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

Tim Winkler: 00:00:05

Welcome to The Pair Program from hatchpad, the podcast that gives you a front row seat to candid conversations with