Shyam Sankar: The Broken Incentive Structure of How Governments Buy Defence | E1104

1. 0:00 – 0:52

   Intro

   1. HSHarry Stebbings0:00

      If you were to be in charge of the DOD today, what would you do?

   2. SSShyam Sankar0:03

      It would be-

   3. HSHarry Stebbings0:04

      This is Shyam Sankar, CTO at Palantir, one of the biggest data solutions company contracted to the US military.

   4. SSShyam Sankar0:10

      In an effort to have a perception of fair competition, we have created so much process that we either have fair competition nor speed. The European process is even more slow because there is an even greater emphasis on, how do I show fairness across all of the EU state? We are spending at historic lows relative to the Cold War.

   5. HSHarry Stebbings0:29

      What is it in context of GDP, 15%?

   6. SSShyam Sankar0:31

      Two to 3%.

   7. HSHarry Stebbings0:32

      What was it in the Cold War?

   8. SSShyam Sankar0:34

      At its peak, I think it's like (beep) .

   9. HSHarry Stebbings0:39

      Shyam, I'm so excited for this. Now, you were described to me by Joe Lonsdale as the hardest working person in Silicon Valley, and that's coming from Joe. So first, thank you so much for joining me today.

   10. SSShyam Sankar0:51

       I am so, I'm

2. 0:52 – 4:54

   Work Ethic, Luck, and Success

   1. SSShyam Sankar0:52

      so thrilled to be here. Thanks for having me, Harry.

   2. HSHarry Stebbings0:54

      Not at all. But I do want to start on that. I want to unpack just that work ethic a little bit. I think I'm cha- like armchair psychologist. I think a lot's driven by childhood. Where do you think you get that work ethic and drive from?

   3. SSShyam Sankar1:06

      I, I think it really, it comes from my father. You know, my, uh, my father as a young man in his 20s he left India to set up the first pharmaceutical manufacturing facility in India, and I'd say, uh, in Africa, sorry. And even before that, he, he was the youngest of nine children and he, he, he worked, he lived in this structure where all of his siblings were working their ass off to send him to college. And this sense of, "Look, I have to, I have to make something of this given all this opportunity I've been given." And, uh, you know, he, he was a great man.

   4. HSHarry Stebbings1:38

      And so that inspired you that the only way to win was by working hard?

   5. SSShyam Sankar1:42

      That there was kind of this obligation to family, to society, that, that there's, there's just so much value in that. And I think it, and his life in many ways I think you could say it would be, it would be kind of a trivial story if it was like, look, my dad was this guy who worked really hard, he took this risk and it all worked out. That's not what happened. It all didn't work out. You know, when my dad went to Nigeria w- when I was a young kid, we, we suffered horrible armed violence. He was almost executed. He, he had to start over. We, we fled Nigeria, we, we resettled in the US effectively as refugees starting from scratch, and I was raised, and he lived his life with this deep understanding of the counterfactual, that like no matter how bad it is, remember what it could have been. You know, your alternative to this present moment is being dead in a ditch, and how grateful you should be for that and how you should not squander the opportunity that you have as a consequence of that.

   6. HSHarry Stebbings2:32

      How old were you when you had to restart?

   7. SSShyam Sankar2:34

      I was two and a half. So fortunately, you know, many of those, you know, two and a half, three, I, many, many, I was not mentally scarred, traumatically scarred by that. But it had a profound effect on my parents.

   8. HSHarry Stebbings2:45

      Yeah. Can I ask, when you look back on your lessons from them and seeing them, how do you think it impacted you?

   9. SSShyam Sankar2:51

      Uh, it really gave me this sense of looking forward. So like, look, all these bad things happen, what are you supposed to do about it? What, the most productive thing you can do about it is stick together as a unit and focus on what you could do next and, and support each other through that, uh, and support each other's ambitions. I think a- accomplishing great things in the world very rarely can be done alone. I, at least I've never experienced that. It is, it's really the unit, there's all these unsung heroes. It's, it's better to think about it as a rock band, not a solo act. And getting that chemistry right is I think crucial, and it's as crucial at home as it is in, in business.

   10. HSHarry Stebbings3:26

       Can I ask you, have you seen General McRaven's commencement speech where he says about the importance of making your bed at the start of every day? And one of his is, find someone to help you paddle. And it's very much along those lines. Can I ask, with, with that realization that bad things happen and it's about putting your next step forward, do you believe in luck? And how do you think about the importance of luck versus pure hard work in factoring towards success?

   11. SSShyam Sankar3:52

       Um, I kind of have a mixed feeling on it. On one end, I think it's not very, I'm not sure why it's productive to believe in luck, especially if you think your luck can vary. Right? So I mean, I think the most productive mind frame is something like, "I have good luck and the only thing I actually have control over is how hard I work." And so let me focus on that part of it. Uh, and how smart I work, sure. But, but I have the, uh, the other view of it is, is there, is there such a thing as luck? Probably. But it's, it's like quantum, you know, we, we often think it's like, what matters more luck or hard work or... It's like, w- why not both? And only one of these variables do you really have a lot of control over. So I, I think, you know, we, we probably have somehow in this current epoch, I think we've undervalued or under-focused on hard work and overemphasized the role of luck in, in success.

   12. HSHarry Stebbings4:37

       I, I don't think it's that actually. I think we've just overvalued the role of fake humility, which is like I think a lot of us are happy to admit to ourselves, "I worked my ass off and I got to where I am because largely because of that." But you can't say, "Yeah, I, I worked my ass off and I deserve to be here."

3. 4:54 – 9:05

   Palantir's Formative Years

   1. HSHarry Stebbings4:54

      I think that's the tough thing. Can I ask you, how did Palantir come to be? 'Cause you were, it's like Xoom in the early days, this was like Kevin Hart's and I think 2002, 2003 style. This was like dawn of like Silicon Valley greats.

   2. SSShyam Sankar5:06

      Yeah, so for, for the, for the audience, this is Xoom with an X, which was the, uh, the money transfer company that subsequently, uh, ended up with PayPal. Um, and that, I mean, that was great. Like I really got to the val- maybe backing up a little bit, I got to the Valley 'cause in this period of time having graduated from Cornell, your, your opportunities as an engineer were really finance, consulting, or maybe a very large tech company where you were gonna be a cog in the machine. Like Google didn't even come to the campus to recruit in those days. And, and so I just needed to get to Silicon Valley. I went to, to Stanford for that. Within two months of getting to Stanford, I had like begged and broken down Kevin Hart's door to get a job at, at Xoom. And that, that's really how this kind of all started. So I joined Xoom as the fifth employee and I spent three amazing and wonderful years there. But when I, uh, through Joe's freshman year roommate actually, uh, I learned about Palantir. This, this very eclectic character, Gabe Rosen, who is a poet, who swims at the south end rowing club in freezing cold San Francisco Bay waters. I mean, this guy you can't really put in a box, but he's like, "You know, you really need to meet Joe and hear about this company."... and, at the time, it was 12 people a- and they wanted to work on problems of national security. My uncle was a victim of the 2006 coordinated train bombings in Bombay. I was very much ... And I was in Upstate New York during 9/11. It was, uh, y- uh, I think that was a seminal moment for, for many, many folks of my generation. I actually tried to drop out of school to join the CIA, but I think everyone had that idea at that time, and I didn't even have my college degree, so they didn't quite respond to my, uh, to my electronic application. Uh, and, and so, yeah, I would have much rather, you know, failed in a ... certainly seemed in 2005, Palantir like this ... uh, it wasn't at all clear how it was gonna work, but I would have much rather failed working on something that I thought was so important.

   3. HSHarry Stebbings6:53

      What state was Palantir in 2005? Just help me, 'cause we see it today as this incredible company serving many different governments around the world. Where was it in 2005? Like where was the entry point for you?

   4. SSShyam Sankar7:03

      Uh, really they had, they had focused on only hiring engineers. And I was ... and I ... of course, I'm an engineer by background, but I think they kind of figured out that they really wouldn't want my code in, in production. Uh ...

