Steve Blank is an Adjunct Professor at Stanford University, where he co-created the "Hacking for Defense" curriculum for the Department of Defense. As a consultant to top defense and intelligence organizations, Steve brings cutting-edge strategies to the national security sector. Before entering academia, Steve built eight different startups. He helped launch the Lean Startup movement with his May 2013 Harvard Business Review cover story. Steve also authored the acclaimed business books "The Four Steps to the Epiphany" and "The Startup Owner's Manual.”
This episode’s guest host is Meka Asonye, a Partner at First Round Capital. Before joining First Round as an investor, Meka led go-to-market teams at both Stripe and Mixpanel.
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In today’s episode we discuss:
- Commercial versus military market strategies
- Finding mission solution fit
- The hidden challenges most startups miss
- Building relationships in National Security
- The new generation of “defense founders”
- Much more
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Referenced:
- Alexander Osterwalder: https://www.linkedin.com/in/osterwalder/
- Department of Defense: https://www.defense.gov/
- Eric Ries: https://www.linkedin.com/in/eries/
- Hacking for Defense: https://hackingfordefense-prod.stanford.edu/
- How Saboteurs Threaten Innovation: https://steveblank.com/2024/07/30/why-large-organizations-struggle-with-disruption-and-what-to-do-about-it/
- How to find your customer in the Dept of Defense: https://steveblank.com/2024/09/17/the-directory-of-dod-program-executive-offices-and-officers-peos/
- Mission Model Canvas: https://steveblank.com/2019/09/
- Pete Newell: https://www.linkedin.com/in/petenewell/
- Special Operations Command: https://www.socom.mil/
- The Frozen Middle: https://steveblank.com/2024/07/30/why-large-organizations-struggle-with-disruption-and-what-to-do-about-it/
- The Hacking for Defense Manual: https://stanfordh4d.substack.com/p/the-hacking-for-defense-manual-a
- The Hacking for Defense course: https://www.h4d.us/
- The lean launchpad at Stanford: https://steveblank.com/2011/05/10/the-lean-launchpad-at-stanford-–-the-final-presentations/
- The Secret History of Silicon Valley: https://steveblank.com/secret-history/
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Where to find Steve:
- LinkedIn: https://www.linkedin.com/in/steveblank/
- Twitter/X: https://twitter.com/sgblank
- Website: https://steveblank.com/
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Where to find Meka:
- LinkedIn: https://www.linkedin.com/in/mekaasonye/
- Twitter/X: https://x.com/bigmekastyle
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Where to find First Round Capital:
- Website: https://firstround.com/
- First Round Review: https://review.firstround.com/
- Twitter/X: https://twitter.com/firstround
- YouTube: https://www.youtube.com/@FirstRoundCapital
- This podcast on all platforms: https://review.firstround.com/podcast
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Timestamps:
(00:00) Introduction
(02:27) Validating ideas for defense products
(03:57) Guide to military sales and procurement
(07:15) Rethinking GTM strategies
(10:13) Building a network in national security
(15:07) The dual-use debate
(18:35) Behind the rising number of “defense founders”
(22:30) “Mission solution fit”
(24:35) Breaking new ground in military tech
(26:09) Essential resources for any defense founder
(28:59) What’s missing from Silicon Valley
Meka: So Steve, maybe to kick things off, there are plenty of resources out there for tech founders who want to do customer development within traditional tech companies, but what changes when these founders, what changes are needed when these founders are trying to validate an idea inside the DoD?
Steve: Well, number one is, uh, regardless of how much you might know about commercial sales, everything you know about commercial sales, you need to throw out because the DoD looks nothing like anything you've ever sold to. And, and so, uh, mistake number one is, Oh, I've sold SaaS and I understand enterprise sales.
And, and now I could barely keep a straight face when I hear that. I mean, you know, understanding the POM and the PBE and acquisition and program executive. I mean, even the, the words like sound like you've never heard them before. You need kind of one of those auto translator things is what, what's the litany of buzzwords.
And that was the first, first time I went to Washington, it was like, I think they're speaking English, but I have no idea what half the sentences mean. But now not being facetious that, understanding a commercial acquisition process, you know, you have users and you have buyers and, you know, you have people in between recommenders and influencers.
