To better compete with both up-and-coming and established military powers on the global stage, the U.S. needs to find a way to get more entrepreneurs and investment dollars flowing into the defense space.

At Alloy 2024, I spoke with two close friends, retired U.S. Air Force Brigadier General and Small Business Consulting Corporation CEO and Founder Gerald Goodfellow and former U.S. Congressman and 47G Chairman Chris Stewart, to discuss how the Department of Defense (DoD) can and should work more closely with startups and corporations to build new solutions and technologies that address pressing Defense-related needs — and the barriers that have prevented them from doing so to date.

Top Takeaways

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• Gerald noted the current DoD procurement process makes it nearly impenetrable for entrepreneurs without an existing DoD relationship to secure contracts. However, he added the federal government aims to make it easier for early-stage startups and enterprises alike to partner with and innovate on the behalf of DoD.

• Chris said an optimal way for startup founders looking to work with the government on DoD contracts is to secure venture capital investment that can give them more runway and help them avoid the ‘valley of death’ so they can sustain operations when government-provided research and development grant money dries up.

• Gerald indicated one of the best ways to attract DoD’s attention is to create dual-use technologies, like those that can aid with both defense and aerospace needs (e.g., satellite communications technologies to help multiple types of military aircraft). The key is working with someone inside DoD who knows the ins and outs of contracting and can help get this kind of tech in front of the right audience to fast-track its adoption.

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Watch the full Alloy session below for additional insights from Gerald and Chris on the U.S.’s DefenseTech innovation needs and the pivotal role startups and corporations must play in our national security.

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Sign up for our Wavelength newsletter to access additional Alloy 2024 content, including recaps of our other sessions and keynotes.

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Transcript

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Elliott Parker: You all are in for a treat. I have been looking forward to this for quite some time. This is a topic that we could spend quite a bit of time chatting about.

Defense of our nation is a very critical and important thing for all of us. And there are a lot of opportunities to do better and to do more in the space of defense, including for early-stage founders and corporations that might find themselves adjacent to the defense industry currently.

And we've got two experts with us today. Fairly quick on introductions here. Let me just start by saying that Gerald and Chris are both friends of mine.

Gerald is a former Brigadier General in the Air Force, where he ran a lot of the procurement programs for the Air Force. Chris Stewart was, until recently, a member of U.S. Congress, where he was a senior member of Defense Appropriations and Intelligence committees.

Chris and Gerald, I believe, met in the Air Force back in the day. And just as a way to help you guys understand who these, who these two are a little bit better.

It's important to note that Chris and Gerald hold the world's record for fastest continuous flight around the world in an airplane, which they did in a B-1 bomber a while back. When was that, 1995? And this was an amazing feat of logistics. How long did it take?

Gerald Goodfellow: Thirty-six hours, 13 minutes, 36 seconds. 

Elliott Parker: Amazing. Okay. And what percentage of the U.S. Air Force refueling infrastructure was mobilized around the world to make this happen? 

Chris Stewart: A boatload. 

Gerald Goodfellow: About 20% at the time. We had more back then than we do now. 

Elliott Parker: Yeah. Amazing. It may seem like a thing that was done, not just for the world record, which is important and cool, but as a way to show that the U.S. can project itself anywhere in the world when needed. And I think that was an important exercise for that reason. 

Chris Stewart: Yeah, and that was the whole point of that. You know, as Air Force pilots, we couldn't go to our commanders and say, ‘Hey, we want to go set some world records.’ We were flying these missions from the United States over the Middle East, doing practice bomb runs, coming back home.

And Gerald and I were young officers. We were preparing for one of these, and we just kind of said, ‘Hey, you know, we're about a third of the way around the world. Why don't we just keep going sometime?’ So, you know, we did carry bombs. We dropped bombs in three different hemispheres, as I recall, six air re-fuelings.

