Overcoming the Valley of Death: Startup Solutions in Government Tech | The Pair Program Ep44

Welcome to The Pair Program from hatchpad, the podcast that gives you

2

a front row seat to candid conversations

with tech leaders from the startup world.

3

I'm your host, Tim Winkler, the

creator of hatchpad, and I'm

4

your other host, Mike Gruen.

5

Join us each episode as we bring

together two guests to dissect topics

6

at the intersection of technology,

startups and career growth.

7

Hey everyone.

8

Welcome back to The Pair Program.

9

Uh, Tim Winkler here alongside Mike Gruen.

10

Um, so Mike, we were kind of having a

little, little chatter on this earlier

11

today, but, uh, have you been, you've been

following the Ovechkin gold gold tracker?

12

Mike Gruen: I mean, I have no choice,

even though I'm a Rangers fan, uh, in DC,

13

you kind of have no choice, but, uh, and

it's, you know, it's a momentous thing.

14

Uh, it's, uh, I have mixed opinions on

it, uh, cause you know, uh, but at the

15

same time, like any, any, any records

that can be broken, it's awesome.

16

Um, it's awesome to be, you know, part,

you know, be alive during that time

17

or whatever, and seeing it happen and.

18

Um, certainly a prolific goal scorer who

probably would have broken the record

19

had it not been for COVID and for, uh,

what was it like a short and see a couple

20

of short and seasons and other things.

21

A couple of short seasons.

22

Yeah.

23

So, uh,

24

Tim Winkler: yeah, it's, it's pretty,

it's pretty exciting time just, you know,

25

as of this recording anyways, like, yes.

26

The other day he had, you know, two

goals and, um, I think he's about 51, 52

27

Mike Gruen: out, something like that.

28

Tim Winkler: He's 52 out,

but who's counting, right?

29

Uh, but the, the record is,

is held by Wayne Gretzky is.

30

Those listeners that aren't privy to

this is Ovechkin considered the greatest

31

goal scorer, one of the greatest

goal scorers in professional hockey.

32

So up there with Gretzky, um,

he's at 894 and Ovechkin's 52

33

goals short of breaking that.

34

So anyways, I bring it back cause it's

kind of a good, uh, full circle from when

35

our first episode and we both wearing

our, our jerseys and, uh, given some,

36

uh, some hockey love, but, uh, Yeah.

37

Exciting time heading into

playoffs, uh, hopefully for us.

38

I know that you're, you're in the,

in the, in the race, but we'll see.

39

Yeah.

40

We'll see

41

Mike Gruen: how far the right now that

the Rangers have good coaching, we'll

42

see if we can get a little further.

43

Tim Winkler: Yeah, we, we

could use some players.

44

Um, all right.

45

So let's, uh, let's, let's talk

about, uh, today's episode.

46

So we're going to again, continue

on this kind of deep dive into the

47

pivotal role that technology plays in.

48

Modernizing government operations.

49

Um, with this episode, we're going to

focus on, uh, the, the valley of death,

50

uh, for startups in the defense sector.

51

So to clarify on the valley of

death, um, and, and more broadly,

52

maybe just in tech innovation.

53

Uh, this refers to a gap that

startups face, uh, between say,

54

demonstrating the viability of their

technology and being able to scale

55

it to a point where they can secure.

56

Um, investment and contracts

and kind of sustain.

57

Uh, so this, this will kind of, this

covers areas like funding, like the

58

funding gap, uh, obviously like we'll

talk about regulatory and bureaucratic

59

hurdles, uh, product market fit

challenges, uh, long sales cycles.

60

And scalability, uh,

and integration issues.

61

So to add a little bit more context

for our listeners and prep for today's

62

discussion, um, to, to bridge the

valley of death, there's initiatives

63

like small business, innovation,

research programs, or servers, uh,

64

which will be referenced quite a

bit today, uh, are pretty critical.

65

Um, and so what those are,

they're providing non dilutive

66

funding to help startups develop.

67

Their technologies to a stage

where they're attracted for

68

further investment or procurement.

69

Um, and as well, entities like defense

innovation unit and Afworks, who is, you

70

know, um, organizations we've had on in

the, in the past, they can help startups

71

with navigating, uh, the, maybe the, the

complex defense procurement ecosystem,

72

um, and help match, uh, technologies with,

with opportunities within, in defense.

73

But as I'm sure our guests will point

out today that it all sounds great,

74

uh, in theory, but, uh, it's nowhere

near that easy and, and there is a lot

75

of work to be done, uh, to make that

process You know, work efficiently,

76

uh, for commercial startups.

77

So, uh, with that, I'm going to go

ahead and, uh, intro our, our two

78

guests that are joining us today.

79

So we have, uh, a Neil Alvarez,

uh, a Neil has a distinguished

80

military background, a former.

81

B 1 pilot and terminal attack

controller with the Air Force,

82

also worked for a few years in

the test and evaluation community.

83

And Neil has spent the past six years with

the Defense Innovation Unit in Boston.

84

Uh, Neil, thanks for joining us today.

85

Alongside Anil is Warren Katz.

86

So Warren is a former founder of a

dual use startup, Mac Technologies,

87

that was actually funded by Defense

Sibbers and was later acquired.

88

He was a managing director for an Air

Force accelerator powered by Techstars.

89

Um, also noting that that was the first

startup outreach effort by AFWERX.

90

Uh, and then most recently he's served as

the chairman of a nonprofit, the alliance

91

for commercial technology in government,

which has a mission to streamline the

92

integration of commercial technology

into, into government operations.

93

Um, so both of you guys welcome

for, uh, to join us, uh, on the pod.

94

Aneel Alvarez: Yeah.

95

Thanks for having us.

96

Tim Winkler: Good stuff.

97

All right.

98

Now, before we dive into the

discussion, we will kick things off

99

with a fun segment called pair me up.

100

Uh, Mike, you kick it

off on to lead us off.

101

Mike Gruen: All right.

102

So, uh, I'm going with actually

a pairing from my childhood that

103

you're, that I'm seeing disappearing.

104

Uh, so it's a disappearing pairing and

that is swing sets and playgrounds.

105

Uh, I think it's springtime.

106

I go on lots of walks.

107

I don't know what it's like where you guys

are, but in Montgomery County, Maryland,

108

uh, basically the schools have mandates.

109

They can't have any fun things

on their playground anymore.

110

No moving.

111

It's very, uh, it's all about safety.

112

I get it.

113

But swing sets just are tough to find.

114

And, uh, I have so many core memories

as a kid growing up on the swings,

115

playing around the swings, getting hit

by kids on the swings, whatever it is.

116

Uh, so.

117

That's my pairing.

118

It's sort of a disappearing thing.

119

Um, I know lots of people have the little

playground sets in their backyard, but

120

there's, there's something very different

between those and the really big,

121

like swing sets that, you know, I'm, I

grew up with at the elementary school.

122

So that's my, uh, that's

my, my parent today.

123

Tim Winkler: It sounds like

a county problem to me.

124

We've got parks popping up over here.

125

I've seen some pretty interesting

playgrounds popping up.

126

Um, but you know, I could see

that you could be, as I said,

127

are you guys seeing that?

128

I don't know.

129

Are you seeing, uh, a lack

of, uh, playgrounds around?

130

Mike Gruen: The playgrounds exist.

131

It's just the swing sets and

metal slides and, uh, anything,

132

Tim Winkler: anything that

might, might, for sure.

133

I haven't seen a merry

go round in a long time.

