Despite the pace of global technological change, the United States military-industrial complex may never be truly “disrupted.” We need it too much. We need a robust inventory of purely public defense platforms like warships, warplanes, and advanced munitions. And we need the defense base that can build them — that highly consolidated core of “traditional” prime contractors working within a system that has proven nearly impervious to smaller, more agile “non-traditional” companies, particularly those in Silicon Valley.
So what are the most significant barriers to entry for tech companies and how can they be lowered? How do companies in Silicon Valley view prospects for doing business with the federal government in the national security arena?
As a career military officer, I set out to try to answer these questions during my recent fellowship at The Brookings Institution. The focus of my work (published in full today) is not acquisition reform—an inherently insular and Washington-centric concept—but rather an effort to frame the challenge from the perspective of Silicon Valley executives and venture capitalists.
The good news is something’s starting to give. The boundaries between traditional public defense goods and private goods are blurring, particularly as technologies like drones, robotics, artificial intelligence, and advanced cyber security tools penetrate further into society.
And early-stage tech companies are well positioned to contribute to the defense industrial base, if only the culture and framework of the defense acquisition system can adjust to accommodate them. It must. Failing to fully leverage the most innovative segment of the U.S. economy threatens our long-term national security. In the Information Age, the pace of global technological progression is governed by Moore’s Law, not the Federal Acquisition Regulations, and falling behind will ultimately cost lives, treasure, and global influence.
While it is impossible to speak for a community as large and diverse as “Silicon Valley,” my research suggests that the barriers to entering the defense industrial base are formidable, if not prohibitive relative to competing technology markets. These barriers significantly limit the government’s access to top human capital and potentially disruptive technologies emerging in other segments of the economy. Contrary to popular belief, the source of these barriers is not based on any particular security or political ideology. It’s much simpler than that: it’s a matter of speed. Silicon Valley perceives the defense acquisition system to be incompatible with the speed and growth necessary to survive in today’s technology markets.
In fact, the majority of executives I interviewed had a general willingness to do business with the federal government on matters of national security. Yes, global commercial markets are often larger, but defense still brings significant capital to the table, and this is attractive to any entrepreneur. Moreover, these are executives who like to solve tough problems, and there are plenty of tough problems waiting to be solved in defense.
Kenneth Carter, legal counsel at the Internet performance and security firm CloudFlare, acknowledged the difficulties inherent in government procurement, but sees potential rewards as well. "We see opportunities to help fix things,” he said, “like making it harder for terrorists to spy on the government online and harder for the government to surveil on citizens without the due process of law.”
However, the vast majority of these executives also could not envision a viable scenario in which doing business in defense, or the rest of the federal government for that matter, made sense commercially. The Department of Defense (DOD) is simply perceived as a bad customer, one that is heavily skewed in favor of larger, traditional players. These traditional “primes” have the expertise to navigate a very complex and opaque acquisitions system, as well as the resources to wait out the long and highly uncertain sales cycles.
The Snowden affair also still looms large in some sectors. Companies that depend on storing and securing large amounts of customer data perceive association with the federal government’s national security apparatus as a fundamental threat to customer trust and therefore an existential threat to their business. In these markets the costs of eroding customer trust far outweigh any possible benefit from defense revenue, and this is something the government has yet to come to terms with.
Former Klout CEO Joe Fernandez clearly recognized that a government security agency might be interested in his company’s data and marketing analytics, particularly knowing what “700 million people talk about around the world on social media and how likely these people are to be incited or inspired by what others say.” But Fernandez also knew how damaging any engagement with the government could be to his business. “We had people come poke around to look at our data, political campaigns, banks, and security people, and we always stayed away as much as possible as we didn’t want consumers freaking out about what we were doing with their data.”
For most early stage companies, however, the Snowden disclosures are a red herring. These companies do not discriminate among customers ideologically and are instead focused on making the best decisions to grow their business. For them, the biggest barriers to doing business in defense have nothing to do with Snowden and everything to do with the difficulty of the process and fundamental differences between the defense market and competing commercial markets.
My research further suggests that any ideological or moral opposition in Silicon Valley to doing business in defense is likely overstated: what matters to early stage tech executives is being able to do business in a manner that does not significantly slow them down and doesn’t compromise the integrity of the platform or product they are trying to sell commercially. Oren Michels, former CEO of Mashery, an API platform company, said the primary moral issue is, “Can you serve the government in a way that is consistent with running your business and being successful when there are a lot of hurdles to cross to get there?”
Sadly, most executives and venture capitalists interviewed just don’t see any way for them to “win” in the current system. Serial entrepreneur Jim Marggraff, CEO of Eyefluence, developers of an optically controlled user interface for head-mounted displays, gave up on defense funding for his startup because, “There was always one more meeting, but it never went anywhere.”
The fundamental question we must ask ourselves in government is, in adding layer after layer of oversight to foster fair competition and mitigate risk, have we actually increased our risk by distorting the rules of the game such that the rest of the economy won’t even play?
The challenge of attracting new entrants from Silicon Valley is larger than most policy and lawmakers in Washington realize. Despite recent momentum for change at the highest levels of Pentagon and congressional leadership, much more will be needed to overcome the strong system bias against non-traditional companies. In my report I propose over two dozen policy recommendations to help modernize the system for the 21st century, including:
First, acknowledge this is a whole of government problem. Silicon Valley companies face formidable barriers to entry across the entire federal enterprise. The federal acquisition system is not just a national security liability, but also a liability to the overall effectiveness and responsiveness of government.
Second, change the narrative. The concept of “acquisition reform” neither resonates with the public nor sufficiently captures the associated national security implications. The fundamental imperative for reform is sustaining our ability to responsibly govern and defend the nation.
Third, start a national conversation to better define acceptable levels of risk for the taxpayer. In an excessively risk-averse, requirements-based, and compliance-focused acquisition system, we have decreased competition and arguably made few appreciable improvements in cost, schedule, and performance. Appropriately assessing risk could lead to more widespread use of some highly flexible business transaction tools, as well as broader adoption of commercial best practices, including establishing a large DOD-funded strategic investment arm in Silicon Valley.
Fourth, it is time to come to grips with the need for difficult civil service reform. Cultural barriers to acquisition reform cannot be overstated, and they are intrinsically linked to human capital. A lean, agile, and innovative acquisition system requires a workforce with the same traits. This culture can be changed but will require bold leadership. In the near term, start by making the system more attractive and permeable to leading technology professionals using a host of tools already being implemented by innovative organizations like the Defense Advanced Research Projects Agency (DARPA) and the U. S. Digital Service.
Fifth, we must restore some semblance of certainty and rationality to the federal budget process. Fiscal instability ultimately stifles innovation, increases acquisition costs for major projects, and discourages new entrants from competing.
Globalization and commercialization aren’t going anywhere but forward. Absent change, the outdated defense acquisition system risks becoming even further displaced from commercial norms, as does the defense industrial base that operates within it.
Despite a storied history of game-changing innovations in the post-World War II era, weapons system cost overruns, schedule delays, and embarrassing failures to deliver promised capabilities continue to plague the Pentagon. Just as troubling, the Information Age has ushered in another dangerous defense acquisitions phenomenon: the delivery of capabilities to the field that have already been eclipsed by faster-moving commercial technologies. This cycle must be broken lest we end up countering tomorrow’s threat with yesterday’s technology. Breaking down barriers to entry for emerging technology companies won’t be easy, but it’s the best place to start.