But it was a projection of power. It was to demonstrate we could, you know, touch you anywhere in the world. I love when we talk about this. I love to tell people every bomb we dropped, even in a 36-hour mission, plus or minus one second, according to our time, our planned time. It was very precise.

Both of us would a lot rather talk about flying than anything else we're going to talk about today.

Elliott Parker: So it's a good topic. I wish we could spend more time on it. I wish you all knew these two guys like I do, good friends and amazing, amazing gentlemen.

So one of the topics we want to get into first is this idea that, for 100 years now, the planet has benefited from the U.S. having a strong defense, being able to maintain shipping lanes and project its power around the world.

Some would argue maybe we're not the leader we once were. Maybe, maybe not. There's a risk that, if we are now, we may not be in the future.

Chris, maybe we start with you and just talk about why it is important that the U.S. have a strong national defense. Let's start with the foundations here.

Chris Stewart: Yeah, so on this idea of national defense, and you all as investors, as business leaders — it's a space that many of you are skeptical to step into. We're hoping to change your mind.

I want to give you some of the whys, and then I'm gonna let General Goodfellow tell you some of the hows. He has deep expertise there that. I don't have the same as he does. And I look forward to his comments there.

But here's the reality. I've learned this throughout my entire life. I learned it in the Air Force, and I learned it in my time in Congress.

Whether we like it or not, we are the leaders of the free world. We have a responsibility. We are the glue that holds the world together, and people all over the world recognize that. And, honestly, I think some of them recognize it in ways that, unfortunately, many Americans don't.

There are those who resent that, and I understand that.

I mean, we don't want to be the world's policeman. It bothers us sometimes when we think we're spending this much money because we've guaranteed an umbrella of defense over NATO, over Europe, over Asia. But there's enormous good that comes from that.

And, if I could, Elliot, I'm going to elaborate here just a little bit, then I'll try to balance my time and not say as much later on.

There's this narrative, for example, with the previous administration that I worked very closely with the president there, that one of his objections was to convince NATO partners, they had made previous commitments that they would spend 2% of their GDP on defense. None of them were doing it with the exception of Poland.

And he pressured them to do that, and many of them responded. Well, there was a narrative created from that. ‘Well, he's trying to weaken NATO. He's challenging our NATO partners.’ It's just absolute nonsense. Exactly the opposite. He was trying to strengthen NATO and to get the partnership to have a more equitable balance and to be more true partners.

So when I would travel overseas, there were a few people, a few national leaders who would, you know, say, ‘Hey, look, this is hard for us. We don't like it.’ But there were boatloads of them who said, 'Hey, thank you for doing this. We needed the pressure we needed for our political leaders to kind of face this idea that we need to be a more equal partner with the United States.'

But the U.S. always had to lead and, if I could, just one other example: I think it's a good illustration, previous to my time in congress, I went with a friend of mine who's a member of the Moroccan royal family.

We were in Morocco. I wanted to go to this neighborhood in downtown Casablanca, and downtown Casablanca — many of you have been there, some of you I suppose — Marrakesh may be very safe. You could travel comfortably there. But there was this one neighborhood that was not, and, in fact, there'd been a recent bombing in Britain.

Nineteen terrorists were implicated in this. Seventeen of them came from this particular neighborhood. And I said to him, ‘I want to go down. I want to kind of see this. I want to talk to some people.’ And we did. And while I was there, people were not very friendly to me, and very traditional garb, you know — men, very narrow, they'd kind of brush me as I went by, as clear as a westerner.

I walked by this little alcove they built into the old city where they had these little shops, and something caught my eye. And the reason it did is because it was a sign, it was printed in English. I looked at the sign. I stopped and I read it and it said, and I hope all of you recognize this, ‘Four score and seven years ago, our forefathers brought forth upon this continent,’ right?

‘A new nation, conceived in liberty,’ which was the Gettysburg Address, right? And this shop owner, he stood back from me. He didn't want to talk to me, but he looked at me and I mean, there was an exchange of look. In one of the most unlikely places in the world, he has this idea that the U.S. represents something to people and its responsibility we have.

