Demystifying Defense Corporation Sales: Insights for Startup Founders

Talk to almost any employee at a large corporation, and they will tell you that the technology their employer uses internally is clunky, old, and hard to use. To this day, many corporations rely on decades-old software and legacy hardware vendors, reducing employee satisfaction and efficiency. This problem is especially true for A&D¹ corporations, most of which are extremely risk averse, restricted by onerous government processes which inhibit the motivation for upgrading systems, and composed of many disparate organizations glued together through decades of Mergers and Acquisition (M&A) activity. In order for the U.S. to remain competitive in an era of Great Power Competition, it is essential that the U.S. defense industrial base becomes more modern and efficient. One part of improving these organizations is to improve the technologies they rely on internally for engineering design, manufacturing, project management, and business management.

I frequently meet founders leaving A&D corporations looking to build products that solve the operational challenges they experienced firsthand, tackling everything from next-gen ERP² and PLM³ systems to manufacturing, supply chain, requirements management, simulation, engineering tools, and much more – essentially rebuilding the digital backbone of the defense industrial base. However, selling to A&D corporations is not easy. Because of their sensitive customer base, A&D corporations tend to be even more risk averse, political, siloed, slow moving, and bureaucratic than other large corporations, with tight margins and strict cybersecurity and compliance requirements which can cost millions of dollars to adhere to.

Despite the challenges associated with selling to A&D corporations, their technology stack is ripe for disruption, and the market is huge. The top five A&D corporations generated more than $300B in revenue in 2024. So, what does it actually take to sell to these kinds of customers? I asked my colleague Pat O’Reilly, an Operating Partner at Shield Capital with over four decades of experience working as a customer, consultant, and executive within the A&D industry, to write this piece with me to help guide startups through the process of selling to large A&D corporations.

Pitching an innovative technology to an A&D corporation is different from pitching venture capitalists. Startups should prioritize demonstrating how their product performs in real-world settings, showcasing customer success stories, highlighting advantages over competitors, discussing pricing, and clearly communicating when the product will be ready for procurement. Many factors must be aligned before a corporation is willing to adopt a technology in a timeframe that is beneficial to a startup. This article explores questions and lessons learned to be considered when developing a GTM⁴ strategy to sell innovative solutions to A&D corporations.

Understanding Corporate Customers’ Decision Criteria for Adopting New Technologies

Calculating ROI

Before attempting to sell a product to a corporation, startups must understand how the corporation will evaluate the business case for a new solution and whether the perceived ROI⁵ is strong enough to justify the purchase. The best problems for startups to tackle are those that inhibit a customer’s execution in an area of their strategic growth. P&L⁶ leaders, especially at public companies where stock analysts scrutinize quarterly earnings, are incentivized to preserve large free cash reserves and minimize capital expenditures to present strong financial metrics. Often an order of magnitude ROI savings is required for a corporation to justify adopting a new technology or service.

Calculating a potential customer’s business case requires estimating the benefits of adopting a new technology (cost savings, increase in productivity, increase in revenue due to higher probability of winning contracts, etc) and the costs to determine the timing of the “break even” point when the improved profit from the new solution is greater than the cost of adoption. When conducting this business case analysis, corporations include both the total cost of technology adoption and the long-term cost of ownership for the new product. This includes the cost of:

1. The product’s selling price (whether it is a product, service fee, or license),

2. Maintenance and future upgrades to the product

3. Cancelling contracts early with incumbent suppliers

4. Training employees to use a new product (including the resistance to learning a new tool)

5. Disposing current assets that a new product will displace

6. Disrupting existing programs

7. Impacts on other services or products provided by terminated suppliers

8. Qualifying components to meet customer specifications, reliability, and compliances with statutes, regulations, and customer policies

9. Meeting government contractor cyber security, environmental, safety, quality, or other regulatory requirements

10. Acquiring data rights from the customer’s 3rd party vendors (e.g. the data from a customer’s 3rd party digitally controlled manufacturing machines)⁷

In particular, startups often overlook the cost of meeting government contractor cybersecurity requirements. While commercial corporations also require vendors to complete cybersecurity and compliance requirements like SOC-2, government contractors’ requirements tend to be much more restrictive, time consuming, and expensive than those required by commercial companies. Complying with government cybersecurity standards may require startups to deploy products “on prem” (hosting software in a customer’s secure computing environment) or on a government cloud environment, which tends to be more expensive than hosting software in a commercial cloud, especially when deploying AI / anything that needs GPUs. Further, software vendors selling to A&D corporations are often required to comply with rigorous compliance regimes like FedRAMP and ATO processes, which can cost hundreds of thousands (or even more than a million) dollars to achieve. Additionally, corporate customers will estimate the costs of convincing their customers that a new product will not introduce additional risk or invalidate previous contract awards.