   5. HSHarry Stebbings7:12

      (laughs)

   6. SSShyam Sankar7:12

      And, and so they were kind of at the point where there's like, "Okay. Well, who's gonna actually interact with the customers to shape how we're building the product?" And we don't want some sort of product managers thinking ... Like this is a very deep and complicated problem, the intersection of the domain and the software will be nuanced. Um, you have a massive assymetry of information that most of this offer you're deploying is into a classified environment, where at the time, none of us had clearances. We, we were all wild outsiders with no knowledge of what was happening behind those, you know, these magical doors. Uh, but just a kind of almost maniacal commitment to try to solve the problem nonetheless.

   7. HSHarry Stebbings7:52

      How, how do you think you were so successful then? 'Cause when I look at like Anduril, obviously we mentioned Trey beforehand, when we look at like Anduril, you know, a lot of the success I always believe was the combination of Palmer and Trey, and actually Trey bringing a lot of the experience probably from Palantir (laughs) , um, of how government and selling to government works. If you were the V1, how on earth did you make it work when no one had a clue how to do it? (laughs)

   8. SSShyam Sankar8:16

      (laughs) We're just committed to building the right product. And I don't want that to sound naïve, because actually I think it took us longer and was harder because we didn't know how to sell to government. You know, we ... there, there was all these things that were kind of zero to one, there was no one else to really learn from, all the people who really knew it were not of the technology world, and, and couldn't get it to work in our context anyways. So we had to kind of, um, flail our way through feeling it out from first principles and developing a new playbook that was gonna work, and I think a playbook that subsequently has been really valuable to the rest of ?

   9. HSHarry Stebbings8:46

      Can I ask, what is that? Uh, we're just jumping around here, but this is what I love about this show, but do you ... and Trey said you literally kind of built a new business model for selling to governments and defense tag. What i- what is that playbook?

   10. SSShyam Sankar8:56

       If you were to follow ... so before I tell you what the, the new playbook is, just understand the old playbook, right? The way the government really wants to buy everything is

4. 9:05 – 18:08

   Sales Strategies and Government Contracts

   1. SSShyam Sankar9:05

      to pay you by the hour to build it. So, uh, some assessment of who should be doing it, but fundamentally it's a labor model, and it's a labor model where they really want ... and through cost accounting and, and audits will look at your actual costs. They will build in overhead rates. They will then say, "This is how much profit you're allowed to have." It's kind of actually pretty communist for, for, for, uh, uh, a country's who entire, entire economic engine has been powered by capitalism as a monopsonist buyer. And you could say, "Well, why is this? Why is it ..." you know, 'cause it's not totally crazy, but, uh, assume you're the only buyer for a product in the world, you're the only buyer for the aircraft carrier, how should I compensate someone who's building an aircraft carrier for me? You know? And it's like, what's a fair price to pay? So the, the way that they solved this really starting, uh, in the last century was thinking about as cost plus. I don't know, it seems fair that, you know, it costs you something, you have to pay people, you have to buy materials, and I'll give you some profit on top of that. Now this has obvious consequences in terms of what the long-term incentives end up being. Why would you ever, uh, invest in, in innovation? Why would ... and, and to the extent the government wants you to innovate, they actually pay you the money to do the R&D. You're not putting your money into it, really. You're putting their money into it. Uh, and so as the world transitioned from a place where all the R&D was done by the government, '50s, '60s, obviously the preponderance of R&D's done by the commercial world. This model makes no sense. You really wanna leverage the, the beauty of what, what we've really pioneered in the Valley is, is this high-risk, high-return approach.

   2. HSHarry Stebbings10:36

      Can I jump in and just ask, you mentioned that kind of, well, if you're the only buyer of said product, but I believe there's always a market, and so you could sell that aircraft to the US, but you could also sell it to the UK or to, uh, France or Germany or any others. There's probably 10 buyers. In which case, if you want the concentrated supply, well, then you can pay a premium. Then we have an efficient market. Am I wrong?

   3. SSShyam Sankar11:01

      I, I think you're right. I think pe- ... I was trying to steel man it, which is like, okay, how did we end up here? Like let's just assume ...

   4. HSHarry Stebbings11:06

      Huh.

   5. SSShyam Sankar11:06

      ... you know, it's Chesterton's fence. We didn't end up here because of somehow the system is totally broken and incompetent, there was some thinking to it, but I think we're now in a world where the second order consequences of that system are dominating, and that's what's leading to a structural inability to innovate. It's l- ... technology is supposed to make things cheaper. Somehow that doesn't happen in government. Why?

   6. HSHarry Stebbings11:25

      (laughs)

   7. SSShyam Sankar11:25

      You know, and to the extent things do get cheaper, they get cheaper because they're benefiting from the massive tailwinds from the commercial markets R&D that then subsequently makes its way to government.

   8. HSHarry Stebbings11:34

      Sorry, is that not like anything more? Is that not like anything government though? There's no profit incentive. Why is the NHS not always looking to cost cut because like there's no r- ... there's no benefits of getting rid of middle management.

   9. SSShyam Sankar11:45

      And so I think the, the great opportunity and really ... so the playbook was, look, I'm not gonna let you pay me by the hour. I'm going to refuse to accept any revenue, that services based, from you, and instead, I'm gonna build a product, and I'm gonna keep investing in the product and that means I have to go sell a part of my company to finance that, right? I have to go raise money to go do this. But this product's gonna be so good you're gonna wanna buy it. And when you're gonna buy it, you're gonna buy it on a license fee basis. You're gonna pay some sort of subscription, software as a service. I know, to the, to the Silicon Valley investors this is like, o- obviously. Right? A- what are you talking about? How is this ... but this was ... there's a lot of brain damage to getting the government to this model. Even now. A- we've made a huge amount of headway, but the, the low entropy, the, the like lowest path, least resistance is to try to pay someone by the hour.

   10. HSHarry Stebbings12:29

       What was their reaction? It's a big shift for them to make, mentally.

   11. SSShyam Sankar12:32

       One of the other complexities of government is you don't have... You have a, there's a disconnect between who is the buyer exactly and who is the user. And so in the early days, and even today, you know, the preponderance of our time is spent with the user. How do I know I'm building the right product? How do I know what I should be building next? Where is the utility? How do I get these folks who are the users to tell the buyers, "No, no, really, this is way better"? If you go to the buyers, they're gonna always wanna push you down to the conventional model of, "How do I buy this by the hour?" Uh, and, and so I think that the way to do it is to, is to create capability that's so compelling, so necessary that people are willing to go through a, a more difficult but more rewarding process in order to acquire it.

   12. HSHarry Stebbings13:19

       Can I ask, on decision makers, what does the decision making structure look like when selling to governments? Is it committees? Is it single points? Is it panels? How does that look?

   13. SSShyam Sankar13:31

       It, it is, it's closer to committees. I mean, uh, there, it's, it's, it's still a Byzantine process. I'm not sure, uh, I, even I, after 18 years of doing this could really fully put it on a piece of paper and, and kind of tell you about... You're kind of feeling your way through it. But, you know, people would say that you need a requirement, you need resource, i.e. money, and you need a contract. And I think at a highest level, you're trying to figure out how do you line up those three elements within the government customer you're working with to accomplish this? Now, the pathing of doing that, I think, is specific to every opportunity you're kind of going after.

   14. HSHarry Stebbings14:03

       So I actually spoke to many, many people before the show, as you know, and they said one of the things that you and Palantir have done so well is really just nailing the land and expand model with government contracts. What do you think has enabled you to do that so successfully? And then do you get real margin optimization? Because once you're in, it's just fricking hard to get any, uh, retained. It's such a sticky customer.

