#10 Part 2: How the U.S. Can Win the Innovation Race with Startup Thinking
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I was running the marketing department and like we went around the room talking about what people believe. And finally I said, everybody go get your business card. Back then you had these little cards with paper on it with your title. And I said, mine says CEO. I don't care whose opinion you have in the room. My opinion trumps everybody's.

But anybody who brings in a fact gets to overrule my opinion. So why don't we start having fact-based meetings rather than faith-based meetings? Welcome to Divot, a community for people trying to make their mark on the world where each week I'm interviewing some of the best creatives in business, tech, sports, entertainment to learn how they made their mark. You can watch episodes on YouTube, Apple Podcasts, Spotify, or X. Divot. This episode is brought to you by Salesforce.

Today we're in Half Moon Bay, California for part two of our interview with Steve Blank. Tell me about your background in the U.S. military. We don't have another three hours. So the short story is I dropped out of school, joined the U.S. Air Force during Vietnam, spent four years in the Air Force, a year and a half in Southeast Asia. Basically ended up in Silicon Valley because I ended up

as an electronics technician in electronic warfare and electronic intelligence. Worked on multiple fighter planes, something called Wild Weasels, Spectre gunships, et cetera, and then got...

My last base was in Michigan, in Skoda, working on B-52 nuclear-armed bombers. The biggest payload next to the nuclear weapons was electronic warfare equipment as they had to penetrate the Soviet air defense system. In a war zone, the ones in Thailand, you got rewarded for being creative to get those planes off the ground.

in a nuclear-armed P-52 base, the last thing they wanted you to do was being creative. And so I love the, you know, just...

I learned how to hustle a three-million-person organization, which is the DoD in Thailand. And hustle, I mean, just like I was learning like there was a fire hose. But in what was then called the Strategic Air Command, I learned a lot too, but it was really a world-class bureaucracy for probably the right reason. So I got out after four, went back to school, didn't stay long, and ended up coming out to Silicon Valley in the 1970s.

But what stuck with me was the value of national service.

And I have to tell you something I still remember vividly. When you came back from Southeast Asia, people did not appreciate you were in the military. I mean, that was a very unpopular war. And so in Silicon Valley, you never mentioned you served, just never did. It was my first company you did because it was a company that was serving the intelligence community. But after that, the other seven startups never mentioned it. And it wasn't until 9-11 happened that people, I still remember the first time someone said,

heard I had been in the Air Force and said, thank you for your service. And my reaction? I was angry as hell. It's like, where the fuck were you for the last 25 years? I mean, great. It's nice to hear. But like, that was not what the country thought for 25 years. And so this notion of

of universal national service has always been in my head and I believed that if I couldn't mandate that in the country, at least I could help have students appreciate the fact that, you know, the militaries and the things we do in the intelligence community, a lot of the things keep us safe and secure in our beds. And so starting Hacking for Defense at Stanford was

Nine years ago, this was not a popular thing to do, but realized we could expose students to some very interesting problems that were a lot more important than making another stupid social media app or addicting students to nicotine with Juul or something else by having them work on DOD and IC problems. And it wasn't that I expected they were going to spin out companies or

you know, work on killing people or something. I just want them to understand what was going on on the other side of the world and the problems were the toughest and most interesting problems going on. And I wanted the folks in the DoD to understand we know how to operate with speed and urgency and could deliver stuff like a blur compared to the existing acquisition system. Now the surprise was is that my students did create companies out of that, though that wasn't the goal. I'd say about half

those teams ended up either building dual-use companies or military-owning companies or working with their sponsor in some consulting role or going into the government and serving. And then one of the co-founders of the class with me, Pete Newell, figured out how to make it a national program. And so Hacking for Defense ended up to be a national program. Before that,

As I mentioned earlier, my non-military class, Lean Launchpad, had been adopted by the NSF, NIH, and DOE for something called I-Corps. But post-Snowden, I got called into some part of the national security establishment to see if we could recreate some of our innovation products rapidly. And so created a program at scale that put more people through

the intelligence version of this than even the I-Corps version. And the IARCA version put 4,000 teams through it. We put more teams inside the intelligence community through this to build new products. What's not working in the Department of Defense's approach? Pre-January or post-January? I mean... Let's talk pre-January. Pre-January is pretty simple. In fact,

My students go, okay, how do we sell to the DOD? Thanks for the class. We now understand problems. We've met with warfighters or stakeholders or whatever, but how does the system work? And then I would tell them, here's a program officer, what's called program executive officers, and here's how to look at all the programs the DOD is looking for and the problem sets.

There's a great organization called the Defense Innovation Unit, which is kind of the broker between military problems and Silicon Valley. Finally, we realized only last year, this was the most back-ass way to look at the problem one could ever invent. We're asking 10-person companies to figure out a 3 million person organization, rather than having designed the 3 million person organization. We're finding the 10-person company, and it's a consequence.

of like a legacy of 75 years where in fact

The DoD got dependent on what were called the prime contractors, the top five, Lockheed, Boeing, Northrop, Raytheon, et cetera, you know, go down the list of usual suspects that made the big weapon systems and were dependent on what were called the service labs, meaning Army, Navy, Air Force have research labs. And else the other part of the ecosystem was something called federally funded research and development centers, Sandia, you know, Lincoln Labs, et cetera.

All were an ecosystem that were building the most advanced technology products for the military. And so the military designed an acquisition system to deal with those folks. And what they would do is write a requirement. Here's a specified list of features we want. Go build it for us. But two things happened.

One is that the technology they needed to deter or win a war were no longer owned by those labs. AI, machine learning, drones, biotech, commercial access to space, etc. Any of the listed organizations, none of those are the leaders in any of that. It's now startups and scale-ups in China.