134

Yeah.

135

So I'm, I'm, I'm, I'm following on that.

136

Yeah.

137

Um, swings, uh, I don't know.

138

It's actually interesting.

139

Like we, we, um, we've got a 15 month

daughter and we have yet to put her

140

in a swing, so we're actually getting

ready to do something this weekend.

141

I'm pretty excited cause I know she's

going to love it, but, uh, yeah, swing

142

sets were Huge throwback to childhood.

143

Um, but yeah, I don't know.

144

I see him.

145

I need to move.

146

I'll put in a, put in a word.

147

Um, cool.

148

All right.

149

Um, for my parent, I'm going to go,

uh, with something that's basically

150

teed up perfectly for, uh, what we're

all about here on The Pair Program.

151

And, uh, that is a pairing of

a mentor with their protege.

152

Um, so that's a relationship that.

153

meets innovation and new ideas.

154

Uh, guidance helps kind of fit,

helps form those future, you know,

155

innovators or those future disruptors.

156

Um, I personally, you know,

would shout out a mentor in my

157

professional career, a long time

friend of mine, his name is Chad.

158

Uh, he always encouraged me to.

159

Just got to take on risk, uh, live outside

of my comfort zone and, uh, help shape

160

me into the, the entrepreneur I am today.

161

So the mentor and their protege

is, is, uh, my parent for today.

162

Um, and I know that we've, we've talked

to, for, for countless hours about

163

some of those relationships, Mike,

but, uh, but yeah, you know, every,

164

every guest that comes on this show,

you know, has some sort of a good,

165

good mentor or has a good story around

somebody that they have mentored.

166

Um, I'm going to pass it to

our guests at this point.

167

So, uh, Neil, how about a

quick intro and your pairing?

168

Aneel Alvarez: Yeah, thanks.

169

I think you pretty much covered my intro.

170

Um, didn't mean to be a career

Air Force officer, but that's

171

about where I am right now.

172

Probably a few more years to go.

173

Uh, and the last six years, the defense

innovation unit's really been great.

174

You know, spend most of my time in

operations and trying to see you're

175

seeing the other side of the fence,

acquisitions, and especially the way

176

the defense innovation unit does it.

177

It's been eyeopening

and a great experience.

178

Um, yeah, quick note on the,

on the second to last pairing.

179

If somebody hasn't invented it already,

and I bet somebody probably has, you

180

just need a video game swing set.

181

The virtual reality swing set exists.

182

Unfortunately, I bet it's going to.

183

Yeah, for me, that's

a, that's an easy one.

184

I'll go with one.

185

That's just kind of timely.

186

Uh, I'm going to go with lithium ion

batteries and motors connected to wheels.

187

Uh, we just not too long ago

about our first American car,

188

first electric car, Tesla.

189

And oh, my goodness.

190

I know I got a wife and kids and all that.

191

And that brings me joy.

192

But the Tesla, absolutely unbelievable.

193

I have not felt acceleration

like that probably ever, right?

194

Nice to fly fighter style

and bomber aircraft.

195

I mean, it is just amazing.

196

And I I'm so excited that

they went for performance.

197

You know, they prioritize

that over every other goal.

198

It's just an absolutely unreal machine.

199

That's great.

200

That's awesome.

201

Tim Winkler: You use the,

um, The auto drive feature.

202

How's that work for you?

203

Aneel Alvarez: I actually

don't like it, right?

204

Because there's there's so many

Uh safety features built into it.

205

You pretty much have to have your hands

on the wheels and eyes facing forward It's

206

kind of pointless and I love driving it.

207

So I tried it once never never again.

208

I'm sure someday amazing It's kind

of My opinion, not quite there yet.

209

And I love driving the car.

210

Tim Winkler: Yeah, cool.

211

Yeah.

212

I love, love Tesla's.

213

Um, awesome.

214

Uh, Warren, how about yourself?

215

Quick intro and pairing.

216

Warren Katz: All right.

217

Thanks a lot, guys.

218

So Warren Katz, I think he did a

good job of insuring me, uh, in the

219

beginning, um, entrepreneur myself,

founder of a company, had a good exit,

220

became an investor, pretty common arc.

221

Um, but I, I found that, um, it was

very, very, very difficult to get

222

the best stuff sold into government.

223

Just a bunch of barriers.

224

So, uh, dedicate a lot of time, less.

225

A couple of decades in how to make

how to grease the skids for commercial

226

product companies that invested in

something built it finished it and now

227

just want to sell it to the government

instead of having it knocked off

228

or remade or delayed or whatever.

229

Um, as far as my pairings go, uh,

you know, at this point, I'm sort of

230

like a quasi retired guy, but, uh,

everything I do revolves around food

231

and beverages and things like that.

232

Um, so from my childhood, uh, I don't know

if you guys know what a fluffer nutter is.

233

But it's a sandwich that is made

from peanut butter and fluff.

234

And I think the, uh, the reason

why it was invented is to get

235

kids to eat something healthy.

236

You have to slather it

in some kind of candy.

237

So fluff is this marshmallow

cream that I enjoyed.

238

It's, I don't know, a hundred years old.

239

It was invented here in Lynn,

Massachusetts, I think, is

240

the fluff factory, actually.

241

It's still around after a hundred years.

242

Um, so yeah, uh, falafel and peanut

butter on a fluff and utter is one of my

243

childhood delicacies and, uh, it is a,

uh, telling lesson on how to get somebody

244

to do what they don't want slather in

candy, enticement to get them to do

245

what they don't naturally want to do.

246

Mike Gruen: I definitely have strong

memories of a couple of kids at my,

247

at my summer camp who that's what

that was like their go to every day.

248

And, uh, And then not wanting to

get into the swimming pool with

249

them because they always had like

stuff all over their face, just

250

Tim Winkler: covered in fluff

and appreciate that fun fact on,

251

uh, you know, the origination

sort of where it came from.

252

That's, that's great.

253

Um, cool.

254

I will put a bow on, on that

segment and, uh, move into the

255

core, uh, of today's discussion.

256

So the way I kind of see this conversation

flowing, I think it'd be helpful to begin

257

with just kind of painting the picture of

maybe the current state of affairs and,

258

um, it's making sure that our listeners.

259

Are caught up on what, you know,

several programs entail, um, some

260

of those different phases, uh, how,

how the programs are leveraged.

261

And then, you know, some of

those challenges that startups

262

face in, in that journey.

263

Uh, and then next we can talk

about the government reform that's

264

needed for a healthier ecosystem.

265

Warren, I'm sure you have plenty

of, uh, thoughts on this topic.

266

Uh, and then, uh, I did want to make

sure that we covered Something that

267

Warren, we, we kind of riffed on,

on our disco call was the federal

268

acquisition streamlining act, uh,

FASA and the importance of this law.

269

And, and we can talk a little

bit about a few examples that, of

270

how this law has proven useful in

real world, real world scenarios.

271

Um, so Ania, maybe we'll start with

you and just, uh, just a little

272

bit more context on, you know,

maybe the current state of, uh,

273

of the ecosystem and a little bit

more context on, on SIBRs as well.

274

Aneel Alvarez: Yeah, um, so it's

probably worth clarifying D.

275

I.

276

U.

277

actually doesn't use servers at all.

278

Uh, our instrument of choice

is the other transaction.

279

Uh, so be happy to talk about that.

280

Uh, Warren, I know lives more in the

super world and it's probably better

281

place to talk about that specifically.