And I think Gerald's going to tell you this presumption that the U.S. is always and will be the strongest nation in the world, the strongest military in the world, is just not true any longer. And we need people like you who will help us bring innovation and technology into the Department of Defense desperately, which is I think part of the reason we're here today. 

‍Gerald Goodfellow: Yeah, I think, you know, the underlying question. You're saying, ‘Hey, what does America have to do to, you know, be the superpower moving forward?’ which is very important to the defense of not just America, but the world.

Unfortunately, I think your question actually isn't right, because the assumption is, you know, that America still is the preeminent superpower. I'm one of those guys that believes it is not.

When I was in the air force from 2000 to 2003 for several years, I led Air Force wargaming. I was the lead Air Force wargamer in the entire Air Force. I worked directly for the chief of staff.

And during that time, I participated in a whole bunch of war games against countries like China and, in fact, they were most often involved in some former capacity and I became kind of known during that time as a guy who got wargaming.

So between then and when I retired in 2019, you know, for about 16 years, I was a general officer. I was a guy that got invited to a lot of the war games with, but also all the sister service games — Army, Navy, Air Force, Marine games.

And I watched time after time where we would be wargaming and say, you know, it seems like 15 years in the future, because we thought we kind of knew from what we were planning to buy long term, you know, what, what kind of capabilities we would have. And I watched this in these war games. You can read this on Google.

I'll be very careful about how I say this. That entire time, and since then, pretty much every time we wargame against what we will call a near-peer competitor, the U.S. and its allies lose. And I think legitimately we would lose if we fought China in the only two scenarios we'd ever fight him.

That's in the South China Sea to protect freedom of navigation — 80% of the world's commerce flows through the South China Sea. And, you know, China will say they still make claims to that.

So all of a sudden, they're charging to go through there or they're deciding who gets to go through and who doesn't. Truly, you give up freedom of navigation. It would be economically the most disruptive thing we've ever seen in the world.

In cases like this, the U.S. and its allies would lose. And, in many cases, our technology exceeds their technology. Although we have it, it usually sits in labs or in very small things. I don't know that our day-to-day technology exceeds their technology.

In fact, I will argue when I believe America is an In an unrecognized crisis, I mean, unrecognized, we'll talk about the, we'll, we'll talk about the rise of China and this kind of thing, but I don't think the average American really believes if we had to fight China, we would lose.

I'm one American who believes we would. That is a crisis. And I don't think we're doing much about it. And I don't think the government is going to lead in this area in the way it needs to lead.

So to Chris’s point, I think we need people that are willing Americans that recognize this crisis, that make decisions. People with money. Venture capitalists that invest in hard tech. They don't want to because they want the two- or three-year payoff, right?

We need to be investing in hard tech in this country, and we're not.

I remember when I started my company in April of 2021. It was the same month that the Director of National Intelligence came out with their annual threat assessment, and they said, of course, that China is our biggest threat in the world.

We tell our young military officers and our military people in general, ‘Don't talk to contractors. Don't talk to industry. You may inadvertently obligate the government.’ This is, simply put, a lie.

I tell everybody I work with in the government, ‘Tell everybody you meet about your problem. Maybe they have a problem. Some kind of technology that will help a bit.’ We're trying to beat it out of the Air Force right now, and I think I've got a decent play in that.

So, that's building it. They'll build it, they'll buy it, and they will pay good money. You all have examples of this. We'll put money into a company in what's called the Small Business Innovative Research Contract Company. We'll sometimes put many millions of dollars into a company. And then we get to the point where that company to move their technology forward needs long term palm money.

And we don't do it because it's, it's actually the first hardest thing to do in the military is transition a company to that. And so they'll go off and they'll take Chinese investment and we'll say, ‘Well, they had all this government money to develop your tech. And now they're taking this Chinese investment. How's this being allowed to happen?’

