May 30, 2023 · 3h 38m · acquired
Lockheed Martin (Audio) · Acquired
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In this deep dive on Acquired, hosts Ben Gilbert and David Rosenthal trace the comprehensive history, technological breakthroughs, and business evolution of Lockheed Martin. The episode analyzes the contrasting legacies of Kelly Johnson's legendary Skunk Works and Lockheed Missiles and Space Company, the defense origins of Silicon Valley, and the complex economics of modern defense procurement.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ben and David hold 98.9% of the talking time here. How this is scored →
Ben and David as informed peer 7.6 Guest teaching 0.2 Guest disagreement 0.0 Ben and David pushing back 0.0
speaking balance: gold is Ben and David, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 1:47:18 Waseem Daher rejects startup 'fake work'
Daher forcefully rejects the conventional idea that founders should spend time on networking, talks, or internal automation scripts instead of direct customer discovery.
Hardest push from Ben and David ▶ 1:29:00 David pushes back on Blackbird primacy over satellite surveillanceDavid challenges the conventional veneration of the SR-71 Blackbird, arguing space-based spy satellites under Project Corona made the Blackbird largely a high-profile decoy.
Biggest teaching moment ▶ 1:47:25 Daher explains the trap of low-priority tasksDaher uses his own coding mistake syncing CRM data to illustrate how founders delude themselves into doing comfortable non-core tasks rather than real priority-one work.
Ben and David hold their own ▶ 2:27:40 Ben breaks down radar cross-section testing with ball bearingsBen explains the physics of radar reflections off flat faceted surfaces versus spheres, citing the eighth-of-an-inch ball bearing test that proved Have Blue's stealth capability.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ben and David as informed peer | Guest teaching | Guest disagreement | Ben and David pushing back | Why |
|---|---|---|---|---|---|---|
| Acquired Theme Song | 7 | 0 | 0 | 0 | Ben and David introduce the episode and lay out detailed early corporate history, tracing the origins of Loughead Aircraft from 1912 through Malcolm Lockheed's hydraulic brakes and Robert Gross's $40,000 bankruptcy acquisition. | |
| Kelly Johnson and Lockheed's World War II Aviation Arsenal | 8 | 0 | 0 | 0 | David and Ben discuss the biography of Kelly Johnson, citing his early engineering work on the Electra, his Collier Trophies, and Lockheed's WWII production of the Hudson bomber and P-38 Lightning. | |
| The Birth of Skunk Works and America's First Jet Fighter | 8 | 0 | 0 | 0 | The hosts detail the urgent response to the German Messerschmitt Me-262 jet, the establishment of the circus tent Skunk Works in Burbank, and delivering the P-80 Shooting Star prototype in 143 days. | |
| Establishing the Skunk Works Method and Kelly's 14 Rules | 8 | 0 | 0 | 0 | Ben and David analyze Kelly Johnson's 14 Rules of Management, examining how small integrated teams of 10-25% normal staff and placing designers directly on the shop floor drove unprecedented speed and accountability. | |
| Cold War Deterrence and the Engineering of the U-2 Spy Plane | 8 | 0 | 0 | 0 | The hosts outline Cold War deterrence strategy and the CIA contract for the U-2 reconnaissance aircraft, citing technical innovations like custom Shell high-altitude jet fuel, spacesuits, and Edwin Land's Polaroid optics. | |
| Establishing Area 51 and Groom Lake Flight Testing | 7 | 0 | 0 | 0 | David and Ben discuss the discovery and founding of Groom Lake / Area 51 for top-secret flight testing, describing extreme pilot prep like 2-hour pure oxygen denitrogenation to prevent the bends. | |
| The U-2 Overflights, Francis Gary Powers, and the 1960 Crisis | 8 | 0 | 0 | 0 | The hosts review the operational history of U-2 overflights from 1956 until Francis Gary Powers was shot down on May 1, 1960 by a Soviet surface-to-air missile, creating a massive geopolitical crisis. | |
| Sponsor Break: Tiny Internet Business Holding Company | 3 | 0 | 0 | 0 | Sponsor break featuring Tiny; Ben and David provide a lighthearted breakdown of Tiny's holding company model and acquisitions. | |
| Frederick Terman, Stanford, and the Defense Origins of Silicon Valley | 8 | 0 | 0 | 0 | David presents the deep history of Frederick Terman returning to Stanford from the Harvard Radio Lab, restructuring friendly tech transfer, and building the Stanford Industrial Park. | |