282

Uh, but the other transaction is probably

just as relevant to this discussion.

283

I normally explain it's something

along the lines of, if you look at

284

the federal acquisition regulations,

procedures by which things are

285

acquired in the government.

286

York City phone book.

287

I mean, it's just enormous with every

potential risk mitigation measure

288

under the sun baked into these things.

289

Um, and so what happens is

that acquisitions officers and

290

contracting officers by all the

risk mitigation measures that

291

would be needed may be needed.

292

That might be a stretch for the

purchase of an aircraft carrier.

293

They might apply that to the purchase

of a, uh, small unmanned aerial system,

294

which just doesn't make sense because

the cost of implementing those risk

295

mitigation measures probably far outweighs

in most instances, the total value of

296

the risk that you're trying to mitigate.

297

Uh, and so other transactions were

298

NASA to move a little bit faster.

299

And then they were updated again

in the middle of the last decade.

300

Uh, and, and by comparison, you know,

you have the New York City phone book

301

example with an OT and other transaction.

302

You start out with a blank sheet of paper.

303

And then it's on that the parties

involved, the contracting officer,

304

acquisition officer, the, uh,

organization you're trying to do

305

business with actually write in all

the risk mitigation measures that are

306

applicable to that specific acquisition.

307

Um, there's oftentimes a lot

of reluctance to do so, right?

308

So it's like handing a chef, a bunch of

food, uh, or a bunch of ingredients and

309

telling him or her to make something

versus handing him or her a recipe.

310

And for better or worse, most folks in

the acquisition world would prefer the

311

recipe than to just be handed a plate of

ingredients and have to make something.

312

Uh, but DIU does do that exclusively.

313

We use other transactions exclusively,

and it allows us to move much,

314

much faster because risk mitigation

measures we're implementing

315

specific just to that acquisition.

316

Um, now the big difference

between OTs and CBERs.

317

CBERs, uh, as is implied in the name

or the full name, it's a grant, right?

318

It's a tax taken off the top

of the acquisition budget.

319

Okay.

320

That organizations are allowed to use

to fund small businesses to, you know,

321

research and develop capabilities

that they think they're going to

322

need versus another transaction

is purely just in a, you know,

323

contracting method acquisition method.

324

Interesting.

325

Tim Winkler: Perfect.

326

Yeah, that, that's helpful.

327

I, I didn't, uh, point out in the intro

kind of the, the OTs, um, so appreciate

328

you covering that and building a little

bit more awareness on, on that as well.

329

Um, we'll dig deeper into some of that

as well, but Warren, why don't you,

330

if you want to kind of just quickly

expand on your, uh, your two cents

331

on it and then we can keep going.

332

Warren Katz: Yeah.

333

So Neil is exactly right.

334

And OT is a contract type

of contract structure.

335

And in fact, some of my companies, many

of my companies have had their phase two

336

SBIRs use an OT as the contract mechanism.

337

So there are two sort of orthogonal

things, but can use each other.

338

Um, the CIPRA program is, is a grant

program exactly like a Neil described.

339

It was developed about 40

340

The best way to describe it is.

341

It was kind of like a government

seed stage venture capital fund.

342

They take, they take,

uh, what's today a 3.

343

2 percent tax.

344

Off the entire R and D budget of the

entire federal government is not just D.

345

O.

346

D.

347

It's the entire federal government.

348

So it's about 4Billion dollars

a year now, and that cash is

349

given back to the same people.

350

It's taken from, but when it's given

back, it's got some strings attached.

351

You have to award these grants and.

352

A phase one, which is anywhere between, I

believe, uh, on the low end, 75, 000 today

353

to a high end of two 50 for a phase one.

354

And if, uh, the company is successful,

they can be, uh, awarded a phase

355

two, which I believe is up to 1.

356

9 million today.

357

So a fairly significant chunk of

change for a really small, innovative

358

startup company at the pre seed

level, uh, can help the company avoid.

359

Taking venture capital at that most

expensive stage of the company before

360

they start derisking the product.

361

And then if they want to take venture

capital later, then they can, but

362

they're in a stronger position.

363

They can keep more of their equity.

364

So I, I view it as a very attractive

alternative to taking very early

365

stage VC for a lot of these

deep tech, hard tech companies.

366

I myself, uh, built my

entire company only on SBIRs.

367

I never took any venture capital.

368

Which I highly recommend to anybody who

can possibly do that, because when you

369

do have an exit, you have nobody to share

the money with, which is a wonderful

370

thing, uh, at the end of the rainbow,

but a lot, a lot of the companies, a

371

lot of companies, I'm an investor in,

and I've helped to accelerate do both.

372

They take and raise money.

373

Uh, through, through angels and

venture capital and the government

374

is starting to, uh, recognize and

encourage that, especially through

375

things like the Air Force's, uh, TACFI

and STRATFI programs, which are, are

376

wonderful phase 3 ish follow ons to,

to the phase 1, phase 2 SBIR program.

377

A lot to talk about with SBIR.

378

It's a wonderful thing.

379

If you know how to use it

right, hasn't been abused.

380

Over the years by companies that

view it just as sort of, you know,

381

a corporate welfare sort of thing.

382

You've, you've heard of

the term silver mills.

383

We can go to a whole

conversation on silver mills.

384

So, it has been abused by some

and Congress is trying to figure

385

out how to put the screws to that.

386

Uh, but wonderful, wonderful

program funds, a lot of companies

387

fund a lot of, you know, if you

look at the greatest successes.

388

Out of the Sivir program, you get

companies like Amgen, Qualcomm, 23andMe,

389

Ginkgo Bioworks, iRobot, AeroVirement,

Broadcom, all these pieces of Broadcom.

390

These are multi billion dollar companies

that got their start at the SBR program,

391

went on to raise venture capital

into other things, but phenomenal

392

ROI, uh, for, for government dollars.

393

I'll, I'll stop here and

see where you want to go.

394

Tim Winkler: Yeah, so Neil, we were

talking a little bit about, um, on our

395

discovery call of like some of those,

those pitfalls of where you go, once you

396

hit a certain, a certain plateau, um, if

we want to maybe expand on that and just

397

kind of, maybe this will just kind of

pick apart a little bit of some of those

398

pain points, but the way that the system's

currently kind of structured, um, and then

399

we can flip it back to Warren as well.

400

Aneel Alvarez: Oh, yeah, sure.

401

Uh, so I agree with Warren completely.

402

I'm a huge fan of the

Simber program in general.

403

Um, But yes, depending on where you

sit as a stakeholder in the innovation

404

ecosystem, it's important to understand

the nature of what you're dealing with

405

might be the best way to say, uh, so

oftentimes find myself at conferences and

406

talks, uh, inside of our conversations

with companies that have received a grant.

407

And they think they're on the fast

track to a big government contract, uh,

408

because they have a separate phase 1.

409

Uh, and, you know, some, some education

is probably warranted there where,

410

you know, getting from a super phase

1 to a transition is just unbelievably

411

difficult because you have this whole

thing called in between planning,

412

programming, budgeting, and execution.

413

Uh, so, like Warren said, you

got this I misspoke earlier.

414

I said, attacks on the acquisition budget.

415

Warren said it correctly attacks on the

R and D budget is what it actually is.

416

Uh, then organizations get some of

that funding to hand out to small

417

companies that they think are developing

capabilities relevant to their mission.

418

Um, but you think about

skin in the game, right?

419

So if somebody gives you free money.

420

And they tell you, you have to

spend this in a certain way.

