Defence today is one of the largest markets in the world. Yet, at a time where startup innovation is seen everywhere from digital health to online safety, defence engagement with the startup ecosystem remains behind. Between 2016 and 2020, average annual spending directly with small and medium enterprises (SMEs) sat at 17.8% for the Department of Health & Social Care, compared with 4.2% for the Ministry of Defence, with the MoD favouring indirect SME spending to bolster its engagement with the ecosystem.
This divide can be attributed to a number of reasons, including the greater accessibility of private health data to develop new systems around, unlike the often highly classified nature of defence data as a matter of national security. Likewise, the more approachable procurement funnel in digital health creates a level-playing field for startups to prove their worth. Defence on the other hand has a number of barriers, not least its tendency to favour working with proven, strongly entrenched incumbents, often with security clearance from former service personnel. Another crucial difference is the cultural gap between the two sectors. Breakthroughs in health innovation have the vocational goal of helping improve the lives of both healthcare workers and consumers; entering the space as a startup is empowering and aspirational. The defence sector is more opaque, and visualising the use cases of innovative technology through the lens of ‘lives-improved’ has (until recent geopolitical events) been more difficult. Far from the hopeful ambition of the health space, the opposite has often won out in defence innovation; a worry that failure in the military may equal deaths, and how the need for rigorous quality assurance to avoid this raises the threshold for entry.
Now, the picture looks very different; in light of the rapidly evolving global threat landscape, the defence sector recognises where accelerated adoption of cutting-edge technologies is essential. Without it, militaries may be rendered obsolete. Combining traditional strategies of armoured warfare and sheer firepower, with cyber attacks and disinformation campaigns, Russia’s invasion of Ukraine clearly highlights the importance of investment and innovation between allies. Both the urgency and potential to improve human lives grows clearer, sparking new appetite in the defence sector. The next step requires a fundamental reframe of how to tackle cultures where innovation has been stifled and subsequently created barriers to entry between startups and defence.
Avenues to investment for SMEs has remained a longstanding barrier to entry into defence. Investment is vital to help startups overcome long sales cycles, and to overcome the dreaded valley of death between viable concept prototyping, and tangible large scale procurement, where many startups falter. In the early life-cycle of a startup, clearer opportunities (or lack thereof) for investment can be the deciding factor when entering a particular market. To encourage greater innovation when building defence applications, the sector requires greater transparency from the beginning around what is available to startups. Speaking to this in a recent interview, Matthew Steckman, Chief Revenue Officer of US defence-tech startup Anduril Industries, noted that the “unfortunate reality” is “you cannot start a business right now and reach any sort of scale working with the Department of Defence”.
In the UK, the story is somewhat different; connecting with the Ministry of Defence is vital for many defence innovators, in order to secure tangible interest and sufficient funding to develop and realise their projects. To nurture the fresh ideas of smaller players in UK defence innovation, networking with the MoD at the earliest opportunity can be make-or-break. It is positive to note then that the MoD has investment firmly in their sights; setting a spending target of 25% with SMEs in 2019, with Chief Scientific Adviser Angela McClean outlining the MoDs strategy to achieve this. Exploring the practicality of a number of models, through internal accelerators like DASA, or collaborations with external funding programmes such as Aerospace Xelerated, the MoD is testing how best to bridge the valley of death to ensure the best defence innovations can thrive. The Defence Science and Technology Laboratory (DSTL) is an example of meeting this target, with a 27% external spend in 2019/20.
The tools to support startups in traversing the valley of death may lie with better investment practices, but the ultimate solution is to ensure a greater number of startups experience a smooth landing on the other side - with procurement, and contracts. If the large-scale pickup and implementation of a startup’s innovation is the point of success, then the defence sector should focus not only on making that point reachable financially, but in reducing the financial burden at its source to make crossing a viable prospect for as many companies as possible. This includes shortening sales cycles to make it easier for new entrants to weather the costs of transitioning from development into procurement. It equally involves exploring ways to smooth funding for smaller players, reducing the bureaucratic pressure on SMEs and startups needing to wait for further investment to avoid stalling, and to get their innovations across the line. Finally, it means acknowledging and addressing how MoD Commercial is structured in favour of traditional incumbents, and that in order to get better value for money and to keep up with strategic challenges, its procurement methods and market engagement needs to evolve.
The cultural change in defence demanded by the geopolitical moment (greater user needs and an ever-evolving threat environment) cannot be achieved overnight. However with the high-level attention, focused discussions, and systemic effort, the sector has the capacity to reinvent what it means to be a defence innovator. To streamline the avenues toward developing novel solutions for evolving challenges, to implement and scale them more rapidly, and to make a real difference when it is needed most.
PUBLIC is proud to be running Defence Disrupted for its second year, providing a platform dedicated to convening these key conversations. With stakeholders from all levels of the defence industry; from high-level government and military officials, to the trailblazing startups answering the call, it's not an event you want to miss.