Oh, and then number two is write a requirement? Well, how about we understand the problem first because the problem is changing faster than you could write a requirement. And the people writing the requirements are sitting inside of a five-sided building with no windows. Well, if you don't spend your time understanding what's changing in technology and what's changing about the needs of a warfighter in either South China Sea or China,

Ukraine, there's no way you could write a requirement that actually was meaningful, nor could you ask for its delivery in time, in a timely matter, unless you understood the conditions on the ground. And so all of that was kind of changing rapidly, and the DoD's acquisition system was just broken. More importantly, the

There's like two ways to think about it. There's the Office of Secretary of Defense, which has two components, a research and engineering component and an acquisition component called ANS, Acquisition Sustainment, and they barely talk to each other. So what you had in the last couple of years is research and engineering spun up close to 200 incubators and accelerators. Great idea. Oh, guess what? None of that is connected to the acquisition dollars.

You go, what? So I kind of knew this, but last year RAND Corporation put out a study where they actually went and talked to these people and validated that. They created internal incubators that they ran or they partnered with

No, most of them were internal DoD incubators, AppWorks, Naval X, I mean a whole set of things. And not that there were dumb people running them, but none of the people on the acquisition side said, no, no, no, we want the output of this and we will buy these things or we have a budget to not just buy them but to deploy them.

So one of the things we teach our students is, no, not just like find the problem and find the solution. For the DoD, you have to figure out, well, no, tell me how you're going to get this deployed at scale in a timely manner.

Well, that requires you to understand the acquisition system and the color of money and like, you know, whose budget is this or where? That's not what we were building in the R&D. How long was that going on for? The last three or four years. And like, listen, it wasn't like there were stupid people. There were smart people in these organizations. There were stupid people. And I'm going to use the word. Leadership has never run a lemonade stand, let alone a startup or a company. The leadership of the DOD.

Only been two in the last 50 years who have done that. One was called Bill Perry, who was my first boss in Silicon Valley when he ran a startup, and the other called Ash Carter. They both understood the ecosystem that was occurring outside the DoD. And they were attempting, and Bill Perry just did an end around when he was both the head of research and engineering and the secretary of defense around the entire system to get what he wanted. And Ash Carter was trying to build what was called civil-military fusion.

And of course, the DOD ignored it and China adopted it. So China's figured out how to use what's called a whole nation approach, not just the DOD, but all their capital, all their startups, all their companies for national security. The U.S. has never done that. So hopefully, in this administration, when we're done with

you know, the DEI revenge tour and the like hack at a, you know, ideological budget cutting, we'll actually figure out what the right thing to do in building the right ecosystem. It does seem like, especially in China, that there was sort of this disconnect with what we were doing to fund and build innovative products, technologies, and ideas versus like what it seemed like China was doing, because there are a few companies that have been able to

to really do amazing things in terms of national defense. But it felt like very few of the smartest engineers only until the last few years were really working on

It wasn't even something people were talking about here. It wasn't something people were excited about or spent. There wasn't a lot of venture capital going into it. So it turns out that China's commercial ecosystem was an accident of a country that decided to replicate Silicon Valley's defense ecosystem.

So, they built up their science, their technology, and the goal was to build a base for national security. But when they let loose their entrepreneurs, the outcome was this vibrant for a while commercial ecosystem. But that wasn't the national goal of China. The goal was to catch up with the West. Remember, they destroyed any of their science and technology during the Cultural Revolution.

You ever watch the three body problem, that beginning scene with the Cultural Revolution? You should all look at it. That was what happened to China's science and technology system in the 1960s. But in the late 80s and 90s, they strategically decided that they were going to catch up with the US by investing in science and technology and an industrial base. And I've written about this for a while, about

And of course, we just decided now to kill our science and technology base. Kind of sad, but the future here is in China. Why can't the DoD pass an audit? Well, this is very funny.

previous administration before Biden, I was under the Defense Business Board. It was a great, smart group of people. It was nonpartisan. It was an advisory board to back then the chief management officer of the United States was responsible for auditing, meaning can they balance their books? Do they know where all their equipment is? You got to imagine it's the largest organization in the world, at least in the Western world. Three million people, tons of equipment, everything from aircraft carriers to like

where's that bullet I just put down? And so this was just pretty simple. And so I joined this thing and, and,

I got a really good lesson here and then when I later joined the Navy Science and Technology Board, was what the role of an advisory board was. I thought it was to make the country pass an audit. There were some world-class auditing people and people really understood the nuts and bolts of auditing large organizations. There's words I had to look up and didn't understand. Basically, the way the DoD was doing it and this group

group decided to continue was well just hire a thousand auditors literally the audit cost I don't know hundreds of million dollars maybe a thousand contractors yeah like Deloitte and you know all the all the brand names and whatever and I think cost like close to a billion dollars if I remember correctly every year just to do an audit and so I suggest excuse me why

Why aren't we funding advanced analytics and research on how to create automatic audits? Not for everything, but I bet you there's a ton of technology we could throw at the problem. And if the technology doesn't exist, given the amount of money we're spending, why don't we take 10% of our budget

that we're spending on audits and fund research universities. - More scalable way to do it. - Yeah, for, you know, we have, why don't we create an SBIR program or something to kind of create seed corn for advanced technology stuff? And of course people looked at me and patted me on the head. And this happened again when I was on the Navy Science and Technology Board.

I said, "Thanks for giving us all these problems, but the bigger problem is we're building the wrong fleet going forward." Thank you for saying we need all these conventional things. We're putting in our 2035 shipbuilding plan. It's pretty obvious to the most casual observer that now we should probably be thinking about a hybrid fleet and not giving $100 million for autonomous vehicles.