421

And if you don't, I'm

going to take it back.

422

It's not like you get to keep it.

423

Of course, they're going

to spend it, right?

424

Whether or not it's going to yield some

kind of long term benefit for them.

425

They're almost definitely

going to spend it.

426

Uh, and as a recipient of that

money, you may not necessarily see

427

the incentive structure behind that

organization that's spending money on you.

428

Um, so as a company, what I normally

advise them is it's really important

429

to understand where the requirement

is coming from for whatever it is that

430

they're receiving that money from.

431

And it doesn't have to be a requirement,

but you know, ideally it would be,

432

uh, if it's not a requirement, if

it's just A-D-A-D-O-D or a government

433

organization giving them a super

phase one grant, that's fine.

434

As long as they understand

that that's what it's right.

435

Maybe it's $50,000 for Aase one

grant and then it's gonna end.

436

That's great.

437

You know, it keeps the lights

on for a few more days.

438

Um, but it's really just

understanding what the end game is.

439

So I said a little bit more about

the ideal is if there's actually a

440

requirement behind that end game, right?

441

So if there is a, an organization in

one of the services that has a hard and

442

fast requirement for some capability

that doesn't quite exist from a

443

technical perspective yet, and they,

in conjunction with an acquisition

444

organization or handing out this, you

know, maybe a series of super face

445

ones to help develop technology, That

is, um, that is going to fulfill a

446

funded vetted requirement someday.

447

That's the holy grail of what companies

probably want to be looking for.

448

Uh, but that's, that's

really tough to find.

449

And as a company, you can kind of prod

your, your government handlers into

450

trying to figure out what that is,

or, or at least explaining to you,

451

uh, what the nature of the end game

in that particular case might be.

452

Mike Gruen: Is there any situation in

which they're doing that from where

453

they're, it's that same requirement

and they're doing it across multiple

454

companies and you're, I mean, like, I

assume that they, as the government,

455

I'm not just going to pick one horse.

456

I'm going to bet on a bunch of ponies.

457

Um, is that, is that the case?

458

Aneel Alvarez: Yeah, absolutely.

459

And again, I'm not as well versed in

the super world, but I don't think

460

Afworks is doing this anymore, but

in their first few years they were.

461

super phase ones per year.

462

Uh, and so if there are particular

tech areas where the air force, you

463

know, really needed some concerted

development, they're probably

464

gonna end out a lot of super phase

ones to companies in those areas.

465

Tim Winkler: I want to, I want to

kind of jump right into, um, uh, a

466

little bit worn specific with, with

what the Alliance for commercial

467

technology and government is doing.

468

So this is a non profit, uh, that, that

you all formed and, and, uh, Expand

469

on a little bit on the, something like

these use cases that you, how you're

470

getting involved and then, you know,

why, uh, you know, what these big areas

471

that you feel there's room for reform.

472

Warren Katz: Yeah, so it just follow on

exactly to, uh, where, uh, Neil left off.

473

I'll point out 1 thing about the

silver program and how it's money

474

and spend it was given back to.

475

It's given back to researchers

in the research community.

476

So for the first 35 ish years, uh, a

laboratory researcher and his white

477

coat in the laboratory gets this

money back and spends it on a little

478

company to try to make a product.

479

It's not necessarily, it wasn't

necessarily the case that that

480

researcher himself or herself actually

knew the end user war fighter and who

481

was going to use the thing and didn't

really have a connection to that, the

482

actual End user the product, and then

the company finishes their prototype.

483

It works and they go back to that

research scientist and they say, I have

484

no clue who would actually buy this.

485

The company is thrown back on the

company to go find the end user.

486

Uh, learn about what this requirements

process is that a Neil was.

487

Was alluding to and then start

the process to get money aligned

488

for this brand new thing.

489

Nobody ever thought of in the D.

490

O.

491

D.

492

and that is the value of death.

493

Whereas the company thinks,

oh, my God, you're Mr.

494

Research scientist who

gave me this 2M dollars.

495

You're in the Air Force.

496

How do you not know who would use

the product at the end that you have

497

this all set up for me already so

that this this process is smooth.

498

The federal government's a very big place.

499

The army itself is a big place.

500

The Air Force itself is a big place.

501

So this, this went on for 30 years,

the company essentially thrown into

502

this, you know, 5 year long or plus

even bigger than that process of

503

understanding how things get, uh, get,

you know, products get built and the

504

product is finished and ready to buy.

505

Um, and so it's this horrible,

horrible, horrible problem.

506

So, uh, what we do at the alliance

is try to make that gap nothing.

507

Uh, bring that gap down to zero so

that as the company is making the

508

thing, uh, the end users already

engaged right at the beginning.

509

The end user can kibitz on what

they need and don't need the

510

requirements are either being set

up or already are being broadened.

511

To include the possibility of

this new thing, and the budget is,

512

um, you may have heard of this P.

513

P.

514

B.

515

E.

516

reform thing that just.

517

I dropped a suggestion for how to

make the budgeting process better to

518

make the budgets a little more general

purpose so that when a surprise new

519

thing shows up out of nowhere, the

money is already in a budget to buy

520

the thing, even if it's a, it's the

requirements process didn't foresee

521

it and didn't specifically design it.

522

So, that's kind of in a nutshell,

that's kind of what the alliance

523

is trying to do go to Congress.

524

And work with Congress to figure out

how to take advantage of surprise

525

technological developments, whether

they came to the SPR program,

526

came to a or came 100 percent from

commercial venture capital backed.

527

Private companies that finish the thing

by on their own nickel or on a VCs

528

nickel and then magically show up at

the end said, Hey, I got this thing.

529

You didn't think of it.

530

It's done.

531

Our adversaries around

the world are buying it.

532

Uh, giving it to their war

fighters on the battlefield.

533

They have it today.

534

Do you want it now?

535

Instead of having.

536

The U.

537

S.

538

warfighters wait five years to get this

thing, or even worse, creating this,

539

this, unfortunately, this happens to the,

even to this day, creating a new program

540

in the DOD to pay a large defense prime

by the hour to remake the thing that was

541

available today for billions and billions

of dollars, have our warfighters be forced

542

to wait around for a decade, and then be

handed something that's already obsolete,

543

that's worse, that's Then what our

adversaries have been using for a decade

544

and all the while, screwing over that

little startup company that had the thing

545

finished or stuck their own neck out,

risk their own capital, took VC money.

546

Uh, and finished it and got to the

finish line, uh, taking out all the

547

risks that Neil was talking about that

phone book that he's talking about.

548

All of that risk mitigation

is all in the developmental

549

part of developing a product.

550

Okay.

551

If a private capital, if those companies.

552

Finish their own if all the risks are gone

yet, uh, the government still, you know,

553

attempts in a very blunt fashion to apply

that phone book of rules to the company.

554

They already finished it.

555

You know, the risk, the whole thing.

556

So, none of those those risk mitigation,

uh, the bureaucracies and processes are.

557

Are appropriate anymore.

558

Yet the phone book is still hurled

at the company that finished it

559

already and took all the risk out.

560

Uh, so that's what the alliance does.

561

We're trying to, uh, make the D.

562

O.

563

D.

564

and the government a warm, receptive

customer to the 2nd, uh, A hot new

565

product technology or a company

shows up at the front door.

566

They are sucked in like a vacuum

cleaner whisked through the

567

process directly to the end.

568

Users might use the thing that

the product is quickly assessed.

