Technological Advancement from a Scale Non-Linearity Perspective

A treatise on the physics of techno-economics

I recently started working on a new defense company that was recently made possible due to shifts in the requirements of systems of a particular scale. I have always had a sort of allergic response to fundamentally uninteresting business ventures, and that led to a substantial disconnect in the businesses I was building and those that fiat venture capitalists found interesting, for the fiat VC does not understand that the world is not scale invariant. This is unfortunate given the impact that scale has on the nature of technological advancement, which is the source of practically everything good in your life. In the first issue of this newsletter and the ones that followed, I wrote about the fundamental aspecs of technological advancement, but I did not mention how significant the role of scale is.

If one wants to have a large dent in the universe, or a very large business, is it better to operate at a larger scale, or a smaller scale? Most people never consider this question and are instead guided by Shiny Object Syndrome. Under the childish urges of Shiny Object Syndrome, the typical investor will pursue businesses where the artifacts of the business are physically large and visually stunning: think rockets, flying cars, or rows upon rows of cheapo 3D printers no one actually wants. Following this emotional urge, the investor might have some fallacious rationalization that a large object makes for a large business, but we need to look no further than the semiconductor industry to know there is no basis in reality for this. But just because there are counterexamples, does it actually mean they are wrong? Isn’t launching rockets a large business and isn’t there a huge market for flying cars? Well, leaving aside the fact that space launch is barely over 1% the size of the commercial aviation market or the fact that the flying car market does not presently exist, there are other problems when operating at too large of a scale.

We do not even need to think about complex businesses or machines to know that the world is not scale invariant, you can simply consider a perfectly round balloon. It may seem like a balloon the size of Mt. Everest or a balloon the size of a car or more or less the same, but actually, their internal ratios are total different since the volume grows with the cube of the radius while the surface grows much more slowly with the square. This same scaling ratio keeps humans from growing arbitrarily large. A very large human, or any animal for that matter, would run into major problems: mass grows with the cube while cross-section of bone and muscle grows with the square making it increasingly challenge to move about, while at the same time, basal energy requirements are quite high. If you are a buoyant creature underwater this is of course less of an issue, which is why the largest animals are whales. Going the opposite direction, insects can have strengths that are tens of times their bodyweight. However, the smallest option will run into challenges as well. Even though the ant is fairly successful on numbers, with 2.5 million of them for each human, we have them beat on biomass 5 to 1, and we have blue whales beat 10 to 1 on mass.

Going back to the domain of technology and business, we can build a conceptual framework that helps provide a more definitive understanding of what is damaging about large scale, what is damaging about small scale, and what we mean by scale. There are two primary factors, complexity and complicatedness of the product or service being produced. Complicated systems can have many pieces in them, but they have interactive behavior that is simple, whereas complex systems have components that interact in non-linear ways that are hard to predict. As this newsletter has previously pointed out, business value reflects a shift in energy efficiency, which underlies what people think of as “innovation”. So looking at a system that exists at a scale that has more than a singular, atomic aspect to it, one might ask which components have been made more efficient — is it all of them, some of them, one of them?

If you are at too small of a scale, or another way to say this is if the scope of your innovation is too narrow, it is challenging to start a substantial business. You might just not have enough to really take a bite out of the world, and the world may be slow in adoption because it is irrelevant that one has a strictly superior solution given that growth is the baseline of the world, not zero. An example of a too-small, albeit incredibly valuable innovation would be if you figured out an aluminum alloy that has the ductility of 3000 series aluminum and the strength of 5000 series aluminum for the application of beverage cans, where you want to make the walls very thin, but the top strong enough for the open mechanism to function properly. Even if you figure this out, Coca Cola will remain a much larger business than yours, and you will not become a large canning company, but end up licensing the technology and making a small fee.

