When it comes to developing new technology, the so-called “valley of death” starts to look more like a bridge in need of repairs. Those repairs are needed across the entire span including both sides and the middle.
While both House and Senate versions of 2024 National Defense Authorization Act offer amendments to strengthen the defense industrial base, new recommendations from the Defense Innovation Board (DIB) said the path through the valley still has too many ways for innovation to die.
A report on strategic capital from the DIB said the problem isn’t the level of investment, it is how the investment dollars are used. At a July 18 meeting, the board presented its report called “Terraforming the Valley of Death.” The study included five multi-point recommendations for ways DoD can help industry ore successfully navigate the innovation-to-production process.
Among the recommendations were adopting the best practices from each of the services, adopting financial metrics that can be understood and audited by both industry and DoD, and building new supply chains.
“DoD wants to be an investor, it just doesn’t know how to do that,” said Will Roper, the strategic capital task force task chairman.
The recommendations divided the valley of death concept into three parts — the investment side of the valley where DoD funds research and development (R&D); the middle of the valley where support for development drops off; and the procurement side of the valley where the Pentagon spends the bulk of its money.
“The term ‘valley of death’ came up so recurrently in our study, we decided to embrace it. We systematically walked from one side of the valley to the other and identified reforms that we thought were needed, so that companies can routinely get to recurring revenue.” Roper said.
The middle of the valley, or the time between R&D and production, remains one of the biggest points of failure for companies developing products, Roper said. DoD needs to develop an “oasis” of funding to support companies in the middle stage of development.
“Only 16% of companies that got an early stage investment contract actually made it to the next step of phase three that can put them into procurement. It’s not really a high percentage,” Roper said.
The NDAA has provisions that attempt to shore up the middle stage of the development process. At a recent National Defense Industrial Association (NDIA) seminar on Joint All-Domain Command and Control, House Armed Services Committee member Rob Wittman (R-Va.) said Congress needs to nudge the process along with appropriations and authorizations. He pointed to a recent change to make the Defense Innovation Unit a direct report to the Secretary of Defense, and the start of the Office of Strategic Capital. However, he said more needs to be done to bolster Phase 2 of the Small Business Innovation Research (SBIR) program. Companies with a product or technology can apply for phase two funding six months to two years after an initial SBIR award. It is designed to get the product to a point where it can go into commercial production.
“I want to make sure the great work that goes on with phase two efforts under SBIR actually get to scalability. We have great ideas here, but they’re not going to make a difference unless we can scale them — unless we can get them to Phase 3,” Wittman said.
At the beginning and end of the innovation to production process, the DIB report highlighted a failure of the Pentagon to work closely enough with industry. Roper said DoD made way too many small investments instead of sticking with the best companies in its portfolio.
The Navy expanded its use of SBIR investments, but the majority of the money goes to Phase 1 projects.
“Some of the systemic issues we saw were not leveraging the total market potential of the DoD. There’s a lot of overlap between military needs and commercial ones, that part of the DoD has a value proposition that it’s not leveraging. It’s not generating product-market fit via its investments — a lot of its R&D is spent completely separately from the [Program Objective Memorandum (POM)] process.” Roper said.
Wittman said industry and DoD needed better ways to communicate.
In an interview with Federal News Network, he said DoD needed a “windshield” of transparency so that industry representatives could talk directly with service members to get a better understanding of their needs.
“For many companies, the Pentagon is a mystery. Many times, they have great technology, but they don’t know how to navigate that. What we want to make sure is folks that have an innovative idea can figure out how they might take an opportunity to put that before folks in the Pentagon,” Wittman said.