04/26/2011 11:09 am ET Updated Jun 26, 2011

Tech Startups: Turn The U.S. Military Into Your Client

This post was co-written with Matt McKnight and Brett Gibson.

The U.S. defense and intelligence communities have traditionally been difficult markets to engage. For this reason, most early stage entrepreneurs know very little about these organizations as potential partners or clients. This need not be the case. Today, there are changes on the horizon that endeavor to make government markets more accessible and easier to understand. As a country, we are entering an era of flat security budgets which will drive a necessity for less-expensive commercial-off-the-shelf (COTS) solutions, thereby benefitting innovative young companies.

There is a significant effort underway to modernize the IT acquisition cycle, and the government is reevaluating the rules governing the purchase of items like Software-as-a-Service (SaaS) products. Procurement officials are working hard to ensure that new products are not treated in the same manner as big-ticket items like ships and airplanes as many are now. Further, defense and intelligence organizations are focusing massive resources on the persistent and growing cyber-threat, and this will require continued engagement with best-in-class private sector companies. With all that said, and despite potentially positive changes on the horizon, government work can be difficult and dangerous for small businesses who don't understand the risks that will still exist.

As military and intelligence officers and entrepreneurs, we submit this series of notes as a short starter guide for approaching military and intelligence markets in a way that can effectively turn the government into your client. This project is built on our frustration with the lack of access to technology innovation during our time in the military. We wanted to better understand this challenge so we conducted over 25 interviews in the past few months with industry experts to develop recommendations for innovative companies to approach these markets and design and deliver better products to servicemen and women.

Based on these conversations with entrepreneurs, government acquisition officials, intelligence and defense professionals, venture investors, and the private equity community, we draw out areas that are most pertinent to entrepreneurs as they begin to look into working with the government. These topics, discussed in detail below, are:
  1. Know what is happening in the macro defense/intelligence environment and apply those dynamics to your organizational approach;
  2. Target specific user communities and understand what they need;
  3. Know what "color" of money you are best positioned to receive;
  4. Understand how the government thinks about acquisitions and;
  5. Realize you must dedicate resources to this effort.

The government really does want to help entrepreneurs.

Government acquisition programs can be disorganized and difficult to engage with and contracts are sometimes written by a government customer that does not know the technical scope of the service they are requesting, there is high turnover within the system as military and government personnel work in two to five year intervals in most jobs, and funding is largely dependent on fiscal year cycles. All these factors can contribute to inconsistent and unpredictable contracting cycles.

The defense and intelligence communities are aware of these problems, and they are working hard to fix them. Being sure to understand the risks, we believe change is coming and that it is worth the effort for small companies to begin thinking of the government as a clear distribution channel. Even today, a variety of innovative technology transfer organizations funded by the U.S. government are seeking to reduce the friction involved with the traditional contracting structure. We will highlight some resources in the appendix to this article, but entrepreneurs should research In-Q-Tel, OnPoint, the Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) grant programs, the Defense Advanced Research Projects Agency (DARPA), and the Intelligence Advanced Research Products Agency (IARPA) to seek opportunity in this space.

Now is an opportune time for entrepreneurs and technology firms to engage with the government customer. In response to increased demands for innovative technology, the defense and intelligence communities are beginning to work more quickly to develop solutions that are flexible and agile. This shift is changing the way defense and IC companies serve their customers, collaborate with partners, and take ideas and solutions to market.

Further, a relatively untapped market for Silicon Valley firms, the environment for large strategic defense contractors making purchases of small companies active in these emerging growth areas will likely heat up over the next two to four years. Technology start-ups that have traditionally avoided the government as a market are potentially missing a huge opportunity to leverage an important distribution channel that provides both access to funding and an immediate stamp of legitimacy for emerging products.

We will soon post an in-depth explanation on the first five things to know when you start looking for government funding.

This post was co-written with Matt McKnight and Brett Gibson. Matt, a former Marine Corps intelligence officer, is currently attending the joint degree program at the Harvard Business School and Kennedy School of Government. Among other pursuits, he consults for the Mayflower Strategy Group. Brett, a former Army officer and second-year student at HBS, will be joining LivingSocial in Washington DC after graduation.