And if you figure that out, that pattern is kind of the same, depending on whether the company is functionally oriented, their matrices are divisionalized. But the DoD is a whole different kettle of fish. And you know, you think you have users, but you have no idea what, what it takes to get to be a programmer record.
In the DoD, the biggest mistake that startups make is confusing door prizes with a business.
Meka: can you dig into that door prizes versus a business? I think I know what that means, but I would love to make the. Implicit, explicit with that,
Steve: so, you know, once you first kind of get to know the Department of Defense, you go, Oh, I got a SBIR, meaning I got a, you know, an award for a million dollars or, or I got a, you know, a small contract for a million bucks and you're excited and you run into your board meeting and look, you know, we got this early contract, and that's all great. There's nothing wrong with that, but that's not a business. That's a door prize. The business is, how do you become what's called a program of record? That's in fact, the win. A program of record is you're written into a congressional budget. There is a requirement written for you, you're working with a program executive office, and eventually you could get tens, hundreds of millions, or billions of dollars in terms of federal contracts.
A door price is, you got a, you know, one or ten, or maybe twenty million dollars, SBIR, or StratCom, et cetera, which are great starts. There's nothing wrong with them, but that's not the business. And maybe something in between is you figured out how to get what's called an OTA, other transaction authority.
And that might actually be almost as good as a program of record. Cause now they could be up to a half a billion dollars. But what you're looking for is something sustainable over time. The good news is the DoD, if you get to be, you know, embedded in a large OTA contract or a program of record, man, those are company makers and that there is a liquidity event there, but it's much different than repeatable sales across enterprises.
Does that make sense, Meka?
Meka: It does. I feel like we've seen a ton of startups that have phase one or phase two awards, or even get the TACFI's and STRATFI's. And obviously there's a big gap. We always talk about it as the valley of death between sort of these smaller one off contracts and the program of records. I'm curious, like, when you see people who cross that chasm, what do they do well to go from the one off contract to, as you said, program of record, billions of dollars, repeatable, written into a line item?
Steve: So let me go back and disagree with the first statement. It's not the valley of death, it's the valley of ignorance. And it's only a valley of death if you're ignorant that the valley is right in front of you. And I'm, I'm not being facetious here. If you could describe to me on day one, if you're the CEO of somebody focusing on the DoD, what does it take to become, you know, sustainable at scale in the DoD?
Then what's in front of you is the Valley of Ignorance. You could cross it if you understand the things you just asked. How do you do that? How do you build that bridge? Well, first of all, my first question is, and again, they're not the only questions is, Do you know what a PEO is? Do you know who their contracting officers are?
Do you know who the program managers are? Do you know, even before that, who are the concept creators in writing the requirements? Oh, you haven't helped write those requirements? Let me tell you, someone else has written the requirements and they're not for you. you know, some of that is familiar in large enterprise sales.
If they're putting out a requirement and you haven't written it, any great enterprise salesperson knows you're probably not going to win the darn thing, because now you're competing against someone else who helped write the requirements. Does that make sense for basic blocking and tackling that you've seen?
Meka: A hundred percent. I mean, it sounds exactly like enterprise sales. I always tell people, if the RFP wasn't written for you, You've already lost.
Steve: Except here's the distinction. The DoD is not a monolith, and that's what's great, and that's what's bad. The great part is there are organizations that are well known who adapt and adopt urgently. You know, the most common ones a, a combatant command called SOCOM, right? They have special operations command.
They they need to live to fight another day in the next morning, and they'll buy and try almost anything that will help them do that. And they have special acquisition authorities. There are other government agencies that have special acquisition authorities that allow them to buy urgently, that kind of bypass a lot of the existing, what's called the FAR and PBE and POM and whatever.
and so, part of your learning as a, as a startup founder, if you don't know this stuff, and that is, if you haven't schooled yourself in this, why are you even in this business? Because yes, it's easy to find a, a user who says, this is great. This guy, this could replace every tactical radio I have. Ha, ha, ha.
