Expanding Horizons
Commercializing Defense Tech Companies
Here’s a dirty (not-so-)secret.
Venture capitalists will not invest in a company strictly to support defense.
Yes, there are investors that are motivated by a sense of patriotism and a desire to support our national security.
But that alone is insufficient. They still need to be able to provide sufficient returns to their LPs to continue in the business.
As a result, VCs are often (and rightly) concerned about scalability and growth potential.
It is possible for a defense-focused business to scale and make enough money in defense to make those returns. After all, the defense budget in the United States alone is pushing $800 billion. The defense market, however, only offers limited opportunities for such scale.
As a result, commercialization offers an attractive path for continued growth, diversifying a startups revenue streams and allowing access to a much larger commercial market.
Leveraging Defense Tech Expertise and Innovation
Defense challenges are usually complicated and quite often complex. Companies solving those challenges in such a highly specialized and demanding industry combine cutting-edge technology with deep, strategic thinking. As a result, they often develop deep, inherent expertise.
For defense tech companies looking to leverage their expertise and innovation to create innovative solutions and products for non-defense sectors, they should consider the following ideas:
Technology Transfer: Defense tech companies can transfer their technologies and expertise to non-defense sectors. Many defense technologies have potential applications in fields such as aerospace, healthcare, transportation, energy, and communications. For example, advancements in unmanned aerial vehicles (UAVs) developed for military purposes can be adapted for civilian applications like surveying, infrastructure inspection, or package delivery.
Adaptation and Repurposing: Defense tech companies can adapt and repurpose their existing technologies for non-defense sectors. For instance, advanced surveillance and sensing systems used in defense can be utilized for environmental monitoring, disaster response, or public safety applications. Similarly, cybersecurity solutions developed for protecting military networks can be modified for securing commercial networks and data.
Collaborations and Partnerships: Defense tech companies can collaborate with non-defense industries and organizations to explore new applications for their technologies. By collaborating with experts from different sectors, they can identify potential areas where their expertise can be applied. Collaborative partnerships can lead to the development of innovative products and solutions that combine defense technology with domain-specific knowledge.
Cross-Pollination of Ideas: Defense tech companies can encourage cross-pollination of ideas by bringing together experts from defense and non-defense sectors. This can be facilitated through joint research programs, innovation challenges, or industry conferences. By fostering exchange and collaboration, new perspectives and ideas can emerge that drive innovation in both defense and non-defense domains.
Technology Spin-offs: Defense tech companies can create spin-off companies to commercialize their technologies in non-defense sectors. This allows for a dedicated focus on adapting and marketing defense-derived technologies for specific industries. Spin-offs can access funding, partnerships, and networks specific to the target sector, accelerating the deployment of innovative solutions.
Dual-Use Technologies: Defense tech companies can develop technologies with dual-use capabilities, meaning they can be used in both defense and non-defense applications. This approach allows for the simultaneous advancement of defense capabilities while addressing challenges and needs in non-defense sectors. Dual-use technologies can range from advanced materials and sensors to data analytics and communication systems.
Technological Synergies: Defense tech companies can identify synergies between defense and non-defense sectors to create innovative solutions. For example, advancements in robotics and automation developed for defense purposes can enhance manufacturing processes in various industries. By identifying common technological challenges and opportunities, defense tech companies can adapt their expertise to create transformative solutions.
Of course, when applying defense technologies to non-defense sectors, we must account for considerations such as regulatory requirements, ethical implications, and specific market needs. However, with careful adaptation, collaboration, and strategic planning, defense tech companies can effectively apply their expertise to create innovative solutions and products that benefit non-defense sectors and contribute to societal progress.
Adaptability and Technology Transfer
It used to be that many of the most important commercial developments were actually tech transfers from the DoD. This included things like nuclear energy, computers, the internet, GPS, and space exploration. Today, private industry is responsible for a greater percentage of tech breakthroughs. Nevertheless, the DoD still has tech breakthroughs, as evidenced by the NSIN Foundry and Forge programs.
Regardless, it’s important to consider that defense tech companies have demonstrated significant adaptability in transitioning their technologies to non-defense sectors, leading to successful commercialization in various industries. More recent examples include drones (UAVs) and cybersecurity.
Drones, initially developed for military reconnaissance and surveillance, have become increasingly popular in civilian applications. Defense tech companies have played a crucial role in advancing drone technology and adapting it to various sectors. Drones are now used extensively in aerial photography and videography, agriculture (crop monitoring and spraying), infrastructure inspection, search and rescue missions, and even package delivery services.
Defense tech companies have long been at the forefront of developing robust cybersecurity solutions to protect military networks and sensitive information. As cyber threats became more pervasive in the civilian world, these companies adapted their expertise to address the growing challenges faced by businesses, governments, and individuals. They offer a range of cybersecurity products and services, including secure communication systems, intrusion detection and prevention systems, encryption technologies, and vulnerability assessment tools.
The successful transition from defense to civilian sectors often requires modifications, additional features, and a focus on user-friendliness, affordability, and scalability. Defense tech companies leverage their expertise in research, development, and innovation to refine and tailor their technologies for specific non-defense applications, enabling widespread adoption and market success.
It is important to note that the commercialization process may involve collaborations, partnerships, and regulatory considerations to ensure compliance with industry standards and address any potential ethical or legal implications. However, defense tech companies have proven their ability to adapt and successfully commercialize their technologies, bringing valuable solutions to non-defense sectors and driving societal and economic advancements.
Examples of Defense Tech Companies Expanding Beyond Defense
It might be helpful to explore two case studies of defense tech companies that succeeded in commercializing their product, creating new product categories outside of the defense market. Let's look at two examples: AeroVironment and iRobot.
AeroVironment:
AeroVironment, a leading defense tech company, successfully commercialized its unmanned aerial vehicle (UAV) technology for non-defense applications. AeroVironment was incorporated in the 1970s and has consistently focused on flight since then. In the mid 2000s, the company secured a series of lucrative contracts with the military for UAVs, becoming the largest provider of small UAVs to the DoD. Beginning around 2012 with the Shrike VTOL UAV, AeroVironment began an effort at broader commercial expansion. They envisioned the Shrike VTOL supporting communications following natural disasters.
A key lesson from AeroVironment’s broader commercialization is to focus efforts on adjacent markets, as the problem-solution fit will likely better lend itself to the repurposed product.
iRobot:
Many people may not remember that iRobot got its start as a defense tech company, years before it created the Roomba. The Roomba has absolutely overshadowed the critically important (to combat engineers and EOD personnel, at least) PackBot. In fact, iRobot’s commercialization was so successful, that it ultimately spun-off its defense tech business to a private equity firm. As of 2020, there were estimated to be more than 30 million iRobot home-use robots.
iRobot expanded in a radically different way than AeroVironment. While AeroVironment expanded to a directly adjacent market, iRobot repurposed its technology to create an entirely new market altogether.
These examples demonstrate that defense tech companies can successfully commercialize their products by adapting their technologies and strategically entering new markets. The keys remain to understand the target market, meet consumer needs, and continuously innovate to stay ahead of the competition.
Conclusion
A key way for defense-focused companies to continue to grow is to look at broader commercialization opportunities.
Sometimes these commercialization efforts are relatively simple, requiring little more than repurposing an existing product for expansion into adjacent use-cases and markets (like AeroVironment creating a communications network for disaster relief efforts). Other times, the company’s existing product needs to be adapted far more (as in the case of iRobot).
Either way, it is possible for a defense tech company to carve out market niches and create product categories, capturing dominant positions.
Keep building!
Andrew