Why You Should Join Hadrian
The factory is the product.
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Why You Should Join Hadrian
(Click the link to read online).
American manufacturing is down bad.
Since the 1970’s, we’ve experienced a 40 year decline in manufacturing employment, an 80% decline in manufacturing profit per dollar invested, and a tripling of our annual trade deficit in manufactured goods. US shares of global manufacturing GDP have dropped, US shares of gross manufacturing sales have dropped, and almost all nominal growth today is driven by “design, services, and software activities rather than actual production.”
We literally have to import ten million American flags from China each year because we can’t make enough at home.
(Seriously, Congress is trying to pass a law about it).
Out of all the different types of manufacturers, though, precision manufacturers might need the most help. Precision manufacturers produce the highly sophisticated, incredibly precise parts needed by our rockets, fighter jets, and medical devices. Despite their obvious importance to national security, almost 20% of factories in the space shuttered between 1998 and 2017. During that time, US employment in the sector fell by 28%, and America’s share of global industry GDP fell by 4%.
The reason? While most industries in developed economies embraced automation as the answer to cheaper and more plentiful labour overseas, precision manufacturing wasn’t able to. The specialized nature of each order, the sophisticated nature of each part, and the fragmented nature of the industry made things too difficult to reliably automate.
Making things harder were America’s general struggles with automation and manufacturing. In 2020, the US fell from 5th to 7th globally on industrial robots installed per 10,000 employees. In contrast, China leapt from 25th to 9th, installing almost 200 industrial robots per capita in the five years prior.
As a result, while the rest of the world moved ahead, we haven’t. Most American precision parts shops still run like they did decades ago: guilds of talented machinists carefully crafting each part, with limited system-level automation.
It’s one thing for American-made teddy bears or pencils to cost more, but it’s another thing when American rockets, satellites, and fighter jets both cost more and take longer to produce. We can’t hope to win the next space race without a revolution in our stagnant precision manufacturing capabilities.
Somebody has to fix it.
Hadrian thinks they can.
Background
Hadrian is building a series of highly automated precision component factories across the United States. Their customers (space and defense companies) send Hadrian designs for rocket parts, jet parts, and satellite parts, and Hadrian will manufacture them on their behalf. For customers, Hadrian’s highly automated approach to precision manufacturing creates value in two key ways:
Cheaper parts. Hadrian can produce parts 40% more efficiently than smaller, traditional precision machining shops. This allows customers to build more.
Faster turnaround. Hadrian can produce parts 10x faster than smaller, traditional precision machining shops. This allows customers to build faster.
Hadrian achieves these efficiency gains by leveraging software to automate and optimize things like process scheduling, resource management, and CAM/CMM programming. Unlike a traditional shop where highly skilled machinists track things manually and operate individually, Hadrian’s proprietary software platform Flow breaks down, tracks, and orchestrates different processes (material prep, machining, QA, etc.) optimally, much like a computer’s operating system.
While most of the actual machining is still done by humans, Flow abstracts and automates much of the process-related overhead away. As a result, Hadrian behaves more like an assembly line than a watch-making shop: projects move more efficiently, and it’s easier to train and add new workers.
Last year, Hadrian built and opened their first factory in Hawthorne, CA. This year, they built and opened their second factory in Torrance, CA, which we’re told is roughly 5 times larger than the first. These factories contain over 100,000 square feet of space and are equipped to produce high-precision aluminum components for customers. Currently, Hadrian is producing rocket and satellite parts for three different aerospace companies.
Hadrian was founded in 2020 by Chris Power, who was previously Founder and Managing Partner of ADSC. ADSC was a private equity fund focused specifically on acquiring and optimizing manufacturing plants in the aerospace and defense supply chain. Despite early success with the fund, Chris shut it down in favor of building Hadrian when he realized building new, vertically integrated factories from the ground up was the only way to truly modernize America’s precision parts supply chain.
Based on this ambitious mission and early traction, Hadrian raised 90 million dollars in 2022 split across a Series A (led by Lux Capital) and a Series A-Prime (led by a16z). Before that, they raised a 9.5 million dollar seed round in 2021 co-led by Founders Fund and Lux. Other investors include Construct Capital, Caffeinated Capital, Shrug Capital, Village Global, Indicator Fund, Not Boring Capital, Floodgate, and Lachy Groom.
Hadrian’s ambitious mission and fundamentally disruptive approach make them a startup worth paying attention to. But will they be a massive, enduring business?
We think they have the potential to be.
