The 3 Body Problem
Selling to the DoD
Navigating defense procurement within the United States Department of Defense (DoD) can feel like attempting to solve the infamous three-body problem. Imagine you're trying to to predict the rotation of a complex object in space. Each component—represented by the warfighter, program offices, and Congress—exerts its own gravitational pull, influencing the trajectory and speed of rotation. Just as in celestial mechanics, where small perturbations can lead to unpredictable changes in rotation, in defense procurement, minor shifts in priorities or regulations can have significant impacts on the trajectory of a project. Success in both endeavors requires not only a deep understanding of the individual components but also the ability to anticipate and mitigate the effects of external forces, ensuring that the final outcome aligns with the desired objectives. Understanding the roles and dynamics among these entities is crucial for defense contractors aiming to sell their technology to the government.
Since its inception, the DoD has been at the frontier of technological innovation constantly seeking to equip the nation’s military forces with cutting-edge capabilities to maintain superiority on the battlefield. Throughout history, defense tech procurement has evolved in response to shifting geopolitical landscapes, emerging threats, and advancements in science and engineering. From the development of nuclear weapons during the Cold War to the deployment of unmanned aerial vehicles (UAVs) in modern conflicts, the DoD’s procurement priorities have adapted to meet the demands of contemporary warfare.
Entities Involved:
Warfighter: At forefront of the defense procurement are the warfighters - the men and women who serve in the armed forces and rely on advanced equipment and systems to accomplish their missions. Warfighters provide crucial insights into operational requirements, informing the development and acquisition of new tech tailored to their needs.
Program Offices: Program Offices within the DoD oversee the acquisition and management of defense systems, acting as intermediaries between contractors and end-users (warfighters). These offices are responsible for defining requirements, soliciting proposals, awarding contracts, and overseeing the development and deployment of these systems. They are poised with juggling various stakeholders, including the warfighters, industry partners, and Congress, to ensure the acquired systems meet operational needs within budgetary constraints and timelines.
Congress: As the legislative body responsible for authorizing and appropriating funds for defense spending, Congress wields significant influence over defense tech procurement. Through oversight committees and budgetary allocations, Congress shapes the priorities and direction of defense acquisitions, scrutinizing programs for efficiency, effectiveness, and compliance with legal and regulatory frameworks. Congressional support is essential for securing funding and approval for defense contracts, making engagement with lawmakers a critical aspect of the procurement process.
Why is so hard to sell to the DoD?
Selling to the DoD is incredibly hard. You have three different entities with their own agendas. The users (warfighters), the budgetary allocators (congress), and the governing authorities (government agencies). Each of these entities operates within distinct spheres, often oblivious to the existence or workings of the others. Unlike commercial markets where end-users directly drive purchasing decisions, the DoD operates within a strict, complex framework involving competing stakeholders and agendas.
Although warfighters are the ultimate beneficiaries of deployed systems, they lack direct purchasing power, leaving procurement decisions in the hands of program officers and Congress. This gap between end-users and buyers creates a disconnect that necessitates strategic engagement with congressional stakeholders. Effectively advocating for defense applications requires not only demonstrating their value proposition but also adeptly navigating the intricate web of legislative priorities and budgetary allocations dictated by congress.
Starting a defense tech company is not the same as starting a traditional tech company. This is not a competition where the ‘best tech wins’. We can make a very strong argument that the sheer dominance that the primes have had over the last few decades has much to do with relationships and influence than it does about innovation. Anduril’s short term mission is to become the modern defense prime. A few months after its inception, Anduril had hired more lobbyists than engineers. They understood that in order to win, they would need to establish trust within the DoD and ‘play by the rules’.
How to survive the Valley of Death
If we were to conduct an autopsy on a significant portion of failed defense companies, it’s highly likely that we would conclude they fell victim to the ‘Valley of Death’. For all startups entering this space, be weary of the perilous gap between Research and Development and the successful transition of technologies into operational use. Small Business Innovation Research or SBIRs play a crucial role in bridging this gap. SBIR programs offer a lifeline to startups and small businesses seeking to traverse the VoD. These programs provide non-dilutive funding to support R&D efforts across three distinct phases:
Phase I: Proof of Concept:
In the initial phase, companies receive funding to conduct feasibility studies and demonstrate the technical merit and feasibility of their proposed innovations. Phase I awards typically range from $50,000 to $150,000 and last for a duration of six to twelve months. Be cautious not to fall into the trap of the ‘SBIR mill’ where companies receive substantial Phase I grants totaling tens of millions of dollars but fail to gain meaningful commercial traction. Successful completion of Phase I enables companies to advance to the next stage of development.
Phase II: Prototype Development:
During Phase II, companies expand upon the findings of Phase I and develop working prototypes of their technologies. Phase II awards, which can rage from $750,000 to $1.5 million, support the refinement and validation of prototypes over a period of two years. Companies that successfully navigate Phase II may be eligible to pursue additional funding and transition their technologies to operational use.
Phase III: Commercialization:
Phase III represents the ultimate goal of the SBIR program, where companies transition their technologies from the R&D phase to commercialization and operational use. Unlike Phases I and II, Phase III funding is not provided directly through the SBIR program but may be secured through other government contracts, private investments, or commercial partnerships. The holy grail of Phase III is to secure a ‘Program of Record’ - a formal acquisition program within the DoD or other government agencies - which provides recurring revenue and support for the procurement and deployment of defense systems.
The Importance of Landing a Program of Record
Like I mentioned earlier, landing a Program of Record is the Holy Grail for companies participating in SBIR programs, as it represents a pathway to sustained revenue and market viability. A Program of Record signifies that a technology has met the rigorous requirements and standards necessary for operational deployment, providing validation and credibility to the company and its products.
There are only a small handful of defense startups that have successfully landed a PoR including Anduril, Vannevar Labs, and Shield AI.
Wrapping up..
Like I said, selling to the DoD is not easy. There is triad of entities with competing agendas. This is stark contrast to the ethos of Silicon Valley company building, where companies prioritize solving problems in the most efficient manner and then offer products to customers. As for the government, they seek to collaborate with companies that not only adhere to strict requirement specifications but also operate with a deliberate and methodical approach avoiding the ‘move fast and break things’ mentality often associated with Silicon Valley startups.