You know, don't you think there's an incumbent like Collins Radio or somebody who is more lobbyist on K street that you even have employees who are going to make sure that doesn't happen? That they kind of know where all the dollars and bodies and people and influence are, if you don't understand that end to end process, and this is not a computationally difficult thing to understand, but it's knowing what you don't know and rapidly figuring out that this go to market strategy is as important as building your product, you are going out of business or you're going to be the ex CEO.
let me throw out the one other thing and. Be interesting to see if you agree or disagree, hiring somebody to figure this out for you is also a going out of business strategy, meaning you could hire a consultant that could teach you. But if you outsource this stuff, you are out of business because then you've learned nothing that gets embedded permanently into the core of your company, go to market strategy for DoD is in fact, as important as your product,
Meka: I think we emphasize that with anyone that we talked to that founder led sales, you need to do it for a long enough period of time that you're internalizing the lessons from your customers and you find some common failure mode we've seen as someone hires a fancy salesperson who has, you know, was in all the right branches or has all the right board level relationships.
And expects to just hand it off. And that is not, the pattern that we see in some of our most successful companies.
Steve: right? And we've seen that in the commercial world early on is, Oh, we want to manufacture in China. So we'll hire somebody who went to China, set up a factory with her cousin and I wear nothing. And worse, their cousin is now making the same product at night. It's selling at a 10th of price and basically, you know, like, and I've never even been to Guangzhou or wherever it was like, duh, no, all these consultants are there to make you smarter.
But they're not a substitute for your learning. and the DoD is that's when I go that valley of death is truly a valley of ignorance, which smart founders and great VCs like, like you guys can help them cross fairly rapidly. It is not computationally intensive.
Meka: There were two things there that I wanted to pick up on and then they're on two separate tangents, but you talked a little bit about SOCOM and I feel like we've, we've worked with a lot of founders who. Their first customer is someone sort of in the elite forces in SOCOM and you hear others who say that like you can get trapped in SOCOM and it's a big budget, but not big enough.
And so I'm curious just how you think about startups initially selling to SOCOM and how hard it can be to sort of transition from SOCOM to sort of like the broader armed forces.
well
Steve: this is the chew gum and walk, you know, strategy, you know, SOCOM is kind of like the entry door of teaching you about like a, organization that wants you in there versus other parts of the DoD that doesn't want you in there, but it will help you understand some of the culture. And I'm just using them as a proxy.
For every founder and you guys teach this, your eye needs to be on the prize. Which is, is there a sufficient revenue here for scale is it a hundred million a year in revenue? Is it, do you wanna be a billion in revenue? Is the revenue somehow related to my valuation at the next round?
if their total acquisition budget doesn't exceed $200 million a year for item X, the odds of you getting a hundred million dollars a year from this activity is like almost zero. Great. So while you're learning with an agency or a, combatant command or someone else who's amenable to you, you also need to like be running some parallel activities.
my advice always, cause I used to get trapped in this all the time. It's not only about one organization. It's about one individual. Oh, we're talking to X and they're, you know, really excited and whatever. Great. Well, who's the point of contact? Well, Sally. Well, who else is the point of contact?
No, Sally told me don't talk to anybody else in the organization. Guess what? You know, when Sally's boss said, stop talking to this person, who do you think she's going to listen to you or her boss, all of a sudden, if you have a single point of contact, Or a single agency or a single sales channel inside the DoD.
And that's all you have. Trust me one day, they're going to stop returning your calls. And if you don't have multiple fingers going on simultaneously, regardless of what they said, don't talk to anybody else, you're dead in the water.
Meka: Yeah, we call it multi threading and stakeholder mapping. I love to talk to an enterprise salesperson about what does your stakeholder map look like? Who are the people at the same level above and below who are going to help champion this thing across the finish line?
Steve: you're much smarter than I was when I built an enterprise software company, because everything I'm telling you about is the, is the failure modes I had to finally get to a hundred and twenty five million dollars of revenue in three years. but it wasn't because I got it right. It was mostly because I, I found every possible way to get it wrong and then rapidly iterated to go well, that's a bad idea. Let's not do that again.
.
Meka: I guess if we zoom out and go back to basics, one of the things. I'm curious about is like, how are founders supposed to find the right person and level to talk to? I feel like when you're enterprise software, it's pretty easy to use LinkedIn to find the buyer and search certain terms, but selling into the DoD seems a little bit harder.
Are there, you know, outside of the resource that you've put out, what are the ways that folks should be finding the right people to talk to? And then once they find that right person, how do they even get their attention?
Steve: Let's talk about the resource I put out only not because of the resource, because why I put it out is that, You know, I teach at Stanford, a class called Hacking for Defense, and all my students want to go, Great, I've created this, like, nice MVP in the class, and half of them are thinking about doing a company.
