We're in a cold war with China. We have been in this cold war for decades without realizing it. The Chinese knew... That's crazy. I narrowed it down to basically five reasons why Putin wanted to invade Ukraine, why he did it. And I looked back at that list and I said, 'Oh my god, this is the exact same list that I can apply to Xi Jinping and his desire to take Taiwan.'
Dmitri Alperovitch is an American think tank founder, author, philanthropist, and former computer security industry executive.
That is going to be a much bigger deal than even the war in Ukraine. Just like a huge power outage like that absolutely devastating to global economy.
He is the chairman of Silverado Policy Accelerator, a geopolitics think tank in Washington DC, and a co-founder and former chief technology officer of CrowdStrike.
It's got to be such an interesting balance to manage a relationship as the president of the United States managing a relationship with the president of China.
I was in the situation room of the White House getting really frustrated and I'm like, 'Guys, are we going to do anything about it? Well, this is economic warfare.' The senior person literally looks at me and says, 'Dmitri, don't be so naive. As long as they keep stealing, they can't innovate.' And I was like, 'What? In the long term, the democracy has a huge advantage. We can learn from our mistakes. We can pivot. If you have a dictator like what you're seeing right now with Putin and Ukraine, they're not going to pivot. They're just going to keep doubling down on a losing hand and keep destroying the country's resources. In the short term, you get a lot of efficiencies. In the long term, you have stagnation.'
All right, Dmitri, thank you so much for joining me today. I was actually really excited to talk to you because you've built something incredible, something I mean your company is very well known. I think when I checked the stock market, it's over $120 billion market cap, which to me is mind-blowing as an entrepreneur to see something that you create turn into something so much bigger than you can imagine. But for those of you who aren't familiar with you or your business, can you just kind of give us a 30,000 foot view on yourself?
Sure. Well, first of all, thank you for having me. Great to be with you. So I've been actually in the technology and cyber security industry literally my entire life. I started a company with my dad when I was still in high school and it was an encryption company. So that's what got me really interested in cyber security very early on in my career. After that, I went to Georgia Tech and studied computer science and then got a master's actually in cyber security and went to work for a startup right out of college and worked in the industry for the next 10 years. Then I got the bug to start my own company and founded CrowdStrike, which is now one of the largest cyber security companies in the world, a public company that helps basically protect companies large and small against bad guys, be it nation states, be it criminal groups that are trying to break in and do a lot of harm to them.
Yeah. So you started that company and did you have any idea what it was going to turn into when you started it?
So you certainly had hopes they would be big. I started it when I was an executive at another very large company called McAfee. It doesn't exist anymore, but at the time was one of the biggest cyber security companies. I started because I was seeing the problem that McAfee and other existing players weren't solving, which was the emergence of these nation state actors: China, Russia, Iran, North Korea. They're breaking into companies and it required a different way of solving the problem, leveraging AI, leveraging cloud, a different type of cyber security methodology to address this threat. We hoped when we started that we would one day replace McAfee or Symantec, but at the time McAfee had an $8 billion market cap. So it was different times, market was a lot smaller. So you kind of had hopes that maybe one day you could be that big, but certainly nothing of the likes that you see now.
What was it like being you said you were an executive at McAfee?
What was it like working there? I know there was a lot of stories about the founder and I think I've watched some videos about you know crazy things.
Well, I was there about three or four years and that was long after John McAfee. He started the company in the 80s. He left in the mid '90s. I joined in 2008. So he was long gone. Had nothing to do with the company. So at that time, it was a big public company, enterprise focused. It was a fun time. There's a lot of building. Of course, it was also 2008 and the whole world was crashing around you. The company I was at was actually sold to McAfee. So I got there through an acquisition.
So you were part of a startup that got sold to McAfee and that's how you ended up joining.
Yeah. Well, the real story is I was part of a startup out of college that got sold to another public company that got sold to McAfee and then we actually sold McAfee to Intel, a huge company. And that was when I said, 'You know what, I'm done. Time to start my own thing.'
So were you in the business side of it or the technical side of the companies? Because going through several acquisitions you could learn a ton about how financial arbitrage and how M&A works. Were you involved?
Yeah. So I was doing really when you join a startup you're doing a little bit of everything. I joined on the technical side but very quickly was very involved with sales, very involved with... I was at one point a GM of our cloud business. So starting literally a startup within a company from scratch and doing everything from sales, marketing, finance, pricing, you name it, and building the technology along the way. So you learn a little bit of everything and get involved in acquisitions obviously, buying companies and helping sell the company and so forth.
Well, it's kind of like a superpower to have a technical background and also understand sales and marketing. That's very rare. Was that a big strength of yours?
Yeah, you know, when I joined this first startup, it was called CipherTrust out of college. I'll never forget it. At the first all-hands meeting I attended, the CEO said, 'Everyone here, the whole company was about 250 people. Everyone here is in sales. I don't care what your job title is, if you're not selling, you're buying.' Right? So that was a great way to think about things as a young kid just out of college. Whatever you're doing, if you're not helping close a deal or keep an existing customer happy, you should re-evaluate your priorities. And that stuck with me throughout my entire career. Particularly now as an investor, it's really important to appreciate that best technology doesn't always win and it's the best go-to-market that is really hard to get right. Takes a lot of effort and understanding that is crucial for any founder.
Yeah, I was on the opposite end of the spectrum. I was really good at go-to-market and really bad at technology. We had a big blow up when we first launched the company and then of course the tech followed along. But you're very right about that. That's actually a really interesting point that everyone in the company should be focused on sales or revenue. Is that something that you brought into your business as well and that philosophy?
Absolutely. Absolutely. And to be honest with you, even as an investor today, one of my litmus tests when I get pitched by a founder is, 'Have you ever sold anything in your life?' That's a great litmus test. I don't care if it's a lemonade stand or in college you had a hustle or whatever, but if you haven't done it, if you haven't put yourself out there, you haven't been rejected, you don't really know what it's like. And too many tech founders don't have that skill and aren't successful, even if they're building the very best thing that you can possibly imagine.
