On this week’s Infinite Loops, aerospace investor and York Space Systems chairman Chuck Beames joins me for a fascinating discussion on the commercial space revolution and the future of satellite security. A retired Air Force colonel with over 20 years experience as a space and intelligence officer, Chuck brings unparalleled expertise to our conversation about what many are calling the “Second Space Race”.
We explore how America can leverage her free-market strengths, why ‘zero trust’ protocols could revolutionize cybersecurity, the military origins of GPS, and why Space Force needs a streamlined procurement approach.
I hope you enjoy this conversation as much as I did. We’ve shared some highlights below, together with links & a full transcript. As always, if you like what you hear/read, please leave a comment or drop us a review on your provider of choice.
— Jim
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Highlights
The Second Space Race
“We had the first space race, I lived at the Cape as a little kid. So I watched the Apollo launches, watched those Saturn V boosters go up as a kid and all that kind of stuff. The race really was just about who could get to the moon first and bring an astronaut home safely because that was symbolic of who would win the Cold War… It's a funny little thing, looking back on it all, but that was a space race, big deal, lots of money spent and it worked.
Meanwhile, technology was advancing in space as well and then those two intersected. And so now what you have is the commercial tech that was largely developed for terrestrial computers and all kinds of stuff is now easily transferable and used in low Earth orbit. So you can use commercial processors, commercial memory, a lot of the networking technologies and you can do amazing things.
So, the race now goes from the first space race, which was about national pride and all that kind of stuff, to now it's an economic one. It's about who is going to win economically. And also at least as important is who's going to define the rules of the road in this new thing.”
Warfare in Space
“What [military grads] need after they graduate and they're second lieutenants or whatever is to understand how to apply those tools, how to think about understanding the different types - like autonomous type AI or generative AI or the new autonomous agents that reside on networks. Understand what they are and what they can do and start thinking about with a military mindset: how do we defend our turf? How do we engage offensively and defensively in a space war? Because that's what the space war is. The space war is not Luke Skywalker. It's not lightsabers and stuff like that. It is network warfare on orbit. That's not all of it, but that's like the bulk of it by far and away. General Whiting, Steve Whiting, he's the four-star commander of US Space Command and he famously has said that cybersecurity is the soft underbelly of the Space Force. In other words, it's the thing that keeps them up at night. It's the thing that makes the whole Space Force vulnerable.”
Rules of Engagement in an AI World
“Let's say, for example, we have early warning satellites on orbit. They're a key part of our whole early warning system for nuclear attack so that we know if we're under attack we can respond. So it has been the policy - I don't know if it still is, but it was the policy all when I was active duty - that an attack on one of those satellites was essentially like an attack on America. Today [these early warning systems] are called SBIR - Space Based Infrared System. And there's also communication systems associated with that. It's a whole network that all has 99.999% reliability. Because the fate of the nation is at play there.
But you have to have a human in the loop. But at what level? For example, you obviously can't have just an AI bot saying "Okay, we're going to shoot that satellite out." But at the same time, is it a lieutenant, is it a colonel, does it have to go to the President? In some cases like an actual nuclear attack, it does go to the President. If the President is incapacitated, then it's delegated back down to the SECDEF and it's all very prescribed. But this stuff about space things and especially as you get into an autonomous world, we need to think about that because it's coming and we can’t talk about rules of engagement in ivory towers.”
Working With Your Hands
“I think it's important that people have a hobby or a diversion that takes their brain out of the details of what they're doing and does something different, because when they come back, then it's almost like a little mini holiday for their brain and they can come back to those problems and they can all of a sudden see them in a slightly different light.
And so whatever it is, I just happen to like cabinet making. And a lot of that is because growing up, that was a thing. Shop class was a big deal when I was growing up as a kid, and I was particularly good at it. So I really took to it. And then I kind of got back into it when I was stationed at Wright Patterson Air Force Base out in Ohio. An elderly neighbor was a friend of mine and he had a wood shop. And I thought, "Man, I love this. I'll get back into it." And I was working long days then. And I loved it. And it just became this little mental thing for me.
But those kinds of trades - doesn't matter if you go on to become president of the United States - those trades are useful learning. There's something in the human animal of using your hands. And someday when I retire again, I'm going to kit out my fantasy workshop.”
🤖 Machine-Generated Transcript
Jim O'Shaughnessy: Well, hello, everyone, it's Jim O'Shaughnessy with yet another Infinite Loops. I spent the last 20 minutes just kind of gushing over my next guest because we're about to have a great conversation with a very formidable and impressive individual. My guest is Chuck Beames, the chairman of York Space Systems, a leader in commercial small satellite design, manufacturing, and operations. He's also executive chair of TrustPoint, Spider Oak, and SmallSat Alliance. My God, your CV is incredibly formidable. You were the president of Vulcan Aerospace, managing Paul Allen's $1 billion aerospace and tech portfolio. 23 years as an active duty Air Force officer in the Space and Intelligence Division, retiring as a colonel. Thank you very much for your service. Air Force Academy, bachelor's in science and mechanical engineering, but then degree upon degree from Johns Hopkins, the National War College, Georgetown Law.
Jim O'Shaughnessy: I'm intimidated.
Chuck Beames: [laughs] Don't be.
Jim O'Shaughnessy: Well, welcome. This is a new world, probably to many of our listeners and viewers, so if you wouldn't mind, walk me through the entire kind of ecosystem of what many are referring to as our second space race and the commercial aspects and the explosive growth that is happening there.
Chuck Beames: Sure, that's a... Well, what's happened is different people kind of frame it different ways. But here's the way I frame it. We had the first space race. You and I kind of grew up in that era and in fact my dad was an engineer in the space program. I lived at the Cape as a little kid.
Jim O'Shaughnessy: How cool.
Chuck Beames: So I watched the Apollo launches, watched those Saturn V boosters go up as a kid and all that kind of stuff. The race really was just about who could get to the moon first and bring an astronaut home safely because that was symbolic of who would win the Cold War. It was almost like a proxy. It was a safe way to sort of compete and to try to convince the non-aligned nations which system was going to win in the end. It's a funny little thing, looking back on it all. But that was a space race, big deal, lots of money spent and it worked. We won. We put our best scientists and engineers and even recruited some from Germany there.
Chuck Beames: And anyway, we won. And then it got awfully expensive and then I was a kid when this happened too. The country's interests sort of moved away from it a little bit. The President said, "Look, this is interesting stuff, but we've got other priorities." And so for the most part the big space program was shut down. We stopped production of the Saturn V boosters, we had a few left over. We did the Soyuz, we did the Mir stuff - remember that in the '70s we did some of that joint Soviet-US stuff. And then we had the space shuttle program, but that was all low Earth orbit and it was just kind of to keep everything on a simmer.
Chuck Beames: Well, what's kind of happened is there was this thing called Moore's Law that's been marching along in the background that was the spark plug really for the whole tech race. Meanwhile, technology was advancing in space as well and then those two intersected. And so now what you have is the commercial tech that was largely developed for terrestrial computers and all kinds of stuff is now easily transferable and used in low Earth orbit. It turns out that the radiation environment in low Earth orbit is not nearly as bad as we worried about. I mean it's not perfect, but it's not nearly as bad.
Chuck Beames: So you can use commercial processors, commercial memory, a lot of the networking technologies and you can do amazing things. Those amazing things translate into adding value to life here on Earth in the way of autonomy and all kinds of things. So, the race now goes from the first space race, which was about national pride and all that kind of stuff, to now it's an economic one. It's about who is going to win economically. And also at least as important is who's going to define the rules of the road in this new thing. Is it going to be more of a western style free market, private capital, or is it going to be what I call the Stalinist model?
Chuck Beames: Which is candidly how even the US program operated. It was largely government driven. Yes, we had private companies doing some things, but for the most part they were just doing what they were told. It's a new era now. And it requires, frankly, different government policies, which is why I created the SmallSat Alliance as an example. It needs policies that promote free markets, commerce, incentivize private capital to come into the arena. So that's really how I frame this second space race. And it requires the whole-of-country kind of approach.
Chuck Beames: Because if you have old government policies that tend to encourage the old way of thinking where everything has to come from the government, we're not going to win, frankly, because we're not playing to America's greatest strengths. Those are the best strengths of China. But we will beat China if we play by our own game. That's the way I look at it.