Who do I call on? And exactly that question. And I kind of know, well, there are program executive officers, there are requirements writers, and whatever. And they would go, without actually asking this exact question, Where's the phone book? And I realized, there is no phone book. And I was kind of, well, you know.
Good luck. Have a good time. I'm not a venture capitalist. Go get some VCs. They'll help you figure this out. Until I realized, well, how hard would it be to create a phone book? And how many PEOs are there? Turns out, 75. turns out that if you spend five days working like an entrepreneur, again, 14 hour days, you could create the PEO directory for the entire DoD, which I did.
And I published it. There are now over 10, 000 downloads of that directory in the last month. it turns out it's the first directory of 605 names. Here they are, here are their websites, here are the links, etc. It's just the beginning because what you want to do is build a go to market map of mapping the budgets, the line items, you know, how they're related to those PEO offices.
Who are the contracting officers? Who are the program managers? And more importantly, even before that, who are the requirements writers? this is not an impossible task. You could now simply start with a PEO directory and say, well, let's say, again, as an example, you have a, piece of nav system that could work in GPS to night areas.
Great! Who are the 14 different offices across the DoD who are interested in that technology? let's work backwards. Are there line items for that? And You can actually build a roadmap, which in some sense is actually easier than like figuring out enterprise sales.
Meka: One of the questions I hear most from our most ambitious founders is how important dual use is. Is it possible today to build a giant company only selling it to defense or do they also need to have commercial applications?
Steve: After hearing that question multiple times and seeing VCs give multiple answers, I'm going to give the business school answer. You know what the business school answer is?
Meka: I
don't.
Steve: The business school answers depends. And it truly depends on your investors and your VCs strategy.
I've seen VCs, and I won't name them, who say, that's insane, you need to pick one or the other, you have limited resources on day one, if you're going to go to the DoD, go to the DoD, Vannevar Labs being an example, started in my class, Capella Space, you know, et cetera, DoD only, we're going to do that, and if we find commercial apps, when we have enough bandwidth, we'll go elsewhere. Palantir, good example, started at DoD only, army, you know, fought the army, got a, you know, foothold, and then it went to financial apps and commercial sites. Other VCs have a different mindset. You know, let's hedge our bets because of the valuations. Remember VCs are playing a different game than the startups. The startups want to build great products. VCs with all due respect, you guys might care about the products, but at the end, do you care about a liquidity event?
And Lockheed acquiring your company is a much different valuation and liquidity event than like, you know, taking it public or having something with a, unicorn valuation. so number one is if I was a entrepreneur. I would be asking your VCs, do you have strong religious preferences on how we should focus the company?
And I truly would be interviewing the VC and asking, well, why, why do you believe that? What's the outcome here? How do you expect us to do two different things? Because if you remember, the conversation is there isn't the same sales force. If you're trying to think that your DOD sales force is selling to commercial or worse, your enterprise sales force knows anything about the DOD, I think that's a going out of business strategy. The other is the security issues about your product itself. Gee, if you're selling into the DoD, there's going to be some really different security issues than maybe you need for commercial. Some of them will be useful in commercial, but the commercial ones might not be sufficient for DoD, might not be hardened enough.
And so now you're splitting engineering resources. Unless you're incredibly well funded. Which has its own risks. You're going to find that these things you think are common actually are quite divergent in terms of needs and resources, et cetera. That's the risk about dual use. and if I had a personal bias, it would be for the founders and also for the VCs. You know, I just got asked by a reporter, Oh, those startups and selling to the military, they just have their hand out like all other startups. And I really got pissed. To be honest, most startups who are focused on selling to the DOD are mission focused. They're the same people who would either be working on climate change or whatever, but in fact realize that whatever they're going to do are going to keep the country safe and secure or deter or win a war if we, God forbid, need to go in one.
That's different than I'm building a social media app. that's a different set of motivations. If your motivation is to make the most set of money, to be honest, I won't go near you because that's the wrong motivation for selling to the DOD and the IC. for those who fund it, you obviously, if you were looking to maximize money, funding DoD focused startups, you know, I'm not sure the exits are actually anywhere near close what you could get.
You're all hoping you're going to be Anduril or SpaceX or Palantir, but the evidence isn't clear yet that the DOD has figured that out.