It's so true. I was fortunate that before I got into tech, I would actually import products from China and I would sell them in person at music festivals or at state fairs or at marathons. We'd set up booths and we'd have to get rejected all day. But you got really good at understanding how to convince people to buy your products. And then when you went online, it was way easier to figure out how to make advertising work and marketing work. But I totally agree. I think that's probably a great litmus test. And by the way, messaging and getting the messaging right in technology in particular, but really all types of businesses, is so hard. Particularly as a founder and particularly as a technical founder, you have so much pride in everything that you do. And reducing it to the essence of what you do is so hard. Often that essence is actually not even about the product but about the problem you're solving and it's so difficult to get right. I mean, even at CrowdStrike, it took us years to get to a very simple message, which ended up being 'we stop breaches,' which is actually nothing about the product at all and how it does things.
But that was the essence of why would someone buy us, right? It's because they have the peace of mind that we would stop the breach and they would be safe. But initially we're like, 'We're cloud-based. We're doing this, we're doing that.' And it's like people get lost.
Right. And but you're proud of that. You're like, 'Of course, we have to include it. That's so important.' And everyone can say they stop breaches, but you have to explain why. And actually, you don't, right? And simplification is the hardest thing you can possibly do.
That's great advice because you're so proud of what you built. You're in the weeds. You're talking about why it's better than everything else.
The rest of the world doesn't care.
Yeah. Especially if you're working with enterprise clients and you're working with someone that works in an organization. You just have to capture their attention, right? So that's actually really interesting advice. So when you guys started the business, how many founders were there?
There were myself and my co-founder.
There's just two of you as founders.
Yeah. We had a third guy that was our CFO, but it was basically the two of us that started.
Wow. And what were the early years like? Was it what you expected or were there lots of ups and downs? What was kind of the early days of the startup like when you started it?
Well, not just the early days, but every day, it was the highest of the highest and the lowest of the lows. I mean, there were always challenges, whether it's competitive challenges, whether it's you're trying to land someone and they take another job or someone's trying to leave and you got to save them, or an issue with a customer, whatever it may be. So it's never a straight line. People sort of look at what the company's become now and the fact that we did it, the time from starting to going public was eight years, and like, 'Oh, that's super fast.' Every day was a huge fight, existential crises along the way, and it just all is very, very difficult. Starting a company is an amazing experience but it's not for the faint of heart. It's not for a person that wants to have a life-work balance. That such thing doesn't exist. You're always on, you're always working, you're always traveling. So it's fun and incredibly rewarding, but it's also really, really hard.
When you're dealing with so many things and people and problems and all the noise, how do you identify the things that matter that you want to focus on for the day?
Yeah. Well, you want to try to get as much done as possible. But prioritization of what matters right now. Is this a big deal that you need to help close? Is there an issue with a product that is impacting your retention or whatever it may be? You got to dive into it first. But you typically have a long to-do list and you're jumping from one thing to the other. And I've learned over the course of my career to be great at multitasking. I never come in and I'm like, 'This is the one thing I'm going to do today.' Now there's going to be 50 because that's just the way life is.
So can you talk me through what a typical day maybe not now, but when you're in the thick of it, what did a typical day look like? For example, when you wake up and there's a ton of things to do, it's like, well, where do you start? How did you have any routines or habits or anything?
You know, you have an assistant that really organized your day. So at that point, I have actually very little to say about what I'm going to do. It's like, okay, my morning call is with this prospect that got set up three weeks ago that I'm going to need to close. Then I have a meeting with my engineering team to try to solve some problems. Then there's a team meeting somewhere or whatever it may be. So you just go from one thing to the other and try to solve problems along the way.
Yeah. Did you have any personal habits or routines that would kind of help you get through stressful times or things that you do? Any kind of morning routine?
Yeah, I think I'm generally pretty good at handling stress. And I love being busy and doing different things. I do get bored easily. So if I'm just doing one thing, that's like the worst. Right? So I want to be like, okay, I just spent three hours with an engineer solving some really great problems. I want to be on a sales call with a customer just to have a complete mind switch of I'm now focused on something else. I want to jump into a marketing discussion about how we're going to participate at this conference, where our messaging is going to be, what are we going to demo, right? So just jumping from one thing to the other to try to solve different problems from across the company. It's a lot of fun.
Yeah. Do you have any leadership philosophy or like, for example, when you're starting a business and you want to bring on amazing people? Amazing people can go work anywhere and if you don't have a big company you either have to give them a big piece of it or create a big vision. How did you recruit great people to your company? What was your philosophy as a leader to get amazing people to join?
Absolutely. I think that was the most important thing that I did, which was the recruiting. I had set a very high bar for everyone I would hire. I wanted to have the best people I could possibly imagine in every field that we were hiring for. And that actually led to something at the time back in 2011 when we started the company was actually fairly unique, which is a completely distributed company. And our board hated it. In every board meeting they would be like, 'Where's your center of gravity? Where's your headquarters?' And we were just completely distributed. The first 10 people I hired were in five states and two countries. This is in 2011. This is before Zoom, before there was really good... Slack didn't exist, none of that stuff. And we actually started the company on Skype. That worked for about a week until it didn't, and we went through a ton of teleconference software. Thank God Zoom came out when it did because I'm not sure the company would have survived. At one point, 70% of the company was completely distributed. We had offices, but what I wanted to do was find the very best talent and not be limited by geography. Right? So if you've got an amazing guy or gal that lives in a lake house in Michigan, nowhere near a big city, I still want you. And I want to make sure I can make it work for you. So it's about the flexibility of the work environment. But then if you got someone in New York that has a small apartment, a couple of kids and needs to get out of the house to be productive and work in an office, give them that opportunity, right? So it's about having that flexibility. Obviously within reason, you're not going to open up an office for one person. There has to be enough people in that area. But office or at home, there's no discrimination. Whatever it is that we need to do to make you happy to be here and be productive, that's what we need to do. And that led to basically the world is your oyster in terms of hiring within reason. We didn't hire in China, we didn't hire in Russia, the places where we had adversaries that were trying to break into our companies. But in Western countries, we would hire basically anywhere and make it work. And that gave us an enormous advantage of finding people that we would have never been able to hire if we were just localized to one specific location. But as the saying goes, A players hire A players, right? B players hire C players. So having a really, really high bar for everyone that we would hire was absolutely vital. My rule of thumb is I want to hire everyone who is smarter than me, right? So I can learn from them. And that I think gave us an enormous advantage early on.
