Breaking down SECWAR Hegseth's new defense acquisition reforms
Transcript
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Maggie 00:19
Late last week, Secretary of War Pete Hegseth announced a series of reforms to the Department of War’s acquisition system. The reforms range from renaming the Defense Acquisition System to changing the way program executive offices actually operate. Many of the reforms dive deep into the wonky policy weeds, but there’s no doubt that once implemented, they’ll be incredibly meaningful for startups working in this space. So of course, I had to ask my two favorite defense acquisition experts, Mike and David on my team, to join me for a last-minute emergency pod to help explain what these reforms actually mean for startups in the national security sector. David also just wrote an excellent blog post on the reforms that I’ll link to in the show notes, so definitely check that out if you want to dive in further. Mike and David, thank you both so much for making the time on a Saturday morning. I know there’s no way you’d rather be spending your weekend than digging into the details of defense acquisition reform. I think this is going to be really meaningful for those of us who aren’t as deep into the policy weeds to understand what’s actually happening here.
Mike 01:46
Happy to be here, and I think doing this as an emergency pod speaks to the importance of this announcement.
Maggie 01:55
Let’s start with the basics. What are the headlines? Can you give us a summary overview of what the Secretary’s memo and speech actually meant?
Mike 02:08
Before we get into the specifics of the policy changes, I think it’s important to reflect on the themes the Secretary highlighted. It really starts with an acknowledgment that the current system is broken. That recognition isn’t unique to Secretary Hegseth—many secretaries before him and Congress itself have tried acquisition reform. He correctly pointed out that the problem is broader than acquisition alone. It’s really a combination of requirements—what are we asking for; acquisition—how do we buy it; and budgeting—how the money is allocated and how flexible it is. I like that he addressed all three, because changing only one doesn’t get you the desired effect.
The desired effect, which he made clear, is speed. He’s making speed a top priority, and he’s implementing measures to reinforce that. There’s a great piece by Bill Greenwalt and Dan Patt called Competing in Time that highlights just how broken the system is. It takes, on average, 17 years to get a new capability fielded at the Department of Defense. On the fast end, it’s seven years; on the long end, twenty-seven. That’s clearly unacceptable. The implication of moving that slowly is that we put warfighters at risk, forcing them to fight with yesterday’s technology.
He emphasized a few key points: we need to move faster; we need accountability—meaning one person in charge, which ties into his portfolio acquisition executive idea; and we need to focus on outcomes over process. Anyone who’s spent time at the Pentagon knows there’s an almost religious devotion to process compliance, but that doesn’t always produce the best results. He’s saying we should prioritize outcomes that advantage the warfighter through speed. Those were some of the big takeaways for me.
David 04:19
I’d add one other area: a recognition that the defense industrial base is a bit hamstrung. One of the points highlighted, and often forgotten, is foreign military sales. Now, I’ll admit I’ve never worked in a program office, but when you think about the defense industrial base, it’s heavily constrained by ITAR—the export control regime that restricts critical technologies from being sold abroad. That dramatically limits your addressable market. We have many allies and partners who would love to buy technology that helps maintain our military’s edge, but the process is so bureaucratic and slow that it often prevents that.
By putting more emphasis on enabling foreign military sales to happen faster, the department can help the defense industrial base make the production investments they’re currently unable to. That’s a critical, if underappreciated, piece of the reform effort.
Maggie 05:30
Both of you have spent years mired in the Pentagon’s acquisition system—at the Defense Innovation Unit, in the Air Force, and elsewhere. Why are these reforms so important in the first place? What are the implications of maintaining the status quo?
David 05:51
I think what’s interesting about this moment in time—and this memo—is how aligned it is with the things Congress has been asking for for years. Secretary Hegseth is not the first to promote change in culture and process and to emphasize speed. Secretary Carter, who established the Defense Innovation Unit, the Defense Digital Service, the Strategic Capabilities Office, and a handful of other organizations, also recognized these same challenges. But I think what we’ve seen with some of the successes of the organizations I mentioned is how they’ve provided Congress significant proof points, insofar as Congress has been asking for many of the same things through the National Defense Authorization Act.
