Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Military Contractors Looking to Move Their Products or Technologies into the Commercial Markets have a Lot to Learn

I have worked with many traditional military contractors that see the commercial markets as a panacea for their military-based products or technologies.  While there often exists an opportunity to take a military product or technology, commercialize it, and then address a broad range of commercial market applications, generally it is not a straight forward transfer of these same military products or technologies to the commercial markets.  This is something that traditional military contractor companies and their entrepreneurs have a hard time understanding.  Having only worked with customers that define their product needs through a “request for proposal” process, they need to step back and understand that the commercial market is much different.  As such, products or technologies that were necessarily developed for a given military application through the request for proposal process do not necessarily translate into products that are sellable in the commercial markets. This article outlines several items traditional military contractors need to consider before they jump into the commercial markets.

Military Products or Technologies do not Necessarily make Commercial Products

Military contractors traditionally developed products or technologies that address a focused military-based application. That is, the U.S. military is looking for a product or technology to solve an identified problem.  As such, they send out a request for proposal to a set of military contractors, which respond with an engineering services proposal to develop the products or technologies to solve the identified problem. Once completed, the military contractor usually ends up with a technology or a set of products and technologies that are to be used in a very specific military application. 

Some military products or technologies may have commercial value, but as defined by the U.S. military, more often than not, these products or technologies are not sellable as products in their current form in the commercial markets. This often means that the military product or technology as defined, is a not a complete product offering. That is, this product or technology will often require other technologies, products or services to make it a “product” for the commercial markets. So, as a military contractor, one should not expect that their military-focused product or technology is sellable in the commercial market in its current instantiation.  Yes, an existing military product or technology may have some commercial value, but often it will need to be substantially modified to be competitive in the commercial market space.

Military Price Points Do Not Cut it in the Commercial Markets

The price points defined for military products and technologies do not cut it in the commercial markets.  So often, an existing military-based product or technology will need to be cost reduced to make it viable in the commercial markets. This is something that needs to be realized by military contractors and addressed right away.  Trying to force fit a military-based product or technology into the commercial market, with a military price tag, is a losing proposition.  But, this is often the mentality of traditional military contractors and their entrepreneurs.  They often wrongly believe they have a “product” that is viable in the commercial markets and want to sell it “as is”.  What they really have is a product or technology with a price point that will not stand up to the competition of the commercial market place.  So, as a military contractor, realize the price points you are currently selling your products or technologies at, are not the price points that the commercial markets will support.

Military Products or Technologies Often Require Additional Investment

Military contractors typically want to sell their products or technologies “as is” in the commercial market.  They do not want to invest any additional monies to make their products or technologies commercially viable. This lack of desire to spend any of their own money comes from their military background where the government pays for all of their R&D, plus overhead, to secure a desired product or technology for a particular application. This is a “no risk” venture for the military contractor.  This is not the case in the commercial market.  The commercial market is a “risk” and “return” based opportunity.  So, as a military contractor and entrepreneur, you more often than not will have to invest some of your own money to develop a product that is targeted for the commercial markets. It may be a little bit of money, or in some cases, it may be a lot of money, but the capitalist-based commercial market requires one to take a “risk” by investing their own monies to properly commercialize a military-based product or technology offering.  If as a military contractor, you are not comfortable with this, then the commercial market is not for you and your products or technologies.  Remember, the commercial markets often require additional investment monies to make military products or technologies commercially viable.

Military contractors often want a piece of the commercial markets.  With the limited upside to their military contracts, they often have a desire to take their military-based products or technologies into the commercial markets and harvest the large financial rewards the commercial space has to offer.  What these same military contractors often do not understand is that their military products or technologies do not necessary translate into products that are sellable in the commercial markets.  In addition, these same military-based technologies or products usually have price points that are too high and at the same time usually require additional investment monies to make these same products or technologies a commercially competitive product offering. Therefore, traditional military contractors often have a lot to learn when moving their military products or technologies into the commercial markets.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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November 9, 2009 - Posted by | Competition, Customers, Venture Capital, venture finance, Venture Funding | , , ,

1 Comment »

  1. […] Read here a nice analysis from rochtel on how military contractors should adapt their strategy. […]

    Pingback by Military contractors going commercial at Playhouse of privacy, innovations and some business stuff | November 10, 2009 | Reply


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