Do you still feel positively about companies that work either remote or not in one location? Would you do it again?
100%. And now as an investor and a board member in a bunch of companies, I tell people all the time, if your culture can handle it, and it's hard to pivot to this later on if you didn't build it that way from the get-go, it's very, very difficult. But one of the reasons why I was really passionate about this and was really pushing back against our board who wanted the traditional company with a headquarters, everyone located together... A lot of venture capitalists really think that unless everyone's in one room near a whiteboard, a company can't be successful. But the reason I wanted to do it that way, aside from just wanting to hire the best people, is that having been acquired a bunch of times in my career by companies that were in other cities... When I started my career at CipherTrust, it was based in Atlanta. We got acquired by a company that was based in Minneapolis and had offices in California and Florida. Then McAfee had an office in Santa Clara. Intel was in California as well, but really obviously globally distributed. And what I found is that because these companies were really centered around their headquarters, unless you were in the headquarters, you were missing out, right? I was in Atlanta, ended up having to fly to our headquarters almost every other week just to make sure I'm in the meetings. Even though you have teleconferencing, people just make decisions at lunchtime around the water cooler and you feel like you're in Siberia if you're not there. It was important to show face and that's really hard to do. It doesn't scale. It's not productive. And because we thought that what we had potential to do here is build a big company that would grow not just organically but inorganically through acquisitions as well, I wanted to have a distributed culture from the get-go that would make it very easy to assimilate other companies that we would eventually buy, which we did. Because everyone's remote, right? So you don't feel like if you're not in the HQ, you're really missing out. And that was really important for us early on and it proved its weight in gold down the road.
How did you realize that? Was it because you were part of companies that got acquired?
Yeah, because I experienced it myself that this really sucks that if I'm not there, I'm not really as effective. I'm not as plugged in. I don't always know what's going on. And it's a horrible feeling. That's why a lot of people leave after an acquisition is because they just feel so disconnected, right? There's even talk in the office like, 'Oh, in Santa Clara they do this, right?' It's us versus them. And different offices would do this against each other. And we not only did we try to hire people wherever they are, but we actually started enforcing it at some point because we noticed that, oh my god, we hired this great guy in Seattle and then he hired all his friends, which is great, which is what we want him to do, but now you have this cluster of people in Seattle and it becomes like us versus Seattle if someone else is in New York. And it's like, okay, we got to try to break this up and bring more people into that team that are specifically not in Seattle so that they have to integrate other people. Because we literally found this: they went to lunch and decided on this. Didn't think of like, 'Let's have a call with everyone else who's remote.' Because they had enough of a quorum in Seattle to do this. It's like, okay, we got to push the team to hire another location so that they wouldn't even think of doing this, right? Because enough people are outside of that local area. And you want to do this across all teams, not just engineering, not just technical teams, but obviously sales is always really distributed, but HR, finance, all these functions. If you push them to be distributed, then you have a really distributed culture as a company.
And how do you instill operational practices across a large company, especially back in the day when there weren't tools like we have today? I don't know if Jira existed and Slack and integration, but not at the level it exists now. How do you instill a good operational system across a distributed company?
So it takes more effort. On one hand, you get the benefit of it's easier to scale, you can hire all these amazing people. On the other hand, you take some productivity hit from that. Now you hope that you compensate for it with the talent that you get. And the other thing that is really important, and I come back to this, distributed is not remote, right? And it's really important to get people together once a quarter. Not the whole company. We did a few all-hands in person and then it got very expensive very quickly once you get to a couple hundred people finding a place. But what we did is we said every team, particularly technical teams but really most teams, need to meet every quarter in person. And one thing that I pushed for with the CFO is like, let's just give them a budget, whatever we think is reasonable for a team all-hands budget, and then let them decide where they go and how they do it. And it became actually a very interesting competition between teams of who can go to the coolest place. 'How do we... we've got this budget for I don't know $15,000 for you six or seven people. Let's go to Hawaii. But to make that dollar stretch, we're flying through three connections, we're staying at some motel, but we don't care because we're in Hawaii.' Right? And it's an incredible experience even though you're not wasting a ton of money. Initially there was resistance of like, 'We can't have people going to Hawaii.' I'm like, 'Why not?' The budget is the budget. If we think that we can afford it within this budget, I don't care if they're on the moon. As long as they get there in time and are productive at an offsite and have a little bit of fun along the way, it makes them even happier, right? And it became something that people would look forward to. Like, 'Oh my god, we're having an offsite in Portugal, we're having an offsite in Hawaii,' but it's actually at a very reasonable cost because they themselves, the company's not trying to figure out how to make the budget fit. The team decides.
Yeah, we do something similar. We have probably 80 people that work in the Philippines and they get together once a quarter. I've never been there for that get-together, but some of our other executive team members have been and it's always an amazing... I'm jealous I haven't been there, but I could see the culture that gets built from doing things like that.
Sounds really cool to be able to allow people to make a decision on where they want to go and how they want to do it and fit it in a budget.
That's right. And then obviously when you do that offsite, you have to look at what happened last quarter, what are the highlights, what are the low lights, how we're going to correct some of these mistakes going forward, what is the plan for next quarter, how do we allocate the responsibilities, how do we make sure we work together, what are the touch points. So you help them figure that out. And you can't really do that over Zoom. You have to bring people together. But if you do it in small enough teams, it becomes a way to build culture from the bottom up.
Were you guys some of the first people to build a company in that way that was so early on?
I think so. I don't know, we didn't do a lot of investigations of what else was being done out there. But this was long before COVID, obviously this was long before Zoom, so it was pretty unheard of. And I know that every time we talk to investors as we're raising various rounds, they're like, 'What? You have people all over the place? Even the entire executive team is distributed? How does that work?' People were really surprised.
Yeah, for sure. At what point did you know like, okay, we're on to something really great here in the company's history?