Jim O'Shaughnessy: Yeah. And that's what intrigued me when I first came across you and your ideas.
Jim O'Shaughnessy: You have argued what you just said. The Cold War containment mindset in cybersecurity is fatal.
Chuck Beames: Yeah...
Jim O'Shaughnessy: And we've got to literally change that. So if I were going to wave a wand and make you the US Cybersecurity czar for a day, what would be the first statutory change that you would make to make it more compatible with American strength, i.e. private enterprise, and all of the multiple ways that we can take advantage of that but are currently kind of precluded from because of antiquated federal agency regulations?
Chuck Beames: Well, cybersecurity is an interesting one because it's almost... You can look at it a little bit like airline traffic things or something like that. You want to incentivize the free market, but it does require some government action not to control it, but to define it in a way that promotes the greatest growth and the greatest private sector. I can tell you there is an initiative that has been brewing for a while. The last administration actually made some really solid policy progress on this. And it's called Zero Trust, this idea that we need to assume that all of our networks have been compromised, that there's Chinese bots on them and all that stuff.
Chuck Beames: Not to make us paranoid, but if we do that, and then the government buys systems and procures systems that ensure that the data is secure, irrespective of who else might be sitting on that network - your data is secure. Then I think we will unlock, unleash a whole new era of tech boom like we saw in the last 10 or 15 years, we'd see a whole other one. Because what's hobbling a lot of e-commerce and autonomous things is that we haven't done that. And everybody gets hacked and phished and all that kind of stuff. It's because it's so easy.
Chuck Beames: Because all kinds of new and interesting apps are written, software is written to do amazing things. But there's always these little problems with the software, and the adversary immediately figures out how to exploit those quickly and then they get in. So that's the challenge. I'm not a big believer in heavy-handed government, but there are certain things the government needs to do to protect all of us from everything. Like it's almost like helmet laws or things like that. Or making sure everybody who flies an airplane has to have a beacon that broadcasts to everybody else "this is where I am and this is who I am." And the zero trust thing is a little bit like that. That's the way I see it.
Chuck Beames: So if we do that, and we mandate that, and the government would lead when it buys its things. It says, "Hey, we're doing this zero trust thing. No kidding. We're gonna press you, do the penetration testing. We're gonna do all that kind of stuff." Because there are commercial companies that have that software. So this isn't something that the government would have to develop the software for. There's a natural marketplace for it. And anyway that's the way I sort of see that. That is probably the biggest thing.
Jim O'Shaughnessy: Yeah. And I went down a fascinating rabbit hole on Zero Trust systems and had generative adversarial AIs battling and they came up with some really interesting edge cases. But before we get to that, because I'm sure you know all about them, but they were new to me...
Chuck Beames: Yeah.
Jim O'Shaughnessy: Please for our listeners, explain what the Zero Trust protocol actually is.
Chuck Beames: Well, it's really an idea and the idea is this quite simply: in order for a system to have the designed purpose, you assume at all levels that things have been compromised. For example, we think of a VPN and we can communicate and that is a secure network around which, but once somebody is inside of that network, a bad actor, then it's compromised. So that's not real zero trust at the network level, but it's not zero trust at the data level. And what we need to get to is zero trust at the data level. Because ultimately data is the thing that everybody wants. That's what they want to exploit.
Chuck Beames: They want your bank accounts, they want your cryptocurrency, they want whatever that data record is. And so there's a term that's now becoming the thing, and I like it. It's called "secure by design," which means that basically software engineers are trained to think about this. There are certain languages, programming languages like Rust, for example, that are much more memory-safe because a lot of what these evil sort of people do is they exploit little challenges in software.
Chuck Beames: And I don't want to get too technical, but basically you're writing and rewriting over memory and there's ways by which nefarious people can exploit that writing and rewriting against a memory register to hack in. And that's just one example. So using a language like Rust is one that from the ground up was purposely designed as a memory-safe programming language. I'm not a big believer in saying, "Okay, everybody has to program in Rust," but I think that what they need to do is have these recommendations gradually over time, but quickly.
Chuck Beames: And then what happens is you get into a marketplace where you have insurance you can get against attacks. You can have underwriters that can help underwrite those policies because it's going to be essential. A lot of people don't understand this. I know you do because you're a businessman. But a lot of people don't understand how important insurance is for the success of business enterprises.
Chuck Beames: That's the way they can mitigate risk. Well, this cybersecurity thing, cyber attacks is a huge risk to a company. It doesn't matter if it's a dental office down the street or Microsoft. It's a major sort of thing. And the risk associated with that... we haven't even gone into how you mitigate that. And there are ways to do it. It doesn't have to be the government. It doesn't have to be Uncle Sam's army defending all cyber interests in the country. That'd be too expensive. There are smarter, more clever ways to do all that stuff. But anyway, I don't want to go on and on, but I think you kind of get the idea there.
Jim O'Shaughnessy: I do, and I think it's actually leaning into your comment about if we play the game to our strengths in America, we can have all sorts of startups, all sorts of think tanks, all sorts of people working on these particular problems. Right. Because this seems to me, as I was learning more about your world, it's fascinating, number one, but the coordination problems, the logistical problems that you then have to pile security problems on top of. And some things are classified, some things are not classified. For example, what's currently, as best as you can tell me, what is currently behind the wall that is classified, that if we declassified it would lead to a burst of creativity and all of those separate entities that I just mentioned thinking, "Whoa, let's..."
Chuck Beames: Oh, hmm. Well, there is a lot of technology that's classified whether or not that would become exploitable for commercial purposes, you really don't know until you've done it. So it's hard for anybody, even somebody like me who understands all this stuff, to really speculate. I'll give you an example. GPS. I'm an old GPS guy from the early days. And a lot of people don't know this, or maybe they don't even care, but the US Government did not develop GPS so that we could all get an easy Uber ride.
Chuck Beames: It was developed for a very specific military purpose, which was to have a navigation system that can survive a nuclear war. Because it was part of the mutual assured destruction sort of framework for defense of the country. In other words, if there's a nuclear detonation and there's a nuclear cloud and there's no other way to navigate, you'll have the GPS beacon and you'll be able to do your mission. Your bombers will still make it to Moscow. Your ICBMs will still make it to Moscow. So they better think twice about attacking us, because no matter what, even if they strike us, they're dead too. That was really the whole thing. But back then, again, I was talking about Moore's Law. Come back to today.
Chuck Beames: Back then, the receiver - what we used to call user equipment - that thing was like the size of a small desk.
Chuck Beames: Now it's like a third of a chip in your iPhone.
Jim O'Shaughnessy: Right, right.
Chuck Beames: So Moore's Law keeps shrinking things. And then what happens is some really smart tech people from Silicon Valley start thinking, "My gosh, look at all the things you can do with this signal." Including now the whole banking system uses the timing signal, all the networks. Now we're so dependent on it in a different way. We're more dependent on it from a civil infrastructure standpoint, from a standpoint of just our economy and everything else, that we've gone through the door where it's important in a fundamentally different way.
Chuck Beames: And there are different teams and folks working on that and looking at that. For example, with GPS, the military still needs its thing. It still needs it for dropping bombs and all that kind of stuff and soldiers' navigation. But at the same time, my God, if GPS goes down, the NASDAQ stops, New York Stock Exchange stops, most of our networking in the country goes away. We go back to the 8th century in a matter of a week, which is really scary. And so there's now, I happen to be a proponent of this idea of splitting the two and sort of the military takes care of the military needs because they are different. They're similar, but they're different.
Chuck Beames: The civil folks, you and me, as just regular ordinary citizens, we have needs too. And they are getting more and more exquisite as well, just in a different way. And I think that's a great area, for example, where the commercial world, this free market where private can step in, work closely with the military and develop what we call a hybrid space architecture. This idea that the commercial stuff can work well with the military thing and address it. The military can buy the commercial thing by the pound as they need it for their purposes.
Chuck Beames: But you always have the soldier in the field, the Marine, whoever the pilot in the air - they have their assured navigation and their assured communication, all that kind of stuff. And that's where we're counting on our leadership to make those decisions and those adjudications to make sure that they don't forget that frankly. Because sometimes folks get enamored with "oh, everything's commercial, let's just do that." Well, that's great. But we have to make sure at the end of the day the soldier's rifle works.