Simplifying AI Deployment for Defense

Consider a hypothetical business case for selling a code generation tool like Cursor or Lovable to an A&D company. Calculating the business case requires an estimate of:

1. How much is each software engineer’s approximate burdened salary per hour (i.e. total cost of employment including benefits and insurance)?

2. How many hours does a new code generation tool save each engineer each week?

3. Can customers ship products more quickly using this code generation tool, and if so, will that earn them more revenue?

4. Are the customer’s competitors adopting this tool? Will adopting this tool give a customer an edge over its competitors? Does it need to adopt this tool to compete with its competitors?

5. Is the corporation able to share this tool across entities, or does each entity need to purchase its own licenses?

6. How much will it cost to host this software in the public cloud, government cloud, the company’s private cloud, or on premises? Will there be non-recurring engineering (NRE) required to deploy the software?

7. How much will NRE cost to build all the necessary integrations to make the product work with a customer’s existing tools?

8. If a corporation already has a contract with another provider (ex: say, if GitHub co-pilot is already part of their Microsoft 365 contract suite), how much will it cost them to finish out or break that contract?

9. How long will it take and how much will it cost to train employees to use a new developer tool?

Public corporations are more focused on achieving near-term ROIs (less than a year), whereas private corporations are often willing to wait a year or more to achieve a positive ROI after adopting a new solution. Understanding the broader economic conditions of a customer’s market is essential as well, as market growth and recent contract wins typically increase a corporation’s risk tolerance and willingness to invest in new solutions. Corporations are more open to accepting risk at the start of a contract where they have time and funds to recover from a failed technology adoption attempt rather than later in the execution of a contract when funds and time are more limited.

For example, in June 2025, General Atomics, a private defense contractor, announced that it would begin using a product developed by Nominal, a VC-backed Series B startup, to manage telemetry data for its line of UAS.⁸ General Atomics also recently announced that it is working with Divergent 3D, a VC-backed Series D startup that works on metal additive manufacturing, to develop flight hardware for their small UAS product line. The UAS market, and particularly the small UAS market, is a highly competitive, growing market segment: the FY26 Department of Defense (DoD) budget request includes billions of dollars for UAS, and the White House has made it clear that procuring more American-made UAS is a priority. Further, over the last year, General Atomics has won several contracts focused on UAS development, making General Atomics’ UAS business an ideal place for Nominal and Divergent 3D to target. General Atomics is an ideal company for startups to work with, as they are privately held and smaller than many public defense companies (General Atomics has about 13,000 employees compared to Lockheed Martin’s 120,000), and as a result is able to make procurement decisions more quickly (General Atomics only has about four management levels unlike most A&D corporations which have closer to seven).

Similarly, if a corporation believes that it can win additional business in an expanding market by using a startup’s product, it will likely be more tolerant of risk in adopting a new product. For example, defense corporations may be more likely to work with a new vendor like Apex Space in competing for Golden Dome contracts (a growing DoD market segment which will require them to quickly deploy more satellites to space) as Apex enables their customers to acquire satellite buses much more quickly than other commercial providers.

Showcasing how similar customers have used the product can build credibility, but the most compelling way to demonstrate value is by conducting a pilot program with a potential customer that directly addresses a target customer use case. Partial or full customer funding of a pilot program signals a good-faith commitment to actively evaluate the product’s performance. Startups should consider providing potential customers with a discounted cost for pilot projects in exchange for the customer’s comprehensive feedback, recommendations on improving the product, and endorsement if the pilot is successful. Pilot programs often deepen the relationship between a startup and its corporate “champion,” equipping the champion with firsthand insights and credibility to advocate more effectively to corporate functional and P&L leadership. Even better would be if a customer can share strong pilot results with their end user (ex: DoD) which significantly boosts a startup’s credibility and improves its chances of converting the pilot into a full-scale deployment.

Purchase Timing

The timing of a purchase is another key factor customers evaluate when making buying decisions. Most A&D corporations mimic the Congressional budget cycle and develop a strategy that is aligned with competing for large programs of record within the President’s budget. While programs of record are large potential sources of revenue, they are highly competitive and often require startups to establish teaming arrangements on proposals with A&D corporations early in a source solicitation cycle, which can last over a year. Corporations can more easily incorporate new technologies or services into their programs in the early stages of their strategy and budget cycles, typically in the Winter and Spring months. For instance, if a startup is building next-generation CAD software for a company designing a new aircraft for a new program of record, a corporation is more likely to buy that software at the beginning of the project, rather than the middle or the end, when the corporation has likely already invested heavily in their existing CAD software.

