The Operational Detachment Alpha, startup team of the US Military
As an investor in startup companies there is always a difficult balance to be maintained, with respect to what are decisions management must make alone and my role as investor, adviser and often Board member. This is due primarily to two constraints, namely my availability for any single company in our portfolio, and the need to limit personal liability. This means while I might be the more experienced in the room, often substantially so in very early stage startups, there are critical planning and essential decisions only management can make, though advised. This of course greatly increases the Risk of our investment not realizing the necessary Return on Investment “ROI” in the required time frame.
These Return on Investment requirements necessitate management be highly qualified and capable simply to succeed in business, even more so in the extremely uncertain and high Risk environment of startups. Meaning we must be exceedingly careful in selection of the teams we invest in. Which emphasis on the startup team leads to one of the most important factors in our investment decisions, the requirement to invest in teams over ideas. This heavy emphasis on team selection, selecting for tangibles such as specific skills and experience and for intangibles such as the ability to adjust rapidly to market movements, to operate independently, to build consensus and to lead, is true of a startup investment just the same as it is for a Special Operations mission.
The Special Forces Operational Detachment Alpha “ODA” is the twelve man element, the startup team, of the US military. While these teams are highly diverse, with a broad spectrum of skills and experience internally, each team is specialized in a core capability and mission type, with some teams, such as Direct Action and Sniper/Observer teams, highly focused and specialized. And when tasking an ODA to a specific mission, many tangibles are taken into account, such as the specialty of the team and the composite of sub-specialties contained in the unique background of each member on the team, as well as local language proficiency, and resource availability, among others. As well, the team’s awareness of the battlespace environment, direct experience in the country, as well as relationships with the Country Team and the Host Nation partnered forces, are among many additional considerations.
Intangibles must also be taken into consideration, such as:
- personality of the team, and does this match with the partner force and Country Team and whomever may be in higher command, the investor;
- operational tempo of the ODA which both exhausts and destroys families leading to troops not being in the fight mentally, commitment;
- whether the mission enhances the skills, capabilities and reputation of the team, company and battalion leading to greater capacity, valuation;
- does the mission address real or perceived needs, and who is determining that need and what is their intent, market viability, and
- should the resources of the team itself and its equipment be applied elsewhere or in another fashion, market shift.
These are exact analogs for the considerations I must take into account when deciding whether to invest in a startup team or not. Though with an ODA, unlike a startup team, there is at least a track record, and a great degree of due diligence on the individuals which I need not invest in, as each has been tested and vetted to Secret and many to Top-Secret clearance levels and more importantly have been tested directly in action.
That teams which require high levels of situational awareness, skills, experience, mental availability, relationships and internal and external cohesion is required of any highly competitive foray into high Risk and high Uncertainty environments, whether military, political, or commercial endeavours, is obvious, and on its own no revelation. That ODA’s function considerably like startup teams, out there all over the planet every day converting that Risk and Uncertainty to reinvestable assets, is perhaps less than intuitive or obvious.
The immediate arguments ensue of course when making such an assertion, as they have in many discussions I have had on the topic with military and government minded individuals, arguments which are not so prevalent when talking with investors and startup leadership teams. Central to these arguments is always the intangible value of military operations, sic, inability to value in monetary terms. This argument is for the most part put forward by those with no background in accounting or finance or with valuing assets and modeling ROI. In particular, most in the greater government-military sphere lack any experience at all in monetary valuation of intangibles and lack an understanding of the current sophistication of intangible asset valuation methodologies. This is unlike the startup investor, and ODA who must both model intangible asset values in detail in order to make an informed investment decision.
Before we proceed to valuation of Special Forces missions and commonality of an ODA to a startup team, we should first proceed with a couple definitions. In business and finance an intangible asset is “…[a]n asset that is not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today’s marketplace. An intangible asset can be classified as either indefinite or definite depending on the specifics of that asset.”[i] As to valuation of intangibles, “[i]n order to have value, intangible assets should generate some measurable amount of economic benefit to the owner, such as incremental revenues or earnings (pricing, volume, and better delivery, among others), cost savings (process economies and marketing cost savings), and increased market share or visibility.”[ii]
Leading from these definitions, while there are any number of methods for computing intangible asset valuation, the three most prevalent are Market –market(s) created and market share made possible, Income — pricing advantages or additional revenue streams made possible through and Cost — the straight book value of the expenditures related to creation of an asset or asset class. The take away from this is, just as with Special Forces operations, intangible assets are quite often the single largest asset a company possesses, comprising the majority of a company’s asset value and providing for a multiplication effect to book value of physical plant, equipment and inventories.
Translation from the intangible assets of business to those of Special Forces is not much of a leap, nor is it often argued with much vigor that the definitions are much different one from the other. In fact business often borrows best practices from the military as does the military from the business world with respect to intangible asset identification, generation and improvement. Where the argument ensue is in the valuation of these intangibles. Where business must by necessity value everything, including intangibles, in dollars, the military values only expenditures in dollars. Further arguments point to Income as an inappropriate valuation methodology for ODA missions, without substantial reinterpretation, though it could be argued Income is valid in relation to new opportunities made possible by. Despite these arguments, both Market and Cost based valuation are directly appropriate valuation methodologies. In fact the military has a long history of Cost — book based valuation and a nascent understanding of Market — positioning, alliances, preparedness and prestige, all of which an ODA must take into consideration when planning for and conducting any opertion.
Leading from this, given intangible asset definitions are for the most part translatable and two of the valuation methodologies are appropriate for business and the military, the question becomes one of what this has to do with an ODA. More directly, how does an ODA operate like a startup team. Exactly as a startup team, an ODA, provided only with minimal resources, market intelligence, a mission and timeframe, must devise and execute a sophisticated strategy to convert the inherent Risk and Uncertainty of the marketplace to tangible, and far more so, intangible assets, greatly improving the depth of the asset base and valuation of the assets within a portfolio. And all of this with the absolute requirement to never fail, given unclear mission parameters, substantial environmental — market — related impediments, and while understaffed, underfunded and often in a highly competitive and hostile territory.
[i] Source: Investopedia