569

It shouldn't have to meet all of the

requirements that a, a fantasy process,

570

uh, we can talk about the requirements

process in a, but basically it's a

571

bunch of guys in a room that, you know,

smoke dope and spitball and fantasize

572

about sharks with laser beams on

their heads and space vehicles, space

573

motorcycles and, and, uh, come up

with this fantasy list of requirements

574

that, that the prime contractors love.

575

Because then they engage in a fiction

writing contest to write this proposal.

576

They know full well that they can't make.

577

But then the government sets aside

billions of dollars, and they start

578

making it, and seven years go by, and

they say, I'm sorry, we can't do sharks

579

with laser beams or space motorcycles.

580

It was just too hard.

581

But give us another 10 billion,

and we'll try a little harder.

582

And it's a monopoly at that

point, and it's too big to fail.

583

So they can't shut it off.

584

That's the requirements process.

585

Fortunately, there are laws on the

books that say, you know, what, if a

586

commercial item shows up and it meets

some of the requirements, and it's

587

better than what the warfighters using

today, you have to buy it off the shelf.

588

And he's going to have to, we have a, a

legally mandated preference for buying

589

finished commercial articles over remaking

from scratch and developmental product.

590

The problem is that those

laws are just not FASA.

591

And those laws are not obeyed.

592

They're, they're You ask a PEO, a

government contracting officer, they

593

won't even believe it exists, those laws,

because they're so, they're, they're,

594

they're so completely unenforced,

uh, that, that, uh, it's like, it's

595

treated as like, like it's not there.

596

So, bottom line, that's

what the alliance does.

597

We are trying to make it so that

the innovator shows up, they're

598

swept in, sucked up and, and.

599

And their products purchased massive

quantities very, very quickly

600

with the least amount of friction.

601

That's a fan.

602

That's, that's our goal.

603

They ain't there yet,

but that is our goal.

604

Tim Winkler: Yeah.

605

And I, and I believe what you're referring

to as well as like the, the legislation

606

that you, you kind of shared with me

that draft legislation anyways, the

607

small business commercial transition

program that that's what you all are

608

taking and presenting, uh, to Congress.

609

Warren Katz: Yeah, so that's actually,

it looks like it's going pretty well.

610

There's going to be the chunks of that.

611

That whole legislation is going

to come out very, very soon.

612

reauthorization legislation itself

613

because the SBIR program is up

614

Um, but, uh, yeah, it's, it's

formalizing that smooth transition

615

from the phase 2 prototype into

phase 3 full scale production.

616

Which really doesn't exist at this point.

617

The closest thing to it is the air forces

stratify program, which is part of it

618

was efforts attempt to do exactly this.

619

And it's a, it's a 3 way

funding program between.

620

Some silver money, some venture

capital money, and some.

621

A war fighter and user

acquisition money, which is great.

622

It's awesome because that

is a bridge essentially.

623

From prototype into full scale production,

but it's, uh, it's only for the air force.

624

It's, it's a little restrictive right now.

625

So, essentially, this, uh, small

business commercial transition

626

program is more of a formalization

of this throughout the entire treats

627

the money a little more flexibly.

628

Um, I, I, I think it's wonderful,

obviously, but, uh, we'll see how what

629

Congress thinks about and whether it

actually gets in, gets in the legislation.

630

Tim Winkler: Very interesting.

631

Um, so, yeah, and, you know,

we can kick it back to you.

632

I know that you had, um, uh,

an idea of that came to mind

633

about the servers as well.

634

Then I think you were going to.

635

Uh, touch on, or you could just pick up

where Warren kind of left off as well.

636

Aneel Alvarez: Yeah,

maybe I'll do the latter.

637

Um, I was thinking it might be worth

just jumping up to the 50, 000 foot

638

view here, make sure we get a holistic

view of how, how this works and where

639

what we're talking about fits in.

640

Um, I'm sure most Americans were like

me before I went into the military,

641

assuming that the Air Force, Army,

Navy, uh, Space Force Marines fight

642

wars, but they actually don't.

643

They're just force providers.

644

They train and equip the force in law.

645

That's all they do.

646

They don't fight wars.

647

Instead, the U.

648

S.

649

has split up the world into some

number of combatant commands.

650

There's a combatant commander for

each one of those combatant commands,

651

like Indo Pacific Command, European

Command, African Command, etc.

652

And those are the organizations

that actually fight wars.

653

The services just provide forces

to those combatant commands.

654

Um, and so the services given

that model don't necessarily know

655

what's needed for war fighting.

656

I mean, I think that with a grain

of salt, they kind of know, but the

657

combatant commands, the ones who

are actually fighting the war should

658

be the ones who really understand

what they need to fight wars.

659

So, for the most part, it's the combatant

commands that are writing requirements

660

and then passing those on to the services

to fight about and decide what's going

661

to get funded and what's going to get

executed in terms of acquisitions.

662

Um, so if you're in European command

and you decided you need a loitering or,

663

you know, a ton of loitering munitions

to hang out over Ukraine, and you write

664

that into a requirement and hand it

off to maybe the army or the air force.

665

Um, that's that's kind of like

how requirements get generated

666

from that grassroots level, and

then they kind of filter upwards

667

through the chain of command.

668

Uh, and then when they get to the top of

the services, the services again, fight

669

about it, decide what they're going to

put forward in the president's budget.

670

That's how that process gets

started at an absolute minimum.

671

That's going to take about 2 years to

go from, uh, requirements after the

672

requirement is decided upon for it to get

vetted, run into a president's budget.

673

Congress fights about it, ask and

staffers, house armed services

674

committee, so the service, many

staffers are going to fight about it.

675

Um, so realistically, and probably

3 to 5 years, you're going to see

676

what's called a program element line.

677

In a national defense authorization

act that, uh, funds the procurement

678

funding, uh, that gives an

acquisition organization, the

679

permanent funding to go out and

start executing on that acquisition.

680

Talk about some captain in European

command writing this requirement

681

3 to 5 years from now, there's

going to be the funding to

682

actually go after that requirement.

683

Might be over, obviously, right?

684

Hopefully.

685

Um, and that's the start of

the acquisition process, right?

686

That's the starting gun,

which is really a shame.

687

And then you think about tech development

cycles that are, you know, probably two,

688

three years, we've seen massive advances.

689

So if you write a requirement for

690

691

I mean, the tech's going to be far

different from what you thought

692

693

I mean, the whole system is just so

694

This is the McNamara when he was

Secretary of Defense, Vietnam era

695

method of acquiring for the Department

of Defense and that PBBE Reform

696

Commission that Warren mentioned

was intended to try to update it.

697

I haven't actually seen the results.

698

Um, I didn't, I didn't necessarily

know they were out there, but

699

It'll be great to take a look.

700

Um, so with the separate process,

what, what oftentimes happens like with

701

organizations like Afworks is that, uh,

they present AF companies present efforts

702

with, with things that they think are

of importance to the air force right

703

near some air force, major lieutenant

colonel says, yes, that looks interesting.

704

Uh, let's find it with a

super face one 50, 000.

705

And then like Warren mentioned,

um, let's say they even get a super

706

face too, so a little bit more money

to really develop the capability.

707

And now it's somewhat viable.

708

Cool.

709

It's on that company to try to figure

out what requirement to match that up to.

710

And for someone that doesn't know

the inner workings of, uh, the Air

711

Force, it's virtually impossible.

712

Uh, when I said in a, you know, in the

National Defense Authorization Act,

713

there's going to be a program element

line that gets handed off to what's

714

called a program executive officer.