Perhaps the Shiny Object Syndrome is a fear reaction to avoid this sort of scenario, the belief that if you tackle the big thing, you will get to own the big thing, so let’s think about how that plays out. You have an innovation relevant to a Big Shiny system so you set off to build that entire system with the conviction that your innovation is good enough that you will be able to own the entire system. Of course, if you take a static view of the system, you might imagine that if you can prove to yourself that you can make it 10%, 50%, or even 1% better, that will tip the odds toward you, but something exists that makes this not a sure bet, which is opportunity cost and risk. It is not free to build a Big Shiny system. In fact, it is usually rather expensive, and the bigger it is, the more it is likely to cost. With this, I pose the idea of Innovation Density, which is simply the total efficiency gains divided by the cost of the system. Big Shiny things that investors are drawn to like flies to fluorescent lights are some of the lowest Innovation Density businesses possible, and in fact, the values will quite often fall into the negative range. Rather than having even a single component that offers some advancement, the premise will that the advancement is to be found in the emergent properties of the aggregation of components, but to demonstrate this, each individual component will be selected with a degraded performance factor to reduce the cost (the Big Shiny responder is usually oblivious to these underlying performance attributes). A large percentage of the capital is simply being expended rebuilding trivial systems that do not have risk or opportunity for discovery. Then what usually happens is that the emergent value is a charade, or has zero defensibility, but even if it were well reasoned, the low Innovation Density is the hallmark of the non-serious investor — desperate plays from middle age men who fear their death and cannot bear to face their own mediocrity, and a broken financial system that encourages them to lean into this degenerate Big Shiny impulse.

As a serious engineer, I was able to strike dead center at the perfect medium of scale: large enough to take a chunk of the world that matters, and small enough to have an astoundingly high “Innovation Density” — that density, by the way, is how we were able to get by despite being incredibly under-resourced. I built technology that is now being made integral to some of the most important defense systems of the most powerful nation in the history of the world, dwarfing the impact of entire VC portfolios, or the impact of large marketing budget companies such as Anduril.

I became interested in bitcoin because it automatically makes its way to the high Innovation Density businesses. It does not need to be explained, it simply happens through capitalism, something no one alive has ever witnessed, and few both imagining it. Even bitcoiners often do not wish to imagine it for what it says about their lives, but I digress. I remember in 2019 meeting with bitcoiners and basically saying, “I want to get to know you guys since by definition, you have all the money, and one day you may want to fund my work.” They are also the least insufferable people in general. Like most predictions I make, that one was also correct, for a bitcoiner who I only met rather recently on Twitter is now leading the investment into my new defense company. The bitcoin business I shutdown a little over a year ago shall never return under my leadership. At the end of the day, bitcoin is a bit like sweeping the floors, it just needs to get done. So perhaps I will invest in some other people building it since standard of value products are the inevitable path to the great transition, but I will not be the one building it. I had a chance to meet Beautyon in the airport after the Adopting Bitcoin in El Salvador. Was wonderful to chat with him and one of the things I remember him saying to me was “no one else is gonna build it.” Of course, he was referring to the bitcoin ideas I shared with him, but I see it as equally applicable to the hardware. But bitcoiners decided they are still poor, and the people who pay for war are still rich in purchasing power. I can only put so much of my skin in the game so now I must go to war.

Returning to the topic of scale, something very interesting happened recently in the technology landscape of aerospace and defense. A tipping point was reached that made it so that what is a good business that has leverage no longer needs to be merely something that shapes the capabilities from underneath — it is now possible to vertically integrate as a prime (affordably as a startup) and have high “innovation density” AND have a large market size. I always imagined in my first company that eventually we might overtake Boeing — of course, anyone who looks at that company will recognize them as a cancerous aberration that only thrives under the communist regime of central planners, so it merely becomes a question of what replaces them when a free market emerges. Now I realize I can make a run at the thing in the way that works with the psychology that most people have, and I’ll admit, I can see why people find appealing (even though in their case it is usually illusory). The difference in how investors respond is palpable, and I actually will be able to build all the things I want, and pull the materials and manufacturing innovations into our systems as a prime, rather than asking others for permission to see them deployed. Pity that it took this long and the world is poorer for it, but better late than never.

Anyway, if anyone wants to chat about the business I am building, feel free to reach out by replying to this email or messaging me on twitter (@GhostDirac). Of course, I cannot suggest why you might want to reach out to me about it or what there might be to discuss, since there are a bunch of people who might come shoot me in the head if I do not choose my words carefully here. Crazy how that works.