Stanford Seminar - Silicon Valley & The U.S. Gov: Go-to-Market Strategies for Dual-Use Companies

Steve Blank

• Steve Blank is a successful entrepreneur, author, educator, and patriot.
• He has founded at least eight startups, including the successful Epiphany.
• Blank is the author of the book "The Four Steps to the Epiphany," which is credited with starting the Lean Startup movement.
• He is also a prolific writer for defense magazines and blogs.
• Blank is a popular educator at Stanford University, where he teaches the Lean LaunchPad course and founded the Innovation Core program.
• He is also involved in several "hacking for" programs that apply Lean LaunchPad principles to solve public sector problems.
• Blank is a veteran of the Vietnam War and continues to serve his country as an advisor to the defense and intelligence communities.

Selling to the Department of Defense (DoD)

• Blank suggests that startups should focus on understanding the problems and requirements of the DoD in order to develop solutions that meet their needs.
• Selling to the government is not like selling to commercial companies.
• The government is a huge bureaucracy with multiple organizations, different rules, and stringent requirements.
• Partnerships in the DoD might mean working with gatekeepers or prime contractors who may not have your best interests in mind.
• Venture capitalists are more interested in investing in software AI companies than DoD startups because the returns are higher.
• DoD startups have limited upside potential compared to commercial companies.

Product-Market Fit

• When starting a company, look for customers who have a problem, know they have a problem, and have a budget to solve the problem.
• Product-market fit in B2C involves understanding the needs of a single person who is both the user and the payer.
• In B2B sales, there are multiple players involved, including users, budget holders, technical recommenders, and potential saboteurs.

Go-to-Market Strategies for Selling to the DoD

• Paul Quan proposed different go-to-market strategies for selling to the Department of Defense (DoD).
• One strategy is to start with significant private capital and build innovation ahead of requirements, using a dual-use commercial strategy to reduce risk.
• Another strategy is to start from the bottom up, with a product or service that is so good and differentiated that it becomes easy to buy.
• Other strategies include using advisors and former government officials for top-down sales, and partnering with prime contractors to leverage their expertise and connections.

Understanding the DoD Structure and Building Relationships

• The Department of Defense (DoD) has a complex structure with multiple levels and organizations responsible for managing large programs and budgets.
• To identify potential customers and opportunities within the DoD, it is important to understand the different groups and their roles, such as program managers and program executives.
• Building relationships and connecting with trusted agents or advocates within the DoD can help entrepreneurs navigate the complex landscape and identify opportunities.

Customer Discovery and Avoiding Pre-Computation

• Entrepreneurs should avoid relying on a single opportunity or customer and instead pursue multiple paths simultaneously to mitigate the risk of losing access or support.
• The DoD typically operates on a "crawl, walk, run" approach, requiring a process to prove the value of new technologies or solutions in the field.
• Recent crises and conflicts have created opportunities for new entrants to participate in the DoD by offering solutions that may have a higher risk tolerance in critical areas.
• Entrepreneurs should resist the temptation to pre-compute customer needs and instead engage in customer discovery to understand the specific requirements and challenges of different groups within the DoD.
• Government customer discovery is highly relational, and building relationships with problem sponsors and key individuals can help entrepreneurs identify more opportunities.

Deployment Strategy and Fundraising

• Students in a class at Stanford University learn how to understand their target market and develop a deployment strategy for their products.
• They use a methodology that involves conducting interviews with potential users, influencers, and decision-makers to gain insights into the market and identify the best path to deployment.
• The goal is to avoid creating a "shiny object" that attracts early orders but lacks scalability and sustainability.
• The class emphasizes the importance of understanding the difference between a demo and deployment and focusing on achieving deployment at scale to build a successful company.
• Students also learn about fundraising opportunities, including incubator programs offered by each military service, SBIR programs that provide free money without taking equity, and venture capitalists who understand the DOD landscape.

Challenges and Opportunities in Selling to the Government

• The government struggles to keep up with the pace of technology, particularly in areas like AI, making it challenging to sell to the government.
• The push strategy of introducing new technologies into the DOD needs to be balanced with the pull effort of getting government sponsors to ensure successful deployment.
• The Defense Innovation Unit (DIU) offers broad area announcements of specific problems that the DOD wants help with, providing opportunities for companies to address these challenges.
• The discussion also touches on the geopolitical angle of overcoming the cost advantage of strategic adversaries, highlighting the need for a whole-of-nation approach to harnessing economic resources for national security efforts.

DoD's Lack of Imagination and Creativity

• The US Department of Defense (DoD) lacks imagination and creativity in harnessing the nation's resources for defense efforts.
• The DoD should consider involving economists to explore innovative business models and funding options.

Go-to-Market Strategies and Investment Considerations

• There are multiple go-to-market strategies, and the best one depends on the specific technology or problem being addressed.
• "Buy into record" refers to a unique business model where the government purchases data from a contractor instead of directly purchasing the hardware.
• When it comes to dual-use technologies, the decision to prioritize commercial or military applications depends on factors such as bandwidth, technology requirements, and security considerations.
• Portfolio construction for defense-focused investing involves decisions such as service selectivity, technology focus, and vertical or horizontal diversification.
• Venture capital in the defense sector is a high-risk, high-return asset class, with a significant portion of returns coming from a small percentage of investments.
• The evolving defense ecosystem includes initiatives like OSC, which provides leverage for venture capitalists investing in the space.