There’s always a section in the NDAA that outlines a set of changes, updates, and modifications to the overall acquisition system. But since Secretary Carter, there really hasn’t been much emphasis from senior leaders at the Office of the Secretary of Defense—or now the Office of the Secretary of War—to make these changes front and center. Here, we’re seeing significant prioritization through massive policy memos that aim to make wholesale reforms. And again, I think it’s notable how aligned these efforts are with the things Senator Wicker, the Chair of the Senate Armed Services Committee, included in the FORGE Act last December. Similarly, the House Armed Services Committee has advanced the SPEED Act, which now sits on the Senate’s desk awaiting ratification to become part of the FY26 National Defense Authorization Act. These efforts are so aligned and in concert with one another, and I think that bodes really well for the overall acquisition community.
Mike 07:57
Yeah, I’d add that another thing we’ve seen is the growing importance of commercial technology—with a nod back to Ash Carter, who had that vision decades ago. We’re now really seeing it come to the fore, especially in Ukraine. So many of the technologies being used there are produced by commercial companies, whether they’re sensors from space, AI software used for targeting, or autonomy systems. What we’ve seen on the battlefield in Ukraine is commercial technology being used to great effect—not to the exclusion of traditional platforms and munitions, but in a complementary fashion. It’s the first time we can truly say that commercial technology has played such an important role in a war. And we’re not going to be able to acquire the commercial technology we need without the reforms outlined in the Secretary’s speech.
Maggie 08:52
Yes, I think you both mentioned that this is not the first attempt at defense acquisition reform. Secretary Carter had his own initiatives, and Hegseth, in his speech, actually noted that Secretary Donald Rumsfeld had a similar effort more than 20 years ago. In your view, what makes this attempt different, and what do we need to learn from past efforts in order to make this set of reforms more successful?
Mike 09:23
Yeah, well, I think David pointed out a really important factor, which is that we’re getting all the branches of government together at one time, emphasizing the importance of this. We have the House, the Senate, and the administration aligned—the first time I can remember that we’ve had a president get involved and issue four executive orders focused on defense acquisition. I don’t know that that’s ever happened before. It speaks to unifying the branches of government to get behind this as an effort.
I think the fact that Secretary Hegseth referred back to Secretary Rumsfeld right before 9/11 making a speech really shows how hard this is. It’s going to take the entire community of the Defense Department—everyone involved in requirements, acquisition, and budgeting—as well as Congress in support. Secretary Hegseth promised transparency and speed, and he said he’d be looking to Congress for support. How hard this is speaks to the fact that we need everyone with hands joined to make this a success.
One of the things we’ll talk about in a few minutes is what the proof points will be—what will have to happen to make some of these reforms successful. But the fact that everyone is working together, that technology is now so important, and that we have commercial technology from startup companies all point to this being a moment in time when we really need to make these reforms so we can modernize the military much faster and get warfighters not only the capability they need, but also on a timely basis.
David 11:00
I was going to highlight that because of the war in Ukraine, we’re seeing how commercial technology can be implemented, advanced, and iterated upon in real time. There’s a general recognition—right at the beginning of his speech, Secretary Hegseth quoted Donald Rumsfeld and talked about central planning as the adversary. The overreliance on process is the enemy. Knowing that kind of central planning wouldn’t work in a live war like what Ukraine is experiencing with Russia, it’s clear that the old approach won’t hold.
We had overwhelming technological superiority in Iraq and Afghanistan, and we weren’t as concerned about the cost of munitions or the price per kill. Congress continued to provide Overseas Contingency Operations funding in the hundreds of millions of dollars, so the Pentagon and the services writ large didn’t really have to reimagine their warfighting capability to fit what they had at the time. We had overwhelming force, but it wasn’t economical.
Today there’s recognition, especially with a peer adversary like the People’s Republic of China, that if we were to get into a situation requiring kinetic force, the way we operate today would really handicap our effectiveness.
Mike 12:46
The other thing I wanted to mention that relates to this being a moment in time is that we’ve now had a decade since the organizations David referred to—those Ash Carter set up—have been practicing tradecraft in acquisition. We have proof points from those organizations, whether it’s the Defense Innovation Unit, the Army Applications Lab, AFWERX, or the Rapid Capabilities Offices. There are ways we can leverage what’s already been done on a smaller scale to make a much bigger impact when applied to the whole department.