| Lockheed Missiles and Space Company in Sunnyvale | 8 | 0 | 0 | 0 | The hosts explain how Lockheed Missiles & Space Company set up in Sunnyvale and became the largest employer in early Silicon Valley with 30,000 workers, employing Steve Wozniak's father Jerry Wozniak. | |
| The Polaris Project and Submarine-Launched Ballistic Missiles | 8 | 0 | 0 | 0 | Ben and David detail the Polaris fleet ballistic missile project, explaining the strategic deterrence shift enabling nuclear submarines to launch ICBMs underwater up to 1,200 nautical miles. | |
| Project Corona: LMSC's Top-Secret Space Surveillance System | 9 | 0 | 0 | 0 | The hosts recount Project Corona and follow-on programs (Gambit, Hexagon, Kennen), detailing the film bucket reentry canisters snatched mid-air by C-130s with tow claws and 39,000 returned capsules. | |
| Sponsor Break: Pilot.com and Avoiding Startup 'Fake Work' | 4 | 5 | 0 | 0 | Guest Waseem Daher joins for an ad segment on startup priorities, warning founders against 'fake work' like networking or building elaborate internal Python scripts instead of talking to customers. | |
| Designing the SR-71 Blackbird: Mach 3 Aviation Engineering | 9 | 0 | 0 | 0 | Ben and David explore the engineering of the SR-71 Blackbird, discussing sustained Mach 3.4 speeds, Soviet-sourced titanium, panel expansion gaps leaking custom fuel on the tarmac, and spike inlet superchargers. | |
| Operational History and Technical Peculiarities of the Blackbird | 8 | 0 | 0 | 0 | The hosts discuss the operational reality of the Blackbird, its $300M/year operating expense, flat-bottom radar deflection, and its 1970 retirement tooling destruction by the Pentagon. | |
| Lockheed's 1970s Financial Collapse, Bribery Scandals, and Bailout | 8 | 0 | 0 | 0 | David and Ben cover Lockheed's near-collapse in the 1970s from the $2.5B L-1011 commercial airliner loss, international bribery scandals bringing down Japan's prime minister, and a $250M federal loan guarantee. | |
| Ben Rich, Stealth Equations, and the F-117 Nighthawk | 9 | 0 | 0 | 0 | The hosts explain the creation of the F-117 Nighthawk under Ben Rich, using Ufimtsev's Russian stealth equations to build the faceted 'Hopeless Diamond' / Have Blue prototype with an eighth-inch ball-bearing radar cross section. | |
| 'The Last Supper' and the Great Defense Contractor Consolidation | 8 | 0 | 0 | 0 | David and Ben describe 'The Last Supper' in July 1993 where Deputy Defense Secretary William Perry directed defense primes to consolidate, leading to the 1995 Lockheed-Martin Marietta mega-merger. | |
| The F-22 Raptor and Modern Distributed Defense Manufacturing | 8 | 0 | 0 | 0 | The hosts analyze the F-22 Raptor program dynamics, where unit cuts from 750 down to 187 planes caused unit costs to soar to $360M, and manufacturing was intentionally distributed across 46 states for political protection. | |
| F-35 Lightning II Program and Global Defense Scale | 8 | 0 | 0 | 0 | Ben and David discuss the F-35 Lightning II program, highlighting its $30B US order, 398 aircraft at $750M amortized per unit, allied coalition sales, and Lockheed's $50B/year government contractor scale. | |
| Cost-Plus Contracts Versus Silicon Valley Business Models | 8 | 0 | 0 | 0 | The hosts contrast cost-plus government defense contracts (yielding steady 8% net margins) with Silicon Valley venture software models that amortize high upfront R&D over massive customer bases. | |
| 7 Powers Analysis: Evaluating Competitive Moats in Defense | 7 | 0 | 0 | 0 | Ben and David apply Hamilton Helmer's 7 Powers framework to Lockheed Martin and defense primes, concluding traditional competitive moats do not apply in a monopsony market, but primes possess collective process power. | |
| Playbook: Defense Primes, Jobs Programs, and Agile Iteration | 8 | 0 | 0 | 0 | The hosts debate the military-industrial complex as both an essential national deterrent base and a distributed jobs program, comparing slow bureaucratic 25-year programs to SpaceX's rapid prototype iteration. | |
| Playbook: Skunk Works Heritage and Threat-Based Innovation | 8 | 0 | 0 | 0 | Ben and David synthesize the core playbook takeaway: existential threats drive radical innovation, from Skunk Works and LMSC into modern tech culture, with closing carve-outs and community plugs. |
Statements from this episode (63)
Malcolm Loughead Invented the Modern Automotive Hydraulic Brake System
“He invented the modern hydraulic brake system for automobiles, so every time you press the brake in your cars, you're using Malcolm Lockheed's technology.”