Chuck Beames: Right?
Jim O'Shaughnessy: No kidding. And I was reading about all of the advantages of unbundling GPS and then I kind of thought about the disaggregation of GPS. Space Force, for example, is exploring lighter, cheaper GPS craft alongside the legacy ones.
Chuck Beames: Yeah.
Jim O'Shaughnessy: What kind of problems, technical or otherwise, does that introduce into a complex system?
Chuck Beames: That's a great question and I hesitate to offer too much of an opinion on this, but I will. I think that the Air Force or Space Force was well-intentioned with this idea of augmenting their GPS with sort of like a GPS-lite kind of a thing.
Chuck Beames: But the challenge with that frankly is that's a government-funded program. And the government just isn't good at managing things that are supposed to be kind of commercial in nature. And really what the smart... If I were the king for a day kind of a thing, I would stay in rate production on what's called GPS 3.
Chuck Beames: Get that working. Those are the satellites that Lockheed Martin for example is currently building. Stick with those. Maybe put some incentives on there to bring the price down or something like that. The government has experience with that kind of thing. You do lot buys and you do all kinds of things like that. You can build incentives for them to realize some gains and stuff like that.
Chuck Beames: And then put money against sort of initial testing of these pure commercial companies and letting them do demonstrations like that because it takes a while. You got to get lots of satellites up there. It'll take like five to 10 years to kind of get to these other architectures. But if the government just stays involved in a very kind of hands-off way, but incentivizes them to work closely with the Space Force, then they work well together, they have the right interfaces.
Chuck Beames: But the Space Force doesn't have to worry about managing that baseline. They don't have to fund it, they don't have to worry about Congress appropriating it. They can just buy that as a service. Meanwhile, the soldier in the field, the pilot in the air, the sailor at sea still has their assured PNT, right - Precision Navigation and Timing signal. Now could it be possible 20 or 30 years from now we no longer need any of a government thing? That's possible, but we're nowhere close to that.
Chuck Beames: And I don't think the answer is to buy a handful of these as a new sort of baseline for that the Space Force has to manage. I think it'll end up... If they really ran the numbers they'd find that's more expensive than just buying more. And I don't have any relationship with Lockheed Martin or anything like that. I just give it to you straight, this is the way I see it. I think they ought to just buy more, commit to buying more of those GPS 3s and then, frankly, there's a lot that needs to be fixed.
Chuck Beames: I'm focused on the satellites, I'm a space guy. But there's the whole ground segment that needs to be... it still needs work frankly. There's the what's called OCX and then there's the user equipment. Now again the user equipment as I said it's for people like you and me, just regular civilians. It's a little chip inside your iPhone.
Chuck Beames: But for a soldier who needs this thing called M code, which is a military code that's much tougher to jam and all that kind of stuff, that's where the military stuff really... that hasn't really been... I mean it doesn't really work yet and frankly they've been... They have satellites that were launched, satellites that were M code capable. They're getting ready to have to deorbit those things and they still don't work end-to-end because they didn't work on the user equipment.
Chuck Beames: So I think frankly the Space Force would be smart to work with the other services and get that end-to-end thing nailed down. Because it's not just the soldier, but when you think about bombs, for example, if you want to have GPS guided bombs in the future in a GPS-denied environment, then that M code sort of thing has to work all the way from the satellite to the ground station and the satellite directly into the aircraft and then the aircraft has to hand that M code signal off to the bomb. And that's hard. That's that integration problem you're talking about. Very complex and just dealing with that alone will keep the Space Force busy for a while.
Jim O'Shaughnessy: Yeah. And that was the thing as I was getting ready to talk to you, that really fascinated me. The complexities - we're talking about multiple complex adaptive systems interacting with each other. And I thought, a single complex adaptive system is hard enough to try to deal with. And I did like your idea though of letting the startups and all of that - let them run wild with this stuff...
Chuck Beames: Yeah.
Jim O'Shaughnessy: ...making sure that the military winners, the...
Chuck Beames: Government just picks the winners.
Jim O'Shaughnessy: Yeah, yeah. And in fact, you've gone so far as to advocate for the Pentagon to offer a simple "yes with a contract" or "no, thank you."
Chuck Beames: Right.
Jim O'Shaughnessy: And I think that what would be one of the federal acquisition regulation clauses that if you could change would make that a reality? What is the big bottleneck getting in the way of "yes with your contract" or "no, thank you"?
Chuck Beames: You know, it's funny, it's actually not... They could do it today. There's no FAR stipulation that requires that kind of thing. It's really cultural. It's about the folks that manage all this stuff. They grew up, a lot of them are... they're younger than I am, but they're not much younger. They're maybe 50 or so, especially the ones that are in senior positions now. They grew up under the old system where the government was very involved in designing everything.
Chuck Beames: So their ego and their sense of responsibility was carried into the system that they were working on developing. What really needs to happen is a mindset shift where it's just like, "Well no, we don't want that," and just be polite, but basically be firm with it. What I've noticed culturally is there's this sense of... Because they have that sense of mission and they care, they want to help these companies to do better.
Chuck Beames: And first of all, number one, they're ill-equipped to even do that because these people are not businessmen anyway. And secondly, they have too many other things to focus on. And so in fact, not only do I suggest what you said, but I also have gotten to... So there's the "be firm." That's the best signal to the market. "Yes, this is great. No, this is not. We don't see a use for this."
Chuck Beames: The other sort of flip side of that same coin is... We used to say when I was growing up, "cash on the barrel head" - pay when it's delivered, right? Don't fund it incrementally, like cost-plus and all this kind of nonsense. It either is or it isn't. Now there's some things like jet fighters and stuff like that, you have to pay them because those things are complex and there's no commercial marketplace for... we, by design, we don't want a commercial marketplace for our best fighters and our best bombers and all that kind of stuff.
Chuck Beames: But space systems are unique in that... Jim, for the most part, and some of my space brothers and sisters get a little mad when I say this because it's an oversimplification, but it's not nearly as much of an oversimplification as you might believe, which is this: really all a satellite is is a solar-powered computer on orbit. It has input and output and it performs a function on orbit. If it's taking a picture, it's got a camera on it. But really it's just a computer.
Chuck Beames: And that's why with everything going now because like when I was a lieutenant and coming up through the ranks, everything was in geo. All was Air Force then. Most of everything was, and in fact still is for the most part, except for the new stuff, the SDA stuff, it was all in geostationary orbit and these were huge satellites about the size of those old yellow school buses.
Chuck Beames: And that's just the way it was. And the radiation environment out there is much more severe. It's more expensive to get a satellite way out there. And so we built them big and launch was very expensive until SpaceX came along. Launch was expensive. So it was just a different way of looking at everything and 15-year design life.
Chuck Beames: Now these satellites that go up in orbit, I keep my iPhone... In fact, I was just talking to Alexander about this. My iPhone is 6 years old and it works fine. But she said, "Can I get a new battery for it?" And she said, "No, they don't let you do that." So I have to get a new one just because the battery. It's sort of the equivalent of a satellite. The satellites that York, for example, is delivering have a five-year design life now. They'll last longer than that. You can leave them up because they'll keep going.
Chuck Beames: But at a certain point, the solar arrays degrade a bit, all that kind of stuff. That's a different... it's more of an iPhone mentality than, for example, the computer I originally learned to code on was IBM 360/400. You remember those, right?
Jim O'Shaughnessy: Yep.
Chuck Beames: I was just a kid, but I was good at math and they thought, "Oh, if you're good at math, you should stare at a computer." So I ended up learning how to program a little bit as a kid. But anyway, so that's kind of a big difference in the era, but getting the Space Force and everybody to really understand that is tough. They're doing it. We have great leaders in there. They're doing good work.
Chuck Beames: But as you probably know, it sounds like you've read some of my stuff I write. I'm the person that kind of pushes a little bit. It's why I created the alliance and all that kind of stuff. I really want... because these guys know my heart's in the right place. I'm a patriot through and through. They know they can disagree with me, but they know where I'm coming from. It's purely what I think is best for the nation.