If our acquisition budget is $30 billion, then some large number that starts with a B ought to be dedicated to acquiring hybrid things. And again, I got patted on the head in this case, like violently, that said, oh, don't disrupt the status quo. And then realized two things. One is the tactical thing is that, and this happens in large companies when you have advisors as well, is that

We're in Silicon Valley really used to people who see over the horizon, see over the horizon. That is, yeah, you have lots of people who could tell you how the next product should be, and those are great, and you need that in every company. But there are some people who are essentially entrepreneurs who go, no, no, no, I see this problem, but maybe we shouldn't do more of the same. Maybe we should do something different. And that was the advice I was giving both these organizations and got smacked,

really hard on the head, and the Navy won because it broke a lot of status quo. Yet the problem wasn't the head of the advisory board, even though he was a dope. The problem really was the leadership, in this case the Secretary of Navy or in the other case Chief Management Officer, who was asking for advice.

They didn't say, gee, I don't want advice I could get from a consultant. They should say, I want non-consensus advice. And then they would have had an interesting conversation because the advice they were getting, both those advisory boards, were great advice, but you could have gotten from like just hire some consulting agency and they would have given you. And in fact, the DOD hires a ton of consulting agencies, whether it's

Who's Allen or any Deloitte or anybody else has a great government business and you will get great management advice, but you won't get over horizon advice. And both those organizations, I'll contend, were in crisis that required non-consensus advice, but they didn't want to hear, but the leadership who set up those advisory boards wasn't chartering them for non-consensus. Well, also, are they incentivized to create an environment where

There is non-consensus advice being shared. I mean, what if actually a great non-conventional idea gets presented? This is a huge risk to your sort of career path of this kind of a career manager inside of government. So this goes back to the role of leadership from the top. So clearly when you say that, are you talking about the top of the government agencies or are you talking about the...

POTUS are you talking? Where's the top? All the way. So it turns out when you're the market leader, whether it's the United States as a country or a company, and everything's fine and all you need to do is sell more of existing stuff, but better or cheaper or whatever, you know, non-consensus advice is like, that's the squeaky wheel. Let's shove them in the attic.

But when you're in a crisis or you see the market changing or customer needs changing or China rising, China putting more ships in the water that copied our design than we could actually build in our own shipyards or other things or the world changing in drones, drone warfare and new operational concepts literally changing every week and we're still building stuff we were building 10 years ago. Worse, we still appoint the same people we would have appointed 10 years ago.

That's a failure of leadership all the way from the top. Not understanding that in fact, in peacetime, you want conventional people. In a crisis or when the world is changing around you, if you still have the same people and the same organizations, then you're not responding in the correct way, whether it's a company or the government. That's at least my take of what I've seen in these things.

I think this current administration kind of understands that as a top line. I have some severe questions about its implementation. It feels a little like

you know, taking a chainsaw to a headache. But the higher order bit is correct. The system was just broken and not responsive to the world as it is, not the world that we wanted. And we kept appointing people and building organizations and funding things as we want, not where we need to be. This

This wasn't always the case, right? Like I've seen you write about the National Defense Research Committee. Can you talk a little bit about what that was and how that got created? Actually, hopefully we will. I mean, we can imagine the equivalent. So this is kind of a shaggy dog story. So hang on with me. So, yeah.

In the U.S., pre-World War II, no U.S. university got federal funding. Maybe the only exception was ag schools, you know, like Michigan State or, you know, that were designed to teach agriculture. But there was no funding for science or technology from the federal government, zero. The only research dollars came from Rockefellers or Carnegie's or partnerships with companies. But as World War II approached in 1940, a professor from

Ran engineering at MIT, went to President Roosevelt, make a long story short. He said, look, I've worked with the Navy for 20 years. Military research labs are pile of dachshund. I mean, like not capable of keeping up with a war we're going to have, which is going to be a technology war. We should have the military build conventional weapons, tanks, planes, guns, ships, et cetera. But all the advanced technology that's going to come, physics based stuff, electronic stuff, civilians ought to make that.

And like, the military left. But they forgot that Roosevelt during World War I was the Assistant Secretary of Navy and also thought they weren't very capable and told this guy named Vannevar Bush, "Okay, this is 1940. Why don't you set up this organization? You can't build anything, but you're responsible for all advanced research."

for military weapons systems. Of course, the military wasn't happy, but a year goes by and now war looks like it's going to become closer. And Bush goes back to Roosevelt and says, not only do I need to own research, I need to own producing weapons systems for advanced technology and changes this research organization into something called the Office of Science and R&D, OSR&D.

And now it's responsible for things that became radar, electronic warfare, rockets, chemical weapons, biological stuff. They invented all this stuff. They invented all this, but here was the idea. It wasn't done by anybody in any military weapons lab. His crazy idea was the military will give professors in universities these problems and that professors would recruit other professors and grad students to work on them.

Like, well, that's insane. Turns out they had 10,000 people across 16 separate divisions, including for the first two years, they owned the physics problem, which was called the S-1 division, which they finally spun out in June 1942. And they called it the Manhattan Project.

So, OSR&D built all the advanced weapon systems for the US. And they didn't build them in the universities. They would build what we would now call the MVPs or prototypes and handed them to Westinghouse and AT&T and Sylvania to make them at scale in factories. But all the weapon systems that had electricity and like whatever were all built by scientists. Were these professors?

Was this research group, were they individual teams like a startup, like small Tiger teams working on specific problems? Well, so for example, the radar team at MIT, which was run in something called the Radiation Lab, started as a small team. By the end of the war, it had 3,500 people.

The one that worked next door to them at Harvard was run by a Stanford professor who they didn't think anybody at Stanford was competent, except this guy named Fred Turman, ended up with, again, a group of five people and ended up in, by 1945, Harvard Radio Research Lab had 800 people.

Something called the S-1 Division, called the Manhattan Project later, ended up with 130,000 people across the country building nuclear weapons. All these were run by civilians. The Manhattan Project had a military guy, General Grove, on top of them, but it was run by Oppenheimer.

