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Palmer Luckey Considered Three Companies After Oculus. One Was a Nonprofit Prison. One Was Petroleum Cheese.

By Palmer Luckey · Founder Stories · 4 min read

After getting fired from Facebook, Luckey had a chip on his shoulder. He considered three companies: a defense startup, a nonprofit prison company, and a petroleum-based food company. He chose defense.

Key Points

After Oculus, he had to prove he wasn't a one-hit wonder — being one would be 'so depressing'
Three ideas: defense tech, nonprofit prisons (pay only if inmates don't return), petroleum cheese (zero calories)
He chose defense because it matched his technical skills and he could make a lot of money doing it

I collect erotic anime figurines. But I didn't start an erotic anime figurine dealership because you can't make money doing that.

A Chip on His Shoulder

Luckey: I was fired from my last job. I have a chip on my shoulder. I'm bitter and angry about it. I have to prove to everyone that I'm better.

If I had done Oculus and then failed in my next company, I would be in a very mentally bad place. Being a one-hit wonder would be so depressing. So for better or worse, I had to do something that proves they shouldn't have fired me.

I was fired. I have a chip on my shoulder. I have to prove they shouldn't have fired me.

Idea One: Fix Defense Contracting

Luckey: Cost-plus contracting is a broken contract structure. It leads to massive cost overruns. Everyone has the wrong incentives. I thought I could start a company that does things Lockheed and Raytheon and Northrop are bad at doing — that I'm good at.

Cost-plus contracting is broken. Everyone has the wrong incentives. I thought I could do it better.

Idea Two: Nonprofit Prisons

Luckey: Private prisons are very bad. All the money goes into lobbying for stricter sentences on the cheapest inmates to incarcerate — nonviolent offenders, victimless crimes. Not terrorists. Not murderers.

So I said — I'll start a nonprofit prison company. I'll incarcerate your people except I don't get paid anything until they've been out for 5 years without going back. If they go back, I don't get paid. My incentives would be aligned with getting people out and keeping them out.

I decided against it because it wasn't my skill set. The legal issues state by state are very tough. Multi-decade contracts. A 30-year bet before I could do anything.

I don't get paid until they've been out 5 years without going back. But it was a 30-year bet.

Idea Three: Petroleum Cheese

Luckey: If you want to make a fake burger that feels like a real burger — why would you start with plants? You wouldn't build tires out of plants. You wouldn't build gels out of plants. Plants suck.

I started building paraffin cheese. It totally works. Zero calories. Tastes mostly like cheese. But the FDA completely bans this idea — it's completely illegal. And people don't like the idea of recycling what comes out one end and putting it back in the other.

So I chose defense. That's an area where I have technical talent. I can hire people. I can make a lot of money. And if I accomplish my goals, I'll be very happy with myself.

Paraffin cheese totally works. Zero calories. But the FDA bans it. So I chose defense.