Call transcript

Yes, record this. Okay, absolutely. Always, always record our calls.

Always.

I’m on my map. Essentially this is what I’m going through. We outsource everything from different suppliers, and then Padron is the final facility hold point. The only other way for Wulff Defense is I can use my house for this. Why? Because I’m a real estate developer, and my house is already commercialized — it’s already in commercial business zoning. That was the original negotiation for the house, in case I needed to drive business there. Why is this important? Because I can pick up AS9120. AS9120 is the distributor companion to AS9100. Once I pick up AS9100 for my own house, I can use my own house as a hold point for products.

Hold on. Let’s get back to Padron for a second. Not your house hold-point right now, because I have to understand where you’ve been and where you’re going. You talked with Padron because you thought you needed a physical facility to bring manufactured goods in that you’ve acquired as a dealer, bring them into a facility, and then do Padron-assisted assemble?

No. They allow me to use their packaging material. They allow me to use their facility, in the face of government contracts, as my direct sub. Why are they my direct sub? Because they have AS9100. Anybody could get AS9100, but it costs about $11,000 for a Stage 2 audit.

Why did they have to be NADCAP certified if they’re not making anything for you?

Because they have 15 other customers. That’s how they make $200,000 in sales every month.

So you got them certified on NADCAP. You already got them certified so they can make money doing what they’re already doing? And they’re not manufacturing anything for you on these goods — that’s what I didn’t understand. If there was supposed to be some term of manufacturing…

NADCAP. NADCAP accreditation program. It’s one of the most important pieces.

Yes, and I keep their certifications for them. They’re not focusing on the relationship, and they’re going to make the most money going through me versus the other fifteen customers combined.

Then why do you have such a fulfillment problem? All you’re talking about is fulfillment. And then you said something about getting AS9100. What is that?

AS9100. It’s another aerospace accreditation that the Defense Logistics Agency requires you to have to bid on contracts. Without that, you’re done. Because Padron has it, I can use them on my contracts as a direct subcontractor.

Is it an annual review? Do you just pay ten grand and then you have AS9100? Take the money out — take the financing piece out. Right now I want the building blocks. I want to understand NADCAP.

Annual surveillance audit is about two thousand. A thousand dollars.

Can you look at this as a fulfillment-center problem: you get a bunch of different pieces in from different places, you’ve procured them cheap, you bring them to a facility, and you combine them — here’s the nuts and bolts, the missile fin, the other fin — combine four pieces into a missile harness and send it off. I would love to know how that’s currently done under the people you’re bidding against. If it’s all being manufactured with—

I’m bidding only with the government. I submit requests for quote to suppliers to determine what price is in my best interest.

If you are assembling parts into a piece and selling that piece to the government, those parts were assembled into a piece prior to that. How is it done today?

From the ground up. Number one, we have a machine shop. We send the machine shop six different drawings. Exhaust project, most recent, off the top of my head: six drawings, six parts — the bolt, the spring, the head, the housing, and the valve. Each part is machined, then heat treated, then welded. AWS C4 welding requires NADCAP, which is done at NC Welding in Texas. After it’s welded, if Padron can’t chemically process it — they can do three things in-house right now: passivation, anodizing, chemical conversion coating — we use someone else in Texas who will issue a certificate of conformance. They have to have JCP, DD Form 2345, and the other certifications to handle sensitive information, which is why I encrypt files. I encrypt the files, send them to that chemical processor. Cure time is about 24 to 72 hours. After that we freight or ship the product, and the manufacturer factors that into the quote because they extend us terms.

Why terms on final shipment matter: it protects us through FAR and DFARS. If a supplier ships product with a ding — recently, a $9,000 shipment — and then still tries to invoice us, Wulff Defense issues a SCAR, a supplier corrective action request. That’s a huge hit on their AS9100. I justified it with a depth micrometer against the actual specification. I can look at an incoming part in about ten seconds and know good or bad. We know chemical processing and heat treat are correct because it comes with heat lots, material traceability, and certificates of conformance. If that package isn’t there, we issue a shipment reject back to source. That’s why the manufacturer also issues an RMA if they sent it FedEx. An RMA lets us do that, and we add it as an AS9100 flow-down and DFARS requirement.

If they really expect us to pay after all of that, we cite ITAR, DFARS, and FAR and say that because they didn’t handle the parts with care and the transmission of sensitive defense data, we will report them to the Directorate of Defense Trade Controls for severe violations of critical data handling. We cite the clauses of why we’re not commercially required to pay, and there’s nothing they can do about it. That’s why getting manufacturers to issue us terms is so important — it protects both defense and finances when we’re first coming up. Could we activate an insurance policy? Absolutely. Is that too much work? Yes.