The equivalent today, if I can, just imagine going to the President of the United States and saying that the military is incapable, and so are the primes, of building any weapon systems that use AI, machine learning, access to space, drones, et cetera, and we should give these problem sets to VCs and startups. That's the equivalent of what we did in World War II. What did you say it was, 1940? 1941, it became the OSR&D. Wow.

Wow. And it lasted through 1947. And then, wait a minute, then the kicker is all these universities. Remember, we're funding professors in universities. Like, they're getting new labs. They're getting all this equipment. They're getting government money. When the war ends, they go, no, no, no. Keep it going.

And so basically the United States agrees to spin out something called the National Science Foundation to fund all basic science research in the United States. And then all the medical stuff becomes the National Institute of Health.

But then the military goes, "Oh no, the war's over. We're taking the military stuff back in our labs." And the weapon systems, like the military takes back and creates the Atomic Energy Commission, which was at the time supposedly still civilian run. And then we create DARPA and NASA.

All the federal agencies do research and development. The US government spends $200 billion a year, but they give the universities $60 billion a year in R&D money. NIH, National Institute of Health, and the NSF, National Science Foundation, are by far the two largest contributors, and then DOD is number three, that fund university research. Basically, here's a problem. We'd like you to do some research and give us the results.

Does the government own it? Do they control the IP? What really kicked off startups in the United States was in 1980, at least in medical stuff, the government created this law called the Bayh-Dole Law, which said any government-funded research in universities, universities, you get to keep it.

So the universities created tech transfer offices. And today they license close to 7,000 patents a year and create, you know, thousands of last year, 1100 startups. So now all of a sudden this ecosystem that the government funds actually ends up going out as the licensees or technology that funds medical and life science and, you know, AI and machine learning, et cetera. And by the way, no other country in the world did this. Why not?

Well, think about it. In Great Britain, when the war started in 19... Remember, Britain was at war in 1939. In 1940, Churchill becomes the prime minister. He takes his friend, a guy named Lindemann, who was his science advisor for 20 years. But Lindemann had been the head of...

the physics lab at Oxford and the head of physics at Oxford. So, you know, Churchill loved science. He knew this guy and whatever. But Lindemann in World War I had been a staff member at the Royal Air Force R&D lab. It was also a test pilot before they even called it a test pilot. So he loved government labs, unlike Bush, who hated the Navy.

Lindemann said, "Well, of course we're going to do all that. Even though I came from the university, we're going to give all the R&D to the government labs." The British were way ahead of us in World War II when it started. They had chain home radar, they had electronic warfare, whatever. But during the war, Britain was almost bankrupt and they had to focus on the things that were immediately important to them, which were getting bombed daily and submarines were trying to choke off or

our supplies. So they focused on the weapon systems that truly mattered. It wasn't dumb. It was life or death. Well, the U.S., the homeland, unless it was Pearl Harbor, was basically secure. So we can invest in a ton of stuff, and our industrial base was much larger than Britain.

People don't remember, but the British were ahead of us in nuclear weapons design. They had a committee called the Maud Committee and then eventually a nuclear weapons program called Two Allies. And finally, when it was time to scale that into industrial-sized stuff, Churchill and Lindemann said, "We just don't have the capital or industrial base to do this," and deferred to the United States. And therefore the Manhattan Project happened. But what was worse is after the war, Britain was exhausted and broke. And so the first cutbacks were in the military.

And so they cut back all those weapons labs where all that R&D was going. When in the U.S., it wasn't in the weapons labs, it was in the university R&D. And there was a ton of money available in the U.S. And Britain was like, you know, still like rationing food for another three or four years. That was just the comparison between what happened post-war because the British, I mean—

The Colossus computer at Bletchley Park was probably, though it wasn't a stored program computer, was more advanced than any computing system in the United States. Turing and Tommy Flowers could have started anything in the computing space, but instead it was IBM, NCR, and ERA in Minneapolis that took all their military contracts and started building systems. It seems like what you're saying, that the president in 1941

sort of with his experience seeing the military building weapons and trying to innovate, saw such lack of the ability to do so that kind of spurred this entrepreneurial initiative, reporting directly to the president, who's the leader, who then

all of these innovations came out of that in the following decade. And even more so, it was kind of ironic because Roosevelt had no interest in science and technology and basically deferred to Bush. It's like he would ask questions, but it wasn't like he was technically literate. People forget that Churchill and Linderman were talking about nuclear power in the 1930s. I mean, before

Most scientists even understood it. They were at the front of it. And Churchill was interested in all this stuff. And it was ironic. Now, what happened actually to Vannevar Bush was even worse, is that the war ended and all the knives came out for Bush. It was during the war. He had run roughshod over the military and whatever. By 1948, he was out of the government and never came back. The same thing happened to General Grove, who ran the atomic bomb program, the Manhattan Project.

is that he managed to create 130,000 people and massive infrastructure at Oak Ridge and Hanford. In addition to Los Alamos was the smallest part of this stuff. The guy created an enormous system

And literally the war ended and his career was over. Why? Because it was no longer a crisis and all the bureaucrats and whatnot. And there's a lesson here is that in a crisis, you have special people who create amazing things. But boy, don't get used to that because when peacetime comes or normality comes, your career is probably over. What do you do after that? Retire. Or what's worse, not understand why you no longer have that authority or people are no longer kissing your rings.

Happens in companies as well as, you know, you're working on this most important project and whatever and you have all this authority and okay, you ship it or whatever and it's like, okay, and now the knives come out or you're no longer important. You've said we're basically out of time now. What does that mean?

Again, I said this before January. It's not clear whether we have more time or less time now. But, you know, in the South China Sea, China is no longer hiding its designs on being a superpower. And, you know, if I was in Vietnam or the Philippines or certainly Taiwan, I wouldn't be sleeping well there.

