The Generalist - Anduril: The Business of Defense

Hey friends,

Today’s piece covers what might be one of the most important companies in the world right now: Anduril.

Founded by Trae Stephens and Palmer Luckey, the company has assembled a sophisticated array of defense systems that are used by America and its allies. Indeed, its products are currently being used to defend against Putin’s invasion of Ukraine. Anduril’s quick adoption by militaries around the world has helped the firm scale to $150 million in annual revenue and a mooted valuation of more than $7 billion.

Anduril’s success and significance have not always looked so assured. The company started at a time when building weapons was extremely unpopular in tech circles. Equipping the U.S.-Mexico border also attracted significant controversy.

As you may know, our goal at The Generalist is to thoughtfully analyze the most important businesses, funds, and trends of our time. As you’ll discover in this piece, Anduril asks complicated, consequential questions of the observer and reveals how modern wars are changing.

To explore these questions and learn about the firm’s origins, the broken defense industry, and deterring global conflicts, jump in. ​
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PS – Thank you all for such an incredible response to the Generalist Capital announcement! I am so grateful for the kind words, trust, and support. We were fortunate to have a lot of LP interest – if you submitted an application, we will be in touch soon. I feel extremely grateful for each and every one of you 😊

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ANDURIL: THE BUSINESS OF DEFENSE

Actionable insights

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about Anduril.

• A new prime. The “Big Five” prime contractors dominate the American defense industry. Lockheed Martin, Boeing, Raytheon, Northrop Grumman, and General Dynamics have monopolized the industry for decades, hoovering up smaller businesses. Anduril seeks to be a true competitor to these giants.
• Leading with software. The U.S. military has historically treated software like an afterthought, focusing on hardware. As the world and its wars change, that approach looks increasingly backward. Anduril is a defense business with software at its heart. It leverages artificial intelligence, machine learning, and computer vision to power its products.
• Building to the mission. When the Pentagon wants to acquire a new product, it usually sets exhaustive specifications. Contractors make what they’re told to, rather than thinking about the problem from first principles. Anduril takes a different approach, building to the mission rather than the specs.
• Bundling the best. In the last eighteen months, Anduril has acquired three companies, bundling their products into its suite. Thanks to its strong ties with global governments, it can sell these assets through established channels, layering on new sources of revenue.
• Modern warfare. Future conflicts will likely rely heavily on AI, especially for coordinating large “swarms” of drones and other assets. Anduril seems one of the only companies with the technological power to handle these new kinds of warfare.

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“There is a category of things that are a moral good but feel bad,” Trae Stephens said to me. Selling weapons to the United States and its allies may be one of them.

As Anduril’s cofounder and President explained, you can think of his business’s work as sitting in one quadrant of a two-by-two matrix. There are things that are good and feel good (like healthcare), things that are bad but feel good (tobacco), and things that feel bad and are bad (crime). It is easy to support the “double-good” camp and seductive to dabble in the “bad-good” quadrant of vice. The bad-bad camp is easy to ignore.

The final square evokes tension and disagreement. This fractious, unpopular zone is where Anduril lives.

Since its founding in 2017, Stephens’ business has endured condemnation and courted controversy in pursuit of building a business it believes to be a moral good. In that time, Anduril has rolled out a literal arsenal that includes drones, sentry towers, and submarines, knitted together with sophisticated software. Defense departments around the world have found considerable value in this suite, propelling the business to more than $150 million in revenue in five years. Reaching those figures in such a short time is no mean feat in the torpid world of defense.

Principled pacifists will find little redeeming value in Anduril’s work. Those that consider the U.S. military and executive branches unethical or incompetent will also have much to dislike. But anyone that believes well-armed liberal democracies are a force for good and crucial for maintaining global peace will see merit in Anduril’s mission. Russia’s invasion of Ukraine distressingly illustrates the importance of a dictatorial counterbalance.

Stephens encapsulated the thorniness and significance of Anduril’s mission, “There’s all this moral ambiguity in building weapons systems. And yet, the best way to prevent war is by being prepared for war.”

In today’s piece, we’ll explore how Anduril seeks to deter war by arming liberal governments. We’ll cover:

• Origins. If Palmer Luckey hadn’t donated to a “shitposting” organization, Anduril might not be around today. Its existence owes much to the perseverance of Trae Stephens, the good fortune of Luckey’s departure from Facebook, and the expertise of an impressive founding team.
• Market. Starting in the early 1990s, the defense industry underwent a period of consolidation. That’s resulted in a dysfunctional market with high prices, low competition, and minimal innovation.
• Product. Anduril has developed a comprehensive product suite in just five years. Powered by Lattice, an operating system for conflicts, the company can orchestrate assets across air, land, and sea.
• Playbook. Anduril’s success stems from a nuanced understanding of selling to governments allied with the energy of a Silicon Valley startup.

Let’s get started.

IN A MEME
​​​​​For the pictorially inclined, here's the whole piece — all 5,500 words of it — in a single meme.

PUZZLER
​​​All guesses are welcome and clues are given to anyone that would like one. Just respond to this email for a hint.

I found this one especially tricky. Greg K had no such trouble with last week’s prompt, swiftly reaching the right answer. He was followed by Steven V, Vasta G, Mikaela R, Ankit J, Jim W, Drew M, Ian B, John G, Toby N, Chris G, Robert H, Neal K, Christina J, Michael O, Riley V, Tim S, Joshua K, Peter F, Andrew G, Tanay N, Neil A, Sam A, Elowin, Keshav J, and Eleftherios P in deciphering this riddle:

The answer? A castle. Well played to all. Wishing you a lovely rest of the day, wherever you are in the world.
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​Until next time,
Mario