In this piece, we’ll dig deeper to see why this is the case. We’ll look at how they’re targeting a massive, strategically important market. We’ll look at how they’re well-positioned to become a leader in that market. We’ll look at how they stack up against the competition, and why their team is perfect to execute on this opportunity. And we’ll do it all as thoroughly as we can.
Ready? Let’s begin.
Opportunity
Market Size
We’ll begin our analysis of Hadrian like we do for all of our companies, from a first principle:
In order for a company to become massive, it must become a leader in a massive, growing market.
Many companies with clear product-market fit don’t become truly massive because they don’t meet this condition. Thus, we must establish two things:
Hadrian operates in a massive, growing market.
Hadrian will become a leader in that market.
A Massive, Growing Market
Hadrian makes money from aerospace and defense companies that outsource precision parts manufacturing to them. This means they operate in the market for precision machined parts, and the broader market for machining as a whole.
Empirically, this is a massive, growing market. According to the US Census Bureau’s Annual Survey of Manufacturers, the United States had 3,925 precision turned manufacturing shops who collectively sold $19,063,011,000 worth product in 2021, up 10.1% from the year prior. The larger machining industry, which Hadrian may expand into someday, had 17,498 shops who collectively sold $39,579,344,000 in 2021, up 11.5% from the year prior. Broader still, the all-encompassing “aerospace product and parts manufacturing” industry shipped $185,283,127,000 worth of product in 2021, up 1.6% from the year prior.
There’s a lot of money floating around in this space.
Money that’s set to grow. The market Hadrian operates in is poised for significant growth, driven by several compounding tailwinds:
Growth in space/defense R&D spending. After decades of stagnation, American R&D on space-related activities is rocketing up.
Image credit: McKinsey. Between SpaceX driving down costs per kilogram to orbit and NASA’s Artemis program finally bringing us back to the moon, both private and public investment in space is growing:
Private Funding: between 2012 and 2021, total private investments in space tech companies grew from 300 million to 10 billion annually. Funding in 2022 slowed (like everything) but remained exceptionally high by historical standards.
Public Funding: NASA’s inflation-adjusted budget has increased each year since 2013 and is up 26 percent since then. We’ve even gone over-budget a few times: NASA requested $2.48 billion for the SLS rocket system but Congress gave them $2.60 billion instead. Nice.
Defense spending has also gone up across the West. After the 2014 annexation of Ukraine, European and Canadian defense spending rose by 350 billion. It spiked again after the recent invasion of Ukraine.
More rockets, satellites, and jets means more precision parts. Demand is increasing.
Skills gap. While demand for precision parts is increasing, our capacity to produce them is going the opposite direction. Consider some raw data we pulled from the Bureau of Labor Statistics around machine shops:
Population count in thousands. Note the enormous demographic spike in the 55-64 year-old range. Some 96,000 machine shop workers will reach retirement age within 10 years, a full 33% of the industry. Most of their posts will remain unfilled; the data above shows there aren’t enough 20-34 year olds replacing them. Across the board, US manufacturing will have 2.1 million unfilled positions by 2030.
Declining competitors means more demand for Hadrian.
Political alignment. Modernizing strategically important manufacturing capabilities to keep pace with the rest of the world (particularly a technologically ascendant China) has been a bipartisan priority. In August of 2022, Congress passed the CHIPS and Science Act, which contained some $52 billion dollars in subsidies and tax credits to help chip manufacturers set up and expand operations in the United States. The goal was to help America catch up on the strategically important semiconductor manufacturing industry.
Modern, scalable precision manufacturing capabilities are just as important. They’re a necessity to our aerospace and defense industries and critical to the next space race. A Pentagon-commissioned study group found China on track to surpass the US as the world’s dominant space power by 2045. There will be no shortage of political goodwill when it comes to avoiding that eventuality.
After becoming the second nation to land a rover on Mars last year, China plans on sending their first crewed mission to Mars in 2033.
Before continuing, it’s important to note Hadrian’s success can actually have a material impact on market size.
In a meta way, by centralizing and optimizing an otherwise fragmented and legacy industry, Hadrian’s economies of scale can lower costs and barriers of entry for new players. In the same way AWS’s success led to an explosion in developer activity (or SpaceX’s cheaper launches spawning new space startups), Hadrian’s success making parts cheaper can lead to more activity and experimentation from space and defense technology companies.
In a world where Hadrian leads, where our supply chains are better, there will be more rockets launched and satellites deployed. That’s a larger market.