That's number one. And the question is whether the U.S. would be a dependable ally. Go ask the Ukrainians what that feels like. So geopolitics are in a, you know, go ask the Europeans. How's it feel like now? So ask me in six months about what that means. I'm not sure. Can we really continue this discussion?

just unbelievable spending curve that we're on, exponential curve of spending. You mean for military? Military and beyond, but yeah, the military being one of the largest line items in that. Yeah, you know, I always, I've said this multiple times, is that, you know, the DOD keeps saying they need more money, and I keep saying, well, you kind of lack imagination where to get the money. This goes back to the differences between

If you believe that everything ought to come from the DoD budget, then you're kind of missing the fact that defense and national security should be what I call, and other people have used the phrase, a whole-of-nation approach. Why is it just the DoD? People forget, you know, it used to be in the, oh, maybe five years ago, the largest satellite manufacturers in the world, like Lockheed and Northrop Grumman and maybe some others, would make 20 a year.

You know how many SpaceX makes every year? 2,200. You know how much the government paid for that factory? Zero. Now they pay, you know, Starlink for something called StarShield, which are modified. But they didn't pay for the factory, nor was it their idea to do it. Or all the R&D and everything that went into it. And you know how many times the SpaceX launches Falcon 9s a year? 140. You know how many times, you know, United Launch Alliance launches? I think five.

How much did the government pay for that? Zero.

So, just the notion of like, wait a minute, perhaps somebody in the commercial world could build things that might be either dual use or we could encourage or, you know, where we encourage drone factories or where's private equity in this game? What role does Treasury or Commerce need to play? How come the National Security Council isn't having a set of economists saying, no, no, no, here's how we need to reconfigure the economy to kind of do this if we're serious about this.

It just doesn't exist. It turns out the most creative thing that happened in the DoD in the last three years was the creation of something called the Office of Strategic Capital.

which was a way, kind of like the Export-Import Bank, which funds Boeing planes sales worldwide, basically created a multi-billion dollar loan authority for venture firms and startups. You know who came up with that? It's two guys in the basement of AFWERX. It was Jason Rathke and Eric Vollmer who made it up themselves and then worked the system. And incredibly, it's a nightmare of what they did. But they basically got the DoD loan authority over their dead body.

Well, just imagine if some smart SECDEV and National Security Council person said, perhaps we ought to have 10 economists in both the Office of Secretary of Defense and at least five economists in each one of the services, Army, Navy, Air Force.

And by economist I mean not just like with green eye shades looking at the internal stuff, but figuring out how can we be creative? What authorities could we ask Congress for? How can we work across all the lines of effort in the country to get everybody, not just venture capital, but private equity and other things to allow us to engage? I think it would be much more interesting.

I have to tell you, though, one of the really interesting lessons for me in life in general was when I retired, I did a bunch of things. I was a public official in California for seven years on the Coastal Commission. I became chairman of Audubon California. I still can't tell a pigeon from a hawk, but I've got a great pair of binoculars. But one of the things that was important was building the board. And when I retired,

became chairman, it was pretty obvious the rest of the board members had a pretty narrow view of who should be on the board or even like associated with the organization. And it was like, you had to be pro-choice, anti-gun. I mean, a whole set of things that one could argue were pretty reasonable things, but had nothing to do with like preserving birds and their habitat. And I said, gee, I want people on the board from, you know, the Sarah Club to the Bohemian Club.

Because there ought to be a bigger basket of people, not the smallest possible Venn diagram, as long as they're aligned with our mission. And then I kind of use that in thinking about how to work on national security problems or other problems that involve the government, is you could make your political point of view so narrow that you kind of

cut out all the other people who could be aligned with that particular mission. And so I've kind of learned about how to make the world bigger, not smaller. You know, there are some things on the extreme that just don't fit. But most of the time you could find a commonality of interest that keep you aligned. How would you encourage someone in government to work with somebody that they vehemently disagree with on some social issues or somewhere else on the fringe?

Well, again, it's do you share the same

view of what the mission is and what the outcomes are and can these people help you do that? As I said, I've been on a lot of government advisory boards and you never ask people, at least in the things I served on, their political affiliations or beliefs about a lot of other things other than the thing you were trying to help make better. So if you're trying to make something better, then you want to maximize the number of people who could help you make that better. You might disagree about other things.

Or else you end up like making it a litmus. My point was, on this Audubon thing, there was almost a litmus test of like 15 other things, which I happen to agree with, but were orthogonal to the mission of the organization and actually were limiting our ability to fundraise and make partnerships and whatever. And I just kind of found that to be useful to other things. The other thing I should tell you is when I was on the Coastal Commission,

and I had never been in politics and this was a political appointee job, the coastal staff would do a pretty good job and the stack of reading we'd have was like this thick. And I had to read the Coastal Act and coastal regulations and then read the law to understand a lot of the decisions they were making and whatever. And I'd read the footnotes and whatever. And there were 12 commissioners.

And, you know, he'd vote on things. And I noticed that this one commissioner always seemed to get his way, but he wouldn't read anything. I mean, nothing. And I finally asked him, like, how do you do this? He said, Steve, I know how to count to seven.

Well, seven was the majority. That's all I needed was to take enough people out to dinner. And a heuristic I derived from this, which I kind of laugh about, is if you're the smartest person in the room, the odds are you're probably the least effective. It's a big idea. And I say that smiling because I'm not always the smartest person in the room. But you forget the goal wasn't to be the smartest person in the room. The goal is to figure out how to be the most effective. Boy, that took me like 10 years to figure that one out.

Like, you could be the dumbest person in the room, but in this case, you could count to seven. And he was incredibly effective. That was a great lesson. Sort of like identifying what the actual problem is, and then... How to get to an outcome that you want. Because sometimes the outcome isn't to be arguing facts.

