Five Principles for SMB & Startup Business in Aerospace & Defense
A recent PwC report notes that the aerospace & defense (A&D) industry generated $741B in 2022 and stands poised for further growth in the years ahead. It’s no wonder then that a wide range of SMBs and startups are enticed by opportunities to do business in the A&D space. This is especially the case given that those leading A&D work often need complimentary technology, products, and services and are looking for every way possible to overcome supply chain constraints, labor gaps, and related challenges.
Capitalizing on the opportunities in A&D is easier said than done for SMBs and startups. The size and complexity of the A&D industry make it daunting and overwhelming for those seeking entry to know where to begin and what to do when obstacles arise. Here, we highlight five principles that SMBs and startups can apply to gain traction for landing and doing business in aerospace and defense.
1 – Practice Patience and Persistence
In most instances, A&D projects are quite large and led by similarly large prime contractors and / or government entities. The scale of big projects and the players that guide them means they don’t always move at a pace SMBs and startups would prefer. Be patient. Any SMB or startup wishing to do business within A&D must be willing to embrace and navigate a significant degree of bureaucracy and applicable federal acquisition rules. The Federal government imposes bureaucracy on prime contractors who, in turn, pass it on their subcontractors. In addition, working with a large prime means agreeing to terms and conditions that favor the prime. An SMB or start-up must be willing to agree to the prime’s T&Cs.
2 – Demonstrate Readiness and a Unique Value Proposition
There are several ways to show your desire to do business in the A&D space, including creating a company profile in the U.S. government’s System for Award Management (SAM) database and participating in other federal supplier initiatives (e.g., Veteran-owned, HUBZone, etc.). There are also a range of services as well as individual agency websites and outlets that share project, RFP, and bid information. Stand out from others by offering unique, innovative, highly specialized technology, products, or services. Being a generalist will not appeal to a prime contractor.
It’s important to also understand where projects are in their respective life cycles and where/how your business fits in. Projects early in the development phase may be more amenable to introducing and applying new technology. In contrast, if your strengths or offerings center on design-related work and a project is already well into production, there won’t be a match between what’s offered and what’s needed.
3 – Embrace Networking
Don’t underestimate the value of networking with others who already do business with the primes tied to projects you’re interested in. These connections can not only provide valuable insight into what the primes are looking for and what it’s like to work with them but can also present an entry point for project participation if there is something your business offers to supplement or strengthen what another sub is already providing.
4 – Seek Specialized Professional Help
Doing business with big primes and government entities presents SMBs and startups with unfamiliar waters and hoops they may not be used to jumping through. Getting assistance from specialized experts can go a long way here, especially as it relates to government contract accounting, IT security, and intellectual property rights. Big primes regularly audit their subcontractors’ direct costs, labor rates, allowable and unallowable expenses. Your IT security must reach a certain threshold to work with a prime. Ownership of intellectual property rights for technology you develop is a common issue. Finally, your cap table matters – an opaque foreign investor in your company can curdle the milk for a project involving NASA or the Department of Defense.
5 – Take Advantage of Federal Grant Money
SMBs and startups have access to several programs aimed at stimulating innovations in technology. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are great examples. SBIR grants provide small businesses with a great source of non-dilutive funding. SBIR grants are among the most important funding sources offered by the government to spur innovation in emerging companies. Here too, it can be helpful to seek counsel from others with a deep understanding SBIR/STTR application cycles and formal submission processes.
An Avenue Into A&D Business
SMBs and startups possess a wealth of knowledge, innovations, products, and services that can add significant value and acceleration to A&D projects and prime contractors. Finding the right avenues to add that value, however, aren’t always obvious or easy. Gaining business traction in the A&D space requires a high degree of patience and persistence on the part of SMBs and startups. Businesses must show that they’re ready to contribute and paint a clear picture of what they’ll add to the equation. Specialized outsourced expertise is usually required as few SMB’s or startups will have all the requisite resources in-house. Lastly, SMBs and startups would be well advised to explore participating in programs such as SBIR or STTR grants which offer attractive non-dilutive financial support for needed innovation.
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