Maggie 13:23
So what will be some of the proof points of a successful implementation of these reforms?
Mike 13:28
Well, I think the ultimate proof point will be whether we can change that 17 years on average to one or two years with commercial technology—and maybe with the establishment of what’s called MOSA, the Modular Open Systems Approach. We should be able to move faster on the larger defense platforms as well. I think it really is about speed. If we look at some of the changes the Secretary is talking about, they’re designed to make speed easier. Whether it’s blowing up the JCIDS process—the requirements portion of the process—and figuring out what we need to buy faster, in fact, we don’t need a JCIDS process for commercial technology. We can buy what’s off the shelf and use some of the faster ways to procure. I’d point to Other Transaction Authority, which was given to the Department a decade ago. DIU used that very effectively, and now many people are taking and using the process DIU pioneered—what David pioneered here on this call—the Commercial Solutions Opening.
Having a single accountable executive is key. It’s not just a name change to go from a PEO to a Portfolio Acquisition Executive; it allows one person to make trade-offs of speed versus traditional cost and performance. The Secretary made the point that he’d rather have new capability—maybe 85% of what we might have specified in a requirement—sooner, rather than wait 17 years on average to get something that meets the requirements fully. Those would be some of the important proof points, and they all come down to: do we get things faster to the warfighter?
David 15:13
Yeah, that’s well said. Maybe moving a little bit more into the specifics—so we keep talking about this thing called Portfolio Acquisition Executives versus Program Executive Offices. At the macro level, it’s really about allowing trade space for a senior leader to move across an entire capability area, whether that be munitions, fighters, or something else, and to look at what’s actually performing well. It’s about getting real-time feedback from the test and operational community about what’s progressing technologically and being able to make trade-offs inside that overall portfolio.
At a procedural level—and if the audience will bear with me—one of the major challenges that the executive branch cannot address on its own is the budgeting process. Every year, Congress appropriates funding to the Department, and unfortunately, they do it through thousands of lines of programs. Each program will have what’s called a “program element” associated with it, and that’s where Congress explicitly says: you are going to spend X amount of money on this thing. Maybe it’s a certain set of munitions, maybe it’s a re-engine or engine upgrade for something like the B-52, or maybe it’s for a ground network system. That structure really handcuffs the executive branch from making decisions and trade-offs.
So for me, my first proof point that this is going to be real and effective is if we see the President’s Budget, as it moves from the Combatant Commanders to the Services, up through the Office of the Secretary of Defense, then on to the Office of Management and Budget, before being signed by the President and sent to Congress—if we see a consolidation of program elements into portfolio elements. What we should see are fewer portfolio elements with much larger capacity and more general statements about the types of capabilities they’re pursuing, highlighted by this new requirements regime that’s moving away from the JCIDS process—the Joint Capabilities Integration and Development System, I think that’s what it stands for—and requirements writ large.
Seeing that shepherded in such a way, if we can, from a systems standpoint, make that happen, will really shock the 36,000 people who work at the Pentagon every day. To me, that will be the massive proof in the pudding that we’re actually changing the system in a meaningful, dramatic way, which will then give ownership and accountability to those senior leaders within these portfolios.
Mike 18:33
Well, I just have to say how important David's comment really is. If you work in the Defense Department, you see how hamstrung you really are by this inflexibility of money. Nothing happens at the Pentagon unless you can get money aligned with your purpose. Those 1,700 line items are far from oversight—they're really micromanagement of the Pentagon by Congress. And it’s even worse, because now they break every dollar into a color. I can spend one color on procurement, another on R&D, and operations and maintenance has its own color. The 1,700 line items broken into specific colors mean you have practically no flexibility to move money to a different category—where you might be able to save overall because you've identified a new technology that's cheaper, or you might have an urgent threat. But because the budget process started three years ago and now it’s cut up into these very small granules of program element by color, you're completely constrained. Addressing the budget component as David did could be a huge benefit, offering a lot of flexibility to move much faster.