During A&D corporations’ annual budget development cycles, corporations prioritize different potential capital expenditures, which directly affects their ability to purchase new tools and technologies. For instance, if a corporation just purchased the license for a suite of engineering tools on a three-year contract with multiple two-year contract extensions, it is highly unlikely they would be receptive to a pitch on new engineering tools, regardless of how much money it would save or its level of performance. Most corporations have a “refresh rate” for replacing and upgrading tools and capital expenditures, so understanding their “window of sales opportunity” is critical to identifying the best time to engage a customer on a new product. Additionally, corporations often have manufacturing and tool upgrade cycles tied to large program pursuits, so startups should seek to track potential customers' published awards to know when it is best to engage with them on new technologies.

Startups should also seek to engage potential A&D customers when opportunities arise from DoD’s annual “sweep up” budgets. Congress funds DoD largely in three budget categories: Research and Development (R&D), Procurement, and Operations and Maintenance (O&M). The timeline to execute the budget categories varies, but DoD Agencies and Services must execute their appropriated budgets by the end of each fiscal year (September 30) or that Agency or Service faces a reduced budget the following year. Therefore, starting in early Spring each year, DoD agencies and services begin identifying (or “sweeping up”) unspent funds from their budgets and compiling a prioritized list of potential expenditures to obligate before the September 30 fiscal year-end deadline. Typically, agencies select new contracts in July, as contracting organizations need August and September to execute the large influx of new contracts prior to September 30. A&D corporations are aware of this process and present many unplanned contract opportunities to their DoD customers around this time. These contract proposals and white papers are normally smaller than those in the original budget, so they are good opportunities for A&D corporations to team with startups to introduce new technologies and products to the DoD. Often, the decision to team with a startup on these smaller contracts is made more rapidly at a lower management level. Thus, startups that find many proposals dismissed by a corporation earlier in the year may be reconsidered in the mid-to-late Spring.

Unfortunately, generally, most of the information required to accurately estimate a customer’s likely business case and purchase timing is confidential. However, for public corporations, startups’ approximations can be informed by quarterly earnings reports and press releases of public companies as well as annual 10-K reports required by the Securities and Exchange Commission. In contrast, collecting data on private companies requires reliance on press releases and interviews with those knowledgeable about those private companies.

Understand Corporate Decision-Making Process for Adopting New Technologies

In addition to understanding a customer’s decision-making criteria, it is also important to understand how a target customer makes procurement decisions. Corporations are not monolithic organizations and too often startup CEOs will engage with a single employee or division of a corporation and mistakenly attribute their response as representing the entire corporation's final position on adopting a new solution (either positive or negative). Startups should seek to develop a strong relationship with one or more “champions” or “coaches” in a target corporation to guide them through the myriad of approvals a corporation needs to adopt a new technology, product, or service.

To fully understand a corporation’s response to a new solution, it is essential to grasp how the organization is structured, how authority is distributed (centralized vs. decentralized), who influences procurement and business development decisions, the length of decision-making cycles, and which factors (such as cost, ROI, and risk) carry the most weight in technology adoption. It is equally important to “qualify” the customer and assess early in the sales process the likelihood of a successful sale so as not to expend precious startup resources on customers with a low probability prospect.

While corporations usually do not disclose their business development and purchasing decision processes (especially privately owned corporations), there are a few fundamental principles startups should follow to navigate these processes. First startups should seek to understand the organizational and authoritative structure of a corporation. Effective management of a large workforce requires multiple hierarchical management layers, so it is important to understand which management layer makes relevant purchasing decisions for a particular product. Is the corporation organized by product line (ex: different kinds of aircraft), regional markets (ex: North America, Europe, Asia), customers (ex: Navy, Army, Air Force), historically (ex: different business lines stood up over time as the company evolved), brand (ex: Raytheon vs. Collins Aerospace vs. Pratt & Whitney), etc.? Are the procurement budgets and decisions made by functional managers (such as engineering, technology, procurement, business development, marketing, technology, operations, IT, manufacturing, finance, and strategy leaders) or by Profit & Loss (P&L) leaders (such as business units’ general managers,)?

Large corporations often outsource the analysis that informs procurement decisions, particularly decisions that require specific expertise, to business or engineering consulting firms that have expertise in a technology, tool or service like Deloitte, Boston Consulting Group, and McKinsey. For example, L3Harris announced that it is partnering with Accenture to help modernize L3Harris’s IT infrastructure. Ensuring these consulting firms understand the advantages of a startup’s product can significantly influence the buying decisions of a corporation. Typically, these firms do not make the final procurement decisions, but they often screen, develop business cases, and rank candidate technologies and suppliers.