715

And so the Air Force has only

14 or 15 of those that are

716

broken up by functional areas.

717

So there's PEO for fighters, PEO

for bombers, PEO digital, et cetera.

718

They're the ones that execute the

acquisitions, then within each of

719

those are going to have maybe a G.

720

S.

721

12 to 14.

722

So kind of like a mid level

office officer civilian.

723

Um, that's going to be handed or

tasked with leading that acquisition.

724

So what are the chances that that G.

725

S.

726

12 or 13 that's developing

the acquisition strategy?

727

It's going to actually get married up with

this company that might have the perfect

728

solution to that acquisition, uh, that

has that silver face to like, there's no

729

mechanism to make that match right now.

730

Uh, not in any kind of repeatable way.

731

That's really unfortunate.

732

You know, you've got, you've got

the alliance trying to, um, trying

733

to bridge that gap and some of the

legislation warrants putting forward

734

will hopefully bridge that gap.

735

But that's really the fundamental

challenge thing with the server program

736

is you start with some amazing solutions.

737

That then have to go

find the problem right

738

Warren Katz: now.

739

And I'll interject here that Afrix

implemented a major fix to their

740

SBR program about 3 or 4 years

ago, where a company is not allowed

741

to submit their phase 2 proposal

without that end user warfighter

742

customer signed on to be a customer.

743

And this threw a huge wrench into the

Cibber program, because to be frank, a lot

744

of these companies, uh, the Cibber mill

certainly didn't really care whether there

745

was an end user, they were doing Cibbers

for that, just for the Cibber money.

746

So they flipped out that now there

actually has to be an end user

747

customer involved and actually

have to deploy a war fighting item.

748

That was a very unusual new thing.

749

And, uh, a lot of the, you know, a

lot of the scientists who were using

750

this money as free science money.

751

Inside the government was also a

little pissed off because, well, you

752

have to actually have a real, uh, use

case here for this, uh, this item.

753

I, this is just free, you

know, funny money, uh, as Dr.

754

Roper called it a resort cash.

755

When you go to a vacation to a resort

and they give you the free wampum

756

points, you know, it's free money.

757

I don't have to do, you know, so

anyway, that was a major, major change.

758

Which, uh, you know, did piss off a lot

of people in the ecosystem was a major,

759

beneficial, really positive change.

760

At least now, the company is, you

know, you can't go forward and get

761

money unless there's actually a

real user at the end of the rainbow.

762

Now, whether the real user, uh, actually

has a requirement and the budgetary line

763

to buy more of the stuff when the phase

two is over, that problem didn't go away.

764

But at least at this point,

uh, the company has an actual

765

customer that wants the thing.

766

If they finish it, phase 2 SBIR usually

takes 2 years, 2 million dollars.

767

Maybe they don't actually

finish the thing.

768

Maybe somebody leapfrogged

them in the interim.

769

So that was a major, major beneficial

change, at least in the Air Force side.

770

Uh, and I will comment that the Navy

has always done a little bit better

771

job connecting, uh, their big programs

with the SBIR program, but that

772

went a little too far in the Navy.

773

And that the Navy programs

themselves started using their

774

just to shore up defects in their,

in their big ongoing programs.

775

So, they kind of blended that money

into their acquisition program.

776

And therefore, there were really no

innovations, new products being developed.

777

It was just.

778

Being used as supplemental

programmatic money.

779

So as we adding and adding that to

acquisition, so they went a little

780

too far on the Navy side that they

have a tremendous, a tremendous

781

transition record, the Navy, the

transitioning SBIR products into

782

Navy programs, but their innovation.

783

You know, metric is poor because

they've been treating it like

784

contract money, not like venture

capital to develop a new product.

785

So, there's still, unfortunately, a huge

gap in the requirements and the PPBE for

786

something surprising and new, but at least

the Air Force with both StratFi and this

787

MOU signature requirement for end user

customer did kind of connect the dots a

788

little better for, um, for the phase 2

789

Mike Gruen: companies.

790

So it sounds like, sorry, um, like

we're solving on the one side, right?

791

The trying to get, there's these

solutions in need of a problem

792

and trying to marry that up.

793

I'm going back to the earlier

and the backdrop to some of my

794

favorite stories from my friends

who actually served overseas.

795

Um, and all of the like in field

innovation and stuff that they

796

had to do because they couldn't

get what they actually needed.

797

And it was all on the, you know, like.

798

Sort of the backdrop for that was right.

799

They technology that they needed

was really difficult to come by.

800

Um, is there anything being done on

that side to sort of help with that

801

captain and saying like, okay, I have

this requirement, but I can't wait

802

five years because by then, whatever

I need it for is going to be gone.

803

Warren Katz: So, so, so there is a

shortcut and, uh, you know, uh, uh, Anil

804

did a great job of, of describing the

plate of ingredients handed to a chef.

805

Uh, and the chef's gotta do it.

806

So I have a, a, a similar analogy, uh,

that may be a little, uh, uh, different.

807

I think an Neil got a chocolate out of it.

808

I view the defense acquisition

system as a Swiss cheese.

809

So meaning that you can enter any,

if you're a big block of Swiss

810

cheese, you can enter at any hole.

811

And as you're passing through the

middle, you can exit any hole you

812

like, if you're smart enough to know

which hole you're given the hole

813

you're entering, but you're, you're

smart enough how to navigate inside.

814

You can exit any hole you like.

815

Okay.

816

Because it's so, so

complicated and intertwined.

817

But there is the ability to say,

look, if I want something fast, and

818

this is where FASA and FAR part 10

come in, which are the regulations

819

that should be mandated and enforced

a million times more than they are.

820

And a lot of our legislative effort is

about enforcement of FASA and FAR part 10.

821

Step 1 is to do what's called

commercial market research.

822

That's the most important step that's

usually either ignored or short shrift

823

if a captain on the one, you know, on

the, on the firing line wants an article.

824

This is the 1st thing that he

or his, his, um, you know, PEO

825

program manager can and should do

is commercial market research step.

826

1 is scouring the planet

for anything close to it.

827

That's done and available and

buyable today off the shelf.

828

If it's close, you're legally

mandated that you're supposed to buy

829

it and you can buy it immediately.

830

Uh, if you've got the cash sitting

aside, uh, and you, and you have the

831

requirement or you have a broad enough

requirement, you're supposed to buy it.

832

Now, so these are two impediments, having

the cash and having the requirement.

833

Okay, how do you solve those two things?

834

Well, FAR Part 10 has

a magnificent clause.

835

That says, if the commercial item

that you found doesn't meet all the

836

requirements, you have to do two things.

837

One is you have to go back to

that captain, that warfighter,

838

and say, hey, captain, we found

something that's pretty close.

839

It's missing these three features.

840

Is that good enough for you?

841

And if that question ever gets

asked, The captain invariably

842

says, yeah, hell yeah, I need it.

843

Now I'm fighting here.

844

Okay.

845

I can't wait seven years for the perfect.

846

The perfect is the enemy of good enough.

847

This thing that you've

brought me is good enough.

848

Give it to me right now.

849

I want it right now.

850

Okay.

851

If the question legally required

question to be asked, usually doesn't.

852

Okay.

853

And the second thing that has to happen

is if that captain says, you know what,

854

those three features and missing two

of them, I can do without, but this

855

one, I really, really kind of need.

856

Okay.

