DOD Valley of Death: Closing the Two Year Gap

Anduril Industries
Jan 13, 2021 · 6 min read

By Matthew Steckman, Chief Revenue Officer and Megan Milam, Head of Government Relations

Matthew Steckman is the Chief Revenue Officer for Anduril Industries, where he is responsible for new business and customer success with a focus on U.S. and international governments as well as large companies facing infrastructure security challenges.

Megan Milam is the Head of Government Relations for Anduril Industries, where she is responsible for Anduril’s advocacy strategy and engagement with policy makers, leading the policy discussion around the use of emerging technologies by the United States government.

This post is the first in a series by Anduril Industries to provide recommendations and solutions to address the challenges of scaling technology within the Department of Defense. The innovation problem faced by the DoD was outlined by Anduril Chairman Trae’ Stephens in an op-ed in Defense News.

Faced with its most technologically sophisticated adversaries for at least the last few decades, the United States military has two choices. In the words of Air Force Chief of Staff Ge. C.Q. Brown, “We must accelerate change, or lose.” America produces the most sophisticated software technology in the world, but if none of it ends up in the hands of our warfighters, our military will cede leadership to peer and near-peer competitors like China and Russia.

This post will not rehash the innovation problem that the Department of Defense faces; our colleague Trae’ Stephens laid out the challenge ahead at length in a recent op-ed. Instead, we propose a solution to DoD’s struggles to scale emerging technologies. To DoD’s credit, it has established initiatives designed to spur innovation like the Defense Innovation Unit (DIU), AFWERX, and NavalX. But DoD should not confuse these critical first steps with a finished job. The ultimate purpose of defense innovation is to create new technologies that scale, going from pilot programs to fully fledged programs of record at the speed of relevance. Handing out hundreds of small awards through these entities without providing a pathway to bigger contracts is an inefficient use of DoD resources. In other words, it is time to take the next step.

The Pentagon and Congress should establish an annual “Scaling Innovation for the Warfighter” fund to provide funding for select, promising technology pilots incubated by innovation organizations. This would allow promising defense technology companies to bridge the 2-year “Valley of Death” between pilot program and program of record.

How does the “valley of death” kill innovation? Imagine you are an innovative defense startup that has developed a novel unmanned aerial system, which you have proven through DoD demonstrations to be better than anything the military has on offer. Thanks to DoD’s innovation initiatives, you find it easier than ever to secure pilot funding — in the order of $500,000-$1 million — to demonstrate your system. The warfighters need this capability, and their commanding officers want to buy it. There’s just one catch: the soonest you can get meaningful funding through the Program Objective Memorandum (POM) process is in 2–3 years’ time.

This will sound familiar to any non-traditional defense company trying to do business with the Pentagon. For these companies, and particularly new start-up companies, a three-year wait to transition from the initial pilot or prototype to a production contract funded in the budget is a death sentence. Companies are left to choose: do I fight for short-term funding to survive, taking on unknowable and unmeasurable political risk, or do I scrape, beg, borrow to get by and pay my employees for 2 years before material dollars can be realized in what quickly becomes the 4th year of the customer relationship? Michèle Flournoy highlighted this problem in a paper earlier this year, bemoaning the “lack of flexible funding to bridge the gap (often a year or more) between a successful prototype or demonstration and a production contract [from the DoD].” DoD and Congress must do everything they can to simplify their processes to enable new entrants into the system to drive the technology innovation they so desperately desire.

This is problematic not because it hurts new companies, but because it deprives the military of the tools they need to fight the conflicts of tomorrow and even today. While the major defense primes successfully built the hardware systems that defined the last century of combat, today’s conflicts will be defined by software first, hardware second. The engineering expertise needed to build complex software systems exists outside of the big primes, within nontraditional defense companies and innovative technology startups.

A recent experience at Anduril underlines how this system deprives warfighters of crucial technology. We have a small pilot program with a DoD customer to provide Sentry Towers — autonomous structures mounted with AI-enabled sensors that deliver surveillance and battlefield awareness to users — to protect their military installations. The response from our customer has been overwhelmingly positive; our technology has improved their security posture and will reduce costs and manning requirements once fully deployed. The customer would like to deploy our Sentry Towers to dozens more installations.

Only it cannot. Despite the will and best efforts of our customer champions, the DoD budget process is too inflexible to accommodate in-year purchases of new technologies, even those that meet validated requirements.

This means that, in the best-case scenario, DoD technology is three years behind the commercial marketplace. Warfighters will attest to the fact that it is often much further behind than that. Meanwhile, our greatest geopolitical adversary, China, has a policy of “civil-military fusion,” ensuring that the latest commercial technology is available to their military as soon as it is developed. Our current system simply cannot keep up.

To add to these problems, venture-backed companies face pressure to show progress to their investors over 12–18 month cycles. These cycles allow these companies to seek additional rounds of funding to scale and innovate on their core technology. Commercial technology companies, operating in industries as diverse as finance, consumer applications, and transportation, are well poised to operate on this cycle; they can develop a product in 6–12 months and sell it quickly, iterating on customer feedback to improve their product while building up revenue. For companies trying to work in the defense sector, this cycle moves 3 times faster than the budget cycle.

We must solve this 2–3 year funding gap in order to make the defense sector open to non-traditional defense startups. As soon as founders and investors see there is an achievable path to scale innovation at DoD, investment dollars will flow to these companies. This will lead to companies investing their internal research and development (IRAD) on defense problems because it both makes business sense and is the right thing to do to support the U.S. military and the warfighter. A Scaling Innovation for the Warfighter fund is a crucial step towards this.

Defense leaders keep asking how to incentivize non-traditional technology companies to engage with DoD. The answer is simple. Give these new companies a path to scale at the speed of relevance.

Recommendation:

Congress should establish a “Scaling Innovation for the Warfighter” fund to provide a clearly defined pot of money for successful pilot programs, such as those efforts initiated by innovation incubators (i.e. DIU, AFWERX, SOFWERX, etc.) to scale technologies and capabilities from pilot or prototype programs into programs of record.

  1. The emphasis of the fund should be to provide commercially available innovative military technologies to military leaders and combatant commanders. Priority should be placed on commercial technologies and new entrants that integrate software with commercial technologies and hardware solutions in order to tackle mission requirements in unique ways.
  2. Funding should be prioritized to scaling technologies and capabilities that have already received initial funding through innovation vehicles such as (but not limited to) DIU, In-Q-Tel, SOFWERX, OT prototyping consortiums and agreements, and the SBIR process but are not yet in the POM.
  3. Congress should place clear limitations on the amount and duration of the contracts that are funded to ensure funding is focused on further demonstrating and validating operations capabilities to deploy at scale. In addition, Congress should limit eligibility to prioritize funding on new, innovative entrants and non-traditional defense contractors.
  4. Consistent with SBIR Phase III contracts, transition from funding through this mechanism to POM funding should be statutorily encouraged, consistent with SBIR Phase III contracts. Participating contractors should also benefit from favorable sole source and data rights such as those given to SBIR participants.
  5. To ensure congressional oversight, Congress should require clear reporting requirements regarding obligation of funds and explanation of how subsequent years’ funding will be provided in the program/budget process.

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