   15. SSShyam Sankar14:25

       There's two pieces to this. Um, the first is that the land and expand doesn't work the way it does for commercial SaaS companies. What you're not trying to do is... It, it very much is about expanding the product surface area. So a- as opposed to the license surface area, or I'm trying to get more users, I'm trying to... So it, it's, it's, it's not sales-driven expansion, it's actually product-driven expansion. And if you think about how do I connect up more of what this customer's doing, like I've, I've, I've landed with this capability. How do I expand to, to, to lateral capabilities that are valuable to them? Many of those capabilities e- you're not gonna des- you're not gonna think those things up in Palo Alto eating strawberries. Like you need to be in Djibouti or in Kandahar or in Balad or, you know, in, in, in, uh, Ramstein sitting with the users to understand what's next because that truth exi- the truth is out there, you know. It, it, it's not in some document somewhere, it's not in DC. The, the deep understanding of what's missing that you can build true stickiness around. That's, that's one dimension. Other dimension of this, like the reason you have to be there, is how are you... To your, to your margin optimization, it doesn't actually come from lock-in or kind of, of just like rent collection. It, it actually comes from understanding how do I continuously productize and create the efficiency in how I deliver what I deliver? There are unique constraints in this environment, right? You don't have one big multi-tenant or three big multi-tenant geographic instances of your software that you're running on the public internet. You're delivering software to air gapped environments that are tightly controlled and constrained, and people need clearances to access them. And so you need to have some sort of product methodology to invest in the software infrastructure. You have your software, then you have the infrastructure below that that is essentially an army of robots that manages your pro- your software in production. Uh, 'cause otherwise you're gonna end up deploying a team of 20 people to go manage your software in these environments, and you're gonna have a really hard time getting to s- getting to scale.

   16. HSHarry Stebbings16:28

       Can I ask, how do you think about propensity to buy within governments? Again, you're like, "What? This schedule's completely gone out the window. I'm loving this." But like propensity to buy with governments when you compare software versus hardware. Are they the same, their mindsets the same, or do they differ in terms of their approaches?

   17. SSShyam Sankar16:45

       Yeah. The, the mindset is very... Uh, the whole government system is, is geared up to buy hardware.

   18. HSHarry Stebbings16:50

       Mm.

   19. SSShyam Sankar16:50

       Because they think of, they kind of... Especially in the US government, but I think you could see it's analogous everywhere. Um, living in a world where government used to finance all, all R, all R&D. It starts with R&D. "Okay, I'm gonna pay you to do some R&D. Build a prototype. If I like this thing, I'm gonna procure it. I'm gonna buy it at scale. Once I've procured it, I'm h- I have to sustain it." So they expect costs to go like this. Of course, that's not how software works at all, right? Software, it, it... First of all, software R&D costs only increase. You know, it's like no one, no investor thinks Microsoft's gonna spend less in the future on R&D than they spend in the present moment. That would be crazy. But the government somehow expects that to be true. Uh, and the second part is, there is no difference, uh, in our modern technology world pur- between procurement and sustainment. Like those concept, uh, even as I say the words, they may be like, "What, what do you mean exactly here?" You know, you're delivering software as a service. You're continuously innovating on it. It's never done. I think the government has absorbed that idea that software's never done, but they haven't absorbed the idea that that means there's at least a constant cost.

   20. HSHarry Stebbings17:53

       Can we just hone in on, on one particular, uh, country, being yours? 'Cause you said a great statement when we chatted before, um, that you didn't need to expand on any of these, so thanks for the cliffhangers. They were great, like titles for a show, by the way. But I was like, "Okay,

5. 18:08 – 26:31

   Challenges in Defense Industry

   1. HSHarry Stebbings18:08

      writing a follow-up question is interesting." America has a defense industrial problem. Why does America have a defense industrial problem? Can you help me understand this?

   2. SSShyam Sankar18:17

      Yeah. Well, uh, at the risk of, of making a long story long, I think you could think about like when were we amazing at this? And I think it was really at the dawn of World War II. And there's this great book by Arthur Herman called The Arsenal of Democracy. It's, it's, it's probably the book I'm most obsessed with right now and I've read it a, a couple times. And it really talks about how...... the industrial mobilization work. We brought Bill Knudson, a Danish émigré, who was a very senior executive at Ford and General Motors, into government. We made him from a civilian to an Army three-star general. You know, he was commissioned as a three-star general, and he was in charge of the industrial mobilization. And we had this immense luxury during World War II, which was that we were at peace, Britain was at war, and we were supplying Britain. We had 18 months when we were not getting shot at to turn on our industrial production, to build factories and to retool them. And that took 18 months. We needed that time. The counterfactual would have been brutal. Uh, we also needed to leverage American industry. We were, at that time, we had just figured out mass production and we, America, had just figured out mass production. It was our unique strength in the world. So we applied that mass production technique not to Model Ts, we turned it to, to bombers and fighters and tanks and all the machinery of war you needed to actually help the Brits go forth and then subsequently to help, help, help America fight as well. We had these crazy founders. You know, it was Henry Kaiser. We think of Lockheed Martin, but it was Glenn Martin. It wasn't Northrop Grumman, it was Jack Northrop. You know, all of that innovation was not driven by faceless companies run by eighth generation leaders. They were built a- and, and run by these just maverick founders, people we would recognize their personality structure in the Valley today. Uh, I think as a, you know, as a consequence, after we won the Cold War, rightly, we expected a peace dividend. Why would you continue to... I, I think it's, it's hard for a legitimate democ- democracy to continue to sustain that level of spending in the absence (laughs) of an adversary. So in 1993, uh, the then secretary, uh, assistant... uh, deputy secretary of defense, Bill Perry, who was himself an entrepreneur, he started a Silicon Valley company called ESL Labora- uh, Electronic Systems Laboratories. Um, he had what was called the Last Supper. He invited the 51 defense primes. Today we have five. Back then we had 51. He invited the 51 defense primes in and he said, "Look, the budget is gonna get much smaller," and it did. For e- for every dollar they had before, they had 33 cents going forward. "Not all of you are gonna survive. I, I, I'm kind of giving you permission and a mandate to consolidate, to get lean, to get efficient." And so this is how we went from 50, 51 to 5, and I think the off-sided consequence of doing this is that the industrial base became less competitive. "Oh, we only have five people to pick among, so, you know, prices are high," or something like that. And there's some truth to that, but I think the much more profound consequence of the Last Supper is it began a deep financialization of defense. It became about dividends and buybacks and leverage ratios. It, you know, it became about M&A. New venture formation was about spin-outs and mergers, not about venture-backed, creative, risk-taking ideas to go build entirely new things.

   3. HSHarry Stebbings21:38

      And so the financialization was a negative thing.

   4. SSShyam Sankar21:41

      Yes.

   5. HSHarry Stebbings21:42

      Is that what you're saying?

   6. SSShyam Sankar21:43

      Yes. I... Because it, it... all the emphasis went away from creative, big ide- You know, A- Alex Karp says this all the time, he's like, "No great company was created primarily to make money." Like, that's a... Uh, yes, there's a consequence to that and it has to happen, but, you know, like, I, I don't think Larry and Sergey were like, "Hey, how do we make money?" In fact, I think they were kind of pulled kicking and screaming into that part of it. But, y- you know, and so when suddenly it was very much first the business that became quite challenging. And, and I think it also bred a sort of dysfunction in the relationship between government and what government calls industry. A term that really we don't use anywhere else when we talk about the partners you use to solve problems, and it's that like, "You're transactional, you're money-grubbing, you know, I am doing this mission here. I- I- I've given up a lot to work in the government." And I think... I, I don't... You know, I think we can, we can really fix that, and we have this opportunity that's happened right now because of how much interest there is in defense tech.

   7. HSHarry Stebbings22:41

      Just so I understand then, the problem is the mindset chasm between your profiteering private companies and we're here for a mission of being the government. Is that the core industrial problem?

   8. SSShyam Sankar22:52

      Well, I think that's a consequence of it. The core industrial problem is that we don't have a way to reward mavericks and innovators, that we're breeding... we've historically bred a, a marketplace that's driven towards conformity. We all have the same business model. We all wanna get paid by the hour. "Hey, I don't wanna take risk, um, 'cause I need to know you're gonna buy this, government." There's no way for VC to be applied here, because I can't figure out how, you know... I can't figure out how to get to a scale of return that's gonna matter.

   9. HSHarry Stebbings23:22

      Does that change in a time of leverage? And what I mean by that is in, in peace times, you're absolutely right. People can wait, they can say, "I wanna pay by the hour, I'll pay by the hour," when there is sadly conflicts around the world and you need to buy and you need to innovate and improve. You and private companies have leverage to say, "Align to our business model or don't buy." Does, does time not change that?