David 19:47
I'll only highlight that it’s actually much worse than Mike described. Within those colors of funding, you have even more granular specification. Within research, development, test, and engineering—RDT&E—funding, you have about seven or eight different categories like 6.3 and 6.4, which further hamstring flexibility. It’s Congress’s way of ensuring that the department spends broadly across many different activities and doesn’t put all its eggs in one basket. But we see how well that’s worked with the Joint Strike Fighter, which last I saw is experiencing about a $1 trillion shortfall. Despite our best efforts to spread out funding to exercise a multidimensional military apparatus, we’re just not good at it. Central planning doesn’t work—we need to admit it and try something different.
Mike 20:48
If we look across history, I don’t think many people were very good at it. True, it’s hard to do.
Maggie 20:53
So maybe, just to make this tangible for a novice like myself—could we walk through what this new process would look like to field a new capability, and how that would compare to the old process? For example, with the F-35, we had to go through the multi-year JROC process to collect requirements, and then it became kind of this inflexible system, as you all were describing. But what might a new process look like to field the next set of air capabilities, or some other technology of your choice?
Mike 21:30
Let’s take drones as an example, where the department is way behind where it would like to be. You only have to look at what’s happened in Ukraine to see that both Ukraine and Russia are producing somewhere between four and five million drones per year. I don’t know what the equivalent number is for U.S. manufacturers or how much the Pentagon is buying, but I’d bet we’re an order of magnitude below that—so way behind what we might need if we were called into a conflict today.
We don’t need to start with a JROC process, which in itself could take a couple of years just to figure out what a joint requirement would look like for a drone. Using the portfolio acquisition executive approach, you could imagine having an office responsible for drones. That means we don’t need to say, “I need 17 types of drones,” and then rationalize all the requirements for different endurance and payloads. Instead, it would be much easier to say, “I need these four or five capabilities,” all managed under one acquisition executive, with that executive making trade-offs between how fast we can get those, what’s available today, and where we might want some development to occur.
That’s a tremendous advantage for the warfighter, for speed, and for the taxpayer. Then, using a commercial solutions opening process—something already proven by DIU and other organizations—we can quickly sample what’s available in the marketplace and put companies on contract. We don’t need to buy based on their promises; they then go into a test program to see how they perform in the field. We could certainly get that capability fielded within one year if it’s commercial technology that already exists and just needs testing.
Of course, we still need to plan for how we’ll train folks to use those systems and what support might be required in the field, but that can obviously happen much faster. And then we have the budgeting benefits—if we see new technology come on quickly, we’re able to evaluate it without waiting for another requirement or budget cycle. You can imagine a much faster iteration for commercial technology, so we can both field it quickly and replace it as technology evolves and improves—all with the intent of getting new capability to the warfighter as fast as possible.
It’s a little more complex if we’re talking about a ship or a fighter aircraft, but that’s where the modular open systems approach comes in. That’s how we buy things in the commercial world—with standards and interfaces among subsystems. If you had a design that included those interfaces and awarded that, then subsystems could be built into that design and competed as soon as technologies evolve. That would allow much faster upgrades for ships and fighter jets, as examples.
Maggie 24:39
So this is the difference between saying we need to have a drone that has a five-foot wingspan and has this specific EW payload and this specific camera system. Now instead, we can say we need to have the ability to conduct ISR within, you know, a 10-mile radius. And now we can field whatever capability could fulfill that mission set, even if it doesn’t have a five-foot wingspan or the exact camera system that we were requesting in the initial set. Is that the right way to think about this?
Mike 25:12
Yeah, I think what you just described illustrated the JCIDS, or requirements process. And then what the Secretary is also calling for is, “Okay, and I want faster buying.” That’s where something like the commercial solutions opening can come in, and then budgeting for that allows for me to shift to different priorities and adopt technology faster. That’s where he’s addressing the budgeting part of this. So all three of those can be accomplished with this set of reforms.
David 25:41
Yeah, I would just maybe add, with the requirements process, because of those specifications, it allowed the budgeting team to figure out what the expected costs were so that we weren’t going and trying to build an unaffordable military, right? But it assumes that everything is going to work out perfectly because we centrally planned it to the widget. And we just know that’s not how things work. What we sacrifice in pretending to have clairvoyance of the future is flexibility—flexibility based on the technological evolution happening in the commercial world.