857

Well, then the procurement person is

supposed to go back to that commercial

858

vendors and say, Hey, we'll buy a

bazillion of these from you, but

859

you got to add this one feature.

860

We really kind of do need

this one feature that question

861

also legally has to be asked.

862

And, of course, any vendor in their

right mind is going to be, of course,

863

I'll add it well, tell me what the

feature is and we'll negotiate it.

864

But if you buy 38, 000 units.

865

Of the thing.

866

Yeah, I'll add it.

867

I'll add it on my own nickel.

868

No problem.

869

Okay.

870

If the quantity is high enough.

871

So that's what FAR part 10 says.

872

Okay.

873

So there's, so if the procuring officer

program manager is doing their job,

874

they're, they're trying desperately to

find the close enough commercial item

875

and trying to match make with, with the

needs of the warfighter and get to yes.

876

And get that war fighter,

that thing instantly.

877

Okay.

878

But the problem we have is that, uh,

the, the, the frozen middle, the, the,

879

the program officers, the PEOs, the

contracting officer, and the prime

880

contractors that are making all their

money from making everything from

881

scratch because they sell their time by

the hour, that's how they make things.

882

They actually don't have much interest

in getting to yes for that captain.

883

They have interests, unfortunately,

parochial interest in getting

884

to know, uh, getting to know

means they all make more money.

885

Getting to know means that program,

that program manager, that contracting

886

officer, they're going to have a 20 year

long job they're going to have to be

887

able to run this multi billion dollar

program for decades, they're going to

888

have job security, they're going to have.

889

Cashier, they're going to have

a credibility, a huge budget,

890

huge influence, huge staffs.

891

Unfortunately, these parochial interests.

892

That's sabotage the market research

mandate that we're talking about.

893

Now, if the, if the incentives.

894

We're changed so that those people were

somehow deeply rewarded for getting a yes.

895

Then that's what would have happened.

896

Then we'd go back to the Swiss cheese.

897

Okay.

898

Then they will come out the

hole that says, you know what?

899

That commercial item is good enough.

900

I've swear it's good enough.

901

I'm going to beat up the captain and twist

his arm to make sure that he, that, that

902

the commercial items good enough for him.

903

And I'm going to beat up the vendor.

904

So they put in that one or two

missing features and I want to

905

be done with this in 30 days.

906

I'm going to be finished and onto my next.

907

Procurement thing in 30 days, because

if I get stuck on a decade long

908

developmental program, my career is over.

909

So it's by changing these incentives

that the people in the middle will change

910

their behavior and they'll try to get to

yes, instead of what they're currently

911

doing, which is trying to get them now,

912

Mike Gruen: that's an amazing

summary of like my experience, like

913

I haven't spent too much time in

government, but like the perverse

914

incentives that just exist that really.

915

Slow things down, move things

in the wrong direction.

916

And it's just, that's the way the

system is like, Oh, we have this money.

917

We have to spend it.

918

Like we're not incented to save.

919

We're not incented to do things quickly.

920

We're not incented to buy a

commercial off the shelf solution.

921

We're incented to create

our own and build.

922

Um, so that's, that's

923

when the first commercial products

924

of my company were coming out and I'd

show up at the program managers that

925

show up at the prime contractors.

926

And after a while, they would

be earnest and honest with me.

927

And they'd look me in the eye

and say, Warren, this product

928

does do everything we need.

929

It's perfectly suitable.

930

It's done today.

931

And it's cheap.

932

It's one 10th the price

we're going to pay.

933

But please want to understand we make

all of our money by remaking this crap

934

over and over and over and over again.

935

We are have no interest in

buying your off the shelf item.

936

It will be too cheap, and

it'll end too quickly.

937

Okay, I'm sorry to bring

you the sobering news.

938

And I had literally I had government PMs

who had enough respect for me to look me

939

in the eye and tell me this to my face.

940

And I On more than one occasion.

941

And at that point is a commercial product.

942

And it's like, ah, you know, what do I do?

943

Where do I go?

944

Okay.

945

And that's why this, this arc of my career

took that turn 30 years ago, because of

946

that honest, you know, answer that I got.

947

So I've been trying to change the

incentive structure and the enforcement.

948

You gotta have both carrots and sticks.

949

You have to have incentives,

enforcement, both.

950

Otherwise this isn't just, it's

just, isn't going to happen.

951

Tim Winkler: Yeah.

952

I, I, uh, I love how that

became a part of your journey.

953

Uh, you know, the, what you're doing

with the Alliance from, you know,

954

what you experienced early on as a

entrepreneur and that's kind of, you

955

know, the, the picture we're trying to

paint for a lot of our listeners that

956

are, you know, maybe building something

or especially if you're dual use, right?

957

Like protecting yourself on one side

to, you know, make sure you have

958

revenue coming through the door.

959

If it's on your commercial side,

while you're, you know, You

960

know, kind of working the lanes

on the, on the federal side.

961

So it's, um, it's, it's, you know, again,

I don't think we're here to paint like

962

the grimest of grim pictures, but the

reality is it's not, it's no cakewalk.

963

And, uh, and those timelines

that you just described, Neil, I

964

mean, Hey, that's daunting, uh,

considering how quick tech is moving.

965

And if you can't innovate within a, you

know, that gap of shorten that three

966

to five years, that's, that's an issue.

967

So, um, love that the reform

is, is, is being pushed and

968

by, by folks like yourself.

969

Aneel Alvarez: So there is actually

another maybe exit hole to use Warren's

970

analogy out of that Swiss cheese.

971

Uh, so I mentioned before

combatant commands, they fight

972

wars, they don't buy things.

973

That's a little bit fungible, right?

974

They do have operations and maintenance

budgets that they can spend in

975

the current year for capabilities.

976

Uh, and more and more what we're seeing,

especially out of the most relevant tech.

977

So a lot of companies are selling

their tech as a service, right?

978

And so that's something combatant

commands can buy as a service in

979

the current year with current year O

and M operations maintenance funds.

980

I think that's one of the best models

because you're getting the latest tech.

981

You don't ever have to take ownership of

physical things and you get what you need.

982

Uh, instantly, right?

983

So some examples like satellite

services in the run up to Ukraine

984

when, uh, Putin was amassing forces

on the border of Ukraine saying, no,

985

we have no intent to invade Ukraine.

986

That was commercial satellites

out there that the government was

987

buying from commercial lenders.

988

Government was buying the

imagery from commercial lenders.

989

Um, you know, not that that was

not multi million dollar government

990

satellites producing that imagery

that was commercial that the Biden

991

administration was able to put out to

the public because it was completely

992

unclassified, all bought as a service.

993

Uh, it's a great company on the

west coast, sail drone, uh, wind

994

and solar powered sailing vessel.

995

They launched out of

somewhere in California.

996

I can't remember where, sailed to

wherever in the world you want.

997

You have your, your sensor

package on the vehicle.

998

Uh, you never take, take

ownership of the vehicle.

999

You just kind of like buy

time with the vehicle.

But there's some great models out

there where combatant commands can

buy things from your O and M funds.

And one other thing to mention, so

special operations command has pretty

much always had the ability to buy things.

They've had a procurement budget.

So they've always been a little bit

unique in the last maybe year and a

half, uh, Congress gave cyber command

that same, uh, authority as well.

So there are now actually PEO is

being developed in cyber command.

I think there was the realization that

the services were buying capabilities

that were too disjointed for a national

strategy with respect to cyber.

So now cyber command has that capability.