Jim O'Shaughnessy: Yeah, well, that's clear from your writing. But this also brings us into the new interaction between business types like me and you. Right. I don't have your background because you're both, but like, you did a deal in 2023 with a big PE player. In fact, it was dubbed the largest private equity deal of the modern space era. What specific metrics convinced you that the sector was ready for that scale of capital? And what blind spots do traditional PE investors face when they cross the Kármán line? I mean, they're not thinking about that probably. They haven't been spent like you. They haven't spent a career thinking about that.
Chuck Beames: Yeah.
Jim O'Shaughnessy: And I gotta guess because I know a lot of these guys that they're gonna have some blind spots.
Chuck Beames: They do. It's a great question actually because even somebody like, as you mentioned in the intro, I worked for about three and a half, almost four years for Paul Allen. And because he was a big space... he was a tech guy, but he was an investor. He was really more of an investor than he was a tech guy. So he was fascinated with space. And that's what I did. I oversaw all those investments and stuff like that for him.
Chuck Beames: And I say even with Paul... But just generally one of the things that a lot of folks, private equity types, investment bankers - though they're getting better. What they don't quite understand is there's a culture associated with the space community that is important to understand because at the end of the day, I'm sure you know this, business is personal too. It's not a mechanical thing and so there's an emotional component to things. There's all these other things and they affect the bottom line.
Chuck Beames: And so anyway, I think that's one thing. I think more significantly though, you didn't ask about this, but I'll go ahead and say it. The venture capital firms are actually a little bit, candidly, a little more worrisome because their culture is completely geared toward the software, the tech community. That's really where its origin is.
Chuck Beames: And even though space systems are tech-dominant today, they still are capital intensive to put up constellations and all that kind of stuff. And so VCs often want to kind of get in and get out. They're really just about a multiple, from A to B or A to C or whatever. And that really ends up not being well.
Chuck Beames: The venture firms I've worked with, and I've worked with pretty much all of them, they kind of tend to look at metrics and all that kind of stuff. And that's fine. But really it's the fundamentals of how business is actually transacted in the space community, which is different. It is different.
Chuck Beames: They would do themselves and their LPs a service by spending more time actually understanding that. And then frankly, I've worked hard on this, but to get a lot of the military leadership to not be so enamored with VCs, like, just because they have that, that doesn't mean they have any kind of wisdom. I'm like, "You guys have the wisdom. Trust me, I've been on both sides of this. You guys have the wisdom. You may not have the business savviness, but guess what? Neither do most of those VCs." Most of those guys that are putting together, they're doing diligence work or whatever, they don't know - they're kind of making it up as they go.
Chuck Beames: So that's why I kind of get back to this recommendation I always give, which is, the Space Force, for example, doesn't have to worry about that anymore. They can just "cash on the barrel head," buy it when it works, buy it when it's delivered to the launch site. Or maybe you have two hops - when they're awarded the contract, they get some amount of money to get going. Then they get paid when they're delivered to the launch facility. And the third one is what we used to call "first light" - when the satellite's working, they get their final payment. That's it.
Chuck Beames: All this other stuff needs to go away. And you would eliminate an immense amount of bureaucracy. And the Pentagon is filled to the brim with people that are checking on the checkers and all that kind of thing. Can you imagine if you and I went into the Toyota dealership - I'm a big Toyota guy, I love Toyotas - but if we went into the Toyota dealership and we said, "Yeah, I really want to talk to you about how you design your 4Runner. And I really think you ought to go to a quad exhaust system." They're like, "No, this is what's for sale. You take one of these models we've got." And Toyota's, you can't even order one. It's like, "This is what we have. We can check other dealers if they might have it."
Chuck Beames: I'm not a fancy guy when it comes to lifestyle stuff, so I love Toyotas. They work great. Anyway, I think that the acquisition community, what they call it in the Space Force, needs to sort of shift more into that mode. But it's hard because they're engineers. Engineers like to design things themselves. They like to armchair... it's like armchair quarterbacking. They like to pretend like they're actually designing things, but more often than not they get themselves and ultimately the war fighter in trouble because you get into these delays and stuff like that. So anyway, that's a little oversimplified, but I think that's kind of what I advocate for. And I think we're getting there. I think we're getting there.
Jim O'Shaughnessy: And that is close to one of the other things that as I was looking at this that I thought about. Silicon Valley has been this gravity well for talent, right? And you are definitely dealing with different ethos. So Silicon Valley dangles stock options, while the military dangles mission. The way that you're talking about, the way the space community does things. What would be something that you could advocate so that the next graduating AI whiz kid decides to pick working in this environment as opposed to an L7 comp package at a FAANG company?
Chuck Beames: That's a good question. And that's one that the military and specifically the Space Force, because that's like the first digital service, struggles with probably more than any other. I think the Space Force needs to worry less about hiring AI experts to be guardians. What they need are technical people - maybe they studied it, they understand, they're more conversant in it than a normal consumer would be.
Chuck Beames: But what they need after they graduate and they're second lieutenants or whatever is to understand how to apply those tools, how to think about understanding the different types - like autonomous type AI or generative AI or the new agentic, they call it, these autonomous agents that reside on networks. Understand what they are and what they can do and start thinking about with a military mindset: how do we defend our turf? How do we engage offensively and defensively in a space war?
Chuck Beames: Because that's what the space war is. The space war is not Luke Skywalker. It's not lightsabers and stuff like that. It is network warfare on orbit. That's not all of it, but that's like the bulk of it by far and away. General Whiting, Steve Whiting, he's the four-star commander of US Space Command and he famously has said that cybersecurity is the soft underbelly of the Space Force. In other words, it's the thing that keeps them up at night. It's the thing that makes the whole Space Force vulnerable.
Chuck Beames: And it's not just the satellites. But even I'm guilty of this. You think of space, you think of the satellite, but it's really the satellite, the ground, the user equipment, the links - it's all of that is really what Space Force is about.
Jim O'Shaughnessy: Yeah, and I was thinking about that and immediately kind of thought about the whole AI situation and kind of rules of engagement, right? What happens when an AI-enabled satellite can detect and neutralize a threat before a human even sees the telemetry, you know, where do we put the trip wires?
Chuck Beames: That's an excellent question. Those are the kind of questions that some really smart people are asking inside the Pentagon right now. And they don't have answers yet because we're not really there yet, but we will be there. We will be there in a matter of years. And so we need to have smart people thinking about that kind of stuff, worrying less about how good of a software engineer you are for writing the next algorithm, just understanding what those things are and then thinking about how you wage war, defend territory. What are the right policies, what are the tripwires?
Chuck Beames: Because some of these things, our reaction to them could be an act of war, or it could be even worse than that. Let's say, for example, we have early warning satellites on orbit. They're a key part of our whole early warning system for nuclear attack so that we know if we're under attack we can respond. So it has been the policy - I don't know if it still is, but it was the policy all when I was active duty - that an attack on one of those satellites was essentially like an attack on America.
Chuck Beames: Right. And so we signaled that to the Soviet Union. That was very clear to anybody. If you're attacking our... they were called... today they're called SBIR - Space Based Infrared System. The early warning systems. And there's also communication systems associated with that. It's a whole network that all has 99.999% reliability. Because the fate of the nation is at play there.
Chuck Beames: But you have to have a human in the loop. But at what level? For example, you obviously can't have just an AI bot saying "Okay, we're going to shoot that satellite out." But at the same time, is it a lieutenant, is it a colonel, does it have to go to the President?
Chuck Beames: That kind of stuff has not been worked out yet and they're working on it. They do these things called war games - Schriever war games. They do it every year. It's really important work where they role-play these things because when you role-play it you learn the little gotchas, the little glitches in your logic sequence and then these things get teed up and operational plans get written and rewritten to accommodate either new technologies or new tactics, techniques, and procedures to make sure that everything is congruent.
Chuck Beames: So does it need to just go to the Commander - to Steve Whiting, or does it have to go all the way up to the Secretary of Defense or in some cases like an actual nuclear attack, it does go to the President. If the President is incapacitated, then it's delegated back down to the SECDEF and it's all very prescribed. But this stuff about space things and especially as you get into an autonomous world, we need to think about that because it's coming and we can talk about rules of engagement in ivory towers.
Chuck Beames: But the reality is that the AI thing is coming. We know the Chinese are deploying this stuff now. They're testing it out, they're seeing how we react to these things. And we know it's coming. And the most worrisome people think that these things could be deployed for real in 2027.
