How US Hardware Startups Will Outcompete China | Pari Singh, Flow

0:00This is Pari Singh and he is the founder and CEO of Flow Engineering. engineering. You started out building rocket engines and now you're working on software. What went wrong? It's a great question. So as you mentioned, I'm an engineer. I'm a mechanical engineer. I became an engineer because I wanted to build machines that mattered to humanity. And I went into the industry and I went to companies like BA Systems and BP. And what became really apparent to me was the way that we do engineering is broken. It hasn't fundamentally changed the space race. And the single biggest problem in all of engineering isn't the design of reusable rockets.

0:41It's not the design of nuclear reactors. It's not the design of drones. It's the fundamental way that all of these companies are working. And in every industry, you see the same transition as Passen, which is there's an old way of working. It works for a bit when complexity is low, complexity goes up, it breaks, we need a new way of doing. And in every single one of those industries, there's this fundamental paradigm shift that happens. And that paradigm shift in how these companies work is long overdue in our industry. It needs to happen. There's no way you can do the next year without it. And nobody was doing it.

1:13So when we started the company, we were called the Rocket Company. We knew nothing about tech, about VC. We weren't trying to build a startup. What we said is, look, the way that engineering is done is broken. And we need a new way of doing engineering. And we think the world isn't ready for it yet. So what we're gonna do is we're gonna build a little corner of the universe. We're gonna call it the rocket company. And we're just gonna design rocket engines. And rather than trying to sell software, we're just gonna invent this new way of working. And we're gonna be so much more productive than anybody else in the industry that we're gonna have a huge advantage in cost.

1:46And then we're gonna take that advantage and build a business around it. But the real essence of it is we wanted to do engineering right in the way that we thought it could be done and that's kind of that's that's kind of what happened so we did this for a year the fastest design consultancy in the world for hyper rocket engines could go from requirements to detail design in about 12 weeks we could do it in two and a half hours and the reason we could do it in two and a half hours is we built this internal platform for ourselves called flow that integrated our requirements to our matlab our matlab to our cad our cad to a cfd and our fea and then it fed it back into the 0d moles in that lab and what we thought we'd built was an automation box, right?

2:21But what we actually realized we built was abstraction. So what we realized we'd built is a single way of designing hardware where we could start with really simple low-fidelity models, and then three, four, five times a day, we could increase the complexity of it. And we could bring a software-style agile approach to designing complex hardware. And we had this huge light bulb moment, and we sort of realized it together. and what we realized is two things the first thing is there is no way you can design complex systems without working this way it's just like this is going to be the way that everyone designs it it's so obvious to us and the second big realization we had is it was so painful to do that way that we actually had to invent a new layer of tools and either every company in the world needs to go and invent these tools and they need to work out this paradigm and they need to do that and that's going to take 10 years or we can just put it in a box and give it to them so So what Flow is today, our mission is to reinvent the way humanity designs the most important machines.

3:18We think of ourselves as an accelerant to the entire industry. If we're successful, the entire industry goes from this to this. If I was the best engineer at Anduril or at SpaceX or at Relativity, I could affect the course of the company by about this much. At Flow, we get to do this. when we get to do it for the entire space industry for the nuclear industry for the robotics industry for the ev industry if if the war with china happens we get to like play our part within that too and it's just the most inspiring thing i could be doing in my life is there a flow equivalent in china um china's flow equivalent is just hardcore though it's just unbelievably ultra hardcore like just amazing entrepreneurs basically and like teams but but it's also like 996 is easy mode for china what's hard mode for china hard mode for china is is significantly more with a gun to your head and a gun to your family um and that the cost of of inadequacy there is is very very high um so they don't do stuff right but the consequences are so high and the intensity is so big that they can afford to do that yeah they're they're pushing through even on even on like slightly suboptimal tools and stuff totally yeah do you want to talk about like how spacex in the early days uh went through like design and figuring out hardware and getting those first few rocket engines built yeah yeah space is a really interesting story um i think it's it's a good backdrop to like the fundamental changes happening in the industry so so i'll tell you about the fundamental change then i'll tell you a couple of like stuff i've read about spacex so there is this generational change happening in the hardware engineering manufacturing industry and it's a change from old school waterfall to new school agile iterative think nasa and boeing with 10-year program cycles in big gantt charts to spacex or andural which are not top down it's not 10 years it's bottoms up it's like three month cycles and it's aggressively design build test fly integrate and you don't do one big cycle you do thousands of little cycles and you integrate aggressively again and again and again and again and that i think a lot of people have spoken about why spacex has been successful and there's like a couple of obvious reasons elon vertical integration the sort of the fundamental economic issues around traditional primes but i think the thing that most people miss is the real thing that's made it spacex successful is their approach to developing rockets and developing hardware is completely different to the way that traditional primes develop hardware spacex and andoro and joe and fig and all these amazing new companies operate much more like software companies than they do like traditional hardware companies and it's in that new way of working that creates all the productivity and all the returns.

6:16And I think over time, you'll see this play out. Like, I think over the next 10 years, I'm actually very bearish on the traditional primes. I'm basically short all of those. I think that entire generational will die out. And this new wave of El Segundo companies will be successful. And that is primarily because of the way they work rather than what will they bring into market. Yeah. And I want to kind of spend a moment on how, like, why do you think the traditional primes, let's say Boeing, Lockheed, all those guys are basically not going to be able to evolve into this next state yeah great question there are there's like socioeconomic factors and there's technology factors and i think that the people have spoken about the socioeconomic factors with cost plus and and with how these companies fundamentally approach risk i think the thing that's overlooked is actually systems complexity so uh let me give you let me give you one example the software engineering industry The software engineering industry used to be waterfall, right?

7:14Think Windows 2000, Windows XP, three, five-year development cycles, huge QA teams, big waterfall GAN charts. You burn the whole thing down, you test it, and then you ship it. And actually what looks like hardware today. Exactly. That's how hardware is done today. And that doesn't work. And the entire software engineering industry moved from waterfall to agile. And the reason they did that wasn't to do with the fact that it was faster or cheaper or produced high quality software. It's because when you're designing complexity at a certain level, you can't design it in a Gantt chart anymore. So let me give you an example.