So it took four or five years. I mean, I knew from the get-go that this would be very successful and there was clearly demand for the product. And we started selling services initially to help people that have been breached while we were building the product. And this is actually one of the lessons I learned the hard way: don't be stealth for too long. And we actually were the worst form of a stealth company because we were stealth in the sense that no one knew what we were doing, but we were in the front pages of newspapers all the time talking about the breaches we were uncovering and investigations we were doing. So people knew that we existed and no one knew what we were working on, which is this technology to help stop breaches. But because the public piece of the company was the services business of responding to an intrusion and helping to clean it up and figure out what happened and then intelligence around it to attribute the threat actors, people thought that we were a services business, right? So when a couple years after the founding we launched the technology, people thought that either we pivoted and the competitors actually used it against us like, 'Oh, these are services guys, they just decided to build a technology.' Well, no, the whole company was a technology company with a little bit of a services division. And then it took us a few years to kind of undo our reputation, even with customers thinking, 'Oh, we're just services, we don't have a technology, we are not a product company.' And it took a lot of effort, a lot of changing messaging to be like, and actually deemphasize some of the other stuff we were doing to make sure that people knew we're a product company. We've always been a product company. That's our DNA. So it was one of the hard lessons of don't stay stealth too long. And really I tell founders all the time now, people have such huge pride and ownership of the idea that they come up with and they think, 'I got to be so secretive about it because God forbid a competitor finds out, they're going to beat me to it.' And guess what? If you had that idea, a thousand people around the world had the exact same idea, right? Ideas are a dime a dozen. What differentiates you is the execution. And sure enough, literally within a couple years of our founding, we had dozens of competitors popping out of nowhere trying to do basically what we were doing. So being stealth didn't help us one bit. Actually, it hurt us. And that secrecy was quite counterproductive.
Yeah. We funny enough went through a similar situation. Not that we were stealth. My company, Zenrop, we have a platform with over four million Shopify merchants have signed up and it's very much has the reputation of being a platform for beginners, but our core is that we service large e-commerce merchants and we have a very... we have a private agent program, but all the big merchants just see us as the beginner platform. So trying to change that narrative is a hard thing to do.
And it's like you might as well start telling your narrative from the start. I could see how that would be really helpful. So was there any kind of thing early on in the foundation of the company like a large breach that you guys saved or something that happened that was a total game changer?
Yeah. There was one moment and I have to get a little bit technical here to describe it. But basically, when we were facing this problem that people really hadn't encountered before of nation state intrusions, right? Before kind of 2010, 2011, people thought that the biggest problem they had in cyberspace was criminal groups who were just trying to steal your money, try to steal your bank account, your credit card, either as a consumer or as a business. And when China comes along and is breaking into companies to steal their intellectual property, their trade secrets, it's a very different beast in two ways. One, you're dealing obviously with a much more sophisticated actor that has incredible resources, thousands of people, and enormous budgets. But even more importantly than that, their approach to breaking into organizations is very different from a criminal group. A criminal group basically doesn't care about who the victim is, right? As long as they can monetize their take. I don't care if I break into you or your buddy, whoever is easiest and fastest, right? So the old adage and the old approach in cyber security had always been, 'You don't have to outrun the bear, you just have to outrun the guy right next to you.' Right? Because if their security is less than yours and your bar is high enough, you didn't have to be perfect. They're going to move on to someone else because it's just not worth the effort, right? And with the nation state actors, that paradigm was broken completely because if the bear really wants you, it doesn't matter who else is running, right? And if there is some pain formula, the Chinese are trying to steal that only your company has, it doesn't actually matter that your competitors have a really shitty cyber security program. What they want is what you have, not what they have. So when we started the company and I was thinking of like how do you actually approach this threat where the persistence is the challenge? With cyber criminal, you stop their first attack, they kind of move on. 'This is too hard. I'm not going to waste my time trying to find other ways.' With a nation state intrusion, you stop the first thing. They don't stop. They're like, 'How do I go around the back? How do I go through the window because I really need you?' And I was given an order. And a lot of these guys are military guys. You're given an order by your officer to break into this company. Like it's not acceptable to be like, 'Sir, that was kind of hard. I decided not to do it.' In any military, that's not something that's going to be accepted. So to do that, we said you have to get full visibility into what's going on. You have to basically take a security camera approach, equivalent in this technology, to record everything that's happening from an execution perspective across the network, across all these machines. Send it to the cloud where we can analyze it with both people and technology and basically assume that someone has been hacked and find the attackers as quickly as possible before they achieve their objectives and eject them out. Because the assumption is they're going to get through. They're going to find some way. They can bribe someone, they can find an insider, they can find a zero day they've never even heard of, which is an unknown vulnerability. And that was a way to approach the nation state problem. And that's what we built and we were very successful in the early days against that problem. But of course, the market was not just companies that were facing nation state threats. The market was bigger than that, including all the people that were dealing with cyber criminals.
Crime. And they just wanted an easy button of just stop the threat.
And we knew that we would eventually build that capability in. You know, again, our vision was we would one day replace McAfee. We would start with a problem that they weren't solving, the nation state problem, and then build other things. And the assumption we made, which was a correct one, is that we're going to solve the hardest one first.
And then the other stuff would be easier down the road. And also having come out of McAfee, I had a little bit of a blind spot because I knew how attached people were to this technology. It was one of the largest cybersecurity companies in the world. As the old saying about IBM goes, it was about McAfee as well. No one ever gets fired from buying us because of the brand. Even if they knew it sucked, even if they knew it was slow and ineffective, they would still buy it.
So what we wanted to do from the beginning to make the sale easier is not replace them, but be additive and say, you know, McAfee is not protecting you against nation state threats. You really care about your IP being stolen. Buy us in addition to that, and knowing that one day, three or four years from now, we'll come back and say, by the way, we do everything that they do now, just remove them. We don't need them anymore.
Well, there was another company, a competitor that came along that decided to attack the cyber crime problem head on and basically build a better antivirus using AI and machine learning, something that we had in our roadmap from the beginning but thought that we didn't need to rush into it because it would be such a hard sale to convince people that McAfee was no longer effective and that we, as this new startup, were actually worthy of replacing them completely. And this company decided, you know what, we're gonna raise hundreds of millions of dollars and we're going to spend them on a huge go-to-market campaign to convince the world that the old antivirus like McAfee and Symantec no longer works and that the new model is machine learning and AI. And they did that, and they had this unbelievable tour, what they called it, around the world. They had airport ads, all kinds of things. And we, to be honest, kind of laughed at them early on, like this is never going to work. People are very skeptical. They're very entrenched in their thinking about this. It will take a decade before they decide to move on from their legacy technologies. And we were actually surprised by their success. And often times we'd go into a customer pitching them just we're additive to McAfee and we're going to do a better job on this nation state problem than McAfee. And they would tell us we already bought your competitor and we replaced McAfee because they say they do it all.