   10. SSShyam Sankar23:47

       I'm forgetting, um, Churchill's Chief of the, d- uh, General Staff, but he had... I think it was Fields maybe, but he, he had a observation which is that when you go to war, the first thing you need to do is fire all your generals. Like, generals that succeed in peacetime are... And this, this was a general himself, right? The generals that succeed in peacetime are, are not the right generals to succeed in war and vice versa. Uh, and really what I'm saying there is something a little smaller, which is that when, when there is war, you do have a different sort of mobilization, you have a different sort of leadership. Um, people are w- willing to make different decisions. It's almost like the only thing that works when it really matters is breaking the process and doing what's right, and the process never really works. It, it's, i- i- it's kind of a digression from the main, main point around this. But I think you don't have leverage in the sense that, look, you're gonna buy whatever model works, it's, it's the opposite, which is the leadership says, "Oh, I'm willing to break the model because I see what's right."I didn't, you know, it's not, you know, like there wasn't a problem big enough to solve before, so I wasn't gonna change how we did business. I have a problem to solve and I as a leader, I'm gonna say, "Yes, this is the right path."

   11. HSHarry Stebbings24:55

       Can I ask, if we go back to the days of Lockheed Martin, the founders innovating there, was there a political structure that was flexible enough then to make the changes that we need to happen now?

   12. SSShyam Sankar25:05

       I think there was almost a lack of political structures (laughs) . You know, there was a willingness to, to move fast and break things. Kelly John- and when I say founder, I really mean it in the broadest sense of the word. It's almost like renegade, maverick, innovator. Uh, Kelly Johnson is, is one of my favorite examples of this. This is the guy who founded Skunk Works at Lockheed Martin. This guy as a kind of, we would recognize him as a, as a 100X engineer in the Valley today, right? He, 23 years old, joins the, joins Lockheed Martin, looks at a 2D diagram of, of schematics of a plane and says, "This plane is fatally flawed." He goes to the senior engineer at Lockheed, and almost to, almost to get rid of Kelly, he's like, "Yeah, well, why don't you fix it?" And of course he fixed it. You, y- so this guy built 26 airframes in his career. Today if you're an aerospace engineer, you're lucky to work on a third of a plane over your entire career, so you're never even gonna ship a plane, and this guy shipped 26. And some of his planes, like the U-2, we still fly. He built the first U-2 in nine months. We can do this again. Right? There's a, there's a way in which we've built up so much process, so much risk aversion. Uh, in order to constrain, I think that, that the greatest travesty of all this is like in order to constrain the variance in outcomes, we have constrained ourselves to mediocrity. You know, it's like we don't want projects to fail catastrophically, but that also means you can't have projects succeed catastrophically. And the, the amount of process we've put in place just ensures

6. 26:31 – 36:04

   Government Procurement and Budgets

   1. SSShyam Sankar26:31

      mediocrity.

   2. HSHarry Stebbings26:32

      What worries me also is the procurement processes and the tenders are so challenging that for anyone other than, I'm not picking on them but just, uh, the most well known, them like your Lockheed Martins, you can't engage in even the tender process 'cause also you don't have the insurance premiums to cover some of the guarantees that are required on the directors, only they have that large of an insurance premium. And so it just means that in the end, only one or two go for them. I'm sure Palantir are now in that league. But it really is a constraint on innovation having such a stringent tender process.

   3. SSShyam Sankar27:04

      I think it is. I've been thinking about this, you know, it's dangerous to say this because if you take me too literally, it'll, it'll sound politically unpopular. But in an effort to have a perception of fair competition, we have created so much process that we neither have fair competition, um, nor speed. And so we should really have, like and I think if you, if you, you could just juxtapose the European procurement process, which I, which I've seen, the US process, and, and, you know, maybe alternatives, and I'd say the European process is even more slow because there's an even greater emphasis on how do I show fairness across all of the EU states? And, you know, it's, it's ... And so then you could say, okay, the American process is a little more streamlined, but it still takes years. Why do these ... So, so we're talking about Kelly Johnson who could build a plane in nine months, we can't even procure something in twice that long. That's crazy, right? And, and it's because, it's not because we're not competent enough to do it. It's because we have created a structure where we do not want protests, we do not want to be blamed, we do not want to lose public trust in how these decisions are made. Um, but I think we are retarding the growth of the human capital in government as a consequence of this. You know what? You can make mistakes. That's how you're gonna learn. Yeah, no one wants to make mistakes. No one wants to be wrong. I wish we could all be right all the time. But I have screwed up so many things at this company over 18 years, and if, and if, and if, if the standard of surviving here was something like you can never be wrong or you must optically be seen to be making every decision in a way that, you know, it will never blow back on you, like this company would not exist. I would be screwed. It, it, it's not a way to actually make the world better.

   4. HSHarry Stebbings28:45

      Which country has the best process, do you find? US is more streamlined than Europe. Does anyone stand out as being good?

   5. SSShyam Sankar28:51

      I think the most honest answer to that question is America actually does have the best process when we're serious, when there's the political will and alignment and the problem is clear and we're ready to go. That's when we throw all the rules and the doctrine out the window and we go and we get it done, and this is kind of the Churchillian thing, right? The Americans screw everything up until they've exhausted all the options and then they do the right thing. And so that's the other

   6. NANarrator29:15

      Yeah.

   7. SSShyam Sankar29:15

      ... frustrating is we are so clearly capable of this. I've seen it demonstrated in our greatest moments of need. But in the steady state, we reject it.

   8. HSHarry Stebbings29:23

      So when you put your mind to it, you can do it. You said that the DOD needs to pick a winner. How do you think about what that would look like in reality?

   9. SSShyam Sankar29:33

      Pick winners plural, to, to be very clear. So I think this is one of the greatest disconnects, I'd say, between the, the hypergrowth technology community and DOD. Um, so we've had roughly $100 billion of venture investment, um, enter defense tech recently, last couple years, and the VC model is not that everyone needs to be a, a mediocre outcome. Right? Like I'd say the median return in a venture fund might be zero, but the average return is maybe two, 3X, right? Like of, for the portfolio. And so this is the dynamics that matter, which is like what, the peanut butter spreading, as it's kind of called. Like I have this much money and I'm gonna spread it across all the companies that have come in here. That just ensures that they're all zombies. They're neither alive nor dead. It ensures that all that capital, those, those firms are not gonna be able to raise their next round. There's not enough return. And, and a much better strategy is realizing, look, we need to pick a few winners and we're gonna go after it with scale, and these companies are gonna become large as a consequence, which then allows those funds to go bring more money and innovation in our ecosystem. And there's a virtuous cycle here, and the talent is gonna stay, so maybe their one company didn't work out, but they're gonna have many shots at the apple. We're gonna have this ravenous...... new tech industrial base, focused on defense problems with the capital behind it and the economics that support it. Now there's kind of, this is the part the DOD's a little uncomfortable with, which is like, "Well, I'd rather it's a little bit more an aesthetic towards like a fair, socialist return. It's like I just want to spread out the money across all of these participants so that no one's upset." But I think in reality everyone will be upset. And if you talk to these venture capitalists, which, you know, I'm, I'm not one of them, but if, if you talk to them, they're like, "It's o- like yes, I'd prefer that my companies win. But it's, it's much, I'd prefer, you know, if that's not possible, someone has to win, 'cause otherwise this market's not gonna exist." And getting the Defense Department to realize, so one of the greatest lies they tell themselves is, "We don't pick winners." They, i- if you, if you interact with acquisition folks, you'll, you'll get this sort of thing, "Well, we don't pick winners." But no, literally, you're a monopsonist. Every contract you award, you're picking a winner. So we have to kind of, uh, regroove how we do this to support the broader ecosystem.

   10. HSHarry Stebbings31:46

       I, I, I don't envy it at all. One thing I do worry about kind of when we said about that kind of spread and the diversification, is actually the nationalization of buying, which sounds incredibly intelligent, but it's actually quite simple really, which is just coun- tr- countries and kind of continents would rather buy their own suppliers' products. So Europe would rather buy European companies' product, America would rather buy an American... uh, you know, you're not gonna buy Chinese defense tech (laughs) for obvious reasons.