Because, again, we have to remember that the system acquisition approach was under the assumption that without the Department of War deciding that a technology needed to exist, it wouldn’t. And now it’s flipped on its head. Technology is just happening all over the place because the amount of research and development funding available to the world is no longer in Pentagon coffers. That has all changed.
So maybe, Maggie, to be specific about what this change looks like—in my mind, it is a massive reorganization of the department writ large. Let’s take the Air Force. You have these major commands that are entrusted with organizing, training, and equipping. They help get the fighter pilots trained up, make sure they’ve got their fuel, set their training hours, and create the requirements for what the next generation of a fighter pilot might look like. They also produce these things called 1067s, which are modifications to existing weapon systems. That gets routed up through the Pentagon, the higher headquarters approves it, and then it goes down to the program offices—PEO Fighter/Bomber. Now they’ve got this validated requirement, and then they can go compete it out among industry based on all those specifications laid out through the 1067 process or otherwise.
What I think really needs to happen is an integration of the operational commands and the acquisition commands into cross-functional teams that have the requisite expertise to make decisions around capability tradeoffs based on real-time feedback coming from the combatant commanders. We need to get away from this game of telephone where things come from the field, move all the way up to the Pentagon, then back down to the program office, and then out to industry. We need to create a much flatter organization filled with people who have the responsibility, accountability, and decision-making prowess—with the resident expertise inside their control—to actually make it happen.
And I would say the other thing that stood out to me in the Hegseth memo was the explicit callout of the contracting officer. Today, contracting officers are a functional discipline that awards and obligates the government, and they respond to their own chain of command. So even if you are a program executive officer, you don’t have control over your contracting officers. They work for you from an operational standpoint, but administratively, they work for somebody else.
That’s kind of created its own fiefdom, as they want to protect themselves from doing something that might be out of bounds. But the natural consequence is that you just have these disconnected organizations up and down the entire military apparatus, and all of those friction points continue to insert time into the equation. And time is the one luxury we no longer have, because we are so far behind and our legacy systems are costing so much in operations and maintenance that it’s eroding our military advantage.
Maggie 30:12
So what are the implications of these reforms going to be for the traditional defense primes? And then what are the implications going to be for non-traditional vendors like startups?
Mike 30:23
Well, let's start with startups, which is what we focus on at Shield Capital. I think the emphasis on speed is a tremendous benefit to startup companies that have been frustrated with how cumbersome and slow it can be to get a contract with the Department of Defense. I think this is part of the genius of these reforms—they’ll encourage a broader set of companies to participate in the national defense industrial base. For startup companies, it’s going to be more interesting to look at what opportunities exist to compete for commercial solutions openings programs at the Pentagon. With this emphasis on speed, there should be a way to find out much quicker whether you’re in the running, where you stand in that competition, and eventually, if you’re selected, to be paid for what you’re doing. We can’t overstate how important that’s going to be. One of the implications that Secretary Drew highlighted was that we need a broader defense industrial base. We need the primes, and we need to take advantage of the tremendous innovation happening across many different technologies—as David pointed out, that innovation is happening in hubs around the country.
David 31:35
Yeah, and I’d say for the primes, this is equally important. Right now, the primes generally receive contracts that are cost-reimbursable, so they’re honestly incentivized to let these programs drag out, because their profit margins are capped at nine to eleven percent. The way they make more profit is by generating more revenue, and you get revenue on a cost-reimbursable contract based on the number of hours of labor applied. I can’t tell you how many times, when I was in a program office—not named the Defense Innovation Unit—no-cost PoP (period of performance) extensions would be levied on these contracts all the time. We know there’s a cost to extending time, but it’s not necessarily obvious to the acquisition system. Of course, we understand there are downstream effects to the operational community.
If we can move the defense primes away from some of these contract types and instead encourage and incentivize speed of delivery, we’ll see significantly more partnerships between the primes and venture-backed startups that can deliver quickly. This allows the primes to be what they truly are: system integrators with incredible insights and understanding of the operational mission. They generally have a deep bench of technologists, and we need them to help these startups gain better access to weapon systems so that the operational community can benefit from third-party capital investments into startups delivering products that work—products that don’t need to be built bespoke to government requirements.