Can the manufacturer rework it? Depends on the drawing. With the exhaust drawing it wouldn’t work, because even if you’re missing a thousandth of a thread depth, those deal with high pressure. They have to be tested to 3,000 or 10,000 PSI — hydrostatic testing. We could do hydrostatic testing in-house. Imagine everything passes and the parts get to Padron. Wulff Defense creates a specified internal company memorandum on a shared workload boundary that’s ITAR-protected — I pay an extra $45 a month for that — which takes the data and protects it when I produce the document. I produce that internal document air-gapped, print it at Padron’s printer, because they have DLA enhanced validation and JCP, and the MAC address of the printer was submitted to the government. Now I can print that document as a process traveler sheet just for myself.

If Padron’s employees aren’t on board with learning this, there’s probably only one or two people at their facility I would trust. I’ve done process traveler work myself for six years in the military. I built entire helicopters from the ground up. I just wasn’t able to talk to you about it at the time — I couldn’t FaceTime you and say, hey Dad, we’re putting on a helicopter wing. I’d get in trouble. That’s what the last six years were. I know aerospace assembly. Even the smallest sensitive pieces — I’ve done C&A inspections. That’s why I feel comfortable in this field.

When I have my own employees, they just assemble. One of my friends is Dakota. He was in SERE training with me. Dakota is the guy I call when I actually need help for assembly, because I put together entire helicopters and machine guns with him. I know he can look at prints and follow procedure. When 90% of Padron’s personnel deviate from procedures and specs, that’s inherently a quality risk. Do I cut them out? Do I assume they’ll do the job correctly without my supervision? No. I oversee the entire process. Because of FAR limitations on subcontracting — the simplified acquisition threshold, around $250,000, and a lot of my contracts between $11,000 and $250,000 — I have to do 51% of the work regardless.

How do I justify that? Quality. I can justify it digitally: quality document checking, inspecting the final product, miking the product, Wulff Defense issuing a certificate of conformance. That ties back into our AS9100 workflow for traceability for the warhead contract. Our company was audited by the government without AS9100 registrar certification. We needed our system to be compliant, and the government certified Wulff Defense’s system as compliant. All we need is to be officially certified by the registrar. That’s how we’re winning contracts and have backlog right now — the government already approved our system. They believe it’s low risk because I’m dealing with everything. I have a quality management system, forms, records, procedures, a document control record that all ties back up.

Can we get back to the financing question? We have a really hard time explaining this. There are simple terms: you go get these parts from suppliers, they’ve got terms, you put them all together, and you’ve got some terms with Padron for using the facility, their accreditation, their footing.

Let me explain the terms. A few different places have to line up. Number one is the contract I submit on. I’ve got Net 30 terms on all the contracts I submit on. The government has to pay me within 30 days after certificate of delivery — that’s after DCMA, John Workman, comes out and inspects the product.

And that’s why you got hurt this last time — GFAT. Government first article test. That’s the number one thing. That’s where the whole thing got held up. You don’t know where your testing sample is with the government right now.

They messed up the address on the contract, and then tried expanding the ECD over to October 5th.

So for that first batch, there was an unexpected delay in payment to everyone involved. That includes Ivan too. Who else was impacted? Who actually manufactured those goods?

EM Aerospace manufactured that part, and that’s already paid down. I had to pay down all my suppliers. It wrecked the relationships. The government first article test single-handedly lost all interest and hope just over about four grand. We have $10,000 worth of that product sitting on Ivan’s desk that we can’t push out to the government until October 15th, until they give us that letter. Until we have that letter, we’re dead in the water. This is why people say they never knew this when they bid the contract.

You are going to have a number of those pitfalls. Until you’re seeing these things completely through, you wouldn’t know GFAT versus CFAT. Now you do. Now you have to know that.

I did, and I got the letter for it. That’s how we have the flywheel going. Once we get that GFAT approval, the flywheel — you think 1.43 — it speeds up so much, because the government literally cross-sectioned Wulff Defense product. That means we are trustworthy for FAA flight-critical components, which means anything on the roster goes. It’s a trustworthiness thing for quality. They cross-section the actual metal, the alloy, split it on a laser machine, and take it piece by piece across chemistry and science variances. Once you pass that, very few contractors have done it. It speeds up the sales funnel. It also deteriorates all your relationships in the process. I shouldn’t have done it.

You just started. You can’t deteriorate anything. You don’t have value at all yet.

October 5th. It will add value, I guarantee you it will. This isn’t going to be for nothing, because I have a supplier system score — SPRS.