Right? And we're seeing that in a lot of the- Especially in politics. In politics. And, you know, sometimes. So, by the way, this also kind of applies inside of companies. I finally realized that sometimes you need to ask in a meeting, whether you're just an attendee or even the boss, are we having a faith-based decision or a fact-based decision? What do you mean? Faith-based decision is, I feel we ought to do X.

A fact-based decision is someone who has evidence trumps my faith. Well, we could have a fact-based decision. I remember, and it came down to me, I was running the marketing department. And like, we went around the room talking about what people believed. And finally, I said, everybody go get your business card. Back then, you had these little cards with paper on it with your title. And I said, mine says CEO. I don't care whose opinion you have in the room. My opinion trumps everybody's.

But anybody who brings in a fact gets to overrule my opinion. So why don't we start having fact-based meetings rather than faith-based meetings? And that was another thing about getting evidence outside the building. For marketing, it was like, I really didn't care what you thought. I cared what you thought based on some real data. It's not like I don't want your smarts. I wanted your smarts beaten against the data and evidence you have. And then we could have a fact-based conversation.

But I always find it's interesting to ask because then you could really raise the hackles of some people who want to tell you how they feel or what they think. And you could say, are we going to have a meeting about your feelings? That's great. We could have that meeting. Or we could have this other meeting. Or we could have both meetings. What are meetings in the government like? Are they fact-based? Well, it depends which agency you're talking about. Sometimes just we're

We're having a meeting to have another meeting to move the paperwork another foot through the organization. Other places where there's a finding from the president and you need immediate action, I've seen organizations move with speed and urgency that would impress any startup. And so, you know, the answer, like any large organization, it depends.

It was one of the things that surprised me about being an entrepreneur in Silicon Valley when I was finally selling to companies. I just had this idea that companies were full of idiots and only the smart people worked in startups. And that is just such an obscene point of view. I'm embarrassed to admit it. But there are more smart people working in large companies or even government agencies than there are in startups. It's just that the risk profile is different.

That's a big idea. Is that, no, they're not going to bet their kid's college fund or their mortgage on this. So they're getting a salary. But it doesn't mean they're not smarter than you are. There's people that you worked with in the government that you would hire in any startup or any startup you funded, any startup you started. Yes. If they had the right risk profile. And, you know, there are people in, you know, DemGuru and DeLong.

Delta and other places who put their lives on the line on a daily basis, or the ones who served in, like Pete Newell did hacking for defense with me, will never tell you, won the Silver Star in the Second Battle of Fallujah. He was the brigade commander before he ran the Rapid Equipping Force. The risk profile for some of those are, one of the things that made me almost fearless in startups

In Thailand, I wasn't in a war zone. I was next to a war zone, even though our base was shelled before I got there. But pilots sometimes didn't come back. So, you know, even at 19, you started to appreciate this wasn't a game and that you were living next to people who were taken off every day with bombs under their wings, you know.

And so when I came back to the U.S. and was doing a startup or starting to think about my first startup, my housemate said, and I still remember this a half a century ago, said, do you understand how risky startups? And I realized at that moment I had an absolute unfair advantage the rest of my career.

Because to them it was you could lose your job and I had just been working with people who were putting their life on the line. Not me, but they were every day. And that just carried with me in every startup. Yeah, I could lose my job. And then I thought, well, am I unemployable? No, of course not. Can I starve to death? You really got to work hard in the United States. I mean, you can, but you got to work hard to starve to death.

So that made me, if not fearless, it just gave me a very different perspective that most people who said startups are risky. I just had a different perspective on risk. Right now we're seeing a surge of Silicon Valley leaders entering government. We've got Saks, JD, Vance, Elon Musk, the co-founder of Airbnb, Shriram Kishnar. How should we feel about this? Are you optimistic about this?

These really effective people in technology and entrepreneurs going in there making change, or is that an optimistic assumption that they're going to make a lot of change? Well, in some cases, it can't be worse than it is. And remember, again, the DOD and intelligence community are 3 million people. So that kind of blanket statement, what they're going to do.

They'll certainly bring a different perspective, and this is the one that I keep hammering at, about what the commercial ecosystem is capable of doing, both in technology and speed and urgency, that is just not understood at the highest levels of the DOD and IC. Just simply not understood. Again, not because they're stupid, but because they live in windowless buildings. Just imagine locking yourself into a building and not being immersed in the day-to-day stuff we take for granted.

So they'll bring certainly that perspective. The question is, is that can they create outcomes that are better than the ones we have today?

So it's less so the people, less so what they know. They will know a lot more about this ecosystem. But are we going to build an outcome-based system that could deliver things better, faster, more of, etc., that matches what we need? But at the same time, the president and the National Security Council are changing who our allies are and what we need. So it's going to be an interesting impedance match up as well as down.

Ask me in six months. Well, that's what I was going to say is how long should we wait? Is six months enough? I think in six months you'll see whether this is performative or whether it's something that's a substantive change. I'm always optimistic. You could certainly break things you don't understand. You know, it's, as I said, sometimes it's like taking a, you know, a chainsaw to a headache. You want to make sure you're using the right tool to kind of fix the problem.

Tell me about the work that you've been doing for the intelligence community. I'm going to pass on that question for sure. You know, people sometimes confuse the Department of Defense, which is the services, which are Army, Navy, Air Force, Marines, Coast Guard, and the combatant commands, like Indo-PACOM. What's really interesting is...

When I was in the military, the only thing we had were what were called the armed services. There was something in 1985 called the Goldwater-Nichols Act that said, well, this isn't working. The Army and the Navy aren't talking to each other, mostly, and the Air Force doesn't talk to them either, etc. And so when we fight a war, they are all fighting in Vietnam. Literally, the Air Force would bomb west of this parallel, and the Navy would bomb this one, and they're like...

No, that wasn't integrated. So we decided to stand up essentially matrix organizations that allowed these services to work together. And basically the services just became responsible for recruiting people and buying equipment, but not fighting the wars.