John Northrop Helped Found Three of Five Prime Defense Contractors
“So this one dude was responsible for founding or playing a major role in three of the remaining five defense prime contractors today.”
Robert Gross Bought Lockheed Out of Bankruptcy for Just $40,000
“And the craziest thing, this price that he bought it for, 40,000 dollars, was so low that Alan Lockheed actually considered bidding to buy his company back when they had it on the auction block, and his considered bid was 50,000 dollars, but he thought, that i…”
Rosenthal: Kelly Johnson is one of only two two-time Collier Trophy winners
“So Kelly ends up winning the Collier Trophy twice, one of only two people to do so in history.”
Britain's RAF Was Lockheed's Biggest Customer Before US Entered WWII
“Lockheed's big customer in World War II before the U.S. Enters was Britain's Royal Air Force. They were a way bigger customer than the U.S. Was for many, many years.”
Rosenthal: Over 10,000 P-38 Lightnings were produced during World War II
“They made over 10,000 of them during the war, and all of the top aces in the U.S. Army Air Corps flew them.”
Rosenthal: Messerschmitt Me 262 was world's first operational jet fighter
“The Messerschmitt Me-two-sixty-two, nicknamed the Swallow, and it was the world's first operational jet-powered aircraft. It flew close to 550 miles an hour, which is over a hundred miles an hour faster than any Allied plane, including the Lightning P-thirty-e…”
Lockheed Built the First US Jet Fighter Prototype in 143 Days
“In this circus tent in a parking lot, Kelly and this super elite team from Lockheed build the first prototype U.S. Fighter jet named the Lulu Bell in 143 days start to finish.”
Virtually No Aircraft Manufacturers Make Their Own Engines Today
“That's interesting that the value chain evolved this way, where basically no aircraft manufacturers to this day make their own engines. In commercial, you've got Rolls-Royce, GE, but every single one of these Lockheed planes, the engines are made by someone el…”
Peak Skunk Works Had Just 50 Engineers and 100 Machinists
“And at its most productive, Skunk Works I think was about maybe 50 designers and engineers and maybe a hundred machinists and shop people.”
Rosenthal: Over half of Americans in 1955 feared nuclear death most
“In 1955, there was a national poll that asked the question, what do you think you are most likely to die from? And over half of America responded that they thought they were most likely to die in thermonuclear war.”
Skunk Works Delivered the U-2 Spy Plane in 18 Months for $3.5M
“So Skunk Works completes and delivers the plane by July, 1955. So like a year and a half and for a total project cost of three and a half million dollars.”
Edwin Land and Polaroid Created the U-2 Reconnaissance Camera
“Indeed, the U.S. Did, and that was Dr. Edwin Land and the Polaroid Company, who subcontracted and created all of that.”
Lockheed's Skunk Works Created Area 51 to Test the U-2
“This is Area-Fifty-One. Skunk Works creates Area-fifty-one.”
U-2 Test Pilots Pre-Breathed Pure Oxygen for Two Hours Before Flight
“They needed to breathe pure oxygen for two hours to remove all the nitrogen from their blood in case they had to eject, because remember, these are test pilots on a super experimental aircraft.”
The U-2 Program Delivered Louisiana Purchase Levels of Government Value
“I think you could make an analogy to, like, the Louisiana Purchase in terms of, like, best deals that the United States government ever got relative to, like, the benefit to America.”
The 1960 U-2 Shootdown Was History's First Surface-to-Air Missile Kill
“This was the first time in history that a ground-to-air missile had shot down
An airplane.”
Lockheed Was an Early Stanford Industrial Park Tenant and Major Employer
“One of the very first tenants of Stanford Industrial Park. Ben, you were talking about customers. Customer who would go on to become the single largest employer in the area in proto-Silicon Valley by a huge margin. Was a new secret division of Lockheed.”
Lockheed Missiles and Space Had a Bigger Impact Than Skunk Works
“What LMSC, Lockheed Missiles and Space Company, did, I honestly think, like, it is bigger impact to the country, to the world, and certainly on business to Lockheed and to Silicon Valley than Skunk Works.”
Lockheed Employed 30,000 People in 1960s Proto-Silicon Valley
“So by the end of the decade in 1959, just four years later, Lockheed Missile Systems employs almost 20,000 people in Palo Alto and Sunnyvale.
And a few years later, by the mid-sixties, they would employ 30,000 people.
This makes Lockheed by far the largest emp…”
Without Lockheed in Silicon Valley, Apple Would Not Exist
“No Lockheed, no Woz in Silicon Valley, no Apple.”
