the widest advantage possible that they can have on the battlefield. And so that's kind of the sense of responsibility. I think we feel as industry leaders and people working in the acquisition system, it's give those warfighters the advantage they have. Do I look at them and say, hey, they're prepared for large-scale conflict? No, I don't. But at the same time, like, I have a lot of trust and confidence in our armed forces to adapt, given the equipment they have. But I just want to make sure that they have the best available equipment that can be produced.

• 30:20Speaker 00

  Brandon, I think you said that very, very well. We have the most unbelievable people, our military, from top to bottom, and they are postured to meet the threats. And we've got to keep doing more to help them. And maybe three things that I think are coming out of what we're seeing happening in Ukraine and elsewhere right now. Speed, scale, and I call it talent and techniques. First, the pace of change is just completely different. So if you look what's happening in the battlefield in Ukraine right now, we heard this recently during an event that we organized in Warsaw on UAS, what's happening in Ukraine, what the lessons are, what do we all need to do across government and the private sector come together? It kind of helps solve those things. And the pace of change is three months or less in terms of effectiveness and need to be able to, for example, evolve the UAS systems, those unmanned systems,

• 31:05Speaker 00

  because of what's happening in the electronic warfare environment around them. And so one is just about speed. And that's not just speed to get a thing out there. It's speed to get a thing, hardware and software, out there and then keep revving it, in some cases, in place, in order to ensure that you can stay ahead of that curve. The second's about scale. So lots and lots of things are happening in Ukraine. We're seeing the employment of capability, for example, in the Red Sea right now. But we've got to be able to do that at a completely different scale, at a scale that means strategic deterrence for the United States at our scale. And that's something we've got to get much better at and do much faster. And the third one is about, call it talent and TTPs. It's not just the what, it's also the how. And there are some fundamental changes to the way we fight

• 31:50Speaker 00

  that are coming out of all that we are learning, both ourselves and by watching. Ukraine and other things around the world. And that's got to happen simultaneously. So for example, initiatives like Replicator combine the what with a whole stream around concept of operations, concept of employment, that's about how. And that's critical to making sure you get the full value out of it and that you can sustain and continue to improve it over time at scale.

• 32:15Katherine Boyle?

  So I'd love to hear experiences. One of the things that's constantly bandied about in Washington is procurement reform. And I think there's a general view that will never happen. But being founders who've been working with the DOD as long as you have, there's probably been ideas you have for small tweaks to procurement that could actually be very helpful to startups. There's been discussions about things like OTAs being used more effectively, ways to help with scale, larger production contracts. Are there tweaks to procurement that, having been in the business as long as you have, that you would recommend to the DOD that don't require sort of moving a massive system, but would be able to be effectively done?

• 32:49Speaker 01

  Yes, lots of changes. I feel like there's a long wish list. But to your point, right? We as entrepreneurs have to run our businesses in terms of the way that the market operates, not that the way that the market should operate. But the first thing that comes to mind, again, I've spent nine years working the acquisition system and I, again, as an engineer, I just ask why, why, why, why? Why is it bought that way? Trying to get to the first principles of it. And at the core of it, all funding is derived via the JACIDS process, via the requirements process, all material funding of any scale. And so there are people in the military who take in reports, they write requirements, and then a program is formulated around those requirements. I'm reminded of the old saying from Henry Ford.

• 33:32Speaker 01

  If I ask people what they wanted, they would say faster horses versus the entrepreneur who says, let me figure out what the best solution to your problem is. And so something I've talked a lot about, but again, we'll see if it ever happens, is transitioning from a requirements-based acquisition system to a problems-based acquisition system. Because, and I'll give an analogy, when I was a SEAL in Afghanistan, right? We were taking fire from one position. Everybody immediately could agree on the problem. If I went to the team and said, how are we going to solve the problem? I'd get 150 different ideas. Right from my teammates in terms of that and look, someone has to make a call. We're going to move forward at the end of the day. But the problem is something that could rapidly, people can identify the problem.

