{"id":54549,"date":"2019-03-29T19:20:11","date_gmt":"2019-03-29T19:20:11","guid":{"rendered":"https:\/\/one.sightlinemg.com\/defensenews\/uncategorized\/2019\/03\/29\/lets-talk-about-what-it-actually-means-to-be-a-small-business\/"},"modified":"2026-08-08T00:03:14","modified_gmt":"2026-08-08T00:03:14","slug":"lets-talk-about-what-it-actually-means-to-be-a-small-business","status":"publish","type":"post","link":"https:\/\/one.sightlinemg.com\/defensenews\/opinion\/2019\/03\/29\/lets-talk-about-what-it-actually-means-to-be-a-small-business\/","title":{"rendered":"Let\u2019s talk about what it actually means to be a small business"},"content":{"rendered":"
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Jill Aitoro breaks down the complicated problems facing the acquisition of new advanced technology from Silicon Valley \u2013 and what needs to change to fix it.<\/figcaption><\/figure>\n\n\n

How should Pentagon leaders define a small business? On its surface, that seems easy to do, particularly if you acknowledge there are a couple of flavors \u2013 those with a modest workforce versus those with low revenue.<\/p>\n\n\n\n

But if you caught Trae Stephens\u2019 Twitter storm<\/a> earlier this week, you would have discovered that the definition of a small business should require more thought. And that all the talk coming out of the Department of Defense adds up mostly to what he calls \u201cinnovation theater.\u201d<\/p>\n\n\n\n

\u201cThere is a huge difference between a low-growth\/low-headcount business and a high-growth\/product-focused tech startup,\u201d the co-counder of Anduril tweeted. \u201cWe need to stop lumping these together.\u201d<\/p>\n\n\n\n

His comments came in response to Under Secretary of Defense for Acquisition and Sustainment Ellen Lord, who expressed concern recently with the ability of innovative small businesses to secure their systems. To Stephens point, small doesn\u2019t mean less savvy. Not if they truly are innovative.<\/p>\n\n\n\n

And the distinction for him goes even further. True innovative small businesses, he argued on Twitter and during a roundtable Defense News hosted in California last year, should demonstrate promise to become large businesses eventually<\/a>. (During that roundtable several said the goal for the Pentagon should be to foster the next General Atomics).<\/p>\n\n\n\n

Stephens pointed to the Air Force pitch day<\/a> to prove his point that DoD is just not concerned with that kind of future growth potential. His analysis of the companies selected during that event, which essentially was like speed dating for contract awards, where companies could land funds through the Small Business Innovation Research program in as little as three minutes, showed that more than 50 percent had no venture funding of any kind. That\u2019s a bad sign, Stephens said, since venture capitalists back the companies with the greatest potential <\/a>for growth. In addition, most contracts were for cyber and services \u2013 not product development. Not to diminish the importance of cyber and services, but were those contracts breaking new ground? The work could probably be performed by any number of companies.<\/p>\n\n\n\n

Also, there were three times as many companies from Northern Virginia than California and almost half were founded more than 10 years ago \u2013 not exactly the definition of a \u201cSilicon Valley startup.\u201d Now, innovation is not isolated to California, but it appears the winners here follow a pretty standard playbook for Pentagon small business contractors in both the scope of work and the makeup of the businesses.<\/p>\n\n\n\n

What else? Contracts awarded were not recurring and averaged less than $100,000. Meaning, they will do little to ensure these companies have a trajectory to grow and really make some noise.<\/p>\n\n\n\n

I reached out to Stephens to play devil\u2019s advocate. Were venture-backed companies even at pitch day I asked him? Yes, he said. Without revealing company names, he said there were some strong venture-backed companies that did not get selected, \u201cpresumably because they didn\u2019t play the inside game with hiring SBIR advisers and the like or weren\u2019t known commodities in the source selection committees.\u201d<\/p>\n\n\n\n

He also said that \u201csome non-zero part of this\u201d is that high-growth companies are not targeting SBIR opportunities either.<\/a> They don\u2019t see them as beneficial, much in the same way that venture capital firms don\u2019t.<\/p>\n\n\n\n

I also questioned his theory that growth should always be the ultimate end game. Does the Pentagon always need another Palantir or SpaceX, or could 10 Silicon Valley developers in a room churning out algorithms to solve specific problems be a gamechanger? Wouldn\u2019t that allow some of these startups to support the Pentagon without necessarily having to go all in on military as a market?<\/p>\n\n\n\n

He agreed there\u2019s a sweet spot in terms of contracts. If it\u2019s too small, then little of consequence happens for the companies or the Pentagon. If it\u2019s more than $10 million, then everything gets protested and killed by the primes, he said, pointing tocompanies like Capella Space, Improbable, and yes \u2013 Palantir as examples.<\/p>\n\n\n\n

As for that \u201cdual use\u201d approach that so many are claiming is the future of technology, \u201cIt\u2019s great that some commercially-focused businesses are interested in selling to the DoD, but there are also a lot of DoD-specific challenges that would be best served by new defense-focused tech companies.\u201d Stephens himself is a partner at venture Founders Fund.<\/p>\n\n\n\n

If this all sounds complicated, it doesn\u2019t have to be. And Stephens isn\u2019t trying to sound pessimistic or down on these grand efforts to unite the Pentagon and the tech community. (Nor am I.) But \u201cinnovation theater\u201d won\u2019t do it.<\/p>\n\n\n\n

\u201cThe department needs to pick winners, with meaningful contracts, and give them access to the mission,\u201d Stephens said. \u201cThere\u2019s nothing specifically preventing them from doing that. They just don\u2019t do it.\u201d<\/p>\n\n\n\n

And the Air Force\u2019s pitch day was no exception.<\/p>\n\n\n\n

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11\/ Yes, these are small businesses. But an alien race looking down would reasonably think that the official policy of the US government is to encourage small businesses to not become large or successful businesses. Process work is important, but so is fixing source selection.<\/p>— Trae Stephens (@traestephens) March 25, 2019<\/a><\/blockquote>