It's a big idea that wars in the U.S. are not fought by the armed services, the Army or Navy, but fought by the combatant command, Central Command, you know, Indo-PACOM, et cetera. There are 13, I think, commands. Separate from that in the U.S. And by the way, inside the Department of Defense, I think are like 17 separate intelligence agencies or support organizations, National Security Agency, National Reconnaissance Office, you know, on and on.

Separate from that, reporting directly to the president is the Central Intelligence Agency, which basically operates on lots of things. But they have different authorities called Title 50 versus the DOD called Title 10. And they also operate on findings that the president says, you should do this. I want you to do this. It comes from me, which is very different than the laws that the DOD operates on.

So when you say the intelligence community, it crosses, and by the way, the FBI is another group. State Department has an intelligence function as well. So the intelligence community is spread across all the executive functions. What was your question?

It was about you working in the intelligence community. I just gave you a tutorial of the breadth and scale of... Let me just say... You can tell us about any secret missions you've been on or... No, but I've been inside of some really interesting places and I've seen some very interesting things. And it's just impressive, not the things, but the people.

Obviously, people in the Defense Department are dedicated. People in the intelligence community are really focused on mission, and they work hand-in-hand often with the folks in the DOD, or they're part of the DOD. If you were advising the president right now on... Next question. No advice. Next question. I don't make the list. I don't make the list because when I was on the Defense Business Board,

Under the last Trump administration, they started stuffing all the advisory boards with people who were on his staff, etc., to pump up their resumes. And I found that personally offensive. And I resigned, just simply saying, listen, I don't serve a party. I was here to serve a country and resigned and just posted that on my blog.

Next thing I know, I'm on MSNBC and others, which I just thought was a little insane because all I did was say, I don't serve a party. I don't serve an individual. I'm doing this stuff not to serve the Democrat or Republican Party or a person. I'm here to make the country better.

And that seemed to be like such an outlier that it's clear I'm not going to be invited back to Mar-a-Lago anytime soon because I would never serve an individual or a party. I just think believing that one party has all the answers or one individual is the right place, we've seen those mistakes in other countries and they ended up being much weaker for that.

You know, if you just think one half of the country has the only ideas, you're giving up the other half of the ideas that might be equally as good. Or I just can't imagine one group has all the smarts. And when you paint yourself into that corner, again, if you're competing with people who are using 100% of their country, you're screwed or you're just going to make yourself weaker. So that's my take on national service. When I do serve, I serve the country.

Do you regret working so hard or do you think... I don't think I work hard at all. So since I work hard... I know now, but I mean over the course of your career, do you have regrets about...

working as hard as you did or do you feel like you didn't work hard enough? No, as I said, it cost me a marriage in Silicon Valley when I got asked, what's more important, me or your job? And I took too long to answer and realized it was my job and we both realized our marriage was over. Yeah, if I was smarter and wiser and thought about it, I would have put more effort in my relationships. And what I found is, and it's not just me, is that

if you're kind of technically oriented, you know, startups like have endpoints and it's kind of technical and you could compute them and whatever. Relationships are messy and emotional and require a different set of skill set than you're kind of like that make you successful in a company. And I didn't have that kind of EQ. And I'm not sure it's that high now either, but at least I appreciate what that cost me. And so I worked hard and keeping this one for the last three

35 years and ended up getting good report cards from your kids which were, I have to tell you a story, when our kids turned 18 and left home, Allison and I, my wife, said great, we could go anywhere we want for Christmas. And our kids went ballistic, going what do you want to remind them? Christmas and holidays are for the family.

18 years later, they're still coming home for the holidays regardless of where they are. That's kind of the report card you only get after they leave and don't even know you were being graded. Again, I'll give a lot of this to my wife, but I will say I actually worked quite a bit on thinking about those things. When the kids were young, I got two great pieces of advice. One was from

Eventually, Gordon Bell's wife, Gwen, was holding Katie, who had just been born, and said, you know what your job is with this baby? Change the diaper, keep her fed. She said, teach her how to leave. Teach her how to leave. She's like barely three months old. But you know, that was never far from my head, is that you wanted to teach your kids some skills other than loving them and caring for them about how to be independent people. I think we did a good job. Well, I think we did a good job.

And the other was from someone else who said, you know, you've got a choice. When someone puts an epitaph on your gravestone, do you want it to say he never missed a meeting or he was a great father? Boy, that one really hit home, too. I mean, that was like top of mind when I was thinking about do I retire or do Startup 9. I didn't want he never missed a meeting on that gravestone. And so I made that conscious decision to go home. What was Startup 9?

number nine going to be? So I was friends with a guy named Scott Andrews who had, who had or was running the Nissan's R and D center in Silicon Valley. And he had this crazy idea. Remember, this is 2000 that you could put batteries in a car and like, and he drew a couple of architectures of which in hindsight were hybrid versus pure electric.

And we have found this Stanford kid who had just graduated, who was running around Palo Alto with a Porsche 944, which he converted to electric, but there were no lithium-ion batteries at the time. He had a trailer of lead-acid batteries, and he had this electric car. His name was J.B. Straubel.

And so JB and I and Scott Andrews worked on a company for the first, I don't know, six weeks called Flux Capacitor. And JB eventually became the co-founder of Tesla because I said, I'm not doing this again. I said, you know what? I want to go home. I can't put in the amount of energy I could have before. It's just not worth it to me.

And I realized how much time and energy was gonna take JB was mad and Scott was bad But for all the right reasons they went off and did some pretty spin JB went off to not only do Tesla But now Redwood Redwood materials both are you know spectacular successes? No regrets. Oh, none at all. And in fact both JB and Elon did things I would never have done I mean, maybe I would have done half

half as good 20 years earlier. But at that point, I again was thinking about family, wouldn't have traveled this much, and certainly wouldn't have put in the energy that Elon and Martin and the other original founders. And by the way, it was very funny. Just an Elon Musk story. I was sitting up...