7:50If you're designing a simple rocket or you're designing like an ICBM or something relatively low complexity, you can sit down in the first two months. You can write down a list of requirements and you can decompose the requirements from the top level to the bottom level. And you've done this before. and you can kind of be order of magnitude approximately correct around all those assumptions and therefore you can make those assumptions to a gantt chart and you can follow the gantt chart and all your assumptions turn out to be right when you're designing super high complexity systems the unknown unknowns are way bigger than the list of like no knowns or list of known unknowns and therefore when you do that decomposition and you go from top level all the way down to like what does the engine need to produce you don't know yet and you don't know yet because uh you haven't you haven't made it so how could you know and you haven't run the experiments you haven't run the experiments um and when you times that by the system's complexity i.e the engine affects the structures affects uh avionics affects the software affects the structures affects the engine like when you have that kind of complexity everything needs to run in parallel everything's going to be wrong all the time and you kind of need to make progress anyway so when you're designing a sufficiently high complexity system the top-down control complexity put it in a Gantt chart doesn't work and you have to go bottoms up there's like no fundamental way that you can't go bottoms up so so this is why like if you look at every major industry the software engineering industry moved from waterfall to agile in the 2000s the chip design industry moved from waterfall to agile went from 100 transistors in a chip to over a billion the gaming industry great example went from waterfall to agile Mario used to be in a big ad chart you can't you can't design super complex uh video games anymore in that way um and now that generational change is happening in hardware so so when you look at something like boeing star liner versus dragon uh star liner was more expensive it it took significantly longer but actually i think the most interesting thing on star line versus dragon is actually it was it was a lower complex lower quality and the reason it was low quality despite spending like 2x something like 2x and four years longer on developing it is because they tried to take this old school waterfall model on something that is so high complexity that requires a new way of working so if you're designing complex systems and you want them to be safe and you want them to be reliable you have to go bottoms up you can't go top down yeah do you have any uh examples of projects or like hardware hardware projects basically in the past that could have happened much faster if they were using something like this today um all of europe yeah is what i say I think that the counter is actually even more interesting.

10:28So the counter question is, have there been examples in the past where you've had super high complexity systems and you've had to work in this way rather than waterfall? And people think like, oh, old school waterfall, new school agile. Actually, if you look at Apollo, Apollo is the greatest example I've ever got of agile, right? NASA didn't sit down and say, we're going to put a man on the moon. And the way we're going to do that is we're going to go to IBM doors and we're going to write a million requirements. And then we're going to work out what could go wrong with a million requirements and do a DFMEA and then write down another million requirements and then add some fudge factor and then spend 20 years designing Apollo.

11:05That's fundamentally not how we did it. The way we put man on the moon is we said, great, we need to go bottoms up because we've never done this before. It's too high complexity. We don't know the unknown. So the first thing we're going to do is we're going to get an ICBM and we're going to point it up and we're going to stick a man on top of it and we're going to see what happens. Good luck. And then the next thing we're going to do. so that was mercury and the next thing we're going to do is gemini and what gemini is is is going to understand multi-stage and we're going to put one rocket we're going to put another rocket on top of that rocket i want to put a man on top of that i'm going to go up into space and i'm going to go into orbit and then we're going to have apollo and apollo is going to be three stages and we're going to be able to go into orbit and we're going to be able to do some rendezvous maneuvers and then we're going to be able to come down and it took sort of like an onion um theory of risk it said what is the first thing that we can attack and then what is the second thing?

11:53And then what is the third thing? And then we iteratively approached it. And we didn't do it in one big iteration. We did it in like 25 different iterations. And every single iteration, we did some stuff, we learned, we tested. Some things went wrong, some things went horribly wrong. But on every single one of those, we leveled up. And eventually, we got to the moon. But we did that in an iterative and agile way. What is going to be the biggest differentiator from teams of the past and like how teams in the future move much, much faster? what i see in a lot of traditional primes is analysis paralysis they start asking questions around what could go wrong and they need to build strategies on how to de-risk those before we've even got a concept product out what i see working amazingly well in in el segundo in this new wave of hardware companies is we don't overthink we go what can we produce in the next three months and if we can't produce something in the next three months then we're dead as a business and we're not going to do anything and then three months goes by and you produce something and sort of something's work something's don't work and then you go how can we employ that and we take this fundamental bottoms up approach to designing and we realize that learning can only happen iteratively by doing stuff accepting probability of failure and being okay with that and building enough of a company and a mission where i have multiple shots on goal it's not just one shot and go yeah and do you think that it's going to require people like elon to you know tackle these massive problems like spacex in the future or is this type of iterative philosophy uh gonna kind of help much more founders build massive spacex like companies yeah i think there's two elements this element number one is how do you build a generational company and element number two is how do you design complex hardware and that they're kind of two different things so elon is one of the greatest entrepreneurs of all time i think he'll continue to be that in the next couple of decades uh and he's sort of built this playbook for building incredible companies i think that is actually a separate story to next-gen hardware in the same way today if you're building um a b2b banking platform or you're building a b2c dating app you do it in an agile way you use github you use modern tools you ship an mvp you put in front of users you iterate it and you make it better every single day and you don't over optimize for scale when you're early on that same approach is going to become the de facto approach that all hardware is produced whether you're building smart watches or human robotics or nuclear reactors or reusable rockets, this fundamental new way of working will become the macro global way of working.

14:48And then in that, you also need the recipe to build a generational company. You briefly mentioned China before we started rolling, and you said that you'd like to talk about that a little bit. What about that? I think it's the single most important thing that people in our industry don't talk about and there's a bunch of like rhetoric there's also a bunch of implicit stuff and i just don't think the industry is being as honest as it could be around it so so i'll like i'll start by saying i think there's an 85 chance that the us and china go to war in the next five years i think it's like that high and what what leads you to that there is a bunch of stuff that Xi Jinping has been incredibly explicit around there's also a bunch of stuff on the US side where like I'm not sure Trump wants another election anytime soon I think if he had to make a tough decision between fighting an aggressor and that it's unclear which way he moves there's also a great book by Ray Dalio which is called the new world order and it talks about the natural rise and the fall of different generational superpowers over time and very clearly when the u.s superpower right now and china's coming up if you look at our industry in particular about the sort of manufacturing the hardware industry it's really clear to me that china's ahead and it used to be a couple of years ago that they were up and coming and they were starting to do some things better than us and now i'd argue the vast majority of sectors and verticals whether it be shipping it be nuclear smr solar power solar powers battery technology evs and like they're starting to do some stuff around autonomy they haven't quite caught us up in launch they're not there yet i don't think they're fully there on autonomy either um but i think in most of the key verticals robotics are way further ahead than we are robotics way further ahead than we are they are significantly further ahead and the pace that they are operating at candidly is faster than the pace we are operating at uh china doesn't use u.s chips the u.s uses china's chips uh and china has more control over our supply chain than than we we sort of think is real so in a world where you hope for the best and you plan for the worst i i don't think we're quite being as intellectually honest as we can be right now how how should we be operating okay so i think the right question to ask is in the we should all we should all avoid war and we should try and make sure that that never happens if we hope for the best and plan for the worst the question is if we go to war how do we win uh china's ahead on most most hardware stuff um in a world where it's manufacturing centric how does the us and how does the west win that war and i think there are two key answers in which we can win the first is reliability safety whatever we call that that sector of stuff and the second is autonomy and ai those are the two big things so let's start with reliability like china's further ahead than we are would i and they're going to be first to market for e-vetol it's a great example now would i feel safer in a chinese e-vetol or an american e-vetol well the u.s might be further behind but i trust the reliability of the us and the faa way more than way more like regulations and difficulty to get to market sort of thing yeah that there's a an onus on reliability and safety here and it's not quite as hardcore as europe but i've got feelings around that but it's also not quite as relaxed as china and i think this is a really key area where if china are first to market with a significantly inferior product and we're slightly slower to market but we win we win what actually works then there's a real a real option for us to win so like russia was was the first to space russia beat the u.s with spartnik but the u.s got the first person on the move you know and i think there is something analogous to that in the sense that China will probably be the first to market on a number of key developments.

19:01But if their SMRs blow up and kill a bunch of people, and there's a huge amount of radioactive waste in the atmosphere, if the EVs are killing passengers on a regular basis, if the EV tolls are dropping out of the sky, then we're in a better position by being a couple of years later to market, but in order of magnitude more rigorous and more safe with our products my only worry with that would be that people you know if you have the ability to gather all that data because you have stuff actually working yeah then you can probably iterate faster on making the product better so even though there may be this lag where they start out worse but are shipping faster very rapidly kind of like spacex they go from you know it may blow up the first three times but suddenly it actually works and then now you've got how many string and uh you know Falcon launches have there been in a row so awesome like genius level insight the issue with it is there's a sliding scale so so early on and SpaceX great example Falcon 1 Falcon 9 early days very very very focused on iteration and shipping unbelievably quickly but when you when you look at a Falcon 9 launch when you're putting astronauts you're taking astronauts the iss there's actually a very different safety profile and it's a sliding scale and you've got to know when to err towards let's just test it and it will break and that's fine versus this can't go wrong i don't think china's quite figured that out yet based on some of the recent rocket launches we're seeing where the rockets are going up and they're coming down back down like that's a really clear example where china hasn't quite worked out what the right balance between these two elements is and this is a sliding scale so on on like next generation capability we probably want to err towards test test aggressively iterate learn but when you put people in the loop you probably want to tip towards safety and reliability and it's a very deliberate decision on that yeah i i also think like on the regulation side um you know i think the amount of money especially for like nuclear reactors is egregious where it costs you know a few hundred million dollars or a billion dollars or whatever of raw material costs to turn on a nuclear reactor and then there's like 10x that on regulation and stuff um do you think like in order let's let's play out the scenario of like u.s has to win how do we design something where we can actually have a shot at that um do you think that we're actually in a position today where we can do that or what needs to change in order for us to be in a position where we can do that this requires a nuance i think we're playing the card right i think i think we're playing the right way if we get too conservative and the u.s becomes europe and regulation isn't about safety it's a paper exercise which is by the way where many many of the things today is that's that's the way it is it's like oh so i get to see so our customers at flow are operating across EASA which is the European equivalent of the FAA and the FAA and the FAA is still tricky but it's an order of magnitude more innovation progressive than EASA.

22:12EASA is really there to have you fill in the paperwork have you dotted the i's and crossed the t's even if the safety isn't there whereas the FAA really do care about how are we making this safe are we thinking about it the right way and what level is a dial turn to um there are different levels where humans are in the loop versus out of the loop and i think that's the right call i would argue the space industry has a bit of an advantage compared to the aero industry where there is less regulation and that regulation is starting to come down a little bit and that's enabling the industry to move faster but where that careful balance is it's true how would you also think about the like getting more founders into the areas you know like i think it's something like 640 ish shipbuilding capacity in china to one in the u.s um we have to have people actually take on the challenge of doing that kind of stuff how do we do that the shipbuilding thing is really interesting um and i think it shines a light on on this this meta point and i call the meta point new game old game and people think that it's about going back to the old game and just playing that game again but playing it faster and i would argue actually a lot of the game is the new game so uh robotics are cool but human robotics are cooler you know uh rockets are cool reusable rockets are cooler there's this there's this new uh nuclear reactors are cool smr is a cooler um we need to be able to be at parity with the old game because honestly we've gone backwards and we used to have and this is what a big part of re-industrialization is we used to have a lot of these capabilities on shore we've lost that capability we got lazy you know we got overly reliant and we got lazy and we need to bring that back that's necessary but not sufficient to win the game and win the game is really about winning the new game and this is where china is excelling now i think when you think about like let's play a sci-fi sci-fi thing out here and let's say money isn't a factor and the u.s goes towards china is there a world in which that war is fought with human robots rather than people maybe um right now people are cheaper unfortunately there's like a a deeply capitalistic thing here which i'm not okay with but but it's the reality but if human robots fight human robots um who's going to win who's got the best robot probably not the way that that war is probably going to be won is when the drones talk to the human robot talk to the autonomous and that whole thing is working as one autonomous cluster and that cluster is being able to be better and the ai system in that cluster is better than the ai system in the cluster of china and that's the new game so this is where like for a long time people misunderstood anduro and they were like oh they're just doing bowen and actually and there's a software company and the software company has a whole bunch of hardware components that need to be on the field that talk to one another, but the underlying software is a really key innovation.

25:06So going back to the question on like, if the war does happen, how do we win? I think there are two key points. Key point number one is reliability. If China's further ahead, but all that stuff is breaking all the time, we've won. The second is the new game. And the new game for me is around how these things talk to one another and how software defines the hardware as opposed to a hardware first approach. Yeah, so it's a little bit like the David versus Goliath situation, but you just basically need to, if you need to make it so David can punch way above his weight. Yeah. Yeah. The new game is all about how these things talk to one another.

25:42Not necessarily with humans in the loop. Now, that's a scary thought. If you go 20 years into the future and there's human robots and there's human robots can fight wars with drones, and then you turn on autonomy and you say, have at it, and you need to make your own decisions because China's turned on autonomy and they're operating faster than we are. we've got people in the loop and that's taking too long so china wins if we turn on autonomy in drones and human robotics and something goes horribly wrong then we're in this weird sci-fi dystopian universe where we can't really control these items so there's yeah it starts to be very sci-fi but i think ai and the mesh layer above it will be as important if not more important to the new game as how good your tank is yeah and with with those kind of like thoughts in mind how is that you know uh influencing how you're acting day to day and what you're focused on well there are two types of people there are people that run towards the problem and people that run away from the problem i'm someone that runs towards the problem so so i'm out here playing fighting the good fight and doing what we need to do to win i think the the really interesting thing about software kind of invading hardware is it again it changes the game so when i think about the history of manufacturing i see it in three distinct eras there's what i call the the analog era the digital era and the iterative autonomous era the analog era was era one of manufacturing this is the wright brothers apollo uh this is the manhattan project it's it's when we did things on pen and paper and we were kind of just working stuff out ballpark i think 40s to 80s and we We were just getting off the ground.

27:26Our systems were low complexity, but high enough complexity for us doing pen and paper. And we were working stuff out. It was physical blackboards. It was drafting pen and paper drawing elements. And it was physical test. And everything was analog. And then complexity increased. And we entered the digital era. And the digital era, we basically used software to design higher complexity systems in each constituent vertical. So we move from blackboards to spreadsheets, and it enabled us to do way more complicated parametric models. We move from drafting tables to CAD, and it enabled us to build way more complex geometry.

28:02We move from physical tests to simulation and physical tests, and it enabled us to crank out the order of magnitude of testing and do way more tests way faster. And that's kind of the era that we've lived in for the last 40 years. When I think of the analog era, I think of Apollo. when i think of the digital era i think of the space shuttle and again that era sort of worked for a bit and now that era is broken and we're in era three right now and era three is the iterative or the autonomy era and complexity has again shot up by an order of magnitude and this time what's causing complexity to go up is actually software invading hardware so watches used to be watches they're now a computer on your wrist and they do so much more than they do so much more and And the complexity in the software is actually an order of magnitude more complex than the hardware.

28:52Or maybe even like 100 times. Totally. Yeah. Cars aren't cars anymore. They're autonomous self-driving computers on wheels. Fridges aren't fridges. Fridges have touchscreens on the front and they look at all of the things in your fridge. So I think what we're seeing happen is there's this new era of hardware emerging where software is one of the key elements to what makes hardware successful. and when you're in this era of 10x 100x more complexity where software drives everything then that's what causes people to reevaluate how they work so in this third era and apollo space shuttle i think of this era as really the falcon 9 era that's kind of the image i have in my head of like the defining product in this era in this era we need to reinvent how we do engineering.

29:43It can't be top-down functional. It's deeply cross-functional. It's deeply iterative. Our systems are too complex for us to take a top-down approach. We have to take a bottom-up approach. And it's really coined the term responsible engineer. So this is one of the key terms in El Segundo that you don't really get anywhere else in the world. It's this idea of an RE or a responsible engineer. And an RE is a mechanical or a domain engineer, plus a systems engineer, plus a project manager, plus a manufacturing person, all wrapped into one. and they take ultimate responsibility for the requirements and how we deliver against it and the exact product that we build can change so it's going back to a question on like how does that affect what i do day to day well i think what we're seeing is software invading hardware when software invades hardware complexity blows up and you need a new bottoms up automated way of testing these systems and an iterative way and that's kind of the backbone to why flow exists and why I have a company.

30:37Yeah, it's kind of, I don't know why I'm thinking about this, but Balgy has this, he had this basically response in the Lex Fruitman podcast a while back that he did, where he talked about, you know, if you put like a rat in a prime number maze, it just wouldn't be able to figure it out. And most humans wouldn't be able to figure it out. And but if you like look above, it's very obvious on exactly how it works. And there's like a simple way to go through this um can you see the game in like a different way because you're able to see a top-down view of how all these companies work yeah um from the inside basically i think i think we have a unique perspective on like i come from the old game so when i when i grew up i studied mechanical engineering i went to the old school companies doing the traditional way of doing engineering i saw how fundamentally broken that was i've seen the new way of doing engineering and all the new way has been sort of done on our software and we've got to see up close and personally how these companies operate and build that into our software and I think it's as much a cultural change as is a process change so let me use two words here and people conflate the two words and they misunderstand these two words and they think the two words are the same one word is agile the other words iterative and I think both of these two things are deeply important to to how the new wave operate so what is agile what is it and how they're different well a company like let me use an example um a company like radiant nuclear or spacex are deeply iterative and iterative means we take a bottoms-up approach we care more about what we can build and ship and produce in the short term and then we sort of quickly improve improve this on the fly but they're not necessarily agile and and the reason for that is the requirements are fixed they're good requirements we know that for spacex or for any launch company it's cost per kilogram and we want to minimize cost per kilogram and it's very very clear what that requirement is that requirement isn't going to change at no point is humanity going to say we want to spend more money to put a kilogram into low-earth orbit.

32:47And at no point are we going to say we want energy to be more expensive. We want this to be cheaper. But there's also a wave of hardware companies. And I think of like a Neros or a drone company or a, I don't know, Aura Ring. It's a great example of this. Where you have all of the hardware risk and complexity, you need this iterative approach. But if you don't continuously question your requirements, then you don't know if you're doing the right thing like for example drones have become one of the most important elements in the war for ukraine like if people didn't expect how how important drones would be in this war and they've been one of the one of the single biggest drivers for it but when you start designing a drone it's unclear what this drone needs to do like what is the range of that drone what capabilities that drone needs to have is it offensive or is it defensive is it got cameras on it or has it got payloads on it is it going to be autonomous is going to be driven by someone yeah exactly is it big is it small like there are these really like is it 15 million dollars is it 500 bucks and and there is both the question of we don't know what the requirements are yet i want to go discover those requirements but also the war changes there are different areas that war the way that people play the game changes and the requirements on the drone companies change so for a company like a drone company you both need to be iterative but you also need to be agile you continue to see questioning your requirements uh the top level requirements, not just the low level requirements and saying, are we producing the right core products?

34:10Yeah. And in your own journey, like when you're thinking about your kind of life and how you got here in the first place, what was that like? Because you didn't start out wanting to build a software company. You started out building like a rocket engine and then you eventually figured out that like building a rocket engine is hard. And there's this huge problem that is actually kind of experienced by all hardware companies globally. And you can go solve that a problem so in your mind what have been the like moments where you kind of questioned your own requirements on like what should i actually be doing in the first place like does it make sense to just completely pivot to this other thing because it's clearly a problem i think a macro view on this is founders are pretty good at iterating with data they're pretty bad at changing their philosophy on are we asking the right questions at a fundamental level i think i've lucky enough to be in a company where we've worked for eight years really really hard and at every two years we've had to question the core philosophy of of the company and why the company do you want to go through those yeah yeah totally let's do that so so let's talk about the last eight years so i'll tell you the story of the company i'll do the slightly longer version because i think you'll see the assumptions we had those assumptions being broken and actually we're playing a different game and the game that we're playing is completely a different game so so we started the company i was 21 years old and we just said hey look the world is wrong about how to develop hardware we need a new way to develop not we're just gonna go do it the fastest way for us is just to go do this ourselves and we need to earn money we don't need to earn a lot of money we turn some money to be able to pay pay for the bills so we're going to just do a consultancy and we called ourselves a rocket company and as i said earlier we're the fastest design consultancy in the world for hybrid rocket engines and the fastest people who work to do in 12 weeks we could do in two and a half hours and in in in that phase one we said look what we're going to do is we're going to be the role models and we're going to invent this new way of working and it's going to be so much more productive that everybody else in the world will kind of need to copy us to be competitive we're going to do it for rockets rocket engines and then somebody's going to do it for aero and somebody's going to do it for wind turbines and someone's going to do it for nuclear and then over the course of 20 years the entire world will change how they work um our mission has always been the same this is really interesting our mission has always been to reinvent how amounts develops complex hardware but how we've done that has changed so we did this for a year and at the end of the year we realized people want to develop in this way and the reason they're not able to develop in this way is the tools don't exist yet for them to do that and if the hardware engineering industry is going to change how they work we need a new type of platform and new type of software to enable this way of working so we made the mother of all pivots we pivoted from a hardware company to a software company and we said we're going to build this core technology and nasa tried to build this for three decades they called it the intelligent census environment for one decade they called it the um the they had different names for it i've forgotten the exact names but i've read every single paper nasa's ever written on this over the course of 30 years and they took three different stabs at it um and we said look if we can build a software and we can build it in a way that's beautiful and elegant and people can use it on day one without training, then it's going to be so much more productive that people will need to change how they work.

37:28So we went into this little man cave. I was 22 at this point. We raised a bunch of VC money to go fund it. And we said to ourselves, we're going to build a deep mind for hardware. We're going to build this new type of research lab. We're going to invent not just the tools, we're going to invent the paradigm for how to work in this way. And then we're going to take it to companies like McLaren and Rolls-Royce. and we're going to show them how much faster it is and they will have to adopt it like if we're able to invent technology humanity will change and the company might die but we can just open source technology and humanity will be it'll still be very valuable it will still be super valuable and we went into the into the man cave and we worked insanely hard and we made the breakthroughs and and we we not only worked out this new paradigm of of doing engineering we also built the tools to enable that and we came out the man cave and we took it to mclaren or os royce and i remember super clearly we took it to the directors of these companies and they said we were here for the last platform change we were here when we went from drafting to cad and now we get to be here when we go from cad to this and it's a new way of working and every vehicle we ever build in the future will be built in this way there's no way it doesn't happen and at this time you were still based in london right and so that was kind of like knocking on their doors it was like right down the road yeah sort of thing totally and um we we got into these companies we were called the engineering company at this point and we were so excited we're like we get to change the way these companies work and then we got into these companies and we saw the same core pattern which is we get into the companies they were overwhelmed with this whole new approach to doing hardware they were three months behind on the current vehicle and they didn't know where to start and we spun out every time um and it was this huge realization that we had realization one we had from the rocket come to the engineering company is you need to have good tools to enable people to work in this way but then realization two we had is that's not enough um the real problem isn't just software it's behavioral change if you have the right software and no one changes how they work then you haven't actually changed the industry and we had this deeply technological technological motivations before.

39:37We just build the tech, we open source it, kaboom, the world is different. And what we realized is that wasn't enough. There needs to be this education and this like a whole ecosystem around it to enable... Somewhat of a movement. Exactly. We need to build a movement. And the last point we realized in this is people don't understand new things. This is a really, like one of the most important learnings I've ever had. the first cars weren't called cars do you know what they were called i actually don't i think the first cars were even like electric they were electric uh the first cars weren't called cars because people didn't understand automobiles the first cars were called horseless carriages because people didn't understand the idea of a car but they got carriages and they got it has to have a horse and this is a a horseless carriage is a carriage plus plus i think that's a lot like the autonomous cars of today like they aren't really cars they're just autonomous vehicles that's exactly right yeah um what do you call uh what do you would when you think about an iphone people call it a phone it's not a phone it's a touchscreen computer with a phone app on it one percent the value i get from my iphone is making phone calls 99 the value is all this new stuff that i can do on the new platform that i couldn't do before in my sort of like nokia phone but people are bad at new things so what we had to do is we had to take this new platform this new way of working and we had to hide it and disguise it into a workflow that people understood and people knew and that workflow was requirements management so i never thought like six years ago i'd be building a requirements management company um but that that's what was asked of us so so we had all these european companies these european companies were deeply wedded into working this way but they didn't have the use case and they didn't have the culture to actually transition over and then we had this one tiny customer in the u.s and they were five people at the time and they were called stoke and stoke are a rocket company they make reusable rockets and now they've raised a couple hundred million dollars it's a couple years later but back then when there were five people i think they got to uh like the first usable rocket engine on 10 people yeah that's my understanding yeah amazing amazing team uh we love working with stoke and they said the same thing that that mclaren said they said this is the future of all of engineering in 10 years all engineering will be done in this way in the same way if you turned off github today and software the entire industry will crumble in 10 years if you turn off flow the entire industry will come but you've got to let us put our requirements in there and we were like what are you talking like we're building the future you know we're building this whole new platform this whole new way of working it's integrating modeling it's like autonomous git like branching and you get to work in this new way and they were like yeah we get all that and we want all that but if you don't solve a problem for us today, then it doesn't make a difference.

42:24And the first problem we have, and the most acute problem we have in the organization, is requirements management. We have requirements. Requirements are the source of truth for how we operate. Every single design and variable and model and test needs to tie back to requirements, and the requirements change on a continuous basis. And if you build this platform, but you build the app on the platform, and the first app you build is requirements management, then we'll use it for requirements management. We'll come for that thing. And then we'll realize a lot of the new stuff is why we stay. And we tested it out.

42:54And we said, we don't want to do this. Like, we're a new company. We believe in products and technology. We don't want to do this old use case. We tried it out. When we tried it out, we had a number of design partners. They all started to use it in production the same week for requirements with live data. So the thing that you didn't want to build was the thing that was working? The thing we didn't want to build was the thing that made us successful. Right. And by the way, the really ironic thing is they all started to use it for requirements. And when they could understand requirements in this new way, they could understand the platform.

43:21They could understand the whole new way of working. So the way that our customers think about us is requirements management plus plus. The way that we think of ourselves is we're building this new type of development platform that didn't exist before. And requirements is a Trojan horse that enables us to get success. And that's what made it successful. And I think that the third fundamental philosophical change we had is it's not good enough just to build the technology. it's not good enough to build the technology and the paradigm you actually need to solve a problem that people have today as your starting point and then when people trust you to solve that problem they're gonna come to you for the next problem and the next problem the next problem and over time you're gonna Trojan horse yourself into into that tool stack and they're gonna start to use your tools to work in this new way it's not an easy thing to make the call to go into a new direction yeah and even when you're talking about some part of the software is something you don't even really want to work on then suddenly people are that's like the most valuable thing yeah that's the beachhead right um when you were making those decisions what was running through your mind how did you how did you decide to kind of go in different directions so the story i tell myself is the more ambitious the mission the more difficult it's going to be the more acceptable it is to take time to build each layer of the stack because if you think about flow we we've been on the same mission for eight years like i have set my entire life purpose on this one mission which is reinvent how humanity designs complex hardware and we started out the paradigm layer that was a rocket company and then we did paradigm and technology then we did paradigm technology and product then we did paradigm technology and product and like beachhead app and it basically and then by the way we did all of that stuff and it still didn't work and it still didn't work because we were selling to ancient european companies that didn't really have an impetus to to do things in a new way because they're still building the old way so we had all of that and then we had the like macro move with the el segundo market to actually is there a reason why we need to do it in this new way and is there a new culture and a new set of people that are going to do that.

45:34So we had to invent multiple layers of the stack. Each layer of the stack, the paradigm layer, requires a different skill set to the technology layer, which requires a different skill set to the product layer, which is like UI UX, which requires a different skill set to the evangelism layer, which requires a different skill set to the workflow layer. So we've had to get good at every single one of those layers. But I think that is what makes Flow a really special company. It's we're not just inventing tools. we're inventing tools paradigms processes evangelism um we're inventing this whole new way of working and that is what makes it it go from here to here like that's that's what enables us to do the crazy things that we're doing and i am sure three years from now there's gonna be three more layers like there's gonna be an ai layer to this there's gonna be some sort of like marketing evangelism education layer to this like it's not just good enough for a new wave of el segundo companies to do it we actually have to help the old school world convert how they're doing we actually have to train a whole new wave of engineers i want to start working this way to help do this like for us to be able to make flow successful to reinvent how humanity develops hardware it's going to require education and like i love that that's like that's why i get up out in the morning i i love the game yeah and i think that kind of uh goes back to it's it's not And like you said, it wasn't reinventing what you were actually like reinventing the mission or what you were going after.

47:00But it was understanding that the way to get there or the path to get there may have been slightly different than you were expecting. And has it kind of been a situation of multiple instances where you had to, like with this consultancy that you initially did, where you're pretending that it actually takes longer to design the thing than it really does, is a little bit like that where you have to figure out how to make it something um that people will actually use i think for a long time and this comes from like high testosterone 21 year olds we were the internal monologue for us was they're wrong we're right and they don't get it and we're going to show them and we're going to show them at such a scale that they have to go we're wrong and it was very antagonistic and it was let's show the world what the right way of doing this is and we're going to lead from the front and i think as i've grown and matured and as the company has grown and matures we now have a different approach which is rocket scientists are actually really smart people crazy but these people are like amazing and and they're on the front lines and in this story they're mario and we're the little power up and we turn mario into fireball mario and we help mario be even better and we're not the heroes they're the heroes and we're in this game to serve them and if they are something for us we're gonna we're gonna rise to that call they're they're they're trying to save the princess and like if you can give them a power up to shoot fireballs that's great but they have to figure out how to actually use the power up yeah and this is why when when we were selling into Europe back in 2018 2019 there was no conceivable way for us to make that game work because there wasn't the appetite for them to change how they worked and to completely transform and change the culture the process and the tools but what you're seeing happen right now and this is why this generational change is so important is it's a whole new way of working it's a whole new culture and this is the culture that will be successful you mentioned kind of being written off by people and how mark zuckerberg has this uh talk i think with paul graham from i believe like 2012 and uh he talked about wanting to be like he there's there's different states and sometimes you're underestimated sometimes you're overestimated but his favorite state of being is where people don't believe that he's going to win or that he can make the thing work yeah and uh it's actually better you know for his mental state to be in that area how has that kind of been for you so there's an assumption in your question and the assumption is the scope so if i say zuck is overestimated well it depends on what you're trying to do uh if like if elon was trying to build a rocket engine i think people can go you can probably pull it off the software founder if he says i'm trying to put people on mars then suddenly the scope is so much bigger that people are like obviously this is doomed to fail for me i'm just going to increase the scope until i am underestimated like underestimated and that's the fun of it the fun of this is like the way that i think about this and how i thought about it from a pretty young age is there are two parallel universes one universe in which i wasn't born one universe in which i was born and the net positive difference between these universes is my impact as a human being and my like life purpose is to maximize the positive impact that i can have in this and for me the the thing that i can commit my life to is redefining how the design of every physical thing in the world is done that's a pretty cool thing to leave behind and if the entire industry goes from this to this that's pretty huge but the entire industry goes from this to this that's that's really really meaningful if we if we look forward 200 years and we stop thinking about satellites and smrs and and human robotics but we start thinking about the starship enterprise and it's not you know a thousand parts in the bill of materials it's a billion or like a trillion parts in the bill of materials you know that to pull that off will require more engineering hours than there are people in the world right now it's impossible it's impossible to do that so it's going to require us to again reinvent how we do engineering and by the way i've got a pretty good so i said there's era one of engineering which is manual analog era two is digital era three is iterative i've got a pretty clear image of what era four is what is era four era four is is computational and generative we're not going to have somebody go into cad and draw the 15 000th valve for a slightly different banner condition in the starship enterprise a lot of that's going to be generated um and and that's going to be this new computational approach to doing hardware but we're not there yet and we don't need to be we need to win era three and we're right at the beginning of the s curve in era three and this era is going to last 20 or 30 years and then we'll do era four and i've got a pretty good bet on era five as well which is like more nanotechnology than it is about like if if this era is around software starting to enter hardware that era is going to be software is hardware and it's all kind of the same thing but but we've just got to take where humanity is today and take the next step and help them to do that take the next step and help to do that and we'll just continue to take steps and this is also something where you just can't you can't do a massive leap at any given you know from era one to era three or you're one to era four and you kind of have to go through this uh process yeah you can't skip steps yeah you can just do the steps faster yeah how are you trying to kind of like shorten the time frame of people adopting this like if you are really trying to get humanity to go from you know this to that to that um i imagine that there's something in the back of your mind where you're saying like okay if we can do this one day sooner and then that one day compounds and compounds and compounds it has massive impact years in the future yeah um how are you thinking about that so so let's go back to the mario analogy i don't think we're mario in this in this analogy um i think our customers are narrow so the people designing human robots and reusable rockets and self-driving cars they're the heroes so the question is there is this macro shift there's this tiny new wave of cool new startups that are designing next generation systems in this crazy way and then there's the old school legacy dinosaur and the dinosaur is trying to kill the new wave right the dinosaur is like there are only means of survival is to kill the new wave so that they aren't obsoleted and success for the new wave will become so productive and so powerful that they make the dinosaurs look like dinosaurs and i think when you look at evs we've had this when you look at reusable rockets we've had this even seven years ago europe and the founder and the ceo of arian space which is the european launch was like reusability is a pipe dream it's never going to happen and now spacex do 95 of mass orbit of mass to orbit like 95 which i mean i don't is there even like a historical analogy of something like that happening where there's a single organization not not nonetheless company but like organization that is fundamentally moving an industry forward like that i think it's probably not i think if you look at rockefeller and you look at the rail and you look at the east india trading company you look at like if you look at any of these industries typically one one team does it the best but but to go back to go back to the point i think what we can do to to make this work is either the el segundo next generation hardware companies will have their shot and they'll screw it up if they screw it up this this game's over and we retreat 30 40 years boeing says look we told you so these new kids tried and the new kids failed or the new wave will become the spacex for nuclear and the spacex for aero the spacex for robotics and you're going to see this whole new wave of companies emerge and these companies will become the mass market and in the same way when when you look at software this this exact story played out you had ibm and you had oracle and you had microsoft and there were these huge goliaths that operated in a very certain way and then you have these new upstarts like google and facebook and twitter and these new upstarts were doing engineering developing software in a completely new way to the old way and those companies became so successful that they became the fortune 10 and then eventually the old boys woke up and they said maybe we should adopt a github maybe this idea of a gantt chart isn't the best idea and maybe we need to like become wise and they eventually came into the new bubble so what we can do to be successful is we can just get this little bubble of an emerging industry we can go all in on there we can make those guys as successful as they can possibly be we can give them the best possible short of success and if they become successful then the industry moves yeah and i i also liked the way that you i think described kind of getting uh getting the product into customers hands in the first place um it's not you're not trying to like sell an entire organization you're trying to sell an individual it's a little bit like slack almost um where you basically just have people using the thing yeah and then suddenly because they're using the thing the organization adopts the thing yeah And I almost imagine that it's a little bit of a situation, even on kind of like if you think about taxes and government.

56:36Government, you know, if you go up and up into a bigger and bigger organization, it's less and less effective at allocating dollars. Whereas, you know, as smaller and smaller, you know, someone is really, you know, an individual person is really good at allocating$10. Whereas a massive, you know,$1 trillion government can't allocate the same$10 in the most effective way. um it's a little bit similar in that sense as well that an organization instead of trying to get an entire organization to adopt you basically just try and find that one person that's allocating their own time and then figure out how can i make that more person more efficient and then eventually the entire organization figures out this is the right way to do things i think there's a meta point here when you look at the people that we serve we serve roboticists we serve rocket scientists.

57:23We serve people designing nuclear reactors. We serve the most creative and innovative young engineers life. If you look at the tools that these engineers use on a day-to-day basis, it's horrific. The tools in our industry are stuck in the dark ages. If you look at Siemens, you look at Dassault, you look at a lot of these major players, the software was built and conceived in the 70s and the 80s. And when you look at the software today, you can absolutely see that. It hasn't changed. In systems engineering, the market that we serve, the monopoly, the single biggest player is IBM. IBM is the king in our industry.

58:00And it's crazy to me that we have this dichotomy between the most impressive frontier technologies and technologists in the world are being built on this archaic ancient software that needs to be in the bin. And you look at any other industry, let's go back to software, gaming, chip design, even graphic design, like any of these industries, they have amazing software that are built to enable these engineers and these designers to do more. And you look at our industry and it's completely opposite. And the tools are actually getting in the way of these engineers being able to do stuff right. So then you ask the question, why?

58:31Why isn't the free market working? Why are these amazing companies and engineers stuck with this really crummy software? And the reason why is our industry, the software for hardware market, is a very deeply entrenched oligopoly. There are four big players in the market. Siemens, Dasso, Autodesk, PTC. and those are the four big CAD vendors. And the CAD is the sort of like the programming language equivalent. It's the thing that every of these companies are centered on. And then once you have that monopoly, anything that integrates well with that is sticky. So these companies can afford to have really shitty software that doesn't work half the time, that people don't understand how to use and still make seven, eight figures a year from like leeching off of our customers.

59:16Because there is this generational change happening from waterfall to agile it rewrites what companies need out their software it rewrites the core workflow and for the first time in maybe 40 years there is an opportunity to rebuild the entire stack and to say what would the best cad plm whatever system look like if it was built in in the 21st century and it actually helped engineers do more not less and i think that is the opportunity that is emerging today and it's not just flow in that market there is this whole new wave of software for hardware companies emerging what i see being the most important thing in this however is taste and even a lot of the new wave companies i think there are some that are exceptions that are really really fantastic at this but i see really crummy software built i'm a mechanical engineer and and i i when i go to any software that is even a little bit crummy i turn off of it i go to excel and I just do all my work in Excel and I'll translate it to the software later on.

1:00:19There are very few companies that can do what is the next generation workflow and what is an incredible experience that works for the end user, not for the decision maker, not for the buyer, for the end user that's actually doing this and make that work collectively. I think it's a decision as much as it is a differentiator. And I think it's one of the things, honestly, we do the best. We not only work out what the new workflow is and we educate people and we help engineers operate in this new way. But we believe at a very deep level that if we're going to build software and the software is going to change how people work, they need to adopt it and they need to love it.

1:01:00And it needs to be an incredible experience, not just a good enough experience to get by. um and that's why when you look at flow when you look versus traditional software for hardware companies it's an entirely different approach to ux to quality to product design to intuitiveness you were talking earlier about the types of people that you kind of look for and the two different types of people can you kind of explain how you're finding those folks yeah what is that what is your philosophy for finding talent so flow has a very very different culture to almost any company that i've seen and the way that i describe it internally is there are two types of organization there is the army and there is the special forces and the tools and the processes and the cadence and the rigor that works for the army rank and fire people they have their spot they fit into the slot and they do that thing very well versus the sas or special forces is entirely different the right process and cadence for the army like absolutely turns off the special forces elite and And the right tools in the process of Special Forces Elite doesn't work for the rank and file army person.

1:02:06And we made a very deliberate decision on our culture, which is we want a Special Forces culture, not an army culture. And our Special Forces culture has enabled us to do crazy amounts. So I think the industry incumbent we compete with is a company called JAMA. JAMA's HR team is three times bigger than our company. And we win head to head on every deal we take to JAMA. head-to-head we win every time when we raised our series a the entire organization was eight people and we were aggressively profitable we couldn't hire quickly enough and we have the best product in the industry by an order of magnitude and the reason that we've been successful that is we've built this special special was the culture so what is it that we look for in the special forces of culture that is different to to traditional traditional hires and the framework that I built is something I call zero-th order, first order, and second order people.

1:03:03So zero-th order people, I'd say, are 80 % of people. It's school, college, job, job, promotion, job, retire day. And it's the kind of default career track. It's people that are looking for a nine-to-five, and it's people that want balance. And there's absolutely nothing wrong with that. That is the vast majority of people in the world, and I think that the world is better off for it. And then occasionally, I'd say maybe 15 % of people fall into this first order category. And the first orders are your classic high rises. They're your McKinsey, your investment bankers, they're your Googles, your MBAs.