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Transitioning Commercial Drone Applications into the Military Defense Market: What You Need to Know
By Edmond M. Hennessy, Performance Marketing Group
COTS Journal reconizes the importance of the Commercial UAV News concerns with this information ahead of it’s 2022 EXPO.
There are many commercial drone companies who want to get a piece of the Defense Market in order to extend their portfolio. This makes sense, as securing a position in defense-related, programs can provide a predictable and sustainable source of business and compensate for unexpected swings in the business cycle.
According to Fortune Magazine (Business Insights), the US Military drone market will grow from $11 Billion in 2021 to $26 Billion in 2028 which is a 12.78% CAGR (compound annual growth rate). However, migrating to the Defense and Military Market is not a simple translation of what has worked in other market segments. To tackle the tough and complex Defense sector, a company needs to understand the ground rules, and make the right moves to become a serious player.
What it Means to Establish a Bridge Between Commercial and Defense
We have seen companies over the years declare a commitment to crack the Defense and Military Market, only to discover two years out that they discontinued their efforts or abandoned the market completely. Some of these organizations gained early success (by grabbing low-hanging fruit) or selected to develop this market segment for the wrong reasons.
Entering the Defense Market requires strategic focus, relatively deep investment pockets, patience, tolerance, and an appetite and drive to run the course—no matter what materializes. The common denominator is that companies want to gain content on Deployable Programs (a program that reaches full production for a multiyear cycle—usually 7 to 10+ years).
Although these sorts of Deployable Programs are the attraction, it is important not to overlook the fundamentals of the program lifecycle, budget/funding allocations (top-line defense level), priority shifts/competing interests, fierce competition, and the realities of coping with the government and military machine. Securing a position in a deployable government defense program is a long-term, multiphase arrangement and there are no shortcuts.
Years ago, we conducted research to understand and define the basic model utilized by major defense contractors/integrators that grew up in the Defense and Military Market. Our initial objective was not to translate this model as a one-size-fits-all solution for small-to-medium sized companies, but over time, it became clear that the elements of the methodology/process we defined were essential for success for any firm.
Without taking this approach, we would have wandered aimlessly and taken years to understand a winning formula or never gotten there. Regardless of size, companies can retrofit and apply a similar approach, taking their business priorities, technology capabilities, resource constraints, budget availability and organizational make-up into account. The
mindset and skills, within the organization, are key. It is important to remember that a square peg cannot fit in a round hole—at least not without some adjustments. This also applies to attempting to translate the requirements of a defense game plan into your core business, particularly if your experience base is grounded in the Commercial Market.
The following sections of this report walk you through what should be considered if you are planning or thinking about breaking into the Defense and Military Market.
The Key Elements to Construct Your Defense and Military Game Plan: 1) Industry Structure
Like other verticals, the Defense and Military Market has its unique characteristics and operating standards. The primary operatives consist of the government/military (target program offices and agencies are usually crossmilitary in scope), lead labs and the defense contractor/integrator community (industry), with participating commercial technology firms (supplier base), third-party influencers (technical agents, consultants, etc.), and sometimes notable academic institutions.
Although smaller firms are unable to cover all these entities, it is critical that for programbased selling that these various sources are taken into consideration to support your Business Development Strategy. Without this, it is easy for the competition to outpoint/ outmaneuver your firm and leave you highand-dry (usually without you even realizing it). Furthermore, each of these entities plays a role in various phases of the program lifecycle from the R&D (proof-of-concept phase) to preproduction, full deployment/production, and continuous life-cycle support.
2) Program Selling
The government/military has gone through several cycles over the last decade. There has been a resurgence of discrete, program selling and lifecycle considerations versus the previous emphasis on single-year budget and short-term technology refreshes and insertions.
To target the Defense and Military Market requires a common ground – selective program focus. For example, the Offensive SwarmEnabling Tactics (OFFSET) program, which is a DARPA initiative that supports infantry units using drone swarms of 250 small, unmanned aircraft systems (sUAS) to support urban warfare. If this approach is not adopted, then your firm will be viewed as a solution looking for a problem-to-solve. Program offices/agencies manage program elements and control the funding/ budget allocation, while the lead labs and defense contractor/integrator base translate specifications into hard deliverables. For technology providers and other suppliers, the defense contractor/integrator base represents the key “consumer” and the pathway toward fulfilling deployable contracts.