It's being allowed to happen because the government is so hard to work. They'll build it, they'll buy it, they'll pay top dollar for it, or they'll steal it. And that's the one that frustrates me the most because military guys talk about this all the time trying to make ourselves feel better.

We said, ‘Oh, China wouldn't have caught up as fast as they had if they hadn't stolen all of our technology.’ And there's some real truth to that. And somehow, we use this as an excuse. I say, ‘Look, they have a strategy that involves stealing tech. Okay. And they're built by a steal strategy.’

Let's compare that to the U.S. defense strategy. I have no idea what our defense strategy is, but it's certainly not as coherent as the ‘built-by-steal’ strategy. In fact, I'm going to argue that it's really non-existent. We don't have one.

I guess we believe that the primes are going to bail us out. And as long as we're willing to spend 10-times what something could cost to 1000-times what something will cost, that we'll buy our way out of this dilemma. But we can't continue to spend 10-to-1000-times of what some should cost just because we think we should keep the primes in business, the prime defense contractor, it's not going to work.

It's going to be the one thing America does better than anybody else in the world is innovate.

For whatever reason, I think we have an innovative society. It might be inborn. It might be for other reasons. It might be that we have a government that kind of really does allow it, but we have that. We take no advantage of it. In fact, we do it early and then let the Chinese take advantage of it. It's the craziest thing.

Anyway, I talked too long, but I'll stop there. 

Chris Stewart: A couple things real quick that I just think you're seeing kind of fun little facts.

Number one, when Gerald talks about this wargaming, you know, this isn't like pulling out a Monopoly board and rolling the dice. This is an incredible effort. They'll include thousands of people and computer programming, et cetera, et cetera. They're very, very good.

And they have very, very high-level people participate in them: admirals, generals. In fact, I'm doing one next spring where I'm going to be the president of the United States, which would be kind of fun, but we have four-star admirals that are participating in these, dozens of them.

The second thing, what Gerald said about the economic impact, and this is something that we would want to, you emphasize stupid. I'll do it very quickly. Final analysis that we saw last spring of a potential conflict in Asia would lead to a 9% reduction in U.S. GDP.

You think, ‘Well, that's bad. That sounds like a lot.’ The great depression was 7%, and it's not just the U.S. It's a global economic catastrophe. So we don't want to be Debbie Downers and tell you, ‘Hey, we're in trouble, and there's nothing we can do.’ Quite the opposite.

We're here to tell you what you can do to help us, things you can do to help us.

But we're very clear-eyed about the challenge. We need help. The Department of Defense, the Pentagon, the defense infrastructure needs your help.

‍Elliott Parker: So let's get to that. Let's build on that. I'm a big believer in the power of entrepreneurs to affect change. We've got a lot of people in this room who are engaging in venture building, whether inside corporations or universities or inside of startups. They can make things happen.

Where are the gaps in the opportunities you see for them? And how should they plug in? What can they do about this? 

Gerald Goodfellow: You know, it's, it's kind of interesting. I'll go to the gaps first. It’s contracting, within the military, you know, to actually work, in a timely fashion, and it's procurement — buying stuff, getting stuff on time, on what it was bid for.

So I always say, ‘On time, on budget, and on capability.’ They're delivering the capability they want, which, believe it or not, I bet you it happens less than less than 2% of the time, and our major contracts where we actually get stuff on time, on budget, on capability, I mean, it's that bad. We have to change that.

And the other thing is, quite frankly, when we work with young companies, they always deliver on time, on budget, on capability. The problem is we do very little of that.

Let's say I suspect there's a number of you that probably have small business, innovative research contracts. It's a fantastic way to start working with the government, but there's also a lot of falsehoods in it.

So I help companies all the time, you know, get on, say, simmer contracts, don't charge them a thing. I have a business where the government pays us to do that. And then, they think they're in a sweet spot. What they don't realize is they've done something hard and they've got R&D money, but that is the easiest money they're ever going to get, research and development money in the military.