Meka: You picked up on an interesting thing, on more founders today building in defense. And my feeling was that 10 years ago, a lot of Silicon Valley was anti defense in selling to the DoD. Do you think something has changed or, you know, what is driving this new influx of founders who are building in and around
national security? The
Steve: bad news is I'm old enough to remember multiples of these waves. So the first one I, I honestly don't remember was that, in fact, for context, if your founders haven't seen it, I have a blog called steveblank. com and on it is a tab called secret history. And there's a video called the secret history of Silicon Valley, how the DoD and intelligence community funded innovation in Silicon Valley and the United States.
And so the first wave of innovation was actually driven by DoD and IC, and that is actually how the Valley got funded. And, uh, essentially in the seventies and eighties, commercial applications started to dominate, but the valley started as, as a military valley, as defense valley, uh, and then commercial applications, PCs, and, and then the net and et cetera, all, all dominated, but there were still an underpinnings of what I call the black world that if you were in the commercial world, you had no idea what was going on, but, it's been here since the 1940s, But post 9 11, you know, some of my students weren't even born then, but, but there was a wave of, yeah, we're all going to sign up, and, and it was pretty clear the country was aligned to, defeat Al Qaeda and ISIS, and, and then Snowden happened, and, you know, a lot of people felt betrayed.
On the other hand A lot of other people, and if the DOT was smart, they would have said, we can't confirm or deny what you're reading, but boy, wouldn't you like to work for a place that could do that? Which is how I would have marketed, but instead they put their hands over their ears and their mouth and pretended that, you know, we can't talk about it other than, then like, no, we were trying to keep the country safe and secure and not have another 9 11.
And the discordant voices, you know, which by the way, those voices exist because we're in a democracy and, you know, people die to protect people's right to say, we don't want, you know, that to happen or, or that type of surveillance. But, that tended to dominate the conversation. Well, I don't really think that was the, core of the valley because nine years ago, you said 10 years ago, nine years ago, we stood up hacking for defense at Stanford.
which was the first time in 20 years that we had some kind of military oriented course. We had Hoover Institution and we had CSAC, but overtly let's work on problem sets from the DoD and IC. And we've been, we were stunned nine years ago. We were even stunned that the course is oversubscribed. It's now in 60 universities, three countries funded by the, you know, written into the National Defense Authorization Act, Stanford now has a national defense community and, long answer to your short question. The real cherry on the top happened in when the people understood the plight of the Uyghurs. But after Russia and Ukraine, you really had to be blind, deaf, and dumb, or just so ideologically fixated that there's nothing right with America, to understand that there is a choice between living in authoritarian or totalitarian world versus a democracy, whether it's flawed or not, and we happen to be the best bet that's around, and how can we help it both be better And I think even watching what happened to Hong Kong and now understanding both economically what could happen if Taiwan gets blockaded or gets invaded. And so, these risks are no longer theoretical. Even students are starting to understand that the choices are becoming starker and starker And so not only have you seen the students culture change, obviously in the venture community what you've seen is almost no venture capitalists explicitly focused on defense to this kind of like almost lemming effect of you know, Shield Capital and Lux and you guys and everybody now going and, and you guys led and others led to, to say, no, you could actually make money here besides doing the right thing for the country.
Meka: Speaking of that, I feel like you're famous for co founding the lean startup movement. And I'm curious whether or not your advice in terms of building an MVP quickly, getting in front of customers early and iterating still hold true when selling into DoD and government agencies
Steve: Oh, absolutely. In fact, I spent a lot of time and still spend a lot of time inside of different parts of national security establishment doing that. In fact, I literally, before this conversation got off a call explaining, it's not called product market fit inside. It's called mission solution fit. And it's not the business model canvas we created.
Alexander Osterwalder and I and Pete Newell created something on the mission model canvas, because remember, if you have any revenue in the DoD, you're probably going to go to jail.So we e turned from revenue, we called mission achievement, right? What is it that you want? What's the outcomes you want? instead of customers, yeah, you might have customers, but you have stakeholders and war fighters and, and a whole set of other, people of interest.
But the key part that's different is, Yeah, you could find mission solution fit with end users, but unless in the DoD you're focused on deployment, rapid deployment. You're going to miss what's important. And so we end up with a ton of what we call innovation theater in the DoD. Hey, look, the general liked it, and wherever it's a prototype, great.
