A great pleasure of the last 15 years has been watching software innovation transform more and more areas outside of the software industry: science research, major functions within legacy Fortune 500 companies, legacy industries. Amazon’s revitalization of the retail industry is now familiar, as are AirBnb’s massive upgrades to the hotel industry and Uber’s and Lyft’s revitalization of the morbid taxi industry. Now Tesla is the world’s leading car company, SpaceX has scaled space travel, FlexPort is innovating at scale in the international shipping industry, and Instacart and DoorDash have scaled delivery.
The April 8th A16z Live Podcast brings a newer player to our attention: Hadrian is attempting to transform precision manufacturing and machining. The podcast features an interview of Hadrian CEO Chris Power, and much of it is transcribed in this A16z Future article.
Turtles All the Way Down
What is the state of American precision manufacturing? Fragmented. “Every single advanced manufacturing company — whether they’re making rockets, satellites, jets, drones, or energy for climate change — outsources about 80% to 90% of their custom parts.” This is $50 billion of machining spend, often in very small runs: “Five crazy complex-geometry parts that are going on a rocket.” These parts are bought from mom-and-pop machine shops. 3000 small machine shops, run by owner-operators. Power clearly loves the many people he’s met in this industry, but he notes a few problems: “10- to 12-week lead times. A very low quality bar, low customer service bar, incredibly low net promoter score.”
Just the sort of problems you naturally get with a small business. When you only have a dozen employees, all your process efficiency invention has to be done by those 12 people, so you’re a lot less efficient than, say, Amazon, with its 1.6 million employees, and you don’t have the law of large numbers to keep your workflow at a predictable level, and you have shops that build great products but have poor customer service, or vice versa, so you work with them anyway.
There’s another serious problem for the US: the industry is about to lose all its talent to retirement. “The average age of an owner of one of these machine shops is about 60, and the average age of a worker is about 55. So over the next decade [most will reach] retirement age.” But that’s an opportunity for Hadrian: “The reason [Hadrian] makes sense now is because the long tail of the spend, maybe an extra $25 billion, is inevitably going to unlock for the first time in 30 years, because of the demographics of the retirement age and all these competitive pressures on our customers. That’s why now is the right time to do it.”
Power is building Hadrian as a company where the engineering talent is a mix of machinists and software engineers. Designing a new part might involve a day or high-level design followed by three days fleshing out the details in CAD. The approach of Hadrian is that software can compress the 3 CAD days a lot more easily than it can compress the high-level design day, and that’s great, actually. Senior machinists use Hadrian’s custom software to scale themselves. Software also makes some parts of the process easier, so young trainees have simple things to start with. That’s important because the US manufacturing industry has a dearth of skilled professionals.
“You have to go up these complexity rungs in skills... The only thing you can optimize for is how fast you can climb those rungs. You absolutely just can’t skip to the top.” Reshoring is “only successful if you can either import the talent wholesale, or if you have sub-industries of manufacturing complexity that generate the talent that can do the highly complex stuff. We lost that population of people and lost our starting base when we offshored all the simple stuff. ”
“A lot of the complexity is tribal knowledge. If you can distill tribal knowledge down to some checklist processes, that’s the first big step. Because then training is, ‘Hey, you’re learning how to cut metal on a saw. Here are the 10 steps. The first seven are probably easy, but if you get stuck on the last three, please ask for help.’ Whereas most manufacturing training is, ‘Hey, apprentice under someone for three years, and maybe they’ll spend an hour vaguely teaching you about saw-cutting metal at night. But who knows.’ So we structure it a lot.”
“Within the factory, you start at shipping and receiving, then you go into tool building, then you go into repeat jobs and machining, and then you go into prototype machining. Then, you can be a quality inspector or a CAM programmer. So within each of those rungs of hourly pay bands and seniority, there’s enough short cliffs to jump where you can have people learning on the job…. To rebuild America’s manufacturing workforce is to flood the first part of that funnel with thousands of people who are smart, young, maybe fix their car on the weekend, maybe play video games.”
Lofty Goals
Even beyond what we’ve discussed above, the people behind Hadrian clearly believe it can do important things for our society as a whole. To conclude, I’ll step out of the way and share a few of their thoughts. Andreessen: “Both President Trump and then President Biden, in remarkably similar language, have basically said it’s time to … bring manufacturing back to the U.S. for a variety of reasons — economic reasons, but also national security reasons.”
Power: “If you just look at the dynamics in space and defense in America, you realize that the supply base is on the decline. You think about why 50% of the F16s are grounded because they don’t have parts; they’re cannibalizing other planes to get parts. And if you dig five layers deep, it’s not turtles all the way down — it’s Bob’s Machine Shop all the way down. In this decade, as we settle the solar system, I would like to help ensure it is largely under a free, peaceful world order.”
“Manufacturing is one of those industries where because you make contact with reality every single day, you can’t hide from the realities of how the real world works. So having a big manufacturing population actually generates a ton of serious people who, when they are 50 and in Congress, are making really rational decisions that are grounded in real-world experience.”
“One of my hopes with Hadrian is that by building the company big enough, we teach people how to do this, and they go off and start all these other advanced manufacturing companies”
Power presents a compelling vision of an opportunity to build a great company, and I can see why a16z and others have put $100 million into it. Despite owning a mom-and-pop manufacturing business myself, I have no strong guess as to whether Hadrian will succeed or not, but I’m looking forward to finding out.
More Reading
A16z Live Podcast interviewing Hadrian CEO Chris Power
This A16z Future article that transcribes part of the interview.
Hadrian: Ex Machina Ad Lunam on Packy McCormick’s substack.
Obligatory bust of Hadrian: