This piece warns that 80% of US precision defense and space parts come from 3,000-4,000 small machine shops, whose owners average 60 years old and 90% won't pass on the business when they retire—causing a capacity crash just when it's needed most. The author sees this as a crisis but also an opportunity: his company Hadrian aims to use software to make old machines run automatically, like AWS for manufacturing. Key mentions: Hadrian (using software to run machines overnight), SpaceX (lowering launch costs, boosting demand), and Raytheon (can't remake missile parts, exposing supply chain issues).
At a Glance This episode of Invest Like the Best features Lux Capital co-founder Josh Wolfe and Chris Power, founder of advanced manufacturing startup Hadrian, focusing on factory modernization in the aerospace and defense sectors. The core argument: U.S. precision manufacturing relies heavily on a
Lux Capital co-founder Josh Wolfe and Hadrian founder Chris Power discuss the crisis and opportunities in U.S. precision manufacturing. The core judgment: 80% of high-precision defense and aerospace components in the U.S. depend on 3,000–4,000 "mom-and-pop shops" with average revenues of only $10–12 million. The average age of these shop owners is 60, and over the next 5–10 years, a massive wave of retirements is expected, with 90% not transferring their businesses. This will lead to a catastrophic capacity contraction in the defense supply chain during a critical decade.
Chris Power argues that the supply chain structure of the U.S. aerospace and defense precision manufacturing industry is itself an imminent crisis.
Historical context: Most of these machine shops were established during the Cold War and the first space race, founded by 30-year-old entrepreneurs. They have now been operating for 30 years, with owners aged 60. The industry is highly fragmented—3,000 to 4,000 shops, with average revenue of $10–12 million, totaling $40–50 billion. Chris describes this as "what Keith Rabois calls the perfect fragmented, low NPS, vertically integrated structure."
Dual shocks:
1. Surge in demand: Commercial space (SpaceX, Anduril, etc.) has generated a massive influx of demand for high-precision components, which the traditional supply chain cannot handle. Customer lead times extend to 6–10 weeks.
2. Shrinking supply: Over the past three years, the 737 Max grounding caused a sharp revenue decline for shops dependent on Boeing; during the pandemic, a large number of workers took early retirement. These shops hold only about 30 days of cash reserves.
The most dangerous consequence: When owners retire, 90% will not sell or pass on the business—they will "lock the door, sell the machines, and throw away the keys." This means that during the critical decade of competing with China for space dominance, production capacity will plummet. More critically, many parts have no digital files—the blueprints are in someone's drawer, never digitized in 20 years.
Data support: After the U.S. shipped roughly one-third of its Stinger and Javelin missiles to Ukraine, the Biden administration asked Raytheon to ramp up production. Raytheon responded: "We not only have supply chain bottlenecks, but we also don't know how to remanufacture these parts anymore—it could take years to figure out."
Chris Power positions Hadrian as the "AWS of manufacturing"—lowering the barrier to entrepreneurship and accelerating iteration cycles through a platform-based infrastructure.
A software industry analogy: 10 years ago, starting a SaaS company required $1 million, with over 50% of time spent on server maintenance and payment systems. The emergence of AWS, Stripe, and Twilio reduced costs to a few hundred dollars, leading to a surge in the number of companies and a dramatic increase in iteration speed.
Hadrian's final form will achieve three goals:
1. An order-of-magnitude improvement in iteration speed: Satellite design cycles shortened from one year to two months, enabling rapid adjustments based on customer feedback.
2. Lowering the cost of entrepreneurship: Triggering a "Cambrian explosion," with more aerospace/drone startups emerging.
3. Accelerating product evolution: Citing the "pottery experiment"—a single perfect pot vs. mass rapid iteration—the latter ultimately produced the superior work.
Josh Wolfe adds: The aerospace ecosystem is shifting from vertical integration to horizontal specialization. Things unimaginable five years ago are now happening—competitors (SpaceX and Rocket Lab) collaborate to launch payloads; independent engine companies (Ursa Major) emerge; a software company spun off from SpaceX (Epsilon 3) serves other firms. Every "expansion" of the ecosystem (cheaper launches → more payloads → more rocket companies) points to growing demand for Hadrian. "No matter which link in the demand cycle rises—more launch vehicles, more engines, more payloads—all three axes point to Hadrian."
Chris Power emphasizes that Hadrian's innovation lies not in hardware, but in software integration and process optimization — a blind spot long overlooked by the industry.
Three core components:
1. Digital Manufacturing: Converting customer PDF drawings into machine code — a key focus for software automation.
2. Machine Operation: Senior technicians make real-time code adjustments at the control console to account for subtle variations in tools and materials — an operational software issue.
3. Logistics and Load Balancing: Unpredictable cycle times, variations in inspection durations, and changing customer requirements — a data science challenge.
Key insight: Modern CNC machines come equipped with extensive software capabilities, yet these are rarely fully utilized — because "which machinist knows how to write software? Which workshop can afford to hire a software engineer for three months of R&D?" Machines are designed to run overnight, but in reality, 70–80% of downtime is caused by software errors (broken tools, controller bugs), requiring human intervention to clear errors and restart.
Hadrian's strategy: Purchase off-the-shelf equipment, deeply integrate software to leverage its API ("These machines have APIs that control everything, but no one has ever used them"), and achieve unmanned overnight operation. An industry veteran marveled, "It's amazing," upon seeing that the machine had automatically produced 10 qualified parts by morning — Chris responded: "These machines were designed to run overnight from the start."
The direction of innovation is not faster cutting, but simplification and robustness: Complexity and lack of robustness are the primary cost drivers in manufacturing. A simple system that runs correctly every time is superior to a highly efficient one that fails once every ten runs — because each failure requires three to four people to spend time troubleshooting. By eliminating errors at every handoff point, overall factory speed improves, thereby securing pricing power.
Josh Wolfe proposes an "anti-bubble" framework: in the current market environment, capital should prioritize hard-tech companies that solve "truly important problems."
Current market assessment: Wolfe believes we are entering an "L-shaped" adjustment period (similar to May–July 2000), which could last 18–24 months. Market sentiment is moving from "denial to anger," with anger directed at the Federal Reserve, potentially sparking an "Occupy the Fed" movement.
"Anti-bubble" phenomenon: Overvalued, undercapitalized, and overconfident companies will face severe down rounds, unnatural investors in SPVs, punitive "pay-to-play" terms, and ultimately asset divestitures, spin-offs, and recapitalizations.
Wolfe's strategy: Provide portfolio companies with sufficient cash to insulate them from macro, micro, and political turmoil for 3–4 years, allowing them to focus on technology R&D. When the chaos subsides, they will emerge as leaders in their fields. "I usually like things that are expensive, because in theory it means a moat—and that moat might just be capital."
Hadrian's capital efficiency: Chris Power notes that Hadrian requires significant funding before reaching approximately $50 million in revenue, but will then "print money." The key mechanism: equipment financing converts capital expenditure into operating expenditure, secured by the equipment itself (not intellectual property). At 60% capacity utilization, a single machine already generates roughly $10,000 in positive free cash flow per month; with 2–3 achievable operational efficiency improvements, the company will generate substantial free cash flow after reaching the $40–50 million revenue line.
Chris Power emphasizes that in complex manufacturing, early-stage focus on a single material (aluminum) and a single process (milling) is the only viable path.
Focus strategy: Only aluminum milling—this alone is extremely difficult, yet it covers 30%-80% of the part volume for aerospace and defense customers. Satellite companies have a higher proportion of aluminum parts, rocket companies about half, and engine-focused defense companies nearly zero. By focusing, it is possible to establish "factory-market fit," making the system scalable and repeatable, and then redirect R&D resources toward more challenging metals and processes.
"The Pain of Saying No": Chris spends a significant amount of time training the team to turn down customers—clearly communicating the 12-month and 18-month roadmaps and requiring customers to only place orders within current capabilities. Psychologically, this is extremely difficult, as it involves watching profitable purchase orders get rejected, but it is the only way to achieve a truly scalable system.
"The PhD Arrogance Trap": Previous industry failures stem from two types of arrogance—PE professionals believing "operations don't make money, finance does," and Silicon Valley types thinking "30 PhDs can solve everything, no need for technicians." Chris's approach: Create a culture where machinists, software engineers, and operations personnel collaborate, regardless of role, with equal equity and compensation at the same level. The core advantage is not technology, but "50 people (soon 80-100) pulling the cart in the same direction."
The Value of "Dirty Work": Citing Paul Graham's "upstairs theory"—when a fat man is chasing you, you should run upstairs (leveraging relative advantages). Chris believes that the ability to identify information arbitrage (e.g., cold-calling 1,000 factory managers) is a key entrepreneurial advantage, and this information cannot be obtained through Google. "You must truly love this kind of grinding work from scratch."
Chris Power argues that America's fundamental problem is not technology or supply chains, but a loss of "seriousness."
Definition of "seriousness": In a tribe, everyone knows that if they fail to fulfill their duties, the entire tribe will collapse. In modern society, when a fire hydrant is knocked over, the water company blames the fire department, and the fire department blames the water company back — this "not my problem" attitude is a lack of seriousness.
Chris believes that the American public has shifted from "a group of serious people" to "a group of unserious people" — due to complacency born from prolonged success. The soaring price of the iPhone will become America's "wake-up call" — "Oh damn, I can't just eat bugs and type on a keyboard; these things really matter."
Josh Wolfe adds: He explains this using the "three generations from shirt to shirt" rule — the success of the previous generation breeds complacency in the younger generation. The 22–37 age group has never experienced a true recession, never seen the next funding round or a company in distress. Meanwhile, societal complexity has increased (since the 1958 "I, Pencil" essay, no one can fully explain the simplest items around them), yet this complexity is also a source of global competitive advantage.
Wolfe's conclusion: Companies like Hadrian are helping rebuild America's technological edge, allowing "a thousand flowers to bloom" and reconstructing the nation's manufacturing base. Both guests received the same book, Freedom's Forge — which recounts how America's industrial base was mobilized within four years during World War II, creating the war machine.
| Position | Guest Sentiment | Key Data |
|---|---|---|
| Hadrian | Bullish (founded by Chris Power, invested by Josh Wolfe) | Target: achieve positive free cash flow after reaching $50 million in revenue; Factory 2 (moved in July 2022) will be equipped with 30-40 machines |
| Anduril | Bullish (as a demand-side case) | Expanded from a single product (Sentry Tower) to aerial and underwater platforms; design philosophy emphasizes modularity |
| SpaceX | Neutral (as an ecosystem case) | Lowered launch costs, driving a surge in commercial space demand |
| Rocket Lab | Neutral (as an ecosystem case) | Competes with SpaceX, manufactures "buses" and carries competitor payloads |
| Ursa Major | Bullish (trend of independent engine companies) | Secured large engine orders |
| Epsilon 3 | Bullish (spun out from SpaceX) | Provides logistics, flight planning, and command-and-control software for other companies |
| Planet Labs | Neutral (historical case) | Expanded from 31 "Dove" satellites to hundreds, acquired Skybox |
| Raytheon | Risk warning | Unable to produce parts for "Stinger" and "Javelin" missiles |
| Boeing | Risk warning | 737 Max grounding caused a sharp revenue drop for machine shops dependent on Boeing |
| Intel | Risk warning | Received $50 billion in subsidies to build a factory in Arizona, but faces a talent shortage |
1. Chris Power: “80% of high-precision aerospace and defense components in the US flow through 3,000–4,000 mom-and-pop shops with an average revenue of $10 million. The average owner is 60 years old, and 90% will not transfer their business upon retirement—capacity will collapse just when it is needed most.” Supporting evidence: Over the past three years, the 737 Max crisis and COVID have already led to numerous shop closures, while commercial aerospace demand is surging.
2. Chris Power: “The software built into modern CNC machines has never been fully utilized—it is not a technology problem, but a lack of people who can write the software. Machines should be able to run overnight, but in reality, 70–80% of downtime is caused by software errors requiring human supervision.” Hadrian’s strategy: Buy off-the-shelf equipment, then deeply integrate software to cover the API layer, enabling unmanned overnight operation.
3. Josh Wolfe: “When costs are low, you get a million experiments, 90% of which fail, but the wreckage of those failures becomes the combinatorial material for the next wave of innovation. When costs are high, only the most selective projects get funded—but scientific projects inside large companies get spun out.” Conclusion: Whether the cost of capital is high or low does not hinder innovation; it merely changes the mechanism.
4. Chris Power: “All the advice on lean startup is completely wrong for deep tech companies. You must spend a year checking every assumption from first principles, then invest $20 million and charge in one direction, praying you hit the target.” Because deep tech engineers have non-transferable skills and cannot “snake” their way through iterations like SaaS companies.
5. Chris Power: “Hadrian’s core advantage is not technology, but 50 people (soon 80–100) pulling in the same direction—machinists, software engineers, and operations staff all paid equally with equal equity, creating a collaborative culture.” Previous industry failures stemmed from the “PhD arrogance trap”—the belief that 30 PhDs could solve everything without industry knowledge.
6. Chris Power: “America’s problem is not technology or supply chains, but a loss of ‘seriousness’—people no longer take their role in the social structure seriously. The water utility passes the buck to the fire department, and the fire department passes it back—this attitude causes everything to collapse.” Falsification condition: If American society re-establishes respect for manufacturing and “dirty work,” the crisis could be alleviated.
7. Josh Wolfe: “I generally like things that are expensive—because in theory it implies a moat, and that moat may be capital itself.” In the current capital-scarce environment, capital-intensive hard-tech companies gain a structural advantage.
8. Chris Power: “In manufacturing, simplicity and robustness matter more than efficiency. A simple system that works every time is better than an efficient system that fails once every ten runs—because after a failure, three or four people have to spend time fixing it.” By eliminating handoff errors, overall speed improves, which in turn creates pricing power.