Joe Buccino
Every day, all throughout the country, tech startups are building capital and equity against their newest AI, machine learning, satellite-based, or unmanned system solution to an identified inefficiency in military operations. They are ready participants in what the Biden administration, borrowing from analyst Dr. Jonathan D.T. Ward, terms the "decisive decade" of competition with China. They are encouraged by Secretary of Defense Lloyd Austin, who promises to make it easier for groups like theirs to enter the DoD investment process.
Lured by the perception of a Pentagon tech gold rush and the successful application of some new solutions in Ukraine, these companies tether themselves to venture capital funding, generating equity, goodwill, and publicity. These startups gain access to military bases and audiences with military generals. They promise to either modernize some existing capability or build a brand new solution to a problem vexing operational commanders. In some cases, they are solving problems commanders don’t even know they have.
These startups move faster than the defense giants and offer cheaper and more adaptable solutions. Run mainly by former special operators and often championed by newly retired military generals, these small companies are closer to the modern battlefield than the big, established firms. Unbound by the lumbering layers of administration associated with Northrop Grumman, Boeing, and Lockheed Martin, they can move faster on solutions.
Eventually, reality sets in. These startups almost never live up to all the hype they generate. Much of their innovation is fool's gold. Often, these solutions are not developed beyond an initial concept and will never go further. Their systems require the kind of development requiring access and funding these firms do not have. Moreover, once exposed to the teeming jungle of regulations and requirements and budgeting and procurement and congressional oversight, they do not survive long enough to make it to market.
All these tech startups inevitably run against the Pentagon’s sluggish procurement bureaucracy and the brick wall of Federal Acquisitions Regulations 13 and 15, all of which bias toward the select few giant contractors with fully functioning lobby and congressional engagement arms. DoD's senior leaders publicly promise to incorporate tech startups but lack a real mechanism to integrate their nimble, inventive spirits at scale.
Generating revenue and gaining an audience with operational commanders is easy enough. However, once an LLC enters the government contracting process, these companies can never develop enough equity to untie the bureaucratic knots. They burn through investments in the years of pushing the rock up the procurement hill. They lack the massive lobbying infrastructure necessary to gain government approval. They also lack any capacity to reach government compliance for implementation.
And so, the tech startups eventually fall into a recursive spiral: running low on funds, they shed staff to continue on the glide path to a program of record contract. Years mount, investors grow exhausted, capital runs out, government requirements build.
Meanwhile, the military procurement process falls back on the big firms with a history of successfully breaching the Program, Planning, Execution, and Budget process. And, before they can even span the nearside of the Valley of Death, these startups succumb to the burden of it all. These once-promising firms disappear, never to be heard from again.
It's a shame and a missed opportunity for the U.S. military. In areas such as drones, satellites, AI, and unmanned platforms, startup companies often present the Pentagon with more cost-effective, swift, and adaptable solutions compared to the weapons systems typically provided by the handful of major contractors the Pentagon usually turns to. Big defense firms often do not invest in this kind of emerging tech.
Meanwhile, the process sends mixed signals to military senior leaders, many of whom don't understand the technology promised by the startups. The hype around the new piece of equipment leads to bad decisions and wasted efforts; commanders underwrite the latest technology to the services, which, in turn, wastes time, money, and energy on an item that will never survive the process to get to market. Progress on groundbreaking technologies is stymied, leaders at echelon are frustrated, and the potential of war-fighting tools remains untapped.
Leaders at the top of the U.S. military keep talking about the need to cultivate a bench of nimble American tech firms capable of moving faster than the industry's Goliaths. But they are up against a system developed to avoid doing so.
The U.S. defense-industry consolidation of the 1990s led to dependence on a few large companies that rely on government funding for research. These leviathan firms have developed arms, legs, eyes, and ears all over the American capital - they are virtually a part of the U.S. military unto themselves. They have the wealth, reserves, and connections to navigate the procurement process.
But another cultural barrier stands in the way. This one lives in the Pentagon.
DoD officials charged with buying new equipment and selecting winners from the defense tech industry generally avoid risk. Decades of bad press associated with overpriced jets and ships, $14,000 toilet seats, and corruption scandals linger like the ghosts of tanked careers in the hallways of the Pentagon. DoD culture does not match well with startup culture, which thrives on risk, speed, and a drive for constant product upgrades.
Risk aversion is not an inherently negative trait here. The stakes are high: billions in tax dollars go into new technology and warfighters must be armed with the suitable kit for the modern battlefield. A measured approach to innovation is essential to safeguard national security interests. Startups should be scrutinized not only for their proposed benefits but also for the risks they may introduce.
It doesn’t help that these startups tend to vastly overstate the capabilities of their technologies. There is no governing body verifying the often-stunning claims of these new companies and little glide path to validate the new kit. Commanders in the field often lack the technical prowess to determine if the technology matches its advertising. They also generally lack knowledge of DoD standards for sensitive systems like communications and satellite equipment.
Eventually, the hype crashes down around the start-up. The product and the company wither and die.
Civilian leaders in the Pentagon must temper enthusiasm with a realistic assessment of the menacing system associated with bringing AI, machine learning, or satellite-based solutions to market. The notion that startups can swiftly revolutionize the defense industry - or even place a single new piece of AI tech into the hands of American warfighters - ignores the entrenched nature of the existing procurement system. Embracing new entrants without solving for the years-long journey through the contracting process only encourages more startups and introduces confusion across the process.
The establishment of the Pentagon's Office of Strategic Capital (OSC) represents commendable progress. This office will employ financial tools such as loans and guarantees to support startup-built solutions, rather than the traditional tools such as contracts and grants. Funding for OSC was earmarked in the President's 2024 budget request, and the new organization will soon release an investment strategy.
However, a significant challenge lies in the need for more funding allocated for the large-scale acquisition of emerging technologies. There's a risk of investing in endeavors with a limited customer base.
The Defense Innovation Unit’s Blue UAS program evaluates emerging surveillance drone technologies and maintains a streamlined contracting tool that empowers Pentagon agencies to procure drones directly, bypassing the often protracted multiyear acquisition process. Blue UAS has greenlit several companies with potentially cutting-edge AI drone applications. This procurement pathway is a model for the department, but the Pentagon must apply this to all forms of new technology.
A fundamental shift is needed in the Pentagon's procurement and budgeting process to genuinely support startups. This transformation should prioritize the acquisition of cutting-edge technologies, ensuring that financial resources are directed towards innovation rather than merely showcasing it. OSC is a commendable initiative, but it alone is not enough to drive the necessary change.
In the pursuit of military innovation, the allure of tech startups promising groundbreaking solutions is undeniable. However, a comprehensive overhaul of procurement and budgeting processes is needed to truly unleash the potential of these agile startups. Until then, let’s shut down the tech start-up hype.
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