   11. SSShyam Sankar32:17

       I think there's two dimensions to this. One is, um, you don't want to be beholden to your adversaries. So that, that's like an obvious one I think everyone can agree to. The second dimension to this is we often forget that one of the roles of government is its economic role. You know, there's an aspect of government that is a jobs program, that is welfare for the people, and that's okay. I think where it gets tricky with defense is where that's the case and it's unacknowledged. So, um, in the US we have these SBIR programs, these small business innovation kind of grants or research. To a VC, this is like the kiss of death. It's, it, uh, uh, uh, like re- study after study shows that you get these SBIR grants and, and your company never actually achieves scale, they don't really want to invest in the companies that are pursuing this. It's not a strategy to actually become a big company, it's a strategy to stay a zombie.

   12. HSHarry Stebbings33:06

       Hm.

   13. SSShyam Sankar33:07

       So, I think we'd be better off, I, say, asking ourselves, okay, if we want the SBIR program, if we believe in small business and the aesthetic of small business, this is a type of like wall, white collar jobs program. And that might be quite good. It's creating more STEM jobs. There's... that's a policy question I'll leave to our policymakers. But we should not think that from this program, we're gonna get massive defense innovation, we're gonna get new champions, we're gonna get competition, we're gonna get any of the transformation that we actually need to win these next fights.

   14. HSHarry Stebbings33:37

       Can I ask you a bit of a direct one, which is like, d- you know, I'm a venture investor for a living. Uh, the most beautiful thing in the world is when you see TAMs expanding, you know, Uber moving from chauffeur-driven cars to the car for everyone is a beautiful and very clear example of just an expansion of TAM. Um, when conflict arises and budgets increase significantly, as callous as it sounds, it's an expanding TAM. Um, I said that, not you, so (laughs) I can shield any problems for them.

   15. SSShyam Sankar34:04

       I'd flag two things there. One is, we are spending at historic lows relative to the Cold War. Like as, as a percentage of GDP. So absolute dollars, yes, are bigger, but as a percentage of GDP, like what, what do you think is the defense insurance premium the country should pay every year, uh, to protect, you know, pax Americana and the Western international rules-based order? So, we, policymakers can, can have, you know, views about that or something, but it, to, to, to view our budget right now...

   16. HSHarry Stebbings34:34

       What, what is it in context of GDP? Te- 15%?

   17. SSShyam Sankar34:38

       Two to 3%.

   18. HSHarry Stebbings34:41

       Hm. What was it-

   19. SSShyam Sankar34:42

       Yeah.

   20. HSHarry Stebbings34:42

       ... in the Cold War?

   21. SSShyam Sankar34:44

       At, at, at its peak, I think it's like, when you look at like Vietnam, you look at other periods of the Cold War, it's like closer to six. Yeah, five to 6%. So I, we, we should double-check my numbers here. But let's call it roughly it's, we're, we're, we're, it's like half of, as a percent of GDP. And I think that's, that's kind of true. And I'm not e- I'm not sure that it should double. That, that's not the point. But I think what, like we somehow view this in a context of like, I, I think we, we could view it as like what is the insurance premium we're willing to pay on GDP to protect GDP?

   22. HSHarry Stebbings35:10

       What do you think it should be?

   23. SSShyam Sankar35:12

       I, I think it's between where we are now and where it was during the Cold War. It, and, and you know, it's like, it, it was absolutely right to get a p- Even though we suffered long-term consequences of The Last Supper, I don't think you could have political legitimacy without having a peace dividend after the Cold War. So I thi- I think what happened was correct. But now we should analyze what needs to happen in the context of great power competition. Like, we do not live in that world anymore. It has changed radically. And we have dele- developed some scler- sclerotic habits of 30 years of living at, n- quote, unquote, "the end of history," that we need to really shake off and, and, and, and organize against. And I, and, and n- no place more so than Europe, where in, in many ways, they've kind of forgotten, eh, you know, they've forgotten the, the distant past, um, and have enjoyed a lot of what the West collectively has been able to create.

7. 36:04 – 42:22

   Evolution of Defense Technology

   1. SSShyam Sankar36:04

   2. HSHarry Stebbings36:04

      Can I ask you, have you seen conversations change since, uh, sadly Israel, but Russia, like has the discussion changed with buyers in terms of their tone, their requirement? Like just has the world changed significantly then or has it continued in the same way?

   3. SSShyam Sankar36:22

      The buyers here are very serious people who wake up every day thinking, "I might have to fight tonight." You know, or, "I, I'm in the position of providing capability to people who might have to fight tonight." So, I don't feel a shift in tone. What I do feel is a shift in, um, the rate of learning. What is there to learn from? You look at the tactics. You look at what is working on the battlefield. And many of these things are surprising. They're different. They're innovating very quickly. They're changing the concepts of what you think you would even need to buy.... to have survivable capability, to win the next, the next conflict. Uh, and that is evolving incredibly rapidly, and I think it continues to speak to this concept of, um, lower cost, attributable capabilities. You know, instead of buying something that you think, like an aircraft carrier or some space-based capability that's gonna be around for 30 or 50 years, and because it's gonna be around that long, it's gonna be so expensive, it's gotta just be perfect, it's like, I'm buying something I might use for the next year. Uh, you know, you look at Ukraine. Many of these drones are single-use drones. So there is no sustainment. You know, like what, what, what are we talking about here? There is, like your whole supply chain changes, like you, the whole theory of how you're gonna employ the weapon is very, very different, and as a consequence, the logistics you need around it become very different, and that can liberate you to have entirely new concepts, entirely new business models that enable you to deliver the innovation, recognizing that what you're gonna fight with in two years is not what you're gonna fight with in a year, and it's not what you'd use today.

   4. HSHarry Stebbings37:49

      Can I ask you a really strange one, but a direct one? If you were to be in charge of the DOD today, what would you do from the procurement process, from the budgets, from deployment? What would you do if you were in charge?

   5. SSShyam Sankar38:02

      If I had one magic wand, one wish, it would be to return to a structure that we actually used to use, which is to have multiple competing programs to go after the same capability.

   6. HSHarry Stebbings38:14

      Mm-hmm.

   7. SSShyam Sankar38:15

      So when we were building submarine launch ballistic missiles, we didn't have one program to build it. I think we had four. And this allowed ... Th- there's, there's a human factors element to this, and there's a, a practical technology element to this. Well, we weren't sure if they should be solid fueled, liquid fueled. We ... There was all sorts of technical questions, and so you can either have the loudest voice win or you could do a forever, never-ending research project, or you can compete the ideas. And that means, you know, you're going much faster. You're learning. You're iterating. It's a, it's an empirical discussion rather than a theoretical one. Um, you're buying down technology risk, uh, but I think what's even more compelling than that is the human factor. I often think about what would motivate so many of these programs. Like what would motivate the program manager to, to wanna go faster, to wanna insert new technologies more quickly? And the answer is nothing, because the distant threat of an enemy for a conflict that you might wanna fight one day does not warrant blowing up your schedule, introducing risk, um, you know, maybe having someone yell at you, because you're just judged by cost, schedule, performance, and that's all you're gonna think about. But I don't think that's healthy, and I think, you know, what, what ... Here, here ... So my counterfactual would be, what if there were two PMs who woke up every day? It's human competition. You know, it's like I, you know, the, the government is gonna buy some percentage of my product, some percentage of their product, and I am going to wake up every day to, to make, to win this. That's like a uniquely American thing. I, I think we're very good at that, and I think it is gonna drive a lot of innovation. You, you ... It solves a lot of the problems. Like how do we get things to be cheaper? Well, I want the government to buy more of my product, so I'm gonna build it cheaper. How do I insert new technologies? How do I go faster? Like these problems are actually kind of a lack of internal competition. You know, we, we ... The government focuses on competition in the industrial base. I think there's not enough competition inside of government.

   8. HSHarry Stebbings40:13

      Is winning this a- a- attributable? Like if you think about single-use drones as an example, does someone in DC have attribution on their procurement process working out, it being a good buy, it being effective, and it's deployed four months later in wherever it is miles, thousands of miles away? Is there attribution?