When are we going to deploy it? Oh, we haven't put it in the budget yet. And remember, we got a two to three year budget cycle. well, when's it going to go in the budget? Oh, maybe 2027. Well, when would it be deployed? 2045. Well, do we have an issue in the South China sea? Oh yeah. Well, what, what year do we need to have stuff in the water?
2027. unless we're focused on deployment at scale. We kind of missed the part of the lean process that we need to be focus on. It's not just the end users. It's not just the purchasing process or acquisition process. It's the speed and the scale that we need to get things out.
We know in some cases we don't need to build one. We need to build tens of thousands. If we're talking about a attributable drones in Ukraine, for example, and we don't need them 10 years from now, we need them like in the next six months.
Meka: When you talk to students who are thinking about starting a company in this space, What are your biggest pieces of advice of getting from zero to one or zero to early deployment or some level of early
success?
Steve: You've Got to keep your eye on the prize. Listen, none of the other parts get easier, meaning you still need to find users, you need to find payers, you need to find, but you need to understand the entire end to end process to deployment. That's the part that's different than enterprise sales.
Boy, you find the CFO and someone has a budget in a company and yeah, the odds are you could figure out that you're going to get a sale or not within even nine to 18 months and whatever, you know, no one who like has ever worked on a process and who did enterprise sales to say. What do you mean we get paid in five years or 10 years?
Or like it's not in the budget for another three years. If you don't understand that end to end process, you're really not going to understand how to be successful in the DoD. And by the way, you're not going to understand the cashflow you need. And by the way, if your VC is new in this business, they're going to be a little surprised with beating you with the stick when you run into the, quote, valley of death, which to me is the valley of ignorance. If you and the VC can't draw that process and figure out how to fill that in and what it's going to take and what you're focused on, then like, that's why you're going to go out of business or be desperate raising money during that cycle. You need to be focused on the entire process, which is a lot harder than just focused on traditional product market fit or even traditional mission solution fit.
I want to know that, you know, how are we going to get to scale.
Meka: There's so much out there on company building for SaaS and consumer founders, you know, where should an ambitious outsider founder looking to build in defense go to sort of start to learn?
Steve: one of the guys who teaches with me in the hacking for defense at Stanford, Jeff Decker, who manages the programmatic efforts at Stanford, wrote a book called The Hacking for Defense Manual, and it just came out and is basically the process.
And, and again, I'm not touting the book, but it is probably the first place that's kind of collected some of the, if not the wisdom, some of the heuristics that we've used in the class about how to answer some of these questions. So number one, you know, I would probably buy Jeff's book rather than any of mine and start from there. Number two is there are a set of blogs put out by defense VCs. I write sometimes on, you know, how to find or figure out how saboteurs work or about the frozen middle and, and others. two is, you know, if you've gotten any investors who are familiar with this space. They need to teach you, and you need to insist on learning the end to end go to market strategy.
And you need to have an opinion in your head about what that looks like. End to end. Not, how do I just find the initial users or the initial door prizes. Those are okay, and that's all the hard work. And I'm not trying to trivialize that. But if you don't understand what the prize is, And you aren't aligned with what your VC thinks the prize is, you're all going to be confused.
And so your first six months are kind of drawing that map in your head, getting you and your board aligned that yes, this is where we think the path is, and this is how we're going to do it. And then as you get out of the building and learn new things. You know, updating that both mental and physical map and keeping your investors aligned with this is where we think we're going. with all due respect, I think VCs are much better editors than they are like, and here's our strategy. They always will have an opinion, but it's a lot better than you standing around asking, you know, what the heck should I do and where should I go? Your job is to get all that data, build a mental map of here's what I'm doing tactically, here's where I'm heading strategically, here's what the revenue should look like, here's where it's going to come from, here's what I need to know, and let them help you fill in the blanks of things that they've seen. At worst, VCs have been in business longer than five years, are good at pattern recognition. And if you're lucky, those who have been around after 10 years are actually, translate that to wisdom. Some like you have accelerated that process, but at minimum, , you want them to be feeding Your view of the world, what their insights and pattern recognition. you know, I have found if you stand around and ask, for what should I do? from your investors, you are going to be pretty rapidly the ex CEO, they expect you to go figure that out. people who are doing this now, people are figuring out how to build scalable companies, uh, selling to the DoD and intelligence community.