Chuck Beames: And so if that's the case, boy, we really need to ship this thing into overdrive because the zero trust stuff we were talking about earlier becomes essential. Otherwise we go back to the 8th century.
Jim O'Shaughnessy: Yeah. And as I was learning about all this, which was incredibly fascinating for me, at least, the whole idea of Russia running these rendezvous and proximity operation satellites, the Chinese doing SJ-17, I didn't know anything about that prior to doing the research. Do you think a better-educated investor class, a better-educated group from the business side, would they make better choices? As I was reading this, one of the things we have here at OSV is we run ideas that we have through generative adversarial AIs and we have them fight it out. There's always a human in the loop saying, "Oh wow, we didn't think of that."
Chuck Beames: Right, right.
Jim O'Shaughnessy: And I just wonder if those kinds of things where people like you especially could be very helpful to the investor class who might not even be thinking about all of this. Or am I wrong about that?
Chuck Beames: That's interesting. The whole AI thing... To me, unpacking that box is just a fascinating thing when you think about even just generative AI, how it can be used or how it will be used by our adversary. In the war gaming that you're kind of describing, what your team does is like a form of war gaming - an internal part of your diligence process.
Jim O'Shaughnessy: Exactly.
Chuck Beames: Which is interesting and fascinating. I think it's a brilliant idea. In fact, I would suggest that it might be useful - and maybe you already have some - but you have a couple of advisor-type people, maybe former, recently retired or whatever. They wouldn't have to be senior. In fact, if anything, the more junior they are, the probably the more helpful they'll be. Because a retired four-star, they're great, they've accomplished great things, but they really don't know much anymore about the tactical fight. Their war was like 20 years ago or whatever.
Chuck Beames: So I think that's a brilliant idea and having that - I hadn't even thought about that. But what you described for your firm, it's an interesting idea. Ultimately though, when it comes to that offensive and defensive counter-space stuff, our Space Force guardians need to sort of... Because they're going to be the buyers of it, they're the ones who have to make that decision whether it's useful or not.
Chuck Beames: I think it might be going a little far as an investor. I mean, anything, any data is useful when you're an investor. I'm an investor too, so any data like that is useful. But it's probably... I think the investor class is actually well aligned to do what they want to do. What has to happen is the government side needs more reform because that'll heighten the confidence of the investors to put more money against these things.
Chuck Beames: Because they've seen now we've been doing this for about 10 years in this new space race and we've seen, for example, one night when I give a keynote or something, I use it - I don't mean it in a pejorative way - but Virgin Orbit was an amazing capability. This is the air-launched rocket thing. They spent about a billion dollars, raised about a billion dollars in capital, developed a working really impressive capability, but there was no market for it. And so it went bankrupt.
Chuck Beames: So a billion dollars invested and it went to auction for $35 million. $25 million was for the 747. Could somebody like me talk about use cases for it? Yes. But guess what? The Space Force was like, "Interesting, but maybe once a year," and you can't... these rockets were whatever, they were $20 million, a lot less than the earlier generation of air-launch type things. But still it wasn't economically viable. The business case didn't close.
Chuck Beames: And so we've learned. And then there's the whole SPAC thing, where the hype - and again, I kind of blame more of the VC culture, the hype culture - kind of did a disservice to the community generally. So we just need to kind of get serious, I think.
Chuck Beames: In fact, I had the first one this year and I'd love for you - and I will make sure you get an invitation because it's mostly for investors - but it's called the Miami Space Summit. I live here on the beach in Miami. And we had the first one, it was about 150, all like senior investors, very senior White House Pentagon policy people and then companies - all the companies that are part of this new generation. It was not a BD conference at all. It was about the gathering of sort of eagles to talk about, like what do we each need to do to really leverage private capital along the lines of what we're talking about here in your podcast?
Chuck Beames: And I just thought, I just saw it as necessary. And who doesn't want to come to Miami in February, right? So it was great. Invited people to bring their significant others or plus ones and everything. And it went really well. In fact, the feedback... I teamed with the US Chamber of Commerce. So we had good sponsorships like that and the feedback we got was tremendous. And so we're going to do it again next February. In fact, my team is already cracking the whip on me to start pulling together the plans for all that.
Chuck Beames: But anyway, Jim, it'd be great if you could come because a guy like you would be... We had the big investment banks, the investment bankers that are putting together the big deals right now, and then the top private equity firms that are in this space right now. So it went really well. One of the feedback things we got was like, "Look, this is so good. Just don't turn it into one of these big BD mega-events - thousands of people running around with their lanyards and getting too drunk." So we're going to kind of keep it to no more than like 180 people.
Chuck Beames: And there's a lot of people who want to come now. So somebody smarter than I am is going to have to figure out how to adjudicate who gets to come, who doesn't. But anyway, I will make sure, Jim, that you... I can tell you're definitely of the mindset that we need to have as part of that conversation.
Jim O'Shaughnessy: Well, I very much appreciate that and I will come if invited. In the connection of having these adversarial models go back and forth, let me just give you two questions. It proposed that I ask somebody if I was going to be investing. The first was: "Have you contemplated adversarial AI in space? What if an attacker uploads a cleverly crafted data packet that poisons the satellites in situ - in other words, up there? Is there any in-orbit adversarial training on the roadmap for your company?"
Jim O'Shaughnessy: And then the second one was, "Hey, what about laser spoofing with an optical cross-link proving or promising huge bandwidth? But an adversary could insert a nearly invisible laser pulse train to desynchronize the satellite comms. What's the defensive handshake or anomaly signal that would flag the man-in-the-vacuum exploit?"
Chuck Beames: Wow, those are some good ones. You got some smart... I don't know if your team put those together, but clearly somebody that's got some military thinking going on there.
Jim O'Shaughnessy: Well, as I think you might know, my chief of staff is a graduate of the boats academy.
Chuck Beames: Oh that's right. Canoe U, we used to call it. And we used to call West Point "Hudson High." There's a big rivalry among the three.
Jim O'Shaughnessy: Oh, I know very well.
Chuck Beames: Yeah. Well on the laser one... That's absolutely true. Much more difficult by the way than jamming up RF. So it's more survivable than the old RF systems. But nonetheless that would be a technique. One of the things though that they call these "mesh networks," what they're building in low Earth orbit - this is different for the military compared to what these commercial ones are doing. But each satellite kind of does its own onboard processing.
Chuck Beames: And each satellite is going to have like between six to eight laser heads on it. And so if one of them kind of goes out it sort of has this dynamically healing capability. That's not today but it'll have the ability to do that kind of thing. So you reroute traffic. So the key is to actually know if you're being jammed up or if you're being spoofed or whatever with your lasers.
Chuck Beames: Because if you know that, that you're only going to know if you have your own AI autonomous software running in the background that's monitoring all your systems. So if you see something that's a glitch, like "Well, that shouldn't have happened." So that's where I highly encourage, and I really push hard for the Space Force... This is an area where they're going to have to invest.
Chuck Beames: Because the specific things that the Space Force is going to need in these AI agents, there's not going to be a commercial equivalent. So they're going to be very specific. It's sort of like you need a fighter aircraft that's going to pull nine Gs and do all that, and be invisible and all stuff. Well, there's no equivalent for that for you and I flying from Miami to Reagan Airport. It doesn't need to be invisible - if anything, you want to be very visible.
Jim O'Shaughnessy: Right.
Chuck Beames: And so those kinds of things, that is what the government is still going to have to do - very detailed investment and all that kind of stuff now. But that's just the AI, not the hardware that it runs on, not all the other stuff, all the infrastructure, the old "rocket science" stuff. That stuff now is all off the shelf. It's just getting cheaper every year.
Chuck Beames: I mean, York - we manufacture, as you know, satellites for different customers and stuff like that. And we're on the Moore's Law train. Every year, our new generation of satellites are more capable and cheaper than the previous ones. That's the cost curve we're on now. It was not that way while I was in the Air Force, I can tell you that much. We were spending billions per satellite.
Chuck Beames: But that's changed now. And so getting the Space Force to think about that and plan for that... And it's not just the Space Force, it's the Office of the Secretary of Defense, the folks that give the Space Force their money. And then up to the Office of Management and Budget and then Capitol Hill - getting all those people above the Space Force people to understand it's a different way of thinking about the business. It takes time. It is happening though, candidly. It's just, there's a lot of inertia, a lot of old scar tissue and stuff like that that needs to be cleared out, but it's happening. It's happening.