   9. SSShyam Sankar40:33

      Yeah. I mean, there's definitely gonna be ex-post attribution, but how do we, how do we get closer to something ex-ante? How are you making that decision? So today, there is a pretty big disconnect between the people who are responsible for fighting, really the combatant commanders, uh, and the people who are responsible for providing the equipment. Uh, and, and, and really these guys, the fighters, they don't really have a vote. You know, they, they don't have a v- ... And, and I think that's one of the things we need to change, where winning, winning the competition should really be about, okay, well, how much does the INDOPACOM commander or the CENTCOM commander want of this variant versus that competing variant? And it doesn't have to be winner take all. It can be something like, "I want 20% of these and 80% of those, and next year, you know, come back to me with better ideas. Let me, let me taste the stakes and see which one I like, and, you know, I might allocate resources differently next time." And I think getting that faster feedback iteration cycle would be super valuable. It also lets us be a little bit more critical of, quote-unquote, requirements. You know, the requirements are the things that must ... You know, we've done this analysis, and we've said, "These things must exist, and we're gonna build all of them." Well, clearly requirements change. The only thing you know for sure is the requirements are wrong. And so, how do we enable our program managers to take more risk and say, "Well, you know, I think these requirements are more important than those requirements, and I think there are requirements they haven't even thought of that really matter"? Because at the end of the day, you gotta taste the steak. You gotta taste ... You know, you gotta feel the product, use the product. That's the only way you're gonna know if it's good or not, and it, it, it's that ... You know, can you imagine if the Valley didn't have something like that with its buyers, that the way that every new product was gonna be evaluated was through a historical list of requirements that someone else came up with and a paper PowerPoint exercise to see which product someone was gonna buy? No, we, we innovate 'cause we fight with our technology, uh, in the customer's office.

8. 42:22 – 47:36

   Leadership and Venture Capital

   1. SSShyam Sankar42:23

   2. HSHarry Stebbings42:23

      Can I ask you, how do leadership changes impact buying processes? I know that's a weird one, but as you look towards elections both in the UK and the US, like did discussions just kind of break down because everyone's wondering which government will be in power? How does it change processes?

   3. SSShyam Sankar42:39

      I think much less than people think. There's obviously some effect, uh, and I think it, it varies by country. In, in, in, in the, in the, in the UK system, given how involved the Cabinet is with approving contracts and the oversight and integration with Treasury, it's actually more relevant un- like in terms of what agenda people will be following.... uh, in the US, I think the bigger issue is really Congress and whether there's a budget or not. You know, we, we don't have a budget, we'll enter a continuing resolution. In a continuing resolution, that means you can't have any new starts. So all the things the department wants to do, they're gated and waiting until there is a new budget. And, you know, this is a, this is a consequence of our, our system. I think it, it's a little facile to say, like, Congress should just pass a budget on time. And yeah, like, that would be, that would be a nice world, but this is how we exercise political power and arrive at consensus. And I think there are, um, there are things that we can do to make this better, but I think that's kind of the bigger issue in the US.

   4. HSHarry Stebbings43:34

      Is there anything Silicon Valley and VCs could do to better serve the defense market? We've spoken a lot about the role of government and selling into government. On the flip side for like, you know, the VCs like me of the world, what could we do better to serve defense tech more efficiently?

   5. SSShyam Sankar43:49

      If you'd asked me 10 years ago, I would, I would have had a long list of things that I think, um, the capital class could be doing better to help in the national interest. I don't have those critiques. The capital class has showed up. The capital has showed up, the entrepreneurs have showed up, people are working on these problems, and it, it's just ... I mean, it make, it gets me so excited. Now, I think it, to the extent I had an ask from the VCs, it would be to engage with the policymakers so they understand the dynamics of your business. What is it gonna take so that the $100 billion or more continues to show up? What does it take for these entrepreneurs to stay in this ecosystem? Why is a labor-based business model so bad? You know, like, I ... 'Cause I think y- we can underestimate the size of the gulf between these two worlds. And you could even say it as something as simple as, uh, you know, in DC there's a, this, like, no conflict of interest. Like, i- if you have, you know, th- this idea of like, we're gonna manage all the conflicts of interest, and if you have any conflict of interest, very bad. And obviously conflict of interest can be bad. On the other hand, in, in the Valley, it's like, well, if you haven't invested in something, how committed, like ... How do you even have an opinion about it? Like, you, you're not even willing to put your own money behind an idea, so what do you know about it? You, you, you ... And it's like, it's almost like no conflict, no interest. Uh, and there's, there's a middle ground between these things, but I think that's the first place to kind of get the relationship grooved so people understand it. So it really comes down to high-trust human interaction. We're not gonna scale this through process. It's, it's gonna come down to these two worlds coming together, and they've never been closer. But we still have a lot of work to do there.

   6. HSHarry Stebbings45:20

      I do wanna move a little bit of a layer deeper, just into the company level with Palantir. You, you said something that I, I thought was fascinating. You said, "Content, not process, is the eternal substance." And I was like, "Right. Good. That's helpful. Thank you. It sh- that's helpful, Shyam." Uh, what did you mean, "Content, not process, is the eternal substance"?

   7. SSShyam Sankar45:41

      I- you know, Steve Jobs has this great loss interview about how companies get confused, uh, that when they're trying to replicate their success, they look at the process they went through, uh, to deliver their first success. And, uh, then they follow the process, and it doesn't work. Because actually, you know, the first and most important thing is the content. It's the creativity, it's the substance. And that substance rarely ... And as he points out, people who are good at content tend to be a pain in the ass to manage. You know, th- they're a pain in the butt, I think was his, his quote. Um, but you put up with them, because the content is just so good. And so I think there's this way in which process, as a medicine, is okay. You know, it's like, can you have zero process? No. But if you hold process up as the deity, if process ends up being what is actually an opioid, it's very bad. It's like, "Look, we just need to follow the process and we'll get to the outcome." That's almost never correct. It, the process is going to g- ... You know, when the process becomes more important than the content, you're gonna lose. And a lot of this comes up as like, "Well, I wish the interaction could be less frictionful. I wish there was more predictability. I wish there was ..." All sorts of things which are just not true in the real world. Like, yes, we all wish the world could be different. But when you honor what the world is, you kind of recognize how important it is to have the right rock band, right? There's no, "Hey, follow this process and we're gonna get there."

   8. HSHarry Stebbings47:01

      Uh, does that scale though? Because the challenge is you need process with scaling teams with increasing team sizes, and the magicians who come up with great content, it's really hard to have structure around that.

   9. SSShyam Sankar47:13

      You need some way of having both, but you can't ever lose the primacy of content. To put it, put it this way, you can get really far with incredible content and bad process. You're gonna get nowhere with pros- with incredible process and bad content. And so the primacy of it, you need to keep in mind. And this is what I mean by process as medicine versus opioid. Um, and, and so there's a rule for this here, but e- ... And I feel, you know, Palantir is this company that

9. 47:36 – 57:30

   Talent Management

   1. SSShyam Sankar47:36

      keeps reinventing itself, which is a w- is a whole 'nother discussion we can kind of get to. But in those moments of reinvention, there's just content. There's just the crazy content and your commitment to it and making it better, uh, and then you figure out how to get it to scale. And sometimes maybe getting things to scale is itself not scalable. It ... Which I don't mean as a critique. It's more like first you gotta figure out the substance, and then you work really hard every day, it, to get it to scale. There's an old Silicon Valley saying. "There's the first 80% and the second 80%." Uh, a- and so maybe there's a little bit of this in this, where it's like, yeah, the first part of the content is 80% of the work, and then getting it to scale through process is 80% of the work.

   2. HSHarry Stebbings48:16

      Can I ask you, it's so hard to hire because you need to be able to detect those magicians, but then you also need to hire for process around them as well, and there is room for structure in both, as you said. When you reflect on hiring, you said talent spotting eats strategy for breakfast. How do you think about talent spotting, and how has how you approach it changed over time?