In one of our rooms here, reading Ashley Vance's biography of Elon Musk. Oh, you know, came to the country and worked in a video game company. I went, oh, I had a video game company in San Francisco. Oh, I had one in San Francisco named Rocket Science Games. Wait a minute.

That was my company. I went, "Wait a minute, Elon Musk?" You're reading this book. I'm reading this book. You never knew. Never knew. I called my chief operating officer, Jim Wickett, who was COO of Rocket Science, and said,

Elon Musk? He said that was the intern you used to yell at a lot. He worked for Peter Barrett, who was my co-founder. So wait a minute. I have this hypothesis, which is worse for all your viewers, is that when you're in your early 20s or 30s,

you tend to model your management behavior later on in your career on your first bosses. That's research that's been proven? That's Steve data. That's faith-based data that I'm going to deny that ever happened, but I thought that was very funny. So no, I don't remember him and he definitely probably doesn't remember me.

It's interesting about all the connections that the Valley has and that these are now worldwide connections. What's the best part of being retired? Being retired means you get to do whatever you want. You know, I have friends who are retired. That means gardening or that means, you know, walking the dog or playing golf or doing something else. For me, it's kind of a continuation of what I only in hindsight realized that

Steve Jobs coined that phrase and I think it's still useful, making a dent in the universe, making something better, whether it was the stuff I did as a public official or things I did on the boards of some nonprofits for a while or things I did as an entrepreneur and things I do for the government. But it's doing the things you want to do. That's what retirement is about. What's the worst part of being retired?

There really is no worse part. It's all upside. I would tell you I would miss being an entrepreneur if I wasn't immersed in Stanford teaching entrepreneurship, seen it 24-7 in both everything from, yet again, social media stuff to life science stuff to now everything is AI in my entrepreneurship classes to all the military stuff, which is really kind of interesting.

So, and as I said, the best part of being retired is being able to buy and read any book I ever wanted to. That's just, to me, like, unbelievable. If you were going to recommend one place I had to go on vacation that you had been to, where would I go? So, we just came back from a vacation in the Middle East. We said, where do you go in the winter? Gosh knows why we picked Oman. We did a...

a week in Oman checking out the country, which was really interesting. But I would say not there. But we spent four days in Dubai.

Which is a mind blower? Everybody should go there just to see what the future What probably the most advanced city in the world looks like so in the 80s and 90s it was go to Tokyo in the early 2000s or just before the Beijing Olympics it was go to Beijing to see what happened to China and literally such a short and even now but Dubai it's just looked like Blade Runner I mean it was and

While this was a vacation, I couldn't help myself. We set up a meeting with some local entrepreneurs and I got to hear something about the local entrepreneur. I mean, remember, it's just one of seven parts of the United Arab Emirates. And to understand the investments that not only the UAE, but Bahrain and most importantly, Saudi Arabia are making an innovation entrepreneurship. It's

It's not just sovereign wealth funds. It's actually what they're building and funding are just off the scale of if you know, this is a classic. If you don't get out of the building, if you're a policymaker, entrepreneur or anybody else and haven't seen these new innovation clusters around the world, you're absolutely missing context of where you're going to fit.

What's your best advice for accomplishing difficult things? Keep your eye on the prize. It's real easy to get wrapped up in each obstacle. And it doesn't mean that you ignore the obstacles. But if your eye is on the prize, here's where we want to go, here's what we want to get, then those obstacles become things to remove rather than end games.

And that confuses a lot of people, right? It's like, oh, this is impossible. There's no way we're going to get through this. No, no, no. The goal isn't to get through this. The goal is to get over here. So if we could think about going over here, we could think, are there ways to go around this obstacle? Can we, like, do something else? Do you think there's anything beyond death? I'll let you know what I'm calling it. Outside of family, who's the human being you most admire? That's hard.

You know, I admired my mentors, you know, Gordon Bell, Ben Wegrite, Rob Van Arden, Catherine Gould. You know, a good number of them that actually made me a better person in different areas. You know, my best friend, Steve Weinstein, you know, taught me a bunch of, we're known inside of a bunch of government buildings as the two Steves.

And what's really interesting is if I walk into that room by myself, people are pissed off by the time I sit down. Steve walks in and everybody's his friend. And when we're walking together, it's actually just an enormously successful team because I'll get to the heart of the matter, but they still like us when we leave. And so I learned a lot of skills from Steve as well. So there has been a whole set of people at different points in my life that I admired because they taught me something or made me a better person.

And finally, how do you measure your life? You know, that's the great great Clayton Christensen question and and for me, I thought, you know when you're young you always live in the moment or at least I did and you don't start thinking about this until you have family or kids or have some perspective, but for me it was like, you know, who did you serve and I don't mean military service only but I kind of had this short list of you know, you could serve God and country and

and community and family. And I've tried to check a good bunch of those boxes. What have I given back to each one of those areas? And I don't know if I got an A in all of them, but I've made an effort and more of an effort lately to start thinking about have I made a dent in not only personal stuff, but in the larger community that I operated. And, you know, I think if we all thought about that, about

Make your list, whether it's God, community, country, family, etc., or some subset of that, and ask that question about how did you serve those things? And I don't mean just writing a check. I mean, that's nice too, but how do you give service to the larger community? That's pretty important, because if we all did that, we'd be living in a much better world. And hopefully, I did some of that. Thank you so much. Thank you. Give it.

on next week's episode. - So when I graduated from high school in 1966 and came out here to Stanford to play basketball and go to school, I already knew guys that were already-- - That already died. - That already died in Vietnam. I hadn't even finished high school. There were guys I knew that were two years older. - Wow. - Yeah, wow. I mean, it was a whole different deal.