What we need to understand is: if all these contracts start coming in, those “I didn’t know that was going to happen” instances get amplified by twenty. Whatever terms you’re getting — there’s got to be an advantage in the place you’re not looking. There’s got to be an advantage where you don’t have to squeeze people for everything. It’s about speed of information.

Purchase-order invoicing is the front-end part that we’re missing. There’s a rapid-access capital line of credit you can get from the bank. To get that, you need 24 months of business. I already called Bank of America once I picked up a million dollars in sales. I created a hell of a pitch. Other finance companies will charge five, six percent interest over the actual finance value for the entire contract. It doesn’t make any business sense to use a financing company outside of Bank of America or some of these larger banks.

Small business — so an SBA loan is what you’re talking about?

Yes. We can use a 7(a) loan backed at a 4% interest rate, which is feasible, or up to 10%. If we get a lot of money up front, we could run six or seven projects, get large chunks of money at a time, use those for the other projects, and clear out an entire pipeline. That’s where the hundreds of thousands of dollars are made. I need that to happen, and I can’t do it at Padron. That’s why I haven’t put these large projects in front of them. Their investors are loan sharks. I’m not going to do 14% when I’m only doing 40% margin. Ivan’s investors take 14% if I need a certain amount fronted. Then Ivan’s internal agreement for using his facility as a holding point is another minus 14%. Now we’re only left with about 14% of the total contract value. That’s a pipe dream. I refuse to accept that as a business model. That’s not how I grow. That’s squeezing me. I’m not squeezing them.

Give you $600,000? Or even $60,000 for a project so we can push it along within four weeks? Where’s the money? No one understands how banks move or how our wire transfers work. There are idiots with money out there — that’s what I figured out. That’s why I’m not putting these large projects in front of them. I don’t trust them to fund me, because I’m not going to put a $200,000 project in and lose $60,000 because I want to be nice and help them.

You’re talking about all these ancillary things. Explain it to me like I’m a child. Why do you need financing if the government is going to pay you in 30 days? If that’s the case, why aren’t you on a 45-day term with the supplier, so when the government pays you in 30–35 days you’ve got time to turn it around and pay them?

You’re not understanding. There are different manufacturing cycles to each product. Machining, chemical processing, welding, and assembly — and all the product has to be freighted to these different places. That’s why you use Net 30 terms based off the certificate of delivery. After the machine shop delivers a part, that’s when the 30 days starts. You better make sure your chemical processor or welder gets that done within the next two days, then the next four days — which is reasonable in today’s manufacturing. The only thing that takes long is machining. Everything else we can do in three or four days total life cycle.

I thought Net 30 was at the date of delivery. Certificate of delivery to the government as a whole, or certificate of delivery of the shop’s product?

Certificate of delivery to my facility for final assembly. Once it gets to my facility, that’s when my terms start with the most recent manufacturer. We’re not asking unreasonable timeframes. If a manufacturer takes six weeks to machine, my 30-day term starts after their certificate of delivery. Then it takes two weeks to do everything else, and about five days for us to complete everything. That leaves about five days — I’ve seen five to ten — to get the government out there. That’s squeezing me for time, not my manufacturers. I give them reasonable times. After the machine shop, whoever you use for welding, chemical processing, or heat treating has to be on it. That’s why you can’t use just any shop.

That’s how things flow: machining, chemical processing, welding, then assembly for a guided-missile part, if it’s not electrical. Machine shop needs Net 45 after COD — certificate of delivery to the next guy. The next guy gets it done within 15 days, or they need heat treating. That’s why you need those 45-day terms from the first manufacturer.

If it’s a known risk — this manufacturer could be 45 days and then something hits and it takes 80, and we can’t do anything until that manufacturer is done — is that risk priced into the amount because somebody has to cover it? Or can you say: no one in this consortium gets paid until the government accepts delivery?

Theoretically, 30 days from that. We don’t need to wait on the government because we have a $400,000 line of credit through our factoring company. Invoice factoring. The government Net 30 doesn’t matter here. After the final product is ready, the government comes out to inspect and accept within two or three days. Once they get final approval and signature, I invoice the government through the procurement integrated enterprise system. That formally accepted invoice goes to my finance company. They only charge two and a half percent, which isn’t a problem. That’s how we speed up that 30 days. That’s why we have Net 45 with the machine shop, Net 30 with the chemical processor, and Net 35 with the other guy. My biggest bottleneck right now is the machine shop.