And so then when they get to the point where they have to get procurement money or operations, you know, operations, maintenance money, whatever they need to get the different color of money, it's going to be really hard to get, because you're going to have to either become an Air Force program of record, or you're going to have to become your own program of record, or you'll dovetail into a current program of record and, like I said, it's the first hardest thing to do in the military. 

Elliott Parker: It sounds completely impenetrable, if you're an entrepreneur without experience to do that. 

Gerald Goodfellow: It is. I don't know how anybody does it, if they don't have the experience, to be honest with you.

The good thing about R&D money is it is non-dilutive. You know, if you get a cyber contract, the bad news is that you'll shift your whole company to try to work with the government. And that R&D money is going to dry up.

If you're really got a core business and you're really going down this path to government, you're not going to see more than five years of that kind of money. It's worse than dying in the valley of death, which you all know about. It means you run out of money.

Most of the companies I work with are in the valley of death, but there's a harder, uglier death to die. The most violent death I know of. And that's fault. That's when the Air Force has told you, ‘We love your technology. We love what you're doing. We love your company. Best thing since sliced bread, but we're out of R&D money.’

They go from loving you to saying, ‘I don't know what I can do for you. We have a budget long term for you,’ and then you fall off. What's called the DoD cliff of death. And I watched companies do this. I watched companies do this, you know, a couple hundred times a year, just companies I know about, and it's the ugliest death ever because they've hired employees to get at this thing that they thought was really important for defense.

And it probably was, and then they just die, and they lay off 50 employees. 

Chris Stewart: In fact, we're talking about a company this morning, who's in that very situation. I've been working with them for 10 years, worked with them as a member of Congress. And they're working with the U.S. Army, and they're literally going to go bankrupt today if they don't get some money because the army is so slow in procurement and contracting.

That's bad news. But again, the good news is there are vehicles to accelerate this, there are ways to change this. One thing we're working with is to bring venture capital that will help these companies through the valley of death.

They're off the cliff of death that Gerald talked about. They have to have private money. The process of contracting with the federal government is so difficult in most circumstances and so unpredictable. It's hard to predict cash flow and investment necessities, et cetera.

Venture capital can make a huge difference on that now, but we're going to run out of time, but I hope we come back to that. So I gave you a quick illustration today of a company we're working with. We know that's in a real dire situation, but there are great success stories too.

I'd like to share one with you real quickly. The F-35 you all, you know, are familiar with that, you know, most modern advanced aircraft in the world. Not a good example of a good procurement or contracting process, by the way.

Gerald Goodfellow: It’s actually the worst example you can find, I think. 

Chris Stewart: Well, it's one of them. There's others.

Gerald Goodfellow: The current Sentinel missile contract is worse. 

Chris Stewart: Yeah, the Sentinel, which we're just beginning. But, I mean, the F-35 was way over budget, way over time. I mean, I was a lieutenant or a captain when they started working on the F-35. But we have a weapons system now, and it's incredibly capable.

Here's another little fun fact for you: Powerful aircraft, great, big, powerful jet engines, right? Almost 40% of the power produced by those jet engines isn't to produce thrust, it's to create electricity. Almost a third of those jet engines is to power generators, which is then used to power the processing capabilities of this aircraft.

It's incredible. Remember the big AWACS, the big, you know, 707 with a big dome on top. The F-35 does way more than that. That AWACS could do with a crew of about 30 people, a single pilot and with processing and with AI, et cetera.

Well, one of the challenges we had, and I won't go into details because it takes too long: You've got all this processing power. How do you cool it? Well, you think, at 20,000 feet, it's cold outside — just open the vents. It's harder than that. It's much, much harder than that. But we saw a company, a really innovative company that had a new cooling process.

It's a great story for our own national security because we're able to continue to do the improvements. The software technology improvements. The F-35. It's capable of doing but couldn't cool it. And that company is going to make a boatload of money for its owners and its investors. 