It’s an incredible sea change, and all of these elements need to work in concert—the requirements flexibility, the contracting flexibility, and the budgeting flexibility—to truly reimagine how the department operates.
Mike 34:00
One other benefit for the startup community could be the implementation of MOSA—the modular open systems approach—something Congress put into law about twenty years ago, but the Department really hasn’t moved forward to incorporate on a widespread basis. The basic idea is standards, so that companies could compete for subsystems rather than just the single program of record that one vendor might get for fifty years on a large defense platform. If that gets broken down the same way we think about the computer industry today—where I might mix and match a graphics card and a processor, and maybe someone like Dell assembles it all for me, but I’m not locked into one operating system or one set of components—it would open up large defense platforms to more vendors. Traditionally, it’s been difficult for many suppliers who can only work through a prime. This would open competition and create freer access points for vendors working on subsystems for large platforms. That’ll take years to play out, so it’s not a near-term advantage, but over the long term it should be much better for vendors, expand the defense industrial base, and certainly benefit the taxpayer.
Maggie 35:29
Do we expect any organizations to resist these changes? And if so, how can we protect these reforms from groups that might be opposed to them?
Mike 35:40
I don’t think anyone will be foolish enough to be vocal in protesting this, but of course we might see some folks dragging their feet. It’s human nature not to want change. There are big shifts being called for here, and they’re going to be disruptive—as the Secretary pointed out—to some business models. It’s going to require primes to adapt faster. Honestly, if they do change their business model, they’ll clearly benefit from this, but going through that change could still be challenging.
David 36:17
I’d say there are a lot of different headquarter functions across the Department. Obviously, there’s the Pentagon, which we’d call higher headquarters, but there are also many other elements throughout the organization, each with a bit of local cachet. Many congressional representatives care deeply that their base is the headquarters for a particular function. In this new paradigm, we’ll likely need to shrink some of those overhead organizations that provide support—whether writing requirements or offering Program Executive Office–type functions. If we don’t consolidate the sheer volume of these entities, we won’t achieve the residual benefits of a faster, leaner, more agile system. I could see many bases being very concerned about what this memo portends for their relevance across the Department. This will be a massive challenge requiring compromise and trade-offs, but I hope congressional representatives and local constituencies recognize that we can no longer afford the luxury of a fragmented decision-making system. It’s just not working.
Maggie 37:54
How do we actually implement these changes? I mean, it’s one thing for the Secretary to go up and talk about all the things that are going to change, but obviously the department is comprised of more than a million people. I know a lot of people talk about the “frozen middle” — people who have been there for a long time, doing things one way. How do we incentivize groups, both inside and outside of government, to actually make these changes a reality?
Mike 38:22
A big part of it was discussed by the Secretary in terms of what happens next. Between the Under Secretary for Research and Engineering, Secretary Michael, and the Under Secretary for Acquisition and Sustainment, Secretary Duffy, they’re now going to need to put on paper specific guidance. It’ll be imperative to spell out what changes are needed to get to a portfolio acquisition executive, for example, and what things go away if we’re going to create more accountability in that single person. Those are the kinds of details that now need to be specified. I think the Secretary called for that within the next 90 days, so there will be a more detailed implementation plan.
He also called for a change to the Acquisition University — to make it a Warfighter Acquisition University — and that’s where the training occurs for contract professionals. He wants that training to be more experiential, which I think is a great move. You could imagine an exercise where you’re working on a specific program, whereas before, much of the curriculum was about compliance — compliance with federal acquisition regulations, which the Secretary called out as being onerous. I think it’s about 2,000 pages of Federal Acquisition Regulations, plus another couple thousand pages on how to implement them. It’s a very complex process, and it would be great to simplify that, which has already been called for in executive orders issued by the President. Now it’s about ensuring that the curriculum taught at the Warfighter Acquisition University backs that up and makes it more experiential.
Hopefully, the contracting officers that David mentioned earlier will be part of the cross-functional team at a portfolio acquisition executive’s office, really figuring out how to move faster. We’ll have to see what specific guidance is given and how the training changes. I’d also add that the general counsels will have to be involved — they’ve traditionally been a very risk-averse part of the Pentagon, focused on making sure nobody gets into trouble. But that kind of mindset doesn’t move you forward when you’re trying to take more acquisition risk.