• 34:14Speaker 01

  And then it's like, all right, let's let industry come up with the best solutions to the challenge. The second thing that comes to mind is putting a value on the mission value that's extracted from capabilities. So programs, the size of a program today, it's largely dictated by the size and cost of a platform. If it's a very big platform like an aircraft carrier, we're going to put a hundred billion dollar program of record behind that. But as we all know, these things are very vulnerable, expensive assets. Their mission value is actually gonna be very low in any prolonged conflict with a peer adversary. Whereas you look at something like a small drone, a loading munition, a group three vertical takeoff and land drone.

• 34:55Speaker 01

  And you could say, hey, that's a lot cheaper, but because it's cheaper, people say, well, you know what? Then my program doesn't have to be as large around it. And it's like, no, you're missing the mission value that can be extracted by thinking about the problem differently. Instead of thinking about buying a hundred of these, think about buying a hundred thousand of these. And you get to the same program size as some of these larger assets, but you're having a hundred X more mission value than they are.

• 35:21Brian Schimpf?

  I don't know if this is a defeatist view, but I think one thing to remember with the federal workforce is it's largely a group of folks who are rule following and they have to be process following. And I don't think that's bad, right? I think to an extent for taxpayer dollars, you want people to are going to kind of comply with boundaries and rules we've set out to make the process fair and efficient and all those things. And so I think most of these chances we've had to kind of increase the span and creativity they can have in contracting approaches have often landed flat. Because it just doesn't match with how they will adopt and think about these things. And it's genuinely hard, right? If you took a smart engineer and asked them to craft an acquisition strategy, I don't think they could do it.

• 36:01Brian Schimpf?

  Like, it's actually like a genuinely hard creative thing that requires practice, seeing what works and what doesn't. So the mode I've seen that has worked well is there are a lot of authorities and ways that people can buy differently. And having patterns and training and more education around these different acquisition strategies and just driving that at a senior level of, hey, this was a good example of a way that we got an outcome we wanted to for the industrial base, for the warfighter, and how it enabled a different way of operating. The authorities and policies all exist. You can do it. It's about making it so that this becomes more commonplace, more understood. And these patterns of how to acquire differently become kind of established.

• 36:44Brian Schimpf?

  We bid two programs kind of simultaneously. One was just like really thoughtfully crafted in terms of how the acquisition worked, where they constantly provided feedback all throughout the process, looked at your drafts, helped you adjust to it, and they did this for all the competitors. And everyone got better through that. And the government got a better outcome and learned along the way. And another one asked for a seven-year bid through multiple production phases on a thing that hasn't been built yet. But that is much more the standard way people do it. Same authorities, same exact contract regulations, totally different interpretation. And so I think just in the tactical way these things are executed, there's a lot of really simple changes that people can do in the government.

• 37:25Brian Schimpf?

  And the way I think it's going to play out is just share the best practices, get these contractors who genuinely are in this for the mission, and get them the kind of templates and patterns that really work, that show what good is, and explain the outcomes that the department is going for beyond just getting the capability. It's also about industrial base. It's also about production capacity. It's all these things that we have to take into account. And those are not obvious, how like when you write a proposal for industry, how that's going to translate out in terms of those long-term impacts.

• 37:57Speaker 00

  Yeah, if we were designing a defense procurement system from scratch today, we would not design the one that we have, right? The one that we have is the result of decades of lots of people working really, really hard to do the right thing and manage the appropriate requirements and risks in the right ways. And yet, as Brian said, we actually have all the authorities that we need right now. And we can do it. The issue is by far more one of culture. And I used to, when I was in my private sector life, I would have sometimes senior DoD audiences come by and say, "Hey, how do we learn how to be more innovative from the private sector and bring it in?" And I was sitting at Apple at the time.