Market Leadership
Today, the precision parts market is highly fragmented. Census data tells us:
In 2017, the 50 largest precision manufacturing firms, operating 82 factories and employing 18% of everyone in the industry, accounted for just 25% of the entire market (4.9 billion in combined revenue).
The vast majority of players are tiny operations: out of our country’s 3925 precision manufacturing firms, 2612, or about two thirds, employ fewer than 20 people.
How does Hadrian become a leader in this landscape? By leveraging software and automation, Hadrian cuts costs and scales more efficiently than their competitors. This positions them best to both consolidate existing demand and capture future demand.
Consolidating Existing Demand: Cutting Costs
Hadrian consolidates existing demand by shipping parts cheaper and faster than competitors. They accomplish this by leveraging software to streamline both process coordination and process execution:
Process Coordination
In addition to machining the actual part, completing projects requires coordinating with customers on scheduling/requirements, coordinating with programmers on converting design files to CNC instructions, coordinating with machinists on when different tools are available, and coordinating with QA to see if things are up to spec.
In the status quo, all this coordination is handled manually over emails, print-outs, and clipboards. The resulting disconnect between processes adds lag time to each project: unlike a traditional assembly line where parts immediately go from one conveyer belt to the next, precision parts often spend hours in limbo between separate processes.
This can spiral when juggling multiple projects and multiple customers. Hadrian claims that today, lack of coordination results in 30-40% of parts getting shipped late or having quality issues.
POV: you’re still waiting for your GSLV Mark III Vikas Turbopump to arrive from a traditional precision manufacturing shop. To address the issue, Hadrian built Flow.
Flow is a proprietary ERP system that tracks who’s working on which jobs, who’s using which machines, and what the status of each project is. Built specifically for precision manufacturing workflows, it automatically schedules and coordinates people to minimize limbo time. Every employee at Hadrian has Flow loaded on their tablet or laptop to guide them optimally through tasks and projects.
As a result, a project at Hadrian behaves like one cohesive process that can be optimized continually rather than a series of disjoint processes handled by different specialists. By acting more like an assembly line than a jeweler or watchmaker, Hadrian saves customers time and money.
POV: your GSLV Mark III Vikas Turbopump arrived on time because you ordered from Hadrian. Process Execution
In the same way Github Copilot helps you code faster by skipping boilerplate, Hadrian leverages automation to help operators skip over menial, repetitive tasks. This can significantly speed up individual processes:
To speed up CAM programming, computational geometry is used to detect features and automate cutting tool selection/tool pathing.
Customers are kept up-to-date automatically so operators don’t have to email PDFs or spreadsheets back and forth.
Certain CNC set-up steps are automated so preparing a machine to produce a part takes 20 minutes instead of an hour.
To be clear, Hadrian isn’t trying to replace workers. Precision parts are unique and sophisticated enough that complete automation isn’t feasible. Rather, the approach is to let machines do simple, repetitive tasks while humans focus on more important things.
To re-cap, Hadrian’s software drives efficiency by enabling superior coordination between processes and faster execution within processes.
It’s worth noting that these abilities are truly unique to Hadrian. As a venture-backed startup, only Hadrian can afford to invest in software and the engineers building it. And unlike their competitors, only Hadrian can recruit and retain the diverse set of people needed to execute on their ideas. Without the disruptive angle Hadrian has taken, it’s unlikely that this level of optimization would have emerged naturally.
Capturing Future Demand: Scaling Efficiently
Hadrian is best positioned to capture future demand because their factory scales more efficiently than competitors. They accomplish this by leveraging software to streamline both process overhead and ramp-times for new employees:
Lower Process Overhead
In traditional shops, everyone has to track what everyone else is doing so they know when certain tools are available or when their parts are due. As a result, we can say total process-related overhead scales roughly O(N^2) with new workers: new people means everyone has more stuff to track.
In contrast, Hadrian centralizes information within Flow, allowing workers to focus strictly on their task and specialization. Since Flow centralizes and automates all process overhead, adding new workers doesn’t make things harder to track. We can say total process-related overhead scales roughly O(N) (or even sub-linearly) with new workers.
This means Hadrian can add new people much more efficiently than their competition. Unlike a traditional shop where it takes time for people to get used to new coworkers, Hadrian can just plug new workers into Flow. This allows them to scale and meet new demand significantly easier.
Lower Ramp-Times
As we mentioned earlier, Hadrian’s software allows it to behave more like an assembly line than a traditional machining shop. A big part of this is how they break different processes into smaller tasks and guide workers through them more optimally.