So I think this whole set of folks — the trainers, the leaders, and the general counsels — need to demonstrate the right behavior, reward people who embrace it, and hold accountable those who don’t move forward with the directive that’s been issued.
David 40:53
Yeah, I would hope that within this portfolio scorecard that’s going to be created around this new acquisition paradigm, it not only provides mandatory goals that you have to hit—like small business concerns, or obligating by a certain date or facing consequences in the financial spring execution review—but also that it includes positive incentives. For example, if you deliver these things early and quickly, maybe you’re promoted faster, given more responsibility, or your scope of authority increases. Those kinds of rewards would really motivate the workforce in a way that’s very different from today, where it’s mostly about being compliant, not screwing up, and checking the boxes: going to trainings, accumulating the right experiences, and holding the right roles to get promoted.
We need to shift to outcomes-based performance instead of output-based. That’s a huge task. One area where the military doesn’t always do a great job is celebrating people who do things the right way, achieve incredible results, and then rewarding them with something meaningful—not just a decoration or a day off. Generally, those people don’t even want a day off; they want to keep doing the job. So we have to get creative and apply commercial best practices that resonate, because the workforce is the most important part of any reform effort. If they’re not properly incentivized and motivated, all we’ll have are papers and nice speeches.
Maggie 42:56
Speaking of celebrating organizations that are doing things right, can you talk about some of the existing programs or organizations that are already acquiring technology in a manner consistent with this new policy—ones the rest of the department can learn from?
David 43:14
Yeah, well, Mike and I are obviously big fans of the Defense Innovation Unit and the work we did there. Maybe I’ll just point out—in the blog piece I posted last night, I highlighted the Air Force Rapid Capabilities Office. They were established in 2003, so they’ve been around a long time. The office was developed because a few compelling leaders were unsatisfied with how slow the acquisition system was moving. They knew they could deliver capabilities to various organizations faster, better, and cheaper.
That organization has had a lot of success. I’ve never worked there, so everything I’m saying is based on reputation, but I found it extremely interesting—and I mentioned this in the blog—that they were given the B-21 bomber program, even though there’s already a program office at a base near Dayton, Ohio, with a Program Executive Office specific to bombers. Why would that program go to the Rapid Capabilities Office if, organizationally, it should already have a home? There’s nothing “rapid” about building the B-21. Clearly, there was dissatisfaction with how the existing program office culture was executing.
Instead of addressing that problem head-on, the solution was to hand the program to someone else. That’s the wrong approach. We shouldn’t let a PEO for bombers continue indefinitely if they can’t be trusted by higher headquarters to execute something within their own jurisdiction. And this isn’t an isolated case—it’s happening across the department every day. That’s why we keep creating exceptional offices to go around the system.
One of the things Secretary Hegseth said was that we can’t keep going around the system every time. At a certain point, we have to rebuild the system into what we actually need it to be. That’s going to be a massive undertaking. It’ll upset people and make them uncomfortable, but we already know the status quo isn’t working.
Mike 45:39
It clearly goes to the principle that was called for, which is accountability. We need accountability for decisions. One of the additional comments the Secretary made, or reinforcing mechanisms, is that we're going to have people in these positions longer. The idea with the portfolio acquisition executive is a four-year minimum term with a two-year extension, in contrast to what traditionally has been a three-year rotation. Anyone who has been around acquisition knows you need to be there long enough to see the implications of the decisions you make. Many people attribute the success of the nuclear submarine program to the fact that Admiral Rickover was there for such a long time—long enough to oversee the program from start to finish—and that had a major impact on how fast capability could be delivered.
Maggie 46:35
What are some of the capabilities where you all think these changes in the acquisition process will make the most difference in getting high-quality technology into the hands of our warfighters quickly?
Mike 46:50
From our experience at the Defense Innovation Unit, we’re excited about the adoption of commercial technology. That’s going to make a huge difference. Everything we’ve talked about—software, autonomous systems, sensors from space, resilient communications—the list goes on and on, because there are more and more commercial technologies that are going to be important in warfare. For all of those, this represents a pathway that’s not only much faster for getting capability to warfighters but also much faster for getting vendors into the Department of Defense, hopefully helping build strong companies in the process. I’m very excited about that.