Yeah. And it's easy. And we're like, you replaced McAfee? I thought that was like in 10 years maybe you'd replace McAfee. You did this today? Like yeah, and it's working great. And this was around 2014, 2015, so kind of four or five years into the company. And we realized, okay, this is becoming an existential problem where these guys are doing what we originally wanted to do. They're doing it now. They're spending a ton of money on go-to-market sales. They don't do a good job on the nation state threat, but their marketing is good enough that people are like, ah, I'm just gonna try it out.
Yeah, it's AI magic. It's gonna work.
And we had a crash program where we stopped the whole roadmap of the company for a year and said, we're going to build what they did. We always had the plans to do so, but now we accelerate it. And then we came out the following year with a comprehensive solution that could fully replace the antivirus that did the nation state thing. And then we crushed them.
Well, I mean, if people believe you can solve the nation state problem, then it's like, well, if they could do that, they could probably do this way better than anyone else.
Correct. And then we knew we had product market fit. We dramatically ramped up sales hiring, hired hundreds of salespeople, and that's when it went like this.
So the existential threat led you to pivoting to focus on something that made your company grow really quickly.
Correct. I mean, and again, like you say, pivoting like that was always in the plans. We just brought it forward significantly. But yes, realistically, that competitor probably dramatically accelerated our IPO timeline.
Yeah. In the moment didn't realize.
And then they had to sell. And we were the ones that stuck around and became public.
So I want to talk a little bit about the nation state kind of objectives. When you say they want to steal a company's IP, are you saying there's groups within the Chinese government that want to go and take technology from American companies and they'll do whatever they can to do that? Like how does that work?
Absolutely right. And they've been doing it for 25 years. So not just China, but Russia, North Korea, Iran. And these are parts of intelligence agencies. So they have their equivalents of CIA and some of the other intelligence agencies, NSA in China and in Russia. And they have that mission. In our system, what CIA and NSA does is they go out and steal secrets from countries to help us understand their intentions, to help us secure our country and our adversaries. They do that as well, but they also say, you know what? Our objective is actually to help our domestic sector. And we're going to break into foreign competitors of our domestic companies and steal whatever they've got and give it to our domestic companies because we want them to win. We're going to steal price lists. We're going to steal their customer data. We're going to steal their source code. We're going to steal their car designs, whatever it may be, and we're going to give it wholesale to our national champions.
And this is part of the reason why you now have these amazing companies out of China like Huawei and others that are literally leaders in their respective fields. In most of these cases, it was built on stolen IP that was given to them by their government, to the detriment of American companies. And I coined a phrase back in 2011 when I started stumbling upon all of this that there are only two types of companies: those that know that they've been hacked and those that don't yet know. But they've all been hacked. And I also said at the time that this is the greatest transfer of wealth in history. Literally trillions of dollars of incredibly valuable intellectual property and trade secrets are being sucked out of our country and our allies as well and moving over to China to help their industry. And at the time, I remember after one of my investigations, I was still at McAfee before starting CrowdStrike. I was in the situation room of the White House briefing National Security Council members on the latest hack that I investigated from China, where they're breaking into yet another major company, major industry, stealing everything they've got. And I was getting really frustrated that they were sort of sitting around the table taking notes, like, yeah, that's sort of interesting. And I'm like, guys, are we gonna do anything about it? This is unbelievable. This is economic warfare that is being waged against our country.
And the senior person literally looks at me and says, Dmitri, don't be so naive. As long as they keep stealing, they can't innovate. And I was like, what? First of all, that's incredibly myopic.
It is ahistorical because throughout history, some of the greatest companies and industries have been built on theft and then innovated down the road. Steve Jobs famously said, good artists copy, great artists steal. The textile industry in the United States in the 1800s was almost wholesale imported from Great Britain and then crushed Great Britain, and we became the textile capital of the world until Asia came along a century later. You look at national security matters, the Russians, of course the Soviets stole the atomic bomb secrets from the Manhattan Project. But then they actually designed the hydrogen bomb all on their own before the United States did.
So of course when you're stealing, it is helpful to you. It does not prevent innovation. You know which routes not to take, which R&D paths have already been tried and proven to fail. You can build upon the work of someone else and get much further. And that's exactly what the Chinese were doing. And in addition to stealing the fundamentals of the technology, they were also stealing the go-to-market secrets. Like this is the pricing of this company. Let's undercut them. Or they're negotiating, this is their bid on this project. And one of the acts I investigated was into the Western oil industry, where they're hacking into all these oil companies, looking at their bidding for exploration projects, and undercutting them around the world.
So like, of course that's going to be incredibly helpful to them. Of course they're going to succeed at that. And sure enough, here we are, I guess 14, 15 years later, and they're becoming the dominant player in the automotive sector, in telecommunications and energy. And a lot of that was built on theft. But now they're no longer just stealing. They're still stealing, but now they're innovating as well. And you look at their electric cars, they're objectively better than anyone else's in the world. A lot of that foundation built on theft, but improved since then. And the government was unwilling to do anything about it.
Yeah. If you look at that at a macro level over the long term, that can be the difference between the global leaders.
Absolutely. And you know, this is why I wrote this book, World on the Brink, about the fact that we're in a cold war with China. We have been in this cold war for decades without realizing it. The Chinese knew. And part of it has been this economic warfare that they've been waging against us to the detriment of our companies to help their own. So, how did you go? How did you get into the political side of this? What was the moment when you're like, I want to step up and really learn more about the politics?
Yeah. Well, not politics, geopolitics. So, I'm not in bipartisan politics, but I've always been interested in this. And in fact, in college, even though I was a tech nerd focusing on cyber and computer science, I got really passionate about international affairs. Took a ton of courses, almost double majored, but wanted to actually graduate, so didn't quite complete all the requirements. But that was always a passion of mine. And then really in 2010 and 2011, when I started doing these investigations into all these nation state activities and I was literally the first person to start doing that in public, highlighting that wait a second, it's not just cyber criminals, it's not just some guy in a basement hacking your grandmother. It is Chinese military, Russian intelligence services, Iranian IRGC, Revolutionary Guard. They're hacking into our private sector companies, stealing everything that's not bolted down. And the reason they're doing that is to advance their country's strategic priorities, economic and national security.