Jim O'Shaughnessy: Yeah. And what fascinates me again is we're dealing with so many moving parts.
Chuck Beames: Yeah.
Jim O'Shaughnessy: And like who's going to start thinking about these security things? Like for another example, ghost firmware and bricked constellations. Like in a zero trust world, how do you guard against a dormant exploit that only activates after a satellite's final firmware update window has closed, essentially bricking the entire system years later? Like, whose job is it to think about that? Is it the companies? Is it Space Force?
Chuck Beames: That's a really important question. That gets into supply chain kinds of discussions which are their own... That's its own whole world. Not an easy one, of course. Your crack staff put together a really tough case. But I will say this: if you get to the Zero Trust kind of thing I'm talking about now, the firmware, if you have a satellite and the firmware is corrupted, they could sort of render the satellite useless or they could kind of take it over.
Chuck Beames: Well, that's true, but the data that's going through the satellite, if it's Zero Trust, then the data packets themselves, each data record is actually encrypted. So they're not going to be able to exploit it because the encryption keys are maintained at the end points. You talked about the edge and all that kind of stuff. And then the ability to rekey and all that kind of stuff needs to happen in software.
Chuck Beames: Nothing is completely foolproof. But you can require this - this gets into this "secure by design" thing - so that the satellite itself, the internal command and control of the satellite itself - if every data message that's communicated to do the different functions like move the solar arrays or move the camera, slew the camera or whatever - if every one of those things is actually done in that same secure-by-design, zero-trust way, then it just becomes that much more secure.
Chuck Beames: You never... it's like any other form of warfare. You're constantly going like this up the ladder. But right now we're not doing any of it frankly. So I kind of say it's interesting to have people come up with these kinds of things, especially when they're doing war gaming and stuff like that. But from a policy perspective today we're not even dealing with first base here on this.
Chuck Beames: Because what's happened is in the old days when satellites were in geostationary orbit, it was what everything was called point-to-point because a geostationary satellite is over the same point on the earth the whole time by definition. So you just had a point-to-point link. You encrypted it at one end and decrypted at the other. And that was easy. And we have the world's best encryption technology, especially the military, NSA, all those guys. So it's bulletproof.
Chuck Beames: Well that's no longer the case with mesh networking where things are doing onboard processing and you have satellite-to-satellite handoff and all that. And you have to do it that way now. There's no going back. And so anyway that's where the old way sort of breaks down. The point-to-point thing just breaks down.
Jim O'Shaughnessy: And you mentioned the supply chain and obviously that is incredibly critical.
Chuck Beames: Yeah.
Jim O'Shaughnessy: How do we establish supply chain sovereignty? How vulnerable are we in the supply chain?
Chuck Beames: I'll tell you, we're very vulnerable. Especially when it comes to things like core component stuff like memory and all that kind of stuff. I'm a big believer in finding ways to onshore US production.
Chuck Beames: We need, for the minimum... I'm not an anti-international guy, but I think that when it comes to making sure our soldiers, sailors, airmen, marines, all those people have what they need when they're called to go fight, that they've got secure equipment, we have to make sure we have solid indigenous supply chains. That stuff can get inspected.
Chuck Beames: York, we do have some foreign suppliers. Not many, but we do have some because sometimes there is just no other choice. And we have inspection regimes. We have all kinds of things, and frankly the government comes in and they validate our methodologies for testing. But nothing's perfect, nothing's ever fail-safe.
Chuck Beames: But I feel good about the stuff right now that the Space Development Agency is developing and the Space Force is doing. I feel good about those supply chains. We're not vulnerable on that now. But that is a concern and they know it's an issue and they're working that one. But the cybersecurity, basically the idea of just hacking into systems, that is a today problem and frankly we're not batting a thousand on that one. I'll just leave it at that.
Jim O'Shaughnessy: Yeah. And coming up with all these sort of scenarios I thought was absolutely fascinating for me at least. Like IP theft via Gerber files. You have a two-day build at York...
Chuck Beames: Yeah.
Jim O'Shaughnessy: ...and obviously to have a two-day build you have to have replicatable designs. What's the plan if a rogue fabricator abroad - you mentioned you don't have too many non-US suppliers - but what if they surreptitiously alter a Gerber file to insert back-channel circuitry? How do you find that?
Chuck Beames: You know, candidly now you're getting to a level of technical complexity I can't even address. But I'll just say that you hire the best people that you can possibly hire. You empower them to feel like if they see something that concerns them, they're comfortable bringing it up to their boss. Because the one thing you don't want to have is an autocratic culture where people are afraid to bring problems and concerns to their boss.
Chuck Beames: And so if you have a culture like that, that's a big risk mitigator to those kinds of things. Because the smartest people on the things like you just described are actually the young people.
Jim O'Shaughnessy: Yep.
Chuck Beames: The ones that are the most educated, the most current, they go to all the conferences that are the real geek conferences, not the BD ones, but the hardcore ones where they're really talking about these kinds of things. And they're going to have the instinct - even though they may not have the wisdom to run a major weapon system program, they're going to have the instincts to know about concerns like that, to see those kinds of things.
Chuck Beames: I'll just give you an example. Another one of my companies is called Spider Oak.
Chuck Beames: And it specialized in cybersecurity. It uses blockchain, distributed ledger type technologies to do its thing. Well, none of that existed when I was learning how to write software. And not only that, but we have rewritten, just in the last year, all the software that had been written only four or five years ago. We rewrote the entire thing because we could make it more efficient because we're moving toward the edge economy. But also we rewrote it in a language so that it's one of these memory-safe languages.
Chuck Beames: So I think that's just going to be a part of the culture - making sure you have young people interested in getting into this world. They're incentivized, they find it exciting and interesting, and then they come to work for companies like Spider Oak or whatever and they want to apply their talents to the national security thing.
Chuck Beames: I think that's what happened in my generation. It wasn't tech based, but it was the same idea. The big major, it's funny now, but the big major was aerospace engineering. Everybody wanted to be aerospace. I don't think anybody majors in that anymore. But that was the big thing. Now it's software. What we need, what the market needs are software people of all different types.
Jim O'Shaughnessy: And I definitely agree with your assessment that it's the young people today who get that. But I was thinking about one of the major problems like during the Vietnam War was McNamara wasn't getting true intel.
Chuck Beames: Right, right.
Jim O'Shaughnessy: They were literally feeding him intel that they knew he wanted.
Chuck Beames: Right.
Jim O'Shaughnessy: He could go to the White House and say we are winning the war.
Chuck Beames: Right.
Jim O'Shaughnessy: No, and that was a chain of command problem.
Chuck Beames: Yes.
Jim O'Shaughnessy: As it went up the chain, there were fewer and fewer people who were willing to call on the data that he was getting.
Chuck Beames: And you know what? That still exists today.
Chuck Beames: It's the nature of bureaucracies and anything that has any semblance of autocracy to it, big companies, all that kind of stuff. And so that's why scandals fester forever. People... And so I can tell you as the chairman of the board of a bunch of these companies, one of the things I tell my CEOs is, "I will..." Because I basically look at them as my business partner because I'm an investor and I work very closely with that CEO on a daily basis often.
Chuck Beames: But one of the things that I say is, "My commitment to you and I need your commitment down is I'm going to do everything I can to make you feel comfortable bringing issues to me, concerns to me. I'm not going to shoot the messenger. I am here to help you think through and solve these problems." Because that's the only cure I've ever seen, Jim, for that kind of thing.
Chuck Beames: It happens in every unit I was in charge of in the military. The people are afraid because they want to get promoted. They don't want to get in trouble. It happens when you're little kids. You're a little kid, you don't want your parents to know something bad that happened to you, even though your parents actually need to know.
Jim O'Shaughnessy: Right.
Chuck Beames: But it's something in our nature. And so it really, the burden is on the boss to create a climate where the people are comfortable doing that. You're still the boss, but they need to feel comfortable bringing these concerns, whatever they are. It's a tough thing. It's a tough leadership challenge. They probably don't teach it at business school, but I can tell you from my 22 years active duty, there's nothing more important to a successful command tour.
