And yet, these startups almost never live up to all the hype they generate.
Every day, all throughout the country, tech startups are building capital and equity against their newest artificial intelligence, machine learning, satellite-based, or unmanned system solution to an identified inefficiency in military operations. Secretary of Defense Lloyd Austin encourages them by promising to lower risk in the defense procurement process while increasing DoD investment with companies working with sensitive technologies.
Lured by the perception of a tech gold rush in DC and the promising application of 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 through the retired generals and admirals on their payrolls. They promise to either modernize some existing capability or build a new solution to a problem vexing operational commanders. They move faster than the defense giants and offer cheaper and more adaptable solutions. Run mainly by former special operators and often championed by recently retired senior officers, these firms are closer to the modern battlefield than the big, established firms. More importantly, they are unbound by the lumbering layers of administration associated with the behemoth defense firms and can move faster on solutions.
And yet, these startups almost never live up to all the hype they generate. Much of this innovation is fool’s gold. Often, these solutions are not developed beyond an initial concept. Their systems require the kind of development requiring access and funding these firms do not have. Moreover, once exposed to the teeming world 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 tilt the field toward the select few giant contractors with fully functioning lobby and congressional engagement arms.
Generating revenue and gaining an audience with operational commanders is easy enough. However, once they enter 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 hill of bureaucracy. They lack the massive lobbying infrastructure necessary to gain government approval.
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. DoD’s senior leaders publicly promise to incorporate tech startups but lack a real mechanism to integrate their nimble, inventive spirits at scale.
As a result, the military procurement process falls back on the big firms with a history of successfully breaching the Program, Planning, Execution, and Budget process. Before they can even span the nearside of the Valley of Death, these startups succumb to the burden of obtuse federal requirements. These once-promising firms burn through their Small Business Innovation Research funding and either plug into a defense prime contractor or form a new startup and try again.
It’s a missed opportunity for the US military. In areas such as 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, as it does not offer a high probability return on investment.
Meanwhile, the acquisitions process sends mixed signals; Pentagon leadership advocates for contracting with small firms, yet those firms repeatedly die on the vine when they attempt to sell to the military. Deputy Secretary of Defense Kathleen Hicks touts small tech companies with new ideas and new products as a “competitive advantage” against China. The 2022 National Defense Strategy explains that the department must transform to compete with China by “incorporating emerging technologies in the commercial and military sectors.” Meanwhile, many military leaders do not understand the technology promised by the startups, and see many of these new firms struggle to enter the defense ecosystem. The hype around some 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. For example, beginning in 2018, the defense community fawned over a series of supposedly groundbreaking AI-based targeting tools that would drive down time from sensor to shooter. These tools were tested by the U.S. Army’s XVIII Airborne Corps at Fort Bragg in a series of exercises. Leaders were enthralled, commanders supported the systems. But the systems, developed by tech startups, never survived through the procurement pipeline.
DoD culture does not match well with startup culture, which thrives on risk, speed, and a drive for constant product upgrades.
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.
Meanwhile, Pentagon officials 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 lost ghosts of failed 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 are going 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 potential benefits but also for the potential risks they may introduce. However, 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 vast, teeming, burdensome system associated with bringing an AI solution to market. The notion that startups can swiftly revolutionize the defense industry—or even place a 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.
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. The establishment of the Pentagon’s Office of Strategic Capital (OSC) represents true 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. OSC also stress-tests new kit in field environments to ensure the emerging tech lives up to the hype. 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.
OSC is a commendable initiative, but it alone is not enough to drive the necessary change. Another resource worth consideration is a crossover fund that allows an emerging tech that demonstrates value in operational environments to scale from testing to production. Finally, leaders throughout the process must be lauded rather than penalized professionally for betting on new products that solve existing inefficiencies, even if they should fail. Risk takers must be awarded with advancement. This will, over time, transform the risk-averse culture of the department. In the pursuit of military innovation, the allure of tech startups promising groundbreaking solutions is undeniable. However, reality often falls short of the hype. OSC signifies a positive stride, and the Blue UAS program demonstrates the potential for streamlined procurement pathways. Combined with these initiatives, a fund source specifically earmarked for tech proven in testing and a cultural change toward embracing emergent tech firms are needed to truly unleash the potential of these agile startups. Until then, let’s shut down the tech start-up hype.
Joe Buccino is a retired U.S. Army colonel who served as the Communications Director for U.S. Central Command from April 2020 to August 2023. He is now an advisor to the Bulkington Media Corporation.
The views expressed in this article are those of the author and do not necessarily reflect those of the U.S. Army War College, the U.S. Army, or the Department of Defense.
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