Startups obsess over "Programs of Record," but what they're actually seeking is a stable, multi-year indication of demand from the Department of Defense. This is functionally equivalent to a large enterprise SaaS company securing a three-year contract to justify long-term R&D investment and de-risk the business.
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To attract innovation, the DoD is shifting its procurement process. Instead of issuing rigid, 300-page requirement documents that favor incumbents, it now defines a problem and asks companies to propose their own novel solutions.
The Department of Defense is moving from rigid, program-specific contracts to a portfolio model. New Portfolio Acquisition Executives can now reallocate funds from underperforming projects to more promising startups mid-stream, rewarding agility and results over incumbency.
Describing GovTech revenue as 'annually recurring' is misleading because government contracts are often legally prohibited from extending beyond a political administration's term. This makes traditional SaaS valuation models based on ARR fundamentally flawed for the GovTech space, forcing a different approach for founders and investors.
To prevent promising startups from failing from funding gaps—the "Valley of Death"—the DoD actively "crowds capital" around them. This stack includes rapid R&D contracts, manufacturing grants, and low-cost loans from a $200B lending authority.
The government's procurement process often defaults to bidding out projects to established players like Lockheed Martin, even if a startup presents a breakthrough. Success requires navigating this bureaucratic reality, not just superior engineering.
A major upcoming change in the National Defense Authorization Act (NDAA) is the removal of "past performance" as a key criterion in procurement. This rule has historically favored large, incumbent defense contractors over innovative startups. Eliminating it allows new companies to compete on the merits of their technology, representing a significant unlock for the entire defense tech ecosystem.
For large-scale B2B products, validate demand by signing customers who not only commit to buying but also pre-fund development. This model secures capital, guarantees early adopters, and ensures the product is built with direct, committed customer input from the very beginning.
Many defense startups fail despite superior technology because the government isn't ready to purchase at scale. Anduril's success hinges on identifying when the customer is ready to adopt new capabilities within a 3-5 year window, making market timing its most critical decision factor.
Unlike consumer or enterprise software, the defense industry has a single major customer per country. This structure favors consolidation. The path to success is not to be a niche SaaS tool but to build a platform that becomes a "national champion," deeply integrated with the nation's defense strategy.
The go-to-market strategy for defense startups has evolved. While the first wave (e.g., Anduril) had to compete directly with incumbents, the 'Defense 2.0' cohort can grow much faster. They act as suppliers and partners to legacy prime contractors, who are now actively seeking to integrate their advanced technology.
