Navy CTO Justin Fanelli advises founders to stop asking to be paid for their time and instead price their solutions based on the outcomes and value they deliver. This aligns incentives with the government buyer, rewards impact over effort, and demonstrates a modern, software-defined mindset.
The Department of Defense excels at creating technology but struggles to implement it. To solve this, the Navy created an "Innovation Adoption Kit" (IAK) to provide standard tools and a common language, enabling faster, more effective adoption of new capabilities by warfighters and program managers.
A key cultural shift in government procurement is moving from a cost-minimization mindset to a value-maximization one. Instead of asking how to reduce a contractor's margins, smart buyers should focus on achieving better results with the dollars being spent, rewarding companies that deliver superior impact.
To overcome government buyers' distrust of AI, the Navy runs use-case-specific pilots, providing side-by-side evidence of performance improvements. By publicizing success stories—like a Marine saving 100 hours in a month—they build trust through data and create a Fear Of Missing Out (FOMO) effect that drives wider adoption.
While flexible Other Transaction Authority (OTA) contracts open doors for startups, they create revenue uncertainty that worries venture capitalists. The Navy CTO's perspective is clear: the goal is to keep companies competitive. The best performer gets rewarded, creating an inherent tension with the VC model that prizes predictable, long-term revenue.
The most likely exit for a defense startup isn't necessarily being acquired by a large contractor. By developing a capability that can be adopted across multiple service branches (e.g., Navy, Army, Marine Corps), a startup can significantly expand its market. This "joint solution" approach creates more runway and strategic options.