Lockheed Would Have Failed Without Its Missiles and Space Division
“And really, as we'll see, this division, you know, not Skunk Works, this division kept Lockheed alive. Lockheed would have absolutely died without this division.”
The SR-71 Blackbird Was Effectively a Decoy for Space Satellites
“This is heretical to say, because it's so beloved, but I think the Blackbird was a decoy. We were getting everything we needed from space. We just didn't want anybody to know about it.”
First Satellite Mission Yielded More Soviet Photos Than All U-2 Flights
“The very first corona mission. That very first satellite that went up in August, 1960. Produced greater photo coverage of the Soviet Union than all of the previous U-II flights combined.”
Corona and Agena achieved multiple historical spaceflight firsts, including 3-axis stabilization
“So that system of the Corona and the Agena was the first spacecraft in history to do all of the following things. Achieve a circular orbit. Achieve a polar orbit. Be stabilized on all three axes in orbit. Because you kind of needed to be stabilized if you're g…”
Lockheed Missiles and Space Company Built NASA's Hubble Space Telescope
“But LMSC gets a contract from NASA and builds the Hubble telescope.”
LMSC Generated 128% of Lockheed's Total Profits Between 1960 and 1972
“During the 12 year period from 1960 when Corona first launched to 1972. Lockheed as a whole did twenty six billion in revenue over that 12 year period, and just two hundred and fifty five million in total profit. Not a high margin company during that period. L…”
Rosenthal: LMSC generated 46% of revenue and 72% of Lockheed's profit from 1983 to 1992
“And then during the early post-Cold War period from 1983 to 1992, LMSC accounted for 46% of revenue, so growing percentage of revenue, and 72% of profits during that ten-year period.”
Rosenthal: SR-71 Blackbird was born from the CIA's A-12 Oxcart program
“The Blackbird was not a CIA airplane. The program that the Blackbird ultimately came out of was the A-II Oxcart.”
The SR-71 Flew from Los Angeles to DC in 65 Minutes
“Its decommissioning mission, just to show off how fast it ever went, was one hour and five minutes from LA to DC.”
SR-71 Remains the Highest and Fastest Air-Breathing Crewed Flight in History
“It is still to this day, unless there are classified programs we don't know about, the highest and fastest humans have ever flown without rocket propulsion.”
US Sourced Soviet Titanium Through Dummy Corporations for the SR-71
“So the government and Lockheed set up a bunch of dummy corporations. In Europe, like European incorporated dummy corporations. Yes. And they source a large amount of the titanium that goes into the Blackbirds, the A-Twelfs and then the Blackbirds, out of the S…”
Rosenthal: SR-71 spike inlet system provides 75% of Mach 3 thrust
“The spike system is a supercharger for the engines. It provides three quarters of the thrust needed to get to Mach three plus and sustain it.”
No Lockheed SR-71 Blackbird Was Ever Hit by Enemy Fire
“It, I believe, has never been shot down. There were some accidents in test piloting, but yeah, it's never been hit by an enemy.”
SR-71's First Flight Was Closer to the Wright Brothers Than Today
“The SR-seventy-one first flight was closer to the Wright brothers than today.”
Pentagon Ordered Skunk Works to Destroy SR-71 Tooling in 1970
“In 1970, the Pentagon cancels further orders, and they order Skunk Works to destroy all of the titanium tooling for it so that no more can ever be built.”
Gilbert: Lockheed Martin continues selling F-16 fighter jets today
“And it is still, they call it out in their earnings like today. They're still selling F-sixteens today.”
Rosenthal: Lockheed lost $2.5 billion on the L-1011 commercial airliner
“All told, we won't go into the whole history here, but the L-Ten-Eleven airliner project loses Lockheed. Two and a half billion dollars.”
Lockheed Bribery Scandals Toppled Japan's Prime Minister in the 1970s
“In the Netherlands, in Japan, and in Saudi Arabia, it comes to light that Lockheed employees and contractors are paying bribes to political officials to win contracts. This actually brings down the Japanese Prime Minister at the time.”
Lockheed Required a Congressional $250M Government Loan Guarantee to Survive
“So the government has to guarantee a two hundred and fifty million dollar loan to Lockheed to keep them afloat, mostly because of the L-Ten-Eleven disaster. It requires a vote of Congress to do this.”
Rosenthal: US Air Force bought 59 F-117s for $2.5B
“The Air Force starts taking delivery in 1983 of the stealth fighter from Skunk Works. They ultimately buy 59 of them, of the F-one-seventeen-A Nighthawks, at forty-three million dollars each. So that is two and a half billion dollars in revenue for Lockheed.”