David 47:33
Yeah, I agree. Anything that deals with autonomous capability is ripe for commercial integration and requires us to rethink the acquisition approach. The private sector has sunk billions of dollars into this space. Think about the Waymos driving around on the streets today—that didn’t come from a small Air Force Research Lab project that got a couple million dollars over five years and suddenly produced autonomous vehicles. We just don’t have the deep pockets within our research and development apparatus to develop these technologies anymore, so partnering becomes absolutely necessary.
What we saw in the space community reinforces that. I still remember in 2016 when now-Major General Steven “Bucky” Butow was highlighting all the great commercial space technology largely created out of the zero-interest-rate phenomenon known as ZIRP. While not all those companies have necessarily succeeded in the public markets, they’ve absolutely had a dramatic impact on the battlefield, especially in Ukraine. The Department was very resistant to working with them in the beginning. Now there are commercial offices up and down the chain, but in those early days it wasn’t easy to get them to partner. We’ve come a long way, but there are still a lot of program offices that refuse to think about anything beyond their traditional system acquisition approach—validated requirements, cost-plus contract types, and awarding things in classified environments to the same traditional defense industry base.
Maggie 49:41
So finally, to close us out, I'm going to ask you both the question that I ask at the end of almost all these podcasts, which is: what advice do you both have for startups in order to navigate this new apparatus, to successfully build technology for the national security domain?
Mike 50:00
Well, the advice will be very similar to what we’ve talked about before, which is that there are going to be many more opportunities in defense. It’s not going to happen overnight—perhaps it will take years for some of these changes to fully work their way through—but the whole investment thesis behind Shield is that there are going to be dual-use opportunities. Of course, that means great commercial opportunities for this technology, but also national security applications. This will turbocharge the Department of Defense in terms of how fast they want to pursue these opportunities and how much they recognize the importance of commercial technologies.
So I would say, keep your eyes peeled for what opportunities come. Many companies in our portfolio—and in other venture portfolios—are already watching what’s happening with Defense Innovation Unit solicitations and rapid capability offices that are reaching out. I think that’s going to become more of the norm, whereas before it might have been the exception relative to total defense expenditures. As that occurs, there’s going to be more opportunity for more companies. It’s going to be a very exciting time. I think we’re at the front end of a secular change in defense spending that’s going to pull through a lot more commercial technologies and new vendors. That’s tremendously exciting.
David 51:28
Yeah, Mike, I think that’s well said. I’m going to take this question in a completely different direction. If I’m a startup, I would say: do not take this level of advocacy for granted. There is going to be a very vocal minority of companies who want things to remain exactly the way they are, and they’ve been partnered with their congressional and Senate representatives for a long time. If you don’t engage with Congress, they don’t know you exist. You need to develop a relationship with them to let them know that these types of changes are absolutely critical to your company’s ability to deliver capability that the warfighter can use operationally.
We all know that technology relevant today is in large part built by venture-backed startups, but those startups do not yet have a seat at the table when it comes to the overall defense industrial base. It’s still early, but these things move a lot faster when the whole industry works together against incumbents who largely want to keep things the same. To put this less abstractly, I’ve been working on the Small Business Innovation Research reauthorization. Senator Ernst has been promoting the Innovate Act to help companies that can deliver capabilities, but this entrenched community of SBIR mills—of which there aren’t that many—has been able to hold a certain side of the aisle hostage because they are so loud, so well-organized, and well-funded enough to hire their own lobbying entities.
As a result, the Innovate Act is stuck and stalled. Many congressional representatives actually have a lot of startups in their communities, but they’re not as organized and don’t realize they’re cutting their nose to spite their face at this point. So, to end it, you need to continue to advocate. We’re all doing this together, but don’t take it for granted.
Mike 53:42
That’s a great point. You have to keep in mind how your congressional representation can help you with your agenda.
Maggie 53:49
Great. Well, David and Mike, thank you both so much for joining last minute to break down what’s happening in the world of defense, warfighter acquisition, and reform. I really appreciate you both coming on. I know I learned a lot—it really helped clarify many of the acronyms and policy changes in this memo. Thank you so much.