So another phrase I coined at the time is that we don't actually have a cyber problem. We have a China, Russia, Iran, and North Korea problem. Geopolitics is at the heart of this. And by the way, today we still have a China, Russia, Iran, and North Korea problem. Not because other countries don't have cyber capabilities, but I don't worry a lot about what the Singapore military will do to us because we have a good relationship and they know better than to use it offensively against us. But the four primary geopolitical foes that we've got, China, Russia, Iran, and North Korea, are also the ones that are going to use cyber in this asymmetric way to harm us. So that was when my two worlds were brought together again, my passions of international affairs and cybersecurity. And it also, I think, was incredibly valuable for me because cyber in many ways is a canary in the coal mine where it gives you insight into another country's capabilities and intentions long before it becomes apparent in any other way. So because what I was seeing in cyber from all these different actors, I was sort of trying to stomp on the table and scream like we got to do something about this. They broke into access to that will be incredibly harmful to this nation. And that's when I wrote the book.
So that's why you wrote your book? Because you realized this, you were talking to people in the government and people were kind of like, yeah, we get it, but not you. You said, hey, I need to consolidate all this into a book.
Well, the book. So I ended up retiring from CrowdStrike after we took the company public in 2020. And because I spent literally the last decade fighting every day Chinese and other countries as well, but China by far the most active country, Chinese intrusions into all these companies around the world. I became very passionate about the fact that this is a new cold war. Cyber is just one of the battlefields that they're fighting us on, but there's obviously the military campaign particularly around Taiwan that they're very interested in, South China Sea, there's all these investments that they're doing around the world opening up ports in Latin America and Europe and Africa, mines in Africa, etc. So there needed to be a concerted effort to confront China and develop a strategy for the cold war. So I opened up a think tank after leaving CrowdStrike called Silverado Policy Accelerator to work full-time on these policy issues to try to move government policy along on all elements, not just cyber, vis-à-vis this cold war with China. And then I ended up having a little bit of a detour in late 2021 because I was born in Russia as an immigrant to this country, but still kept my close eye on what was going on there. And late 2021, I started noticing something very different happening on the borders of Ukraine with the Russian military buildup and rhetoric coming out of Moscow. And I made a prediction, very public prediction on Twitter, as X was called then. I wrote a very long thread that got retweeted like 15, 20 million times that I believe that Vladimir Putin will invade Ukraine before the end of this winter. This was in mid-December of 2021, about three months before the war. And here are all the reasons why. And I was really one of the first people in public to say that. And I started writing this book on China on February 24th, 2022, the day of the invasion, because even though I made that prediction three months earlier, even though I became completely convinced at that time this was going to happen, when the war began, it was actually the night of February 23rd Eastern time. And I was communicating with people in Ukraine. And I was getting some of the early videos of missile strikes and the troops coming across the border. It was still a huge hit, like when you know something's coming but it happens and you're like, oh my god, I can't believe this is actually happening, even though I knew this would happen. But it's still a shock to your system. And I spent the day reflecting, following closely what was happening, but also reflecting on my prediction, what I got right, what I got wrong, and decided to write systematically the causes of the war, why I became so convinced that this was taking place, and narrowed it down to basically five reasons why Putin wanted to invade Ukraine, why he did it at the time that he did. And I looked back at that list and I said, oh my god, this is the exact same list that I can apply to Xi Jinping and his desire to take Taiwan. Now it's not happening immediately. Unlike with Ukraine, we only had a few months of really warning and conviction that this was going to take place. Taiwan is a longer-term objective. We've got some years before I think he's capable of doing it and he wants to go for it, but that is going to be a much bigger deal than even the war in Ukraine. And that's what motivated me to write this book as an alarm bell. This is coming. This is why I believe he wants to do it. This is a strategy to deter him. That is a comprehensive strategy that's looking at the economic dimension, the military dimension, the diplomatic dimension of how do we make sure that we remain a global superpower, that we don't cede our place to China. We remain the greatest economy in the world, the innovation engine of the world. We have the greatest military that can deter any action against Taiwan and why Taiwan is even important. So the book is actually about the cold war with China. It's the threat to Taiwan, but it's about AI, it's about chips, it's about cyber, it's about critical minerals, it's about military capabilities, it's about all the things you actually need to win this cold war.
Yeah. Most people think about Taiwan, they're like, oh, it's just like who cares if they take Taiwan? What are just some of the highlighted reasons?
Yeah. So the right way to think about Taiwan is first and foremost as an absolutely critical cog in the global economy today. Often you hear in the media statements that Taiwan produces 95% of all advanced chips roughly. And that's absolutely true. TSMC, Taiwan Semiconductor, essentially has a monopoly on production of advanced chips.
Why is that? Just curious, why aren't other countries producing chips like Taiwan does?