F-117 Flew 1% of Desert Storm Sorties, Hit 40% of Targets
“The Nighthawk flew one percent of the air missions in Desert Storm, but accounted for 40% of all damaged targets.”
10,000 Workers Kept the F-117 Nighthawk Secret for 21 Years
“For the F-one-seventeen-A, 10,000 people worked on this airplane, the Nighthawk, and kept the secret for 21 years until it was declassified.”
The Pentagon Ordered Defense Prime Contractors to Consolidate in 1993
“The then Deputy Defense Secretary William Perry calls the CEOs of all the major prime defense contractors to a dinner in Washington. At which he explicitly tells them defense spending is going to shrink massively. Duh, you know that. And he instructs the CEOs …”
The Five Major Defense Primes Acknowledge Stasis and Rotate Contracts
“All these contracts kind of go to all of the contractors. They just rotate around who's the prime on it, and the prime makes the most money, and then it has the most sort of sway, and you don't want to be with a subcontractor, you'd rather be the prime contrac…”
Gilbert: F-22 program delivered 187 planes for $62 billion total cost
“The final, down from seven 50 to three 39, is 187 planes delivered. They kept the sixty two billion dollar total program cost fixed.”
Sega Co-Developed 3D Arcade Graphics Hardware with Lockheed Martin
“Sega co-developed those boards with Lockheed Martin.”
Defense Manufacturing Distributes Across States to Incentivize Congressional Funding
“And the reason that it's in 46 states is because That way, basically, every member of Congress is incented to vote for it.”
Gilbert: F-35 initial order book was ~3,000 aircraft worth $200B
“The initial order book is approximately 3000 airplanes worth a potential two hundred billion dollars for the total program cost.”
The F-35 Is the Largest Defense Equipment Purchase in History
“Lockheed Martin, this is an enormous win to win this program, and it is among us and our allies the largest ever purchase anyone has ever made for any piece of defense equipment.”
Gilbert: US defense spending fell from 50% of federal revenue in the 1960s to 12-20%
“Back in the sixties, we spent half of our federal revenue on the military, and in recent years, it's fluctuated between 12 and 20%.”
Lockheed Martin Receives $50 Billion Annually from the US Government
“About half of the defense budget is spent on contractors, like Lockheed Martin, and of that 400 that's spent on contractors, fifty billion goes to Lockheed. They are the single largest recipient of federal spending as a contractor, full stop.”
$50 Billion of Lockheed's $66 Billion Annual Revenue Comes from US
“Sixty-six billion dollars was Lockheed's total revenue last year, of which fifty billion came from the U.S. Federal government.”
Palantir Sold Preloaded Laptops to Comply with Government Cost-Plus Contracts
“Someone told us as we were preparing and researching this episode that Palantir figured out that what they had to do was sell laptops to the government that came preloaded with their software so they could sell a physical thing that had a cost of goods sold as…”
Gilbert: Anduril and Palantir Win Top Defense Software Talent Over Primes
“I think the reputation in the industry is, if you're a fantastic software engineer, you're probably gonna go to a more interesting modern company, and that's why you see the Andurils of the world and the Palantirs of the world kind of sucking up top talent tha…”
Silicon Valley Wouldn't Exist Without Cold War Defense Competition
“All the things we just talked about, Silicon Valley itself, for God's sakes, wouldn't have existed without this.”
Gilbert: F-35 generates 20% of Lockheed Martin's total net sales
“The F-thirty-five, I believe, is the largest program, generating 20% of all net sales across all segments.”
Gilbert: Fighter jet contracts rarely go to the same prime consecutively
“Fighter jets are typically not made by the same company two generations in a row, although Lockheed Martin has sort of shown with the F-Twenty-two and the F-thirty-five that they have won that.”
Top Defense Primes Lack Mutual Power But Block New Entrants
“So there really isn't power. Within the industry. But to the extent that you have already become one of these five, then together the five have power versus new entrants.”
The US Government Saved Lockheed from Bankruptcy for the Kennen Satellite
“The government didn't let Lockheed go out of business in the 19 seventies. This was right as the Kennen satellite project was getting going. We could not let Lockheed go out of business because we needed that.”
The US Funds Defense Primes to Maintain Reserve Workforce Capabilities
“We literally fund these companies to keep them alive so that they keep employees trained should we need the employees trained. Which is, like, something that doesn't really exist in other markets.”
Gilbert: Extreme upfront calculation failed to yield better Space Shuttle safety
“In a 130, or whatever it was, space shuttle missions, there were two that were tragic loss of life calamities. And so, you look at that, you're like, that's actually not a great safety record, so maybe this isn't the right way to do it. Maybe calculating somet…”