A side-effect of this approach is it makes it much easier to train new workers. Much like how it’s easier to train an Uber driver than a taxi driver (they have to memorize tons of roads), Hadrian’s various automations, guidance via Flow, and centralization/integration of tribal knowledge make it easier for new workers to ramp-up and begin contributing. Apprenticeships and extended training periods might be great, but they just don’t scale.
Beyond making it easier to integrate new workers, this approach also increases the pool of people Hadrian can hire from. We mentioned the skills gap facing precision machining earlier. Hadrian’s guided approach means even fast food workers and retail employees can start contributing right away.
This means Hadrian can train new people much more efficiently than their competition. Unlike a traditional shop that must invest years of apprenticeship in new employees, Hadrian can just plug new workers into Flow. This allows them to scale and meet new demand significantly easier.
Competitive Landscape
We’ve spent some time analyzing Hadrian’s unique strengths as a factory and company. Now, let’s have a look at their potential competitors in the precision machining industry.
Traditional Shops
Census data tells us most precision manufacturing shops are small operations employing fewer than 20 people. These shops can’t compete with Hadrian’s software-guided efficiency and scale, and lack the means to develop competing tools in-house. Investments in software and automation can take a while to pay off, and small businesses often aren’t comfortable making them.
Things get more interesting when we look at the larger players.
Mature precision manufacturing companies like Tecomet, Coughlin Precision, Acutec Precision Aerospace, Barnes Aerospace, and Erie Forge & Steel each employ several thousand people across multiple different factories. They’ve invested more in optimizing their processes and naturally employ more sophisticated in-house or third-party project management systems.
Even against larger incumbents, however, Hadrian has one durable advantage: people.
Specifically, the density of software talent Hadrian has been able to attract, the types of people needed to translate manufacturing knowledge into production software. A combination of culture, brand, and network has allowed Hadrian to recruit not only top-notch machinists, but also the top-notch designers, engineers, and data scientists needed to actually implement their ambitious ideas. Consider a few members of their team we’ve pulled from LinkedIn:
Simon Hallam - Director of Software Engineering & Robotics
Simon was previously Head of Mechatronics at Oculus, where he was also employee number 17.
Corey Black - Head of Quality & NPI
Corey was previously Machining Operations Manager for the Raptor engine at SpaceX, where he led a team of 80 and improved production rates by 500%.
Joseph Cox - Head of Data Science & Optimization
Joseph was previously Director of Artificial Intelligence at Target, where he focused on supply chain optimization.
Michael von Sothen - Head of Automation
Michael was previously a Lead Machinist at Google. He designs and manufactures BMX racing components in his free time.
Jamie Underwood - Head of Programming
Jamie was previously a Prototyping Hardware Development Manager at Amazon and a Prototyping Tech Lead at Facebook.
Matthew Leta - Principal Software Engineer
Mathew was previously Director of Software Development and Director of Product at nTopology, a startup producing advanced CAD software that’s raised 135 million.
Matt McLaughlin - Principal Software Engineer
Matt was previously a software engineer at Google and a mechanical designer at Boeing.
Rick Shanor - Robotics Engineer
Rick was previously a roboticist at Boston Dynamics and an engineer at Amazon Robotics.
Even if they wanted to, traditional manufacturing companies just can’t recruit and retain the same caliber of software/hardware talent to work along their skilled machinists. We looked at the teams of the incumbents above and found none had the same density or diversity of amazing people.
Long-term, this means Hadrian can move to iterate on and exploit automation opportunities way faster than their competition, who’ll have to rely on contractors and third-party solutions. It’s a nuanced and somewhat meta point, but Hadrian’s talent advantage means the process by which Hadrian can improve their processes is actually better.
Of course, this makes sense. As a vertically integrated techno-industrial factory/startup focused on automation, software is in Hadrian’s DNA. This early Triplebyte listing shows it’s something they’ve focused on from the start. As Hadrian continues to recruit great people, their talent network effect will expand (great people want to work with great people), meaning their advantage will only compound with time.
Startups
While there are many startups building software to serve precision manufacturing shops, we couldn’t find any actually building factories and parts themselves like Hadrian. Rather, most offer software or hardware solutions for traditional shops:
Fractory offers a marketplace to connect shops with customers, making client communication more efficient. They recently raised a 9 million dollar Series A from OTB.
CloudNC offers tools to help shops automate CNC machine programming. They recently raised a 45 million dollar Series B from Autodesk and Lockheed Martin.