Machine shops require raw material that’s expensive, so you have to use some of the bigger shops. You develop relationships with the bigger guys, because they’ll have more raw material in stock and can run your product within three to five weeks. I’ve had guys quote eight to ten weeks. I tell them that’s a pipe dream and hang up. I can’t do eight to ten weeks. A good machinist will get it done within three weeks. I’ve had it done on very crazy parts — 17-4 PH alloy, a spring for the internal component of a torpedo, within two weeks, and that’s a very complex drawing. It’s matching the shop to what they already have in-house, developing the relationship, getting terms with their credit department. Having them trust you — that’s how you develop terms, and that’s what makes everything flow. I make one phone call to Jake Perdessa, that’s my finance guy.

On the project you have right now: who would have done that project, and how would they have done it, if you didn’t win it? You went in, bid, broke it down to its components, and are pulling the components together and assembling what somebody was going to do as the whole thing in-house?

Like Boeing or Lockheed. That’s literally a Lockheed Martin drawing. Mk 48 torpedo. This is literally what Lockheed Martin does, but on a much larger scale. I’m trying at all times to beat the big guy’s cost, because they’ll drag this out for five years for the government. I’ve seen them do it. Boeing, the big guys: “it’s going to take us five years to make an F-35.” Do you know how fast we can make an F-35 with the right people? Do you know how fast they make stuff at Scaled Composites, which is a Northrop thing?

These aren’t pieces that have never been made. They have been made before and assembled into something typically done by Lockheed, where they either manufacture it themselves or they procure it just like you’re doing and assemble it. They have a balance of cost and speed. Speed probably isn’t something they can compete on. That’s somewhere you lean in. But you have to find where the government is willing to pay more for speed. What projects? Missiles? Ordnance? Is there an FSC code for something the government needs quickly that it has a hard time finding through manufacturing — specifically military hardware?

If it’s a critical defense item — DIBBS. No one can just log onto DIBBS like I can. You can go onto dibbs.dla.gov, the government portal for submitting bids, but if you try to click a contract to pull the technical data package or submit a bid, it says access restricted. You get cut off as a normal person. Because I have JCP, and you need DLA enhanced validation. You can get JCP, but getting enhanced validation is another thing. That’s a memorandum from the government — the Military Critical Technical Data Agreement. That gives me data rights to Boeing, Lockheed Martin, everything else. It authorizes me to make their product. I can work from them because I’m a small business, but you have to have all the restricted-data access.

That’s if you want to figure out how to also become the next Boeing or Lockheed. Yours isn’t depth and industry relationships. It’s access and speed of information. The output — DIBBS — is your lead funnel. That’s what gets you to the table. Then execution: there’s a physical phase, manufacturing, and a fulfillment phase. Sales and fulfillment are the two big blocks. Finance cascades through everything.

Rapid information turnaround. The upfront financing is the biggest bottleneck, because I can work around the rest. That’s why projects have been stalling. We don’t have the upfront financing unless we use Ivan’s investor, and I don’t want to do that.

You still haven’t explained how your stuff has been stalling because of upfront financing. What has stalled? I told you we have family with money. What I’m trying to understand is the value proposition and the business behind it. It can be a clean description, but it isn’t right now. Don’t send me 800 pages of a PDF. That’s not how you communicate. That’s not how you lead. You come to the table: let’s talk about three contracts, and you break it down simply. If you can get contracts worth X dollars at this percent margin, you can afford a 6% interest rate, but you can’t do 14%, and that will allow us to do this. The reason we’re not able to do it at 6% is we haven’t been in business 24 months — and in six months we will be.

Six months, a $700,000 line of credit on a credit card, and be able to use that for all the manufacturing at a 6% interest rate.

I wouldn’t know what an acceptable internal rate of return is — “I’ve got these contracts, 4% or higher.” This should be a very simple value-chain explanation. In the end, when AI distills this conversation into graphs, bring it to the top through flow diagrams that show how value is exchanged. That’s what manufacturing does. You eventually end up with a flowchart that shows money in, money out, value exchange, and just really simple arrows. You can see the whole ecosystem. You understand the whole value chain, and then you can figure out where you can add more value.

Yes, Grok — I need all of these flowcharts branded with exact Wulff Defense branding, with clear value propositions and diagrams just as he asked for. Document control number, AS9100 clauses in the footer, page 1 of 1 footers. Blue and white branding, primarily black and white so it doesn’t look overly complicated, and easy for people to understand in very simple words.

That’s a good prompt. Can I also have a copy of this conversation so I can make sense of it? I need these conversations where I’ve been on the phone for over an hour. I’m not catching a lot at the same time. It can help me come back with the right questions. I don’t care what you record of me.

Absolutely. Continuous process improvement. I’m going to get off the phone, get back to it, and throw this into Grok to output everything. I’ll send you the conversation transcribed once I have WhisperX run through it.

It’s just audio, they don’t have to retranscribe a video. Let me know what it ends up taking. Talk to you in twenty.