   3. SSShyam Sankar48:38

      Yeah. I think this is so important. I think there's a way in which we've kind of constrained our cultures and our companies because we've leaned into the opioid of str- of, of structure, essentially. Like, "Look, I'm gonna structure my company as a factory. You're gonna c- Here, here are all the roles and the levels I have, and here's the org chart, and it's all very clean and laid out. And if you play by these rules, you can figure out how to navigate." I think one of the challenges is that, like, really talented people ...... are highly asymmetric. Y- y- you're much better off designing a role around who they are rather than saying, "What role can I slot you into?" It's almost like, definitionally, none of those roles are gonna fit them. It's gonna put them in a position of relative weakness. They're gonna blow something up. They're gonna feel like they have to be good at something they're never gonna be good at. And so it's, it's a total evisceration of, of their potential. And if you said, instead, "Look, instead of being a factory, we're gonna be an artist colony," I don't get Dali to paint better by t- yelling at him to paint more like Monet. It's like each one of these individuals is an individual, and I'm gonna go on a journey to craft a role around who they are, and I'm gonna make it okay for them to, to, to like flex their role, to, to meet their capabilities. Uh, and even more importantly, artists' work don't monotonically get better. This idea that you're gonna climb levels in this sort of strictly increasing way I think is deeply in- inauthentic. Some of your works are gonna be hits, and then you're gonna go through a lull and, you know, your work might not be great. The, the, the community might not appreciate it. And then your next piece is gonna be a masterpiece. And so how do you get into a place where you can be committed to your talent over a long duration? You know there's gonna be ups and downs, but they're so fundamentally talented that you're gonna stick with them and you're not gonna be judging them work to work. It's not like a daily mark to market. It's like, look, this is, you are special. This is a home for you, and we value you over this long arc of what we're building together. And that, that means that when they're not performing, you don't suddenly have this responsibility to sideline them and put them in a hole or fire them. And I think in a factory you kind of do.

   4. HSHarry Stebbings50:47

      But let, but let's just break that one down. So with those special people, when you think about the commonalities and what makes those magicians magic (laughs) , when you look back at the ones you've hired and talent-spotted, are there commonalities in them?

   5. SSShyam Sankar51:00

      I wish I could say. You know, I, I, I spent a lot of time trying to just like systematize-

   6. HSHarry Stebbings51:04

      Yeah.

   7. SSShyam Sankar51:04

      ... like, okay, well how can we systematize what makes these magicians magicians? And I think there's an element of, um, you know, really great talent-spotters just know. I don't think I'm the best at talent-spotting. I think I'm okay at it. But when I think about Dr. Karp, when I think about Joe, the number of the first 50 people that Joe personally recruited and talent-spotted when they had no pr- They're like 22, 23. There's no track record. It's not like you're looking at a prior body of work and saying, "Look at what you've done." It's just like I, I still kind of look back at how Joe picked those people, and it's like, how? Like, it's incredible. And I, I think there's a real skill to that. And if you have that ability, you know, you're almost like a talent agent in the Hollywood sense, pulling your, your, your, you're the modern Ovitz of Silicon Valley.

   8. HSHarry Stebbings51:48

      Okay, so if you were kind of god-given with this talent structure or talent-spotting ability, great. But in terms of creating the environment where they are able to fail, create masterpieces as well, how do you think about doing that as, uh, as, I hate the, saying it, but as their manager or as the person responsible for their work?

   9. SSShyam Sankar52:09

      Yeah, I, I think, well we could keep leaning into the Hollywood metaphor here of, of the talent agent and the talent, you know, and, um, how do you manage talent is a very open-ended question. But I think that's roughly how you would think about it, which is like, look, I'm really here to support. I need to create the environment that allows your art to flourish. I'm not the one managing your art. Uh, and so if you think about that, okay, they need a huge amount of autonomy. They need the resources. They need some protections from the daily distractions of certain aspects of the business. I think if, if you're always inhaling the full visceral, scary reality of everything going on, I think that distracts you from doing the art. So, how do you have complete autonomy over an area that you're very, very good at, uh, and the ability then to, to execute against it? And then I think a, a kind of maxim I always think about is smart people cannot be taught anything. They can learn, and that's the environment you're trying to set up, i- is like how do I create this environment of maximum learning for, for, for these incredibly talented artists?

   10. HSHarry Stebbings53:09

       Can I ask, what happens if you continuously do duds? What if the masterpieces don't show?

   11. SSShyam Sankar53:15

       Yeah, I mean, I, look, I think the artist might even blow up at that point. They, our- our- artists want their art to be really good too. So, you know, i- i- if, if they're really going through a, a rough patch for a long time, that might be part of your, I think that's gonna be a judgment call as the talent manager. No, no, I really believe. Like I understand this is a long dry spell here, but I'm gonna keep, I'm gonna keep you motivated, I'm keeping you managing, I'm gonna figure it out. Um, but of course, you know, you could just be wrong. Maybe, maybe the, the moment has passed. The art and the inspiration and the muse doesn't exist.

   12. HSHarry Stebbings53:45

       Do, do you think it's, is it potentially a bit of an ideological perspective to take? Because suddenly I tell you that, "Your budgets have been cut. We're doing a 15% layoff. Sorry artists, you haven't hit it out of the park for quite some time." Charm?

   13. SSShyam Sankar53:59

       Yeah, I th- I think there, there are sometimes they're just external realities. Like you may have, you may have to do that because that's reality. Uh, and I think, you know, there is something, this is one of those things you have to think about how you shield or when you choose to shield the artist from, like budgets. Budgets are anti-creative. Um, constraints are important, don't get me wrong, but I, I think like budgets are just anti-creative. So you have to think about when, what's the right mix of like, hey, at this moment, we really need budgets. It matters be- for these reasons and here's why. And, and so I, and I think you tend to find that like you kind of oscillate between two ends of, of a continuum, right? Like, there's no budgets, it's free-for-all, it's max creative. It's like, oh, this is completely ungoverned and we need, you know, this thing, and you're, you're just trying to maintain this stable, unstable equilibrium rather between these points.

   14. HSHarry Stebbings54:44

       VCs love to say something, constraints enforces creativity. Do you agree with that, with the idea that budgets are anti-creative? 'Cause budgets are constraints.

   15. SSShyam Sankar54:54

       I definitely agree that constraints drive creativity, 100%. Now, I think you can be overly constrained. So I already have a time constraint, I have a customer constraint, I have, I have a problem constraint, and, you know, maybe the budget constraint blows, blows it up.... what you really want. I mean, that's the job of the talent manager is to manage to the budget without exposing the brutal reality of the budget to the talent. You know, how can I get the talent to feel a few less constraints while actually being constrained?

   16. HSHarry Stebbings55:20

       You mentioned mistakes over 18 years. I've made many mistakes, um, in hiring. When you reflect on yours, what have been some of your biggest hiring mistakes, and how did that change how you actually approach hiring?

   17. SSShyam Sankar55:31

       My biggest hiring mistakes were hiring for a factory. You know, a- actually, as I, as I say, and now I think of this, like hiring what I thought I would need, hiring what the world told me, you know, the way to solve this problem is to hire this profile. I didn't earn it from first principles. Like th- th- the most successful ones have always been when I took the talent and grew them into the roles that actually reflected their talent. And the worst mistakes were, it's where I tried to import a solution to a problem 'cause it, that's, that's the version... that's my version of the opioid. Wouldn't it be nice if I could just magically import the solution and it will solve all my problems in this area? I, I think I, I'm like a 0 for 10 for ever- you know, it's o- (laughs) yeah, yeah, it's never worked for me.

   18. HSHarry Stebbings56:16

       So what do you do now?

   19. SSShyam Sankar56:17

       First principles. Who do I have? How can I give people more responsibility? How can I stretch them? How do I bet on just raw talent? I, and I, and when I'm out there meeting people, and I still spend a fair amount of time doing this, I'm not really even thinking about the role. I'm not thinking... I'm thinking about this human. And it's like, would I be excited to fight shoulder to shoulder with this person over the next decade? And can I imagine continuing to invest and grow in them to take on more problems? And if they're talented, I'll figure out the role. They'll figure out the role. We have so many needs.