It is not always obvious to a third party who makes procurement decisions within a corporation, but it is almost always true that whoever a startup presents its product or solution to within a corporation, that corporate employee will likely need to use the startup’s presentation material to brief higher authorities for approval. Thus, creating clear and simple presentation materials that can be explained by third parties is critical.

While relationships with a corporation’s employees are the best source of information, earnings statements, 10-K reports, and press releases are alternative sources for data on public companies. These documents often reveal a corporation’s decision structure, how they are expending internal resources, their budget cycles, and their status with external customers. Additionally, it will be key to identify internal stakeholders early on, as those stakeholders can help outsiders navigate internal bureaucracies and politics within a large corporation. These internal stakeholders may be a corporation’s innovation arm, or they may just be forward leaning and passionate employees seeking a better, more efficient way to operate.

Understand the Competitive Landscape

After analyzing a target customers’ perception of a “pain point” and estimating their business case to invest in a new solution, next a startup must perform equally rigorous research on alternatives to its solution by performing a competitive analysis. This analysis should include both incumbents and other new entrants that target customers will likely include in their business case analysis for purchasing a new solution.

Incumbents are the most challenging competitors to compete against and have five significant advantages over new entrants:

1. First, incumbents have access to a target customer’s data that they can use to estimate their customer’s business case and return on investment with greater accuracy.

2. Second, they understand and have access to the customer’s decision process and familiarity with individual decision makers.

3. Third, incumbents often have significantly more resources to devote to developing a similar product in a short period of time.

4. Fourth, incumbents pursue “vendor lock” strategies with customers to prevent competitors from entering their markets. These strategies include reducing per unit prices for long-term contracts and contract options, imposing penalties for early termination of contracts, and bundling products so that the benefits of a new entrant's superior product is outweighed by the increases in prices for the incumbent’s other products and services incurred by breaking the incumbent’s bundled contract. Additionally, a strong track record of marketing and sales by established suppliers heavily influences a potential customer’s perception of risk, often making them more hesitant to adopt a new entrant’s product.

5. Fifth, once a corporation establishes teaming agreements with companies (including startups) on a proposal, they have a legal and reputational obligation to include those companies as subcontractors when the corporation wins the proposed contract. Even if a new startup has a superior product, corporations almost never substitute a new subcontractor without a compelling cause.

Finally, a target customer’s ability to adopt new technology may be constrained by their end customer (in the case of an A&D corporation, the end customer may be DoD or an airline). Often existing contracts include incentive fee structures for specific vendors or mandate formal approval from the end customer before introducing new suppliers on currently executed contracts. For example, some customers within the DoD will require contractors to use legacy requirements management tools like IBM DOORS when working on specific DoD projects, effectively blocking out more modern requirements management software tools.

To overcome an incumbent provider’s advantages, startups should assess their incumbent’s ability to quickly produce a competing product or make their solution more attractive. Startups should seek the answer to questions like:

1. Are competitors’ sales volume and margins sufficient to support their rapid new product development to compete with your solution?

2. Is a competitors’ lack of talent (or ability to hire necessary talent) sufficient to create a “technical moat” inhibiting them from rapidly duplicating your technology and developing products similar to yours?

3. Is your IP sufficiently protected to prevent competitors from copying your technology?

4. Are competitors’ commitments and contracts with other customers and other markets preventing them from rapidly concentrating on new product development?

The greater knowledge a startup has of the incumbents they will be competing against, the greater the chance they can develop a GTM strategy to overcome the incumbent’s inherent advantages. For instance, if a startup is developing a next-generation, AI-native ERP system, it is probably fair to assume that legacy incumbents like SAP and Oracle will struggle to hire the AI talent to adequately compete with a new AI-native product. However, if an incumbent competitor is a company like Microsoft, such an assumption may not be as valid, given Microsoft’s extensive AI talent and deep pockets.

The key to successfully competing with other new entrants is understanding their product maturity, pricing strategy, production capacity, and relationships with target customers. Given other new entrants do not have existing contracts with target customers, they often advertise their critical information publicly at trade shows or during investor pitches. Collecting data on potential competitors and comparing their products in a compelling way is critical to differentiating technology to investors and customers.

Summary of Recommendations

1. Adequately prepare to engage your customers: Given the challenges and typical lack of transparency associated with A&D corporations’ decision processes, startups must prioritize researching and engaging with relevant individuals within a corporation to determine the probability of a successful sale of an innovative product or service to an A&D corporation. Understanding how a corporation operates and its circumstances at the time a startup is engaging them is critical to a successful sale of a new product.