Jim O'Shaughnessy: Yeah. And I agree it's not taught in business schools. Like when I was still running an asset management company, one of the things that had great effect for me was telling everyone - we would trade billions of dollars of securities every day and people make mistakes.
Chuck Beames: Yeah.
Jim O'Shaughnessy: And so at the all-hands, I would basically say, "You will never get fired for making a mistake that you tell us about. You will always be fired for trying to cover up a mistake." We just made it as binary.
Chuck Beames: Yeah, that's clear.
Chuck Beames: Yeah.
Jim O'Shaughnessy: And so what happened is we grew a culture of immediate notification. "Hey, I think I messed up and I really need to talk to you." Which is much better than...
Chuck Beames: But it takes a boss that wants that. And that's why it's a hats off to you because there aren't many people - they might say that, but they don't actually want it. They're suckers for flattery. They're suckers for the person that brings the apple to the teacher, not the student that brings the good test scores or whatever.
Chuck Beames: So it's a reward system - what behaviors do you reward? A good example of the whole reward culture: one of the reasons why I'm so against cost-plus contracting is, sometimes it's necessary and I accept that. But for the most part it's not, especially in the space business. And the reason why I'm so opposed to it is because it rewards exactly the opposite behavior of what you want.
Chuck Beames: It rewards more costs. You are incentivized - because you get fee on top of that, right? So you get more fee, you get more profit if you spend more of the government's money. That's the exact opposite of what you want. What you want are incentive structures that incentivize contractors to deliver the same capability for a lower price, a competitive environment. To me, it's one of the most foundational, fundamental things, and that's why I work it into almost every op-ed, every column I write for Forbes or whatever.
Jim O'Shaughnessy: Well, I completely agree with you. And it's like when good old Charlie Munger would say, "Incentives determine every outcome." If you're not even aware that you're incenting exactly the thing that you don't want... You know, everyone knows the stories about the Brits when they ruled the world were trying to get rid of snakes or whatever. And so they offered a bounty on any kind of snakehead or rat tail. It's different story, different times.
Chuck Beames: Right.
Jim O'Shaughnessy: But of course, what did it do? Everyone started breeding more snakes so that they could chop them up and bring them in. And a lot more rats. And so you had a bunch of tailless rats running around, and you compounded the problem rather than solve it.
Chuck Beames: Like, you don't really know when you first make your decision. That's why you have to be a learning organization.
Jim O'Shaughnessy: Exactly.
Chuck Beames: And the boss can't be arrogant. The boss has to always be listening to their people and all that kind of stuff.
Jim O'Shaughnessy: Yeah, totally agree. For a completely different kind of perspective, you're a woodworking aficionado.
Chuck Beames: Yeah.
Jim O'Shaughnessy: And I kind of wondered, you know, you've built hundreds of cabinets.
Chuck Beames: My gosh, you've done some diligence on me.
Jim O'Shaughnessy: Woodworking, though, you know, you have to think about tolerances, modularity, craftsmanship. How does what you learned over there help you make decisions over here? Because you still have to be really sensitive to all these things with satellites. And in my opinion, at least, your typical MBA is going to be just totally clueless about that.
Chuck Beames: Yeah, no, that's a good question. Where's the intersection between the two? I don't know if there is one, except I am a believer... And this is just us sitting, having a scotch together. I think it's important that people have a hobby or a diversion that takes their brain out of the details of what they're doing and does something different, because when they come back, then it's almost like a little mini holiday for their brain and they can come back to those problems and they can all of a sudden see them in a slightly different light.
Chuck Beames: And so whatever it is, I just happen to like cabinet making. And a lot of that is because growing up, that was a thing. Shop class was a big deal when I was growing up as a kid, and I was particularly good at it. So I really took to it.
Chuck Beames: One of the other dirty little secrets - I really took a vocational track in high school. And the fact that I ended up getting into space and intelligence, all that kind of stuff is a bit of an accident. And it was only because I happened to be discovered to be particularly gifted in mathematics. And so they whisked me off to Carnegie Mellon University. I was only 16, I hadn't even graduated from high school, but I was a really good woodworker.
Chuck Beames: And so I just kind of developed this love of that. And then I kind of got back into it when I was stationed at Wright Patterson Air Force Base out in Ohio. An elderly neighbor was a friend of mine and he had a wood shop. And I thought, "Man, I love this. I'll get back into it." And I was working long days then. And I loved it. And it just became this little mental thing for me.
Chuck Beames: The design, the creativity... I would design something and it was always something that was a little bit more of a challenge from the last thing I made. Maybe the next thing had dovetail joinery or it had a mortise and tenon joint or whatever, all different things. And then also the finishing.
Chuck Beames: One thing I will say, I think young people today would benefit from something like that because one of the things it does is it helps young people develop self-discipline - to stay focused on something and not get distracted. When you're using a table saw, you get distracted, you can lose a finger. So there's an imminent danger there as well.
Chuck Beames: But those kinds of trades - doesn't matter if you go on to become president of the United States - those trades are useful learning. There's something in the human animal of using your hands. And someday when I retire again, I'm going to kit out my fantasy workshop. I sold my wood shop a few years ago, sold everything to a bunch of young guys. And so right now I don't have a wood shop. So I go a little bit crazy because I can't make some sawdust and stuff. But I cook. I love to cook because I have something about working with my hands.
Chuck Beames: So anyway, that's my outlet. But other than that, I would just say it's important to have a diversion. I think it's important at all ages, frankly, even little kids. Sports are sort of one. But I'm talking about something slightly different than sports or health and all that kind of stuff. I have friends of mine. This guy I served with, a West Point guy, this rough and tough sort of West Point guy, but he knitted. He actually did.
Chuck Beames: Which you think of like the grandmother sitting there knitting, but that was his thing and it worked for him. He'd make stuff for his nieces and nephews. You'd never guess. Here's this rough and tough army guy. It could be anything. But I do think it's an important thing.
Jim O'Shaughnessy: When I was looking at your passion for woodworking, it did generate a question that is actually a question about the satellite business.
Chuck Beames: There is a wooden satellite up there, by the way.
Jim O'Shaughnessy: No, I didn't know that.
Chuck Beames: Yeah, Japan launched one.
Jim O'Shaughnessy: That's very cool. I didn't know that. But so, okay, tomorrow you discover a "would knot" flaw in your entire satellite bus design. What are you gonna do? You're gonna triage, patch, recall or redesign, knowing the enemy is watching your every move?
Chuck Beames: Oh, what a question. Well, I guess I would say if it's on orbit, you go to war with what you have. So if it's up there and it's working and you discover this flaw, you just figure out how you can squeeze as much operational utility out of it as possible. If it's on the ground, because we're in rate production all the time, these things actually do happen. Usually though, it's not a design flaw. Usually it's some kind of material defect or something like that.
Chuck Beames: And then we go back and assess the root cause. Was it a supplier issue? Did we miss it in screening? Was it our own thing? Because we actually make probably about 70 to 80% of the satellite bus. But there are some components we don't make. So it's a combination.
Chuck Beames: And I think ultimately we're a very customer-driven company. So we have a very close relationship with our customers - they understand exactly what we're doing for them and they're involved in every step of the process. They're invited if they want, they can have a temporary office just to watch their satellites being built and all that. We don't mind that as long as they don't slow us down.
Chuck Beames: But we would present - and we have done this - what we know, what our options are, and then our recommendation. And we would let them ultimately make an informed decision. Do they want to take the risk of this particular "knothole" because it may not matter?
Chuck Beames: So we have to quantify it and all that. But it may not matter or... because of the urgency. Let's say it's a military satellite. And they're like, "Yeah, we understand it's a risk, but damn it, the Chinese are up there right now. We got to get this thing on a rocket in a week and get it up there. We'll accept that risk of that knothole, as long as you're saying it's got an 80% chance of not being an issue."
Chuck Beames: So very important to involve the customer in those decisions. We're very transparent. We don't believe in hiding anything unless it's classified. But our customer is the one that flows down anything we do that's classified, it's because our customer has classified it. So we can always have that conversation. And we work very hard - I encourage the team from the CEO all the way down to have very good rapport with their counterparts.
Jim O'Shaughnessy: Yeah. That obviously it comes back to some kind of really old ideas, doesn't it?
Chuck Beames: Right.