There are many occasions in which working directly with the government/military complex is warranted. Examples could include seeking government research funds (SBIRs) from organizations like AFWERX or participating in a development project with DARPA or gaining acceptance with the Defense Innovation Unit (DIU) and fulfilling real-world projects that fit your technology capabilities. However, for most suppliers, their breadand-butter is adding value to the defense contractor/integrators’ deliverable solutions to the end-user.
3) Industry Marketing
The current DOD estimates that over the next five to seven years unmanned platforms will grow from several hundred (different types) to roughly 10,000 varieties with 90% of these vehicles falling into the “miniaturization curve” – which reflects favorably upon the bright future that drones have within the Defense and Military market. Furthermore, the DOD has increased the budget to support this by 3X compared to a few short years ago. Although firms need to know how to speak to this segment through effective marketing.
Know How Your Commercial Drone Solution Fits into the Defense/Military Market
The Defense and Military Market, like other verticals, requires dedication and an active program to build position and momentum for your firm. One of the first tasks is to determine which segments of the Defense and Military Market fit your firm’s capabilities and expertise.
Well-recognized segments consist of avionics (airborne platforms), navtronics (surface-ship defense/undersea warfare), vetronics (groundbased, vehicles) and space-based, vehicles. This is further refined by target area of emphasis and application segment—for example, C4ISR (Command, Control, Communications & Computers for Intelligence/Surveillance/ Reconnaissance) for an airborne target identification/tracking application; an anticruise missile application hosted on a surface-
ship; or a detection system for roadside bombs engineered and operating from a HUMVEE-like vehicle.
The mix is endless; however, one must be clear and specific about the focus because it is too easy to wander aimlessly in this vast Defense and Military Market—understand where your solution fits best. Given the highpriority that counter-UAS and drone swarms play as threats referenced in the Military Doctrine, we have seen rone suppliers putting emphasis on applications like detect and avoidance, mapping and tomography, targeting systems, counter drone disarming and destruction systems, border and perimeter control and protection, weather forecasting, and so on, with a range of technologies being applied like sensor-based technologies, camera technology, navigation/control/guidance systems, advanced communication systems, propulsion systems. There is a never-ending list of crossover applications between the commercial and defense markets—the challenge is to understand how they can function in both segments.
Hire, Train, and/or Partner with Specialists in the Defense/Military Market
To reinforce the commitment to the market, firms should attract or train/ develop specialists that “walk the walk” of the Defense and Military Market allowing them to “speak the customer’s language.” In addition, the company should develop a media-based program—an element of the defense game plan—to actively participate in industry interviews, submit useful articles (usually program and application-based), fuel webinars (useful to the target audience), host problem-solving workshops (usually account focused) and invest in building a sector management function (over time) that can interface with selected agencies/program offices to build position and develop new classes of opportunities.
This may appear to be daunting, however the first step is to prioritize/select your entry elements and get into the starting gate. This is a long-term proposition and will build content and momentum over the years.
The battle cry for serious industry players is to achieve a level where the government/ military will “specify” their content for program fulfillment, which becomes a conditioned response. This is the high point of determining the effectiveness of your defense strategy and game plan. There are many examples of companies like General Atomics, AeroVironment, Skydio, Martin UAV (now AI Shield), Citadel Defense (now Blue Halo), Kratos Defense, Dynetics – and a range of smaller players like Full Throttle Aerial, Fortem Technologies, IRIS Automation, and so on that are making this happen.
4) Government Contracting
This is a complex and consistently changing area that can make or break firms. If your company does not have in-house expertise and considerable government contracting experience, it is advisable to leverage an outside expert that is conversant in Federal Acquisition Regulations (FARs), DFARs, Certs, Reps and the current (and future) requirements and mindset of the government contracting machine.
There are subtleties in working contracts with the government that rival any other market segment in terms of sophistication, complexity, formality, savvy, ground rules and dedication. Just look at what is required to set-up and negotiate a contract that has ITAR (International Trade in Arms Regulations) implications, and you will quickly understand.
On the flip side, the government has been continuously working on streamlining the acquisition process with an emphasis on rapid response to drive quicker turnaround on contracts that support shorter deployment cycles.