Elliott Parker: That's a defined amount, VCs recognize that term.

In just the minute here we have left: Was there a small company that happened to be in the right place at the right time? We've talked about SBIR. We've talked about other ways for entrepreneurs to kind of get in the system.

How do you find out about these types of opportunities, and how do you make sure that, if I'm an entrepreneur, for example, or an investor looking for my next thesis or idea, I see a lot of money flowing through the defense system. I see opportunity. I believe in the problem and the need.

How do I go about uncovering what I might do next?

Gerald Goodfellow: Well, you know, this is interesting. When you're talking about very young companies, I always, you know, you can go out to the government websites where, you know, where they list all the contracts are interested in to include, you know, CBR application opportunities and all the services you can apply through a CBR with, I will tell you, we have a lot of really young companies that come to us that, you know, would, would like to apply for a CBR.

You'll advise them not to, you know, or, or at least not with us. And, in fact, like I said, the government pays for my services or my company services. So I advise the government and then they, the government decides if they're going to bring a company in and eventually put it on contract.

But I only work with companies that have what I call dual-use technology. So if you're a company that is a satellite communication company, they're flying their satellite capability on over 500 helicopters and airplanes, mostly medical rescue helicopters.

But it turns out that satellite communication system has both voice and data, and it downloads all of the data from the airplane, you know, and it's like, it costs like $40,000 to put on an airplane. So it's the cheapest thing. It gives you instant communication on any inch of the planet.

And when we discovered that company, they had never done business with any government organization. So we put them on contract, and we needed them to go through an Iridium. They need to be able to communicate with the Iridium satellite system. Very, very secure system that the Air Force and the government has put many billions of dollars into, and they didn't have the terminal.

We had asked for a terminal before one of the big primes that gave us a cost estimate. Like I said, they're always 10-times to 1,000-times higher than what they should be, but we had a cost estimate of $87 million. Didn't it include the antenna that would actually transmit the signals on. But it did have, you know, the communication capability, but without the antenna.

They said, ‘Oh, we'll give you an antenna. We've got lots of antennas. We'll find one for probably like another $10 million.’

But anyway, so we put this small company under 20 people, I think at the time we put them on contract and what they built, it would have taken seven or eight years for the prime to build it.

I'm sure they built it in three months. and the antenna was included in the build. It was part of this very small system, and we tested it on the B-52. They built that antenna in three months. It took us four months to get the Air Force to actually go through their bureaucracy and give us a chance to install it on a B-52 and fly it to a 100% success.

And so now we've got that company on like another $27 million contract.

What I would tell you is you can search the websites, you can do all that. My best advice to you would be to find somebody who really understands government contracting. And if you have something that will bring capability to the military, you know you can get on a government contract.

You know if it's for real, if you've got for real technology that has a dual-use capability. You can get on contract, but you're going to need to find somebody who knows what the hell they're doing in, in government, because you'll never figure it out yourself. I'm convinced you won't. 

Elliott Parker: That's good. Okay. We will wrap up. They're just scratching the surface today. I wish we had more time. You've got two gentlemen here on the stage who understand a lot about what Gerald was talking about how this works. I hope you do find this inspiring that you're thinking about opportunities in the space, because there are plenty of them out there.

We need more entrepreneurs and investment dollars flowing into the space. Gerald, Chris, Thank you very much. 

Gerald Goodfellow: Hey, one last thought. We just heard from some venture capitalists and, and I'm sure they're, they're mostly investing in soft tech, but, you know, if you're a company that wants to invest in fat, you know, what America has done hard tech — so you need factories, you need powerful batteries, robotics, quantum computing — if you as a venture capitalist are going to get into that money, the system desperately needs long term patient money.

And whoever cracks that nut first in the venture world is going to make a lot of money. And so, believe it or not, we know that we're kind of working on something right now, but the country desperately needs people who are willing to make those kinds of investments.

‍Elliott Parker: Thank you both very much.