2. Do not use investment pitches for customer engagements: Opportunities to engage potential corporate customers for a sales pitch are limited (usually 30 - 45 minutes long, with the remainder of the hour for corporate participants to privately decide if they want to pursue adoption of a startup technology). Do not dedicate time to TAM or GTM strategy. Instead, startup CEOs should focus their sales pitch on their product, a business case emphasizing performance, cost savings, competitive analysis, overcoming adoption risks, and suggesting pilot technology adoption projects.

3. Develop authoritative champions: Research into a customer is important, but most important is building relationships and identifying employees within a corporation that will be “champions” for a product as it is subjected to serial, hierarchical and bureaucratic review processes.

4. Know your customer: One often-overlooked but highly valuable source of relationship intelligence for founders is the customer introductions that arise during initial meetings. Founders often rush through introductions without carefully documenting who is in the meeting, their roles, and how they fit within the organization's structure. This oversight can weaken follow-up efforts and hinder strategic relationship building. Startups should ask or allow time for customer introductions and manually document customer information (most corporations do not allow meetings to be recorded digitally).

5. Start with smaller customers as early adoptors: As a startup initiates its GTM strategy, they should prioritize initial sales to small and midsized corporations, as smaller organizations tend to be more risk tolerant, have less mature relationships with their incumbent suppliers, and have shorter sales cycles than larger corporations. Startups can work closely with small and mid-sized corporations to quickly develop and iterate on their product design, smoothing out bugs, building key features, and working through cybersecurity and compliance requirements before eventually selling refined and hardened products to larger corporations.

6. Delay corporate engagements until you have working prototypes: Introducing prototype products (at a maturity indicated by Government Technology Readiness Level 4 - 6) is fine for initial relationship-building meetings and co-development proposals; however, unless a co-development partnership is being proposed, it is generally best to wait until the product reaches TRL 6 before presenting it to an A&D corporation. Often, A&D corporations will wait till a product is at TRL 7 (early production) before considering funding a pilot program to validate the application of a product in one of their use cases.

7. Entice corporate teaming with government small business programs: An effective way to gain the attention of a corporation is to offer SBIRs,⁹ Small Business Set Asides, and government non-traditional commercial teaming advantages to corporations otherwise prohibited from participating in DoD solicitations. Typically, up to 45% of the value of a small business proposal can be composed of traditional and larger DoD contractors. Also, teaming with established contractors greatly reduces the DoD’s concerns about a small firm’s ability to scale quickly and reliably meet contract requirements. Corporations also benefit from these teaming opportunities, as partnering with startups allows corporations to strengthen their reputation as innovators in the eyes of both customers and shareholders.

Conclusion

While it is not easy, there is certainly a lucrative path forward for startups to partner with A&D corporations to accelerate innovative technology adoption and improve the efficiency and resilience of the American defense industrial base. Startup founders can build credibility with A&D corporate customers by thoroughly researching the questions outlined in this article before deciding if, or when, to engage an A&D corporation. Engaging customers without understanding their needs, decision process, timelines, and risk tolerance levels greatly reduces a startup’s chance of selling to an A&D corporation.

Although investment by a corporation's Corporate Venture Capital (CVC) organization may be an encouraging sign that they will adopt a new technology, ultimately, corporations’ product development or business units, not CVCs, make the final decisions to adopt technologies and services. Thus, it is important for startups to build strong relationships with business units, either through collaborative efforts and pilot programs, or by inviting them to participate in source selection opportunities reserved for small and non-traditional DoD contractors. Finally, most decisions in A&D corporations are made through a cyclical hierarchy of committees, so patience and realistic decision timeline expectations are important virtues for startup CEOs to have rewarding experiences with A&D corporations.

Success in the A&D market is about timing, trust, and empathy. Startups that combine technical excellence with a deep understanding of how these corporations buy, decide, and partner will be best positioned to capture enduring value in a sector long overdue for transformation.

1. A&D = Aerospace and Defense

2. ERP = Enterprise Resource Planning

3. PLM = Product Lifecycle Management

4. GTM = Go-to-Market

5. ROI = Return on Investment

6. P&L = Profit and Loss

7. Note that DoD does not always have the right to access all relevant technical data from its vendors. For instance, in 2021, critical F-35 repairs were delayed because contractors withheld technical data.

8. UAS = Unmanned Aerial System

9. SBIR = Small Business Innovation Research grant

Note: The opinions and views expressed in this article are solely our own and do not reflect the views, policies, or position of our employer or any other organization or individual with which we are affiliated.