5) Caveats and Qualifiers: A Few Tips
Be watchful of contracts that taut IDIQ (Indefinite Delivery/Indefinite Quantity). These contracts provide no formal commitment. They draw suppliers in to share the program risk. We have seen IDIQ Programs that have gone through the roof in terms of production business and some that just fizzled after the initial ramp-up phase.
When your firm leverages into a program, make every effort to understand the various phases required to reach full deployment/ production, and ask the question about “recompetes” along the way. The government/ military is noted for going back to industry to keep the incumbent honest and to stir up the competitive pot. Just imagine making a threeyear commit into a program, riding it to preproduction and then being written out of the script for full deployment.
In addition, be tuned-in to the contracting terms—for example, “rights in data” and “2nd sourcing,” which are standard terms for the government/military. What they translate to is that contractually your firm is obligated to relinquish its “secret sauce or family jewels” to the government, during the contract period. This allows the government at any time to transfer this and setup a 2nd source that will replace your content. There are valid reasons why the government would exercise this provision, however it results in your firm being displaced.
Finally, dual-use is a serious topic in defense circles. In some cases, if a drone provider cannot demonstrate that its technology solution has traction and acceptance in both the Commercial and Defense Markets, it may be eliminated for consideration for active program and project bids. This is one of the reasons that alignment with selected defense contractors and various program offices/agencies are key elements to your overall strategy and a necessary bridge.
Depending on the target program and platform requirements, commercial drone providers may have to extend their products with packaging technologies and comply to other standards to meet the demands of harsh environments and other conditions common to defense applications.
Misconceptions and Concerns About Playing in the Defense Market
Given our decades of experience in the Defense Market, we have compiled prominent concerns and misconceptions that technology companies have about entering this challenging arena.
Here is a short breakdown: • Politics – It is generally assumed that an environment that is revolving around the government/military machine is political. In reality, this is a highly structured, complex, risk averse environment in which “compliance” prevails.
• Preferential Treatment to Large
Players – There is a tendency to believe that program business is “wired” and biased toward large defense contractors and that small players do not get a fair shake. There is no doubt that defense contractors have earned their way and have infrastructure, programmatics, resources and other attributes that small companies cannot duplicate, however with rare exception, the government/military acquisition and procurement processes, by law, cannot show preferential treatment or wire contract awards. In fact, commercially available technologies are given first right of consideration. This is one of the reasons that outsourcing within the DOD has become the norm.
There are also Government Agencies (like DIU, AFWERX, AFRL, ARL, Space Force, etc.) that are setup to attract and vet small technology providers, which is designed to fuel continuous innovation, provide competitive advantage, and protect the War Fighter.
• Government Selects the Lowest
Bidder – This is another misconception. The government/military utilizes a comprehensive matrix that identifies evaluation/selection criteria for every procurement. There are high grades for “vendor past performance” and other considerations. Unless it is a generalpurpose, low cost, commodity buy, there is considerable work put into evaluating and selecting suppliers. Emphasis is put on addedvalue, nature of the problem–solution, costeffectiveness, life-cycle considerations, total cost of ownership, ease of maintenance/repair, future roadmap, and so on.
• DOD Projects Have Long Sales Cycles
– This is relative, although there are clear steps and phases that DOD programs go through from early-stage (feasibility studies) to R&D (proof-of-concept) to pre-production to full deployment/production (the real payoff). The objective is to secure early-stage, design-wins and then ride that through the full cycle. This may take several years (with revenue flowing along the way), but the dream and promise of Defense-related business is that it goes fullproduction and becomes a sustainable source of business. This has contributed to the fortunes of many tech companies.
Bottom Line: If You Build a Bridge, Defense/Military Market Can Provide Long-Term Sustainable Income for Commercial Drone Solution Providers
The Defense and Military Market continues to garner attraction and is one of the most predictable Industry segments, which provides sustainable dividends. Although this Market segment continues to morph and evolve, it continues to be one of the most compelling segments in terms of the technology developments/advancements that support active programs, platforms, and applications.
Whether your firm is extending its reach or is dedicated to entering this sector, having a Defense and Military segment in your firm’s portfolio can be a smart move to establish a long-term sustainable income to meet company goals.