So other countries are producing chips. The advanced chips are the ones that lend themselves to a monopoly. You go back 25 years or so, you had maybe half a dozen, maybe 10 companies producing chips at the leading edge, the most advanced chips. Five years ago you had three: Intel, Samsung, and TSMC. Today it's one. It's TSMC, and the others are falling further and further behind, trying to desperately catch up. And the reason is that to be at the advanced level requires enormous capital expenditures every single year. The cost of a new fab, for example, is $20 billion. And you have to keep building them over and over again. So it requires enormous cash outlays, which requires a huge customer base to keep financing. And most people can't keep up on that treadmill. And that's why many companies, like AMD in the 90s, was a producer of advanced chips. They were designing them and then producing them. And in the early 2000s, they said, we're just going to get out of this production game. We can't keep up. It's much better margins for us to invest in just the design. We're going to sell off the production business. And TSMC now produces their chips. And the unique thing about TSMC when Morris Chang started the company in the 1980s is he saw something, and actually he would tell you these days that it was more luck than anything, because he knew that he couldn't compete with established players like Intel in designing chips and manufacturing them. And he said, I think there's going to be a big market for companies that just want to do design and want someone else to do the manufacturing. And I'm going to be the one company that just manufactures for everyone else. Doesn't compete with anyone. And the more customers I have, the better economies of scale I have, the more cash I have to reinvest and get better and better. And that's exactly what he did. And for the first 10 years, it was really, really hard because there were almost no companies. But you know who was one of his first customers? Nvidia. Nvidia comes along, Jensen Huang, and he says, I need to manufacture GPUs for games. I think gaming is going to be a big market. This is before AI. And he says, hey Morris, would you manufacture my chips? And then it became this self-reinforcing cycle where they got bigger and bigger and now really have this big monopoly. But I think the market itself lends itself to someone winning it like that because of the enormous costs required to keep up with it. And all the others like Intel and AMD back in the day, they weren't manufacturing chips just for themselves. That's not enough demand to keep reinvesting. So you have to have a foundry, as it's called, to manufacture third-party chips. So Taiwan basically has a lock on advanced chips. And what are advanced chips? These are your AI chips, pretty important these days. These are chips that go into your phone for processing memory, the baseband controller that talks to the cell tower. These are your chips in the cloud that are running your workloads. These are chips in your computers, in your laptops, and so forth. And that's essentially it for advanced chips. A few other minor purposes. But then there's this whole world of all the other chips in the world. They're in your microwave, in your refrigerator, in your cars, thousands of them in each of those devices. In your weapon systems. They're not advanced. They're what's called foundational chips. People typically say that anything below 18 nanometers is advanced. That traditionally has referred to the distance between transistors on a silicon. It keeps shrinking, that's how you put more and more transistors onto that. Below 18 nanometers is where kind of advanced chips are. So today, the most advanced chips are at 3 to 2 nanometers. They're about to come up with 2 nanometer chips. It's about a 120th of the width of a human hair. So really difficult stuff to do. But the foundational chips are everything 18 nanometers and above. And actually a lot of the world is foundational chips. So even if you look at this phone, it has three advanced chips in it: the Apple chip that runs it, the memory from a company called Micron usually, the baseband controller from Qualcomm. There are about 150 to 160 other chips that are foundational on this phone that control the power and the battery, that control the Wi-Fi, the accelerometer, the GPS, the screen, all those things that actually make it a phone. And these are all foundational chips, and Taiwan produces 40% of all those chips.
Wow. And what percentage of the advanced chips?
95%. So they basically have a monopoly, close to monopoly, on advanced, but also 40% of all chips period are in Taiwan. So if Taiwan were to go dark in the event of conflict, you have a global depression. Economic depression right off the bat. Estimates are 5% GDP contraction. There's a lot of leverage they have there. And in a conflict, nothing gets exported. And by the way, even if you think about the very best case scenario for China, you have a one-day war. It won't be a one-day war, but just for the sake of argument, you have a one-day war where the Chinese target the power systems in Taiwan, the electricity to neutralize their air defenses and power to the military, and the Taiwanese just surrender. They won't. But just for the sake of argument, we have a one-day conflict. Power goes out and then it's over. Well, when that power goes out for one day, the generators kick in at TSMC fabs. They can't run. They don't have enough power to run for one day. Power goes out and the entire production line of all the chips has to be thrown out. It takes about nine months to make a single chip. So basically for a year, that whole supply of chips is gone. And that's if it's a one-day conflict and if those fabs aren't being damaged, the people aren't killed. So just a huge power outage like that is absolutely devastating to the global economy. And by the way, in addition to chips, there's another company called UMC in Taiwan that manufactures foundational chips. So it's not just TSMC. And then in addition to that, you have a huge microelectronics industry in Taiwan that's doing packaging and assembly of these microelectronic boards that go into various things. So it's not just the chip itself. There's a huge industry around it that the world is highly dependent on. So that's one reason why Taiwan is important. The second reason is really geopolitical. If you look at the map of Taiwan and China, the standard map, this huge landmass that is China, one of the largest countries on Earth, and this tiny speck of land, an island off its shore that is Taiwan. You might say, well, I can see why it matters to them. Why does it matter to the rest of the world? And the right way to look at it, and I actually have this map in my book, is if you rotate the map in Google Earth like 90 degrees, put China on top, and take their perspective of looking out at the Indo-Pacific, and also take the appreciation of their history, which is that for much of human history, China was the world's most powerful country, most populous, richest, and they only lost that mantle to Great Britain during the industrial revolution a few hundred years ago. And then obviously to the United States. And to them, that is a complete aberration. And in fact, part of why that happened, not the only reason, but from their perspective, the whole part is these opium wars that Western colonial powers waged against China, the unequal treaties that they forced on them to give up Hong Kong, give up Macau, all the things that happened in the 1800s. So the Chinese talk about a century of humiliation that they suffered at the hands of Western powers, and it is ingrained in their ideology that we are now reversing all that and we're emerging to our rightful place as a world preeminent superpower. So think about it in that context of their thinking, and then also think about what is at the root of Chinese power today. Well, it's their economy. And their economy and the entire nation is highly dependent on two things: it's dependent on imports of raw materials, energy, and food that they don't produce enough domestically, mostly coming in through maritime sea lanes, and it's obviously dependent on exports of manufactured goods to the whole world. There's also leaving Chinese ports on ships going to the rest of the world. And for that to be safe and secure, you need to secure your sea-based lines of communications, your supply chains, just as the United States did 150 years ago, 120 years ago when we started to emerge as a global economic superpower. We realized we're not just trading within the states of the United States. We want to trade with the rest of the world, and we need to build a blue water navy. And Teddy Roosevelt built the White Fleet that went around the world that sort of established to the world that America has arrived and we have global interests, and we're going to establish coal stations around the world and secure