Meka: Earlier, you talked a little bit about, you know, Ukraine and Taiwan and all the global conflict. And obviously there've been a lot of defense innovation, I'm curious if there are under explored areas that you think talented people should be building. or if there's a specific startup that you're surprised hasn't been built
Steve: yet? Oh, that's a great question. so let me turn the question around a bit if I can. one is I think there's been, less than an individual startup that hasn't been built yet. There hasn't been an ecosystem that's matured yet in Silicon Valley, for defense. and let me start there and then go down to your question. So, for example, every year we hold something called the Red Queen Conference at my ranch.
Bring in innovators across the DoD and IC and senior leaders and then have them actually talk to each other sometimes for the first time in their own organization. And it's been pretty successful. We created something called the innovation pipeline for the DoD, which is now used in a couple organizations and how to do rapid innovation.
And this is Pete Newell and I, Pete Newell at BMNT who used to run the Army's Rapid Equipping Force. And so he had battlefield experience in me, you know, thinking of it from a theoretical level. and so that's been real productive. But what I realized finally, after five years is where do all those people go after they are at my ranch? They individually go and visit companies in Silicon Valley. And how do they find out where those companies are? Well, they all might know VCX, or VCY, or VCZ. And at best, they get one VC's view of the hottest companies in the valley. And I realize there isn't a single place that they could go to that gets a cross section of, Gee, I'm interested in attritable drones, or, or quantum, or, you know, sensor fusion.
There isn't like a trade show for this stuff. And I don't need a trade show to sell stuff, which is the other problem. We shouldn't be selling to the DOD. We should be offering to solve problems. And the DOD's problem is they don't surface problems very well because they, never had to. So we decided to invite. 30 companies across this, cross section of VCs. And we're running an experiment and turned out we're oversubscribed. so number one is every VC has their own parochial interest on promoting their portfolio. That's a effing disaster for this Valley. that is just so as stupid as I could, I cannot imagine what a bad idea that is. We have a vested interest in presenting the best of what we have across all this stuff and that venue doesn't exist. And I'll take that to the second level. Every venture firm, or most of them, who sell to the DoD, now have either, hired lobbying groups in Washington who have finally figured out that perhaps we should have a voice, or have hired their own lobbyists. Great! Well, what do they do? Well, they promote your portfolio, or they want to get your company, or even the big companies you might have. They have lobbyists. Well, have we done that as an industry? Well, what would we do as an industry? Gee, perhaps we should help rewrite the NDAA by giving the House Armed Services Committee and Appropriations Committee about standing up a DIU for acquisition with maybe a 50 billion budget. Wow. Well, that would be like lifting all boats. Anybody doing that? Well, no, because we're all pursuing our own parochial interest about our portfolios or our specific companies. Why? Well, then we're going to continue to get killed by the primes. Why? Because they have many more people than we'll ever have on K Street and in M Street, et cetera. Having permanent FaceTime with all those members of Congress, and they provide jobs and money, et cetera. We don't speak with one voice with a specific opinion, with a specific agenda that says, here's the NDAA language we want to see that would make the country better, and here's the problem writ large. Executors, which who the DOD is, they're world class executors. They know how to do what they've been doing. We're innovators. We know how to create new things. The executors will never write innovation processes. Innovators hate process. So that Venn diagram right now is zero, right? What we really need are the innovators actually writing what the executors should be doing and handing it to them to say, instead of just them coming out and visiting Silicon Valley, which they now do and looking at new technology X and Y and, and saying, maybe we should put more money in the budget for Anduril or someone else. Maybe we should figure out how to actually rejigger the system so the system now can actually execute and innovate a la SpaceX. SpaceX is a perfect example of what the DoD should be. It's an ambidextrous organization. They do execution pristinely with Falcon 9. And they do insane innovation with Starship, knowing that the Starship will eventually become the core. We're in a crisis and the DoD still operates like it's yesterday. Sorry about the soliloquy, but that's, that's how I envision how we should move the ball for all of us and, and raise the tide.
Meka: it sounds like we need a agnostic, well respected person to put this forward in order for it to actually happen. But I really appreciate you taking the time to chat with us. I feel like we got some really good content here