• 38:39Speaker 00

  What I said was, "The most innovative place that I've ever worked in my entire life was actually a Joint Special Operations Task Force downrange. And the least innovative place that I have ever worked in my entire life was also with my uniform on." And the key is for us to bottle that piece and figure out how we bring it more broadly, which is really about helping people to understand where those critical capabilities already lie, how to leverage the authorities that we already have in order to achieve the objective that they all want to achieve. And then make it easier through training and through institutionalization of process because at the end of the day, the DOD is big. And so we've got to start with wins, deliver impact, and then help make it easier for

• 39:22Speaker 00

  that to institutionalize throughout the system. That's how you turn a big ship, and that's what we're working on right now.

• 39:30Katherine Boyle?

  So I want to close with what success looks like. Next year will be the 10th anniversary of DIU. It'll be the 10th anniversary of S.H.I.E.L.D., 8th anniversary of Anduril. For each of you, what would be the ultimate success story next year, looking back and saying how far we've come?

• 39:45Brian Schimpf?

  I think if we are in a position where we're working on top-tier defense programs at scale, I'll feel like we've started to move the needle and we are actually making a dent in both how the department buys, but also the types of technology it's buying. So for me, the real success marker is are they taking a bet on companies like us or other new entrants at scale in a big way? That's me a real indication of success.

• 40:15Speaker 01

  For us, I think we just started this business to have mission impact. And what I think success is continuing to have mission and impact, our mission to protect service members and civilians with artificial intelligence systems, but at increasing scale. That's what success looks like. Next year, the year after, the year after that, it's just continuing to accomplish the mission at ever-increasing levels of scale.

• 40:39Speaker 00

  First of all, I mean, it's not surprising that we're all aligned on what kind of, at the end of the day, success looks like. And by the way, I think that same sense of what success looks like would be shared by the secretary and the deputy, by Congress, and by many others across kind of the commercial tech, defense, innovation space. For me, it's really about two things. First, it's about simultaneously delivering real impact in order to help deter major conflict when it forced a fight. So by having worked through the kinds of process that we're talking about today to deliver real impact. And doing it in a way that it delivers reference cases and process and culture change that makes it easier to keep doing that.

• 41:20Speaker 00

  If we move the ball substantially with real points on the board and ability to put more on going forward, that's a big win. And then the other thing that I would just say, and for me, this is kind of what it all comes down to in terms of what it takes to do this. I mentioned sort of my life between these two worlds in a way before. So I had the privilege a long time ago of serving in Iraq and Afghanistan with a Joint Special Operations Task Force as part of a SEAL team. And I came home from that experience, having been somebody who'd spent most of their career in the private sector, where one of the things I did was spend a lot of time thinking about risk, about risk models, risk assessment, risk-taking. And what I realized when I came home was that I spent my whole career thinking about

• 42:03Speaker 00

  risk and about risks that at the end of the day really weren't. Most of what I thought of was risk was truly uncertainty. And my mindset on that was pretty shifted. And I think we need to take that to the problems that we're trying to solve here. Because at the end of the day, what we've all got to do is we've got to find ways to take on more of the kinds of risks that are financial risks, process risks, maybe even reputational risks, and take those on as a department and as partners across the whole defense innovation ecosystem so that we avoid continuing to not take those risks and instead

• 42:43Speaker 00

  create real risk, risk to mission, risk to force for the young soldiers, sailors, airmen, guardians, marines that would have to fight a future conflict. That shift in mindset, if we can make even part of that happen, that would be success.

• 43:00Katherine Boyle?

  Well, this has been such an informative conversation. Thank you so much for taking the time to share your thoughts with us today.

• 43:06Speaker 00

  Thank you.

• 43:09Steph Smith?

  Now, if you have made it this far, don't forget that you can get an inside look into A16Z's American Dynamism Summit at a16z.com/80summit. There, you can catch several of the exclusive stage talks, featuring policymakers like Deputy Secretary of Defense Kathleen Hicks or Governor Westmore of Maryland. Plus, both founders from companies like Anduril and Coinbase, and funders like Mark Cuban, all building toward American dynamism. Again, you can find all of the above at a16z.com/80summit. And we'll include a link in the show notes.