those trade routes for American goods and American imports from the rest of the world. And China sees that and says we want to do the same thing. This is a clear blueprint. But here's the problem we have. When we look at this map to our left, to our east, we see Korea, the Korean Peninsula, half of which is South Korea with 28,000 American troops on there, with air force bases, naval bases, some radar installations as well. Further down in the arc, we see the Japanese islands, the headquarters of US Naval 7th Fleet, Marine expeditionary forces in Okinawa, highly capable allied Japanese Self-Defense Forces. On the other side in the South China Sea, we're enclosed in part by the Philippines, where for the first time in 30 years, you have nine American military bases on that island, bringing in long-range missile systems that can range China, bringing in Marines there that are enclosing us. And at the very center of the so-called first island chain is Taiwan. That is a cork that keeps us bottled up, really at the intersection of the East China Sea and the South China Sea. So for our ships to be able to go out and deliver goods or import goods from other places, they typically have to go through these naval passages. They're controlled by the US Navy and our allies. And as a country that believes it's going to reemerge as the world's preeminent superpower, that is completely unacceptable and something that presents a mortal threat to them. So that containment that they're in is a huge problem for them. And by the way, the other problem that they face is that really in modern day to project naval power, you need submarines. Surface ships are becoming very, very vulnerable, very easily identifiable. And China has a problem that all the waters around its shore, both in the East China Sea and the South China Sea, are very, very shallow. So it's very easy to track submarines as they leave Chinese ports and go through the South China Sea. In the Taiwan Strait, for example, the depth of the waters is only 300 feet. Trivial to track a submarine that's in there. But on the other side of Taiwan, on the eastern side, on the other side of the first island chain, the depth of waters is 12,000 feet, and it goes down even further from there. The Pacific is the world's deepest ocean. So if you take Taiwan, not only do you escape from this containment you're in, but if you build naval bases and submarine bases on the eastern shore of Taiwan, you now have an opportunity to project power across the Western Pacific and now turn the tables on the United States, where they can now interdict our supply routes to Japan, to Korea, to the Philippines, and push us out of that region all the way to Hawaii. And become the regional hegemon. And that becomes a very attractive proposition for them. And that is why even if Taiwan had no chips, even if you didn't care about the people on Taiwan and their democracy and all of that, it is an incredibly strategic resource for not just the United States, but other countries in the region. The Japanese prime minister this very week said in a publication in Japan something that's obvious but no Japanese prime minister actually explicitly said before: that Taiwan security is Japan security effectively because they're so close. And that if Taiwan falls to China, Japan's security becomes critically compromised, and that if China invades, Japan would have to go to war with China. And in response, a Chinese consulate in Japan said she should be beheaded and refused to apologize. So this is why Taiwan is not just about chips. People kind of reduce it to chips, and chips are important for all the reasons we've discussed, but it's also vitally important to US national security. If you don't want to enable China to become the regional hegemon in Asia, which by the way is a place where you have 40% of the world's GDP, most of the supply chains, most of the economic growth, really vital for our economic security first and foremost. But then China of course won't stop there. If they become a hegemon in Asia, they want to become the world's preeminent superpower. And they're already in Latin America, in the Caribbean, in Africa. Imagine what they can do once they have this base from which to use as a platform for expansion.
The chips are a tremendous amount of leverage.
They're a tremendous amount of leverage. But it's not just about that. And my point is that in 1950, long before transistors were invented, General Douglas MacArthur said Taiwan, Formosa as it was called at the time, is an unsinkable aircraft carrier. It is vital to US national security. 1950. So 75 years ago, it was vital to US national security.
It's even more vital today because at the time of course you already had the Red China but it was nowhere near as powerful as it is today with the unbelievable military transformation it has undergone since then. It is even more important and that is why Taiwan is essential.
That is extremely interesting and makes a whole lot of sense. I am curious though. So there's kind of two components. There's the chips which is a lot of leverage, right? If you shut that down, that could cause a whole economic collapse. And then there's the kind of military side of it where they can go undetectable, spread to the rest of the world. Why wouldn't the United States in the meantime be... you said it cost $20 billion a year, something like that, to build the fabs. Why wouldn't we start building the chips in the US and spend a relative to our national debt, it's not that much money. Why wouldn't we start moving that manufacturing here in the meantime?
So, as you might imagine, you're not the first person to ask that question. And about five years ago, people started to get really serious about this issue. And particularly after the war of Ukraine, more and more people started waking up to the fact that well, if Russia invades Ukraine, China might really go after Taiwan. So, in 2022, Congress passed the CHIPS Act where they allocated $52 billion plus about $25 billion in tax incentives, but 52 in direct subsidies to industry to help build an ecosystem for our chips production. And unfortunately, what they did is as government often does is they peanut butter it across all these companies. Intel and Micron, TSMC got some, Samsung got some. So the biggest award I think was to Intel for $9 billion.
Again, remember the cost of a single fab is $20 billion.
So you're peanut buttering it versus doing what China does or Taiwan did in the 1980s. It's like one national champion, all wood behind one arrow. We're going to do whatever it takes to make them successful. So that was one problem. The second problem is it took them three years, the Biden administration, to distribute this money. I was with the CEO of Intel, Pat Gelsinger at the time, I want to say two and a half years ago at an event and this was a year and a half into after the passage of the CHIPS Act and he was telling me, listen, if they don't give me this money next quarter, I'm done. Like I desperately need this money. And he didn't get that quarter. He didn't get it until a year and a half later.
Yeah. And guess what? Intel is in dire straits today as a company.
Right? So we waited too long. And by the way, on top of that, the Biden administration decided to also implement social policy as part of these grants. So it's like, well, you're not only going to build a fab, you're going to use union labor, you're going to build kindergartens, you're going to do all this stuff, right? So that was a huge problem as well. But the other issue is like the talent base is just not here.
The cost of labor in Taiwan is a fraction of what it is here, right? So in a fab, there's a number of people that are involved in running a fab, putting it together, obviously constructing it. The most important people for running a fab are these process engineers that are basically think of them as chefs that figure out the recipe for how to make this chip that takes nine months to make, 1,200 different steps. How to mix these chemicals together, how to make sure you do this thing first and that thing, whatever. And not only make it, but make it with high yield.
So to make a fab economical, you need to be in the high 90s, 98, 99%, 97% maybe of yield, which means that 97, 98% of the chips you make are good.
And the others are trash, right? Remember, like 9 months, all these steps, there'll be some... 90% you're out of business kind of thing.
Absolutely. Because you're investing enormous capex into this thing.
So you have to be incredibly good at optimizing that process. Ironing all the kinks out of this process. Really, really smart process engineers that are setting this up, continually optimizing it. When you start, you typically start low and then you work your way up and try and do it as quickly as possible. For every new process that gets developed, virtually all these process engineers are in Taiwan.
The average salary of these people, guess what it is?