Jim O'Shaughnessy: The more you communicate, the better.
Chuck Beames: And if they trust you.
Chuck Beames: Right.
Jim O'Shaughnessy: And he took the words right out of my mouth. If you have a trusting relationship, that's going to make all the difference because if you don't, if there is no trust, you get a McNamara situation.
Chuck Beames: Right.
Jim O'Shaughnessy: And you're getting fed all the way up. And problems compound negatively as well as positively. And the downward compounding, negative compounding that can happen if there's no trust or if there's bad communication could be catastrophic.
Chuck Beames: Well, I was just going to say the interesting thing about the going up versus going down. When things are positive, they're going up. You have compound interest. Everything's great, everything's going up. What's interesting about the negative cycle though, is that it's often hidden - it's compounding negatively, but no one knows until it's catastrophic, as you said.
Jim O'Shaughnessy: Yep.
Chuck Beames: And then when something, when the catastrophe happens, it happens overnight. So it's like you're climbing up, up, up. Everything is compounding. If there's a negative thing, maybe you just don't see that negative curve. It's hidden. Whenever that thing triggers, the whole thing goes down. It's like an avalanche.
Chuck Beames: And so that's why communication at all levels is just so important. And again, the burden... Bosses can complain that their people aren't communicating up but the burden is on the boss to set the right reward structures and incentive structures.
Chuck Beames: They're rewarded for integrity, honesty, candor up to their boss and all the way up at all levels too. Including what we used to call the "middleocracy" - the mid-level managers. They just want to preserve their job. That, and those are not easy things to do to come up with the right reward structure.
Chuck Beames: But I do have ideas on that that I share with my CEOs. And people have asked me what do I do as a chairman. And really, yes, of course I chair the board and manage all the directors and the usual thing, but I'm often what they call an executive chairman because I'm very hands-on with the CEO. And it's not dictatorial, it's more like a partnership.
Chuck Beames: And you can think of it a little bit like an executive coach. Because a lot of times these entrepreneurs, they're brilliant. They have business experience, but they don't have executive-level experience. They're certainly capable of learning it, but they just need somebody. The old expression is "lonely at the top." They're the CEO. There's nobody else they can really turn to. And so I work closely with them to help them think through, think like an executive, think strategically about the decisions they need to make.
Chuck Beames: And candidly, I feel incredibly blessed because I love what I get to do. It's like the dream thing for me. Money is interesting, but it's actually what I get to do every day. It's just an amazing thing.
Jim O'Shaughnessy: And what's brilliant about that is... Remember the old joke from "Saving Private Ryan" - gripes only go up. Where they're asking Tom Hanks' character, "Why don't you ever gripe?" And he's like, "Gripes only go up. I can't gripe to you guys."
Chuck Beames: Right, exactly.
Jim O'Shaughnessy: So your CEO has somebody to gripe up to.
Chuck Beames: Yeah, yeah.
Jim O'Shaughnessy: Which really works out pretty well.
Chuck Beames: And they need that... Candidly, they need that also from a mental health standpoint. They need that venting. And they need a little bit of the... I don't know, like a coach.
Jim O'Shaughnessy: Yeah, yeah, I totally get it. And you're right - that is kind of a pressure valve release. If you don't have that, things are gonna go sideways.
Chuck Beames: Get some weird behaviors. You get...
Chuck Beames: Yeah.
Chuck Beames: They feel like there's nowhere to turn. I've seen it. I'm the youngest in a big Irish Catholic family, so I'm the younger one, so I watched more than anything else.
Chuck Beames: Right.
Jim O'Shaughnessy: You know, I am the youngest of a large Irish Catholic family too.
Chuck Beames: So you know what I'm talking about. I've observed things. And so when I was running a lot of stuff for Paul Allen, I had lots of responsibility for all kinds of different deals and stuff like that. And I watched what worked and what didn't work.
Chuck Beames: So when I decided to go out on my own and do my own thing, even though it was an accelerated timeline - it was less than four years - I really learned a lot in those four years about executive management. Not so much executive management, because I'd done that, but understanding what it takes to be an effective CEO and how important all these things are that we've been talking about - the honesty, the candor, the communication, the lack of fear, the need for a CEO to have that person.
Chuck Beames: Because very often in these situations, early stage companies, if there is a chairman that's not the CEO, it's just the lead investor who often has almost no experience. They can't really with any kind of credibility coach, they can't mentor. But that's the niche that I enjoy doing and being involved with.
Jim O'Shaughnessy: Well, this has been an absolutely fascinating conversation. I'm incredibly impressed by what you're doing. I loved my kind of deep dive on this entire field because frankly I didn't know nearly as much as I should have. I really had no business unless I did a kind of a real deep dive here. But thank you because it was absolutely fascinating for me - all of these edge case questions and just thinking about the elaborate triage that has to go on.
Chuck Beames: Oh yeah, it's huge. It's huge. In fact, I'll tell you, I hope we stay connected because I have some other ideas that'll be coming out in the next year and a half. They're stealth right now.
Jim O'Shaughnessy: Oh, terrific.
Chuck Beames: I'd love to share them with you. They actually touch on some of those things that you're talking about. You're obviously a deep thinking guy because what you're putting your finger on is one of the big challenges into the future - what the Pentagon calls JADC2: Joint All-Domain Command and Control. The orchestration of all of it is incredibly complex. So I'll be taking on some of that in a new company that you'll probably hear about in about six months or so.
Jim O'Shaughnessy: Can't wait. As a final question, Chuck, we have a little game we play here at Infinite Loops and that is we're going to make you the emperor of the world. Now there are rules. You can't kill anybody and you can't put anyone in a re-education camp. But what you can do is we're going to hand you a magical microphone and you can say two things into it. And the two things that you say are going to incept the entire population of the world the next morning. Whenever their next morning is, everybody's going to wake up and say, "You know what? I just had two of the greatest ideas. And unlike all the other times, I'm going to actually act on both of these ideas today." What two things are you going to incept into the world's population?
Chuck Beames: Into the world's population as thought pieces, you mean? That kind of a thing?
Jim O'Shaughnessy: It can be anything.
Chuck Beames: The first one that comes to mind that I think everybody needs to know and understand is that it's going to be okay. I think too often in the world that we're in today, with everything hyped up and everything is about clickbait, I think there's a level of fear that's rolling through this whole thing. And I think we all need to just take the message that it's going to be okay.
Chuck Beames: And then I guess the other thing I would want to say - and it kind of relates to that - is think about what you want for yourself and for your life and do not be afraid to go do it. Just don't be afraid. Trust, reach for whatever it is that gives you the courage to go do the thing. Because we all know it - we have an inner voice. We know what we're supposed to do, what we want to do. Find it. Whether it's through your spiritual beliefs or whatever it is, your self-confidence, your friends, however people get to that, find the courage to go do it.
Chuck Beames: Because I'll be 60 soon. And there's no point in waiting. And if you don't, all you will have is regret that you didn't. You get one life. So just go do it. And I think if people keep those two things close to themselves at all times, the world would be a much better place.
Jim O'Shaughnessy: Candidly, amen to both of those. I'm turning 64 in a few, actually in a week. So I absolutely share your thought patterns on both of those. And the first one, people need to remember, Pandora's box is often given as a real negative. "Oh my God, you've opened Pandora's box." What people forget is the last thing at the bottom of Pandora's box that emerges is hope.
Chuck Beames: Yes, sir.
Jim O'Shaughnessy: The second one, man, I could not underline that message more. I completely agree. Because it may seem daunting, it might be frightening when you're younger, but boy, you're gonna regret it if you don't do it. And life happens fast and it really does. We only got one, so make it absolutely really matter.
Chuck Beames: Right.
Jim O'Shaughnessy: Chuck, thank you so much. This has been such a delightful conversation.
Chuck Beames: Thank you, Jim. I've enjoyed it as well. I really have. When this was pitched to me, I thought, "I don't know why not." I was assured you're a funny and interesting guy, and they were more right than they even realized.
Jim O'Shaughnessy: Well, thank you very much and I was assured the same of you. So we have mutually good intel on people working for us. Thanks so much for joining.
Chuck Beames: Thank you.
Chuck Beames: Take care.
Chuck Beames: Bye.
Jim O'Shaughnessy: Bye.
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