Um, I had the operation or the opportunity

to talk with some staffers and members

about this with the creation of, uh,

Ukraine security assistance initiative

funds, which have now dried up.

Hopefully it will be replenished.

But, uh, when that fund existed,

that essentially gave us European

command and forces over there, the

ability to spend current year funds.

And out of that USA iPod to buy

capabilities in the current year

to then give to Ukraine, right?

Which is just an amazing model, uh,

that a combatant command could do that.

And, and what we're trying to point out

is that if other combatants commands like

US Indo, uh, Pacific command had that

same capability, you know, if there is

hopefully not, but if there is a shooting

war over Taiwan in the future, why wait

until the war starts that combatant

command that capability to buy things now.

So then you have those captains out there

in the combatant who know what they need.

We can just buy things right away

without having to go through the

entire acquisition ecosystem.

That's fascinating.

Warren Katz: Yeah, I'll flip stop on this.

So calm thing.

They, they are the best at buying

and they are very different.

Um, for, for, for two main reasons.

One, they're going on

a mission three weeks.

They turn around to their

procurement people and said, I'm

going on a mission in three weeks.

I don't have seven years to wait

for whatever you fantasize up.

What do you got?

Okay.

I need what you got right now.

Okay.

That's, that's 1 thing.

Also, the, their budgetary requirements,

uh, processes are compressed.

Their budget line items are extremely

few and extremely broad, just like that.

PPP commission was recommending

for the rest of the military

and their requirements process.

I think I saw their requirements, like

any, anything at all that might help.

So calm with their

mission is like their one.

Requirement line.

So pretty much any product at all

in the world that helps them with

their mission falls under it.

So they've managed to compress

their budget and their

requirements down to nothing.

And the urgency just means

they don't develop anything.

They can't.

So they've been, I always point all

of my companies, you got some hot

noodle thing, go to SOCOM first, go

to SOCOM first, go to SOCOM first.

If they like it, they'll just buy

it and they can, and then they will.

Tim Winkler: Yeah.

That's a really interesting point.

Um, and I am curious on, on, uh, those

companies that you, you kind of advise

or maybe they come through the Alliance.

Um, how many are you working with at any

Warren Katz: point?

The Alliance has about 50 members

and I, as an investor, I had

30 companies go through my.

Text stars program, and we had 2

other programs, the space accelerator

that my, my buddy, Matt Kozlov

ran out of, uh, Los Angeles.

And he had, I think, uh, 3

or 4 classes, 10 companies.

He's another 40 companies there.

I helped them out when needed my other

colleague, Jonathan Fenske ran the

allied space accelerator for 2 rounds.

He had 20 more companies.

So that number of companies that I have

touched through text stars, 100 ish.

Something like that also, the

efforts guys, I, I, I pretty much

will take a phone call from also

anybody trying to get the process.

I've had hundreds and hundreds of,

uh, of conversations with companies

in this all the way from a company

saying, Warren, I was giving you name.

I've heard about SBIR and I've

heard about DIU, but I don't

know if I want to get involved.

Tell me about it.

All the way to companies that

are like, I'm struggling to

get my phase 3 OT production

contract out of my phase 2 SBIR.

And this that and the other combatant

command has a requirement that

we think it can help me morph the

requirement to change the budgetary

line item and talk to this guy.

So I get, I get.

You know, conversation, the whole

spectrum, the number of companies I've,

I've, uh, I've talked to who are trying

to get in, or I've gone through just

about to the end is in the hundreds.

Uh, and so the alliance has

about 50 members at this point.

We're always looking for more, but,

uh, most of those companies are DIU

and SBIR companies who are well into

phase two and are struggling and

confronting that value of death.

They're the ones we've

been most productive for.

Tim Winkler: And, and, uh, a

Neil, I'm curious with like

your time at DIU, you know, um.

How, how many companies do you like a

ballpark, I guess, on, on the number of

companies that you kind of get involved

with or interface with, um, and then

say, like, maybe in like a given year.

Aneel Alvarez: Yeah, so me personally,

it's been fewer than DIU as a whole.

Uh, I've been mostly on the

defense engagement side.

So working with defense organizations

to figure out what their needs are

that might be able to be fulfilled by

commercial tech or modified commercial

tech, like, like DIU specializes in.

Also, you see far fewer companies

and far fewer solicitations out of

you than out of the general world.

And the reason is, I'll just

take out for us as an example.

Historically, they've tried to

look for anything that might be

relevant to Air Force missions,

uh, and try to build those up.

It's a lot of things, right?

So they wind up giving out, like

I mentioned before, a lot of, uh,

phase 1 grants, phase 1 grants.

Um, DIU has historically taken the

opposite approach, where we work with

defense partners, as has been my role

for the last few years at DIU, figure

out a very narrow problem that we can

address, and then look for companies that

can address that very narrow problem.

Uh, and then we also try to figure out

the transition pathway, who's writing

all of the documentation that's needed

to create that formal requirement,

if a requirement doesn't exist.

What general officer or civilian

equivalent is going to push that

through the process to make sure it

actually gets approved and vetted.

And so it hopefully spits out as a

line in a program element line in

the National Defense Authorization

Act in a couple of years.

In other words.

Most of the time, we're going to have to

try to figure out what that transition

pathway is for those small number of

firms that we've worked with so that

they actually get the abilities to

do the hands of end users at scale.

So, in a nutshell, we start with a

very narrow problem and then look

for a small number of appropriate

solutions versus the separate process.

And it varies by organization, so

I'm mostly just focusing on the Air

Force here, where they're largely

looking for a large number of

solutions, and then it's mostly on the

companies to try to figure out what

problems those can get matched up to.

And actually, AFWERX has changed that

in the last year or so, so that what

I just described was what they call

the open topic, but they've created

something called the specific topic,

uh, in the last year or so, which is a

little bit closer to the DIU model of

going to the PEOs, the program executive

officers, those top level acquisition

organizations to say, what do you

need, and then putting those out there

as topics where they want companies

to, uh, to apply to those topics.

Interesting.

Tim Winkler: All right.

Well, I think, um, I want to put a

bow on, uh, on the main conversation

and transition to our final segment.

Um, there's probably hours and hours

more of this conversation we'd be

having, but we'll, we'll save that

maybe for a follow up discussion.

Um, let's transition to the, to the

final segment at this point, uh,

which is the five second scramble.

A quick rapid fire Q and a, uh, with

both of our guests, some, some, uh,

business, some personal questions,

uh, Mike, uh, why don't you go ahead

and, and T us up, uh, with a Neil

and then I'll, I'll jump to Warren

Mike Gruen: and Neil here.

Yeah.

Uh, yeah.

Uh, I'll give you a second

to catch your breath.

Um, If you could have a one

hour mentoring session with any

tech giant, who would it be?

Aneel Alvarez: Man, I, you know, I just

said, I just sung the praises of Tesla.

I was about to say Elon

Musk, but I don't know.

I want to go.

I want to take that one back.

Tim Winkler: It's probably the

number one answer that we get, right?

Really?

Mike Gruen: Yeah.

What's, uh, what's the best piece

of, uh, career advice you've

been, you've ever been given?

Aneel Alvarez: Uh, so it wasn't

really advice from a person.

It was actually a course that I took,

um, Air Command and Staff College.

It was a leadership course.

It was a Harvard, Harvard Business Review

article on vision, which I always thought

was a stupid sign that hung up in offices.

But Now, when you, when you read

about, read about, uh, when I read

this article, it really changed my view

on leadership management in general,