Landing AI offers computer vision tools to help shops identify product defects, making quality assurance more efficient. They recently raised a 57 million dollar Series A from McRock Capital.
Tulip offers a no-code platform to help shops track and optimize workflows. They recently raised a 100 million dollar Series C from Insight Partners.
While we don’t consider any of these startups true competitors, it’s worth considering how Hadrian fares against a traditional shop that’s adopted these tools instead of building them in-house. In this case, vertical integration still has several unique advantages:
Tools and automations focused specifically on precision manufacturing. Many of the tools above are for more general, less-specialized manufacturing segments. Hadrian can be more aggressive in optimizing what a third-party provider might write off as niche use case.
Better integration between tools. A bunch of third-party offerings won’t integrate with each other out of the box like a system you’ve built in-house.
Faster iteration cycles. Your customers are your co-workers, so it’s much faster and easier to build what they need.
To be clear, vertical integration is significantly more expensive and difficult to execute. It’s why most startups just build software. Executed well, however (as Hadrian has the ambition and team to do) we think the advantages outweigh the disadvantages.
The Long Term
While today, Hadrian focuses specifically on producing Aluminum parts for aerospace companies, they can expand their business along the following axes in the near-future:
More metals. Aluminum parts are easier to produce than those of other metals and alloys. Hadrian can begin producing steel, Inconel, and titanium parts once they’re ready to expand.
More industries. Aerospace applications represent the high end of the precision parts market. Hadrian can begin producing parts for defense, energy, and medical applications once they’re ready to expand.
That said, let’s take a step back and have a longer, less concrete look at how this might all play out.
Barring something utterly catastrophic, we believe the human colonization of space to be inevitable. We believe it’ll be a social and technological movement of unprecedented scale, one that puts prior cycles (the internet, mobile apps, etc.) to shame. We believe it’ll kick off a new era of exploration and innovation, serving as the next great arc of human history. We believe it’ll start within the next two decades.
Some of the earliest and most valuable companies in history (i.e. the Dutch East India Company) were created during the last great age of trade and exploration. It’s reasonable to believe that another great set of companies will come with the next (just minus the human trafficking, plague, and subjugation of native peoples).
Over the next century, there will be many space companies. There will be many immensely valuable space companies. The most valuable space companies, though, will provide foundational infrastructure to the rest, providing points of leverage and lowering barriers to entry for everyone involved. That’s why if you, like us, believe in this future, companies like Hadrian are some of the earliest and safest bets you can make. As the potential manufacturer of choice for untold generations of space startups, it stands to index the rise of an entire industry.
Comparables
To make things concrete for you, we think it might be helpful to consider some other companies that have become leaders in specific types of contract manufacturing. None of the following businesses design what they produce, but each has achieved a multi-billion dollar valuation by becoming very good at manufacturing specific types of products. They aren’t sexy (you probably haven’t heard a few), but they are very important and very valuable. The more important their products, the more valuable they’ve become.
Rocket engine and satellites parts are very important, and they stand to become more important with time. If Hadrian can become The Precision Manufacturing Company™ like we expect, then they stand to find success somewhere along the range of companies described below.
Howmet Aerospace
Howmet Aerospace is an American aerospace manufacturing company that produces components for jet engines and other aerospace applications. They generated revenues of 5 billion USD in 2021 and currently boast a market cap of around 16 billion USD.
Precision Castparts
Precision Castparts is an American metal fabrication company that produces forged components, airfoil castings, and investment castings for the aerospace and defense industries. They generated revenues of 9.6 billion USD in 2014 and were subsequently acquired by Berkshire Hathaway for 37 billion USD.
Foxconn (Hon Hai Precision Industry Co.)
Foxconn is a Taiwanese electronics contract manufacturer that produces electronics for companies like Apple, Amazon, Sony, and Nintendo. They generated revenues of 175 billion USD in 2021 and currently boast a market cap of around 45 billion USD.
TSMC
TSMC is a Taiwanese semiconductor contract manufacturer that produces chips for companies like AMD, Apple, Nvidia, and Broadcom. They generated revenues of 57 billion USD in 2021 and currently boast a market cap of around 400 billion USD.
Conclusion
American manufacturing is down bad. But it can’t remain that way, especially when it comes to precision manufacturing. The next space race and the future of American aerospace depends on someone fixing it; we can’t hope to succeed the way things are today.
Hopefully, Hadrian can do it.
They’re hiring: https://www.hadrian.co/careers.
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