A message from Jens Goennemann
Breaking into the defence industry is a difficult yet rewarding ambition for many SME manufacturers. Once you’re in, you might just be in for the long haul.
From my own experience during my Airbus years, I found that SMEs who start with the end in mind significantly increase their chances of success. This was a key message that came through during a panel I had the pleasure of moderating on Tuesday, titled Inside Defence – What Primes, Investors & Trailblazers seek from SMEs.
“Don’t start with the technology,” advised Troy Stephen, Vice President, Underwater Systems, Avionics and Secure Communications at Thales Australia and New Zealand.
Instead, he encouraged SMEs to start by identifying a customer with a real need and to deeply understand and address that need. Just because you have a technology you believe has dual-use potential, don’t assume that a product successful in the civil market will automatically resonate with defence users.
Winning over Defence or a prime contractor requires clearly articulating what makes you special, said Christopher Hess, Head of Industry Strategy and Engagement, Office of Australian Industrial Participation at Lockheed Martin Australia.
If your offering is cheaper, stronger, lighter, or faster, that can form the foundation of a compelling case for your product or service.
However, for those coming from a purely commercial background, it’s important not to expect a quick or easy win. The defence industry operates on very different timelines, with often smaller margins and longer pathways to procurement.
The list of non-negotiables with defence primes can also be extensive. Hess noted that requirements for selling to the US, for example, are becoming increasingly stringent, particularly around Federal Acquisition Regulations and cybersecurity.
Liz Kobold, Innovation Portfolio Manager at Defence Trailblazer, highlighted several common areas of concern:
“Underestimating defence readiness requirements. Lack of understanding of TRLs. Lack of understanding of security clearances. DISP requirements.”
And there are plenty more. Jake Bostock, Capability Scout at early-stage investment firm Beaten Zone Ventures, added that his team often encounters issues when defence startups seeking investment have complex structures, such as, separate parent company, Intellectual Property (IP) rights, and trading companies, which can complicate ownership and investment risk.
“If, for example, the company decided to take the IP and go somewhere else, we’ve effectively invested and lost $3 million. We see that much more often than you’d think,” he shared.
For those SMEs with the right combination of resources, patience, differentiation, accreditation, and commitment to building relationships and, of course, a genuine solution to a known problem rather than a “hammer looking for a nail” there are compelling examples of success.
The panel cited standouts including electronics systems builder Thomas Global, seismic sensor business Seitec, and precision gear manufacturer Ronson Gears.
Another recent success is Hullbot, maker of an autonomous hull-cleaning robot, which just announced the close of a $16 million Series A round. Its dual-use technology can reduce a ship’s fuel consumption by 10 to 26 per cent a tangible benefit with both commercial and defence applications.
From my own experience working with SMEs both while leading a prime and now at AMGC the ones that succeed in defence are the best listeners.
Successful SMEs aren’t obsessed with their own technology; they’re obsessed with solving their customer’s problem.