   20. HSHarry Stebbings56:48

       When you've been wrong, what did you get wrong about that decision? So like for me, I've been wrong actually often on my surprise, where I've hired very boring people. And my secret to hiring is hire boring people because no one's quite as boring as they seem in a job interview, but they will always be humble if they're boring in the interview. (laughs) And so I find hire the boring.

   21. SSShyam Sankar57:10

       And it, you know, it just might be a reflection of Palantir too, but I think that, that the form of the mistake is thinking that outside knowledge will translate here without a massive retranslation function. And so the sort of personality that's like, "Look, I've solved this problem before. I know the answer," versus, "I'm betting on my talent to be able to solve the answer," that's the sh-

10. 57:30 – 59:20

    Business Reinvention

    1. SSShyam Sankar57:30

       that's the shape of the challenge.

    2. HSHarry Stebbings57:31

       Can I ask one final one before we do a quick-fire, but you mentioned that Palantir has had quite a few transformations, uh, or reincarnations. What do you think was the most challenging reincarnation that Palantir made, and why that one?

    3. SSShyam Sankar57:45

       I honestly think all of them have been challenging. And I, I, the reason they're challenging, there's, there's the work, which is more obvious. The less obvious part of this sort of reinvention is reinventing yourself. It's the, it's the toll on the individual where you're like, "Look, but I got this thing, and it's at this place, and it's, it's successful. And where is my, like, earned credibility from having done that?" And in the reinvention, what you're saying is, no, like, we're all, every single person, we're starting from zero. It, yeah... and it might be true that some person who joined t- this company two months ago is going to be more sophisticated at this new problem than you, who joined five years ago. And that's, you know, th- there's a, like a, a commitment to pushing through that. And I think, I think it's actually only survivable because the whole thing is set up as an artist colony.

    4. HSHarry Stebbings58:31

       Is it not harder with more people because you have to reengage, recommunicate that to 2,000, 1,000, whatever that number is? Whereas when there's 100, it's much easier. So actually, the reincarnation gets harder over time.

    5. SSShyam Sankar58:43

       That's one aspect that gets harder. Let me give you one aspect that gets easier. The first few times we're doing it, I felt this deep personal responsibility to, like, handhold everyone through their own reinvention. Um, and that is exhausting, and I felt their pain of, of it. And it's not that I don't feel it now, but I now recognize, like, that's the medicine. Like, I was trying to minimize the pain of the r- reinvention, but actually, their greatness is gonna come from going through this, this crucible and, and, and being proud of how they reinvented themselves. So now I, I kind of view it as, as... I view it proudly

11. 59:20 – 1:06:12

    Quick-Fire Round

    1. SSShyam Sankar59:20

       rather than with trepidation.

    2. HSHarry Stebbings59:21

       Shyam, I wanna move into a quick fire round so I say a short statement, you give me your immediate thoughts. Does that sound okay?

    3. SSShyam Sankar59:28

       Sounds great.

    4. HSHarry Stebbings59:29

       Okay. So where does value accrue in AI, startups or incumbents, and why?

    5. SSShyam Sankar59:33

       I think it biases towards the incumbents who own applications in the app layer.

    6. HSHarry Stebbings59:38

       Why?

    7. SSShyam Sankar59:38

       I think the model's gonna be commoditized. Beca- because the models are not going to really give you enough of the value. It turns out that, like, you have the model, then getting to a business outcome with that model happens in an application. Uh, and so if you own those pixels, you're gonna be able to apply it more quickly. I also think that very few problems are 100% AI. They're like a third AI, a third traditional deterministic code, a third human thought. And the only place you can drive that elegant integration is at the app layer.

    8. HSHarry Stebbings1:00:10

       So you think we'll see the commoditization of LLMs?

    9. SSShyam Sankar1:00:12

       I think so. I'm not saying some won't be better than others, but I'm saying most of them are gonna be good models.

    10. HSHarry Stebbings1:00:16

        Well, no, I'm just interested 'cause when you look at, you know, say, (smacks lips) I don't know, cloud over the last 10 years, you know, cloud has relatively been commoditized in terms of, like, actual product offering. But the biggest players are huge, and they're in the infrastructure layer.

    11. SSShyam Sankar1:00:32

        Yeah.

    12. HSHarry Stebbings1:00:32

        And they are the same size as 100 application layer companies. And so I'm just wondering, I get you on the commoditization side, but I still think the value will accrue to those incumbants in the infrastructure layer.

    13. SSShyam Sankar1:00:46

        Uh, I think, I think they'll get a lo- a lot of the compute, for sure. T- and that's, that's... uh, uh, yeah, and I should say, I think the value is going to accrue in those two directions, infrastructure and app layer, and that the models are gonna be squeezed.

    14. HSHarry Stebbings1:00:59

        I get you there. Can I ask, if you are a model company that doesn't own full vertical supply of compute, are you not screwed?

    15. SSShyam Sankar1:01:07

        If I was a model company, I would be pushing into the app layer. I'd be trying to figure out how to own more of the value I'm creating with the model, rather than just selling an endpoint. And this is usually the opposite advice you're gonna get from traditional venture.... where they're like, "Build something simple that scales with an API."

    16. HSHarry Stebbings1:01:22

        Every venture investor says, "Oh, well, it's a thin layer on top of an LLM." Uh, what's the difference between a thin layer and a thick layer in app world, do you think?

    17. SSShyam Sankar1:01:32

        Uh, well, I think a lot of their criticisms are right, that essentially if you're just building a chatbot, it's a pretty thin layer. So you could say, what makes it a thick layer is, are, what's the use of deterministic code or algorithmic reasoning in addition to the LLM? What's the integration into workflow? Um, how do humans... You know, are we just, are we still chatting here? Are prompts for developers or for users?

    18. HSHarry Stebbings1:01:53

        Why do LLMs need tools?

    19. SSShyam Sankar1:01:55

        Because otherwise you're completely constrained to the parametric knowledge of the model, and I think that's a Sisyphean task. Your- People keep trying to jam more and more knowledge into the model, but what they fail to recognize is that these models are actually very good at speaking regular grammars. JSON, you know, code, it's a regular grammar. How do you use these models in their current state to manage and manipulate application state?

    20. HSHarry Stebbings1:02:18

        Have the core LLM winners been already created or will we see more over the next few years?

    21. SSShyam Sankar1:02:24

        Some of the folks who have been created are definitely gonna be core winners. I think there will be more winners to come.

    22. HSHarry Stebbings1:02:30

        Got you. Um, (laughs) uh, t- tell me, who do you think the winner's been so far?

    23. SSShyam Sankar1:02:35

        Uh, u- unquestionably, OpenAI has, has done quite well. I think we have, we have some time to see where does Google really shake up in, in all of this. Um, and I think Meta has... I mean, it's amazing to see how much they've reinvented themselves around this.

    24. HSHarry Stebbings1:02:50

        Do you worry that development is so far ahead of adoption? Like, I think we all overly get excited and actually, you know, 50% of European corporates don't know what Slack is.

    25. SSShyam Sankar1:03:01

        I think the, the, the fear I really have here is how much are we modeling the appropriate use and how, how fixated are we on proof of value instead of proof of concept? We had a self-driving car demo in 2005 that drove 132 miles through the desert. That's really impressive. That's not a toy-like demo. You could argue only in 2023 did we have a proof of a self-driving car that could drive around the city reliably as a commercial, commercial offering. Nobody wants to be in that business. No, no enterprise wants to adopt this thing where the demos are amazing and 20 years from now, they might be able to put this in production. And I think as technologists, in order for us to not be in a bubble, we need to be really focused on proof, not proof of concepts, and the speed by which we can affect these enterprises.

    26. HSHarry Stebbings1:03:50

        What have you changed your mind on in the last 12 months?

    27. SSShyam Sankar1:03:53

        Content and process. I mean, look, content has always mattered, but I always had this view that like, it's gotta scale, it's gotta scale. I'm, I'm now willing to fight incrementally, you know, almost like trench warfare to get things to scale.

    28. HSHarry Stebbings1:04:05

        You can h-

    29. SSShyam Sankar1:04:05

        As long as the process is there, content is gorgeous.

    30. HSHarry Stebbings1:04:08

        You can have dinner with one person, dead or alive, who would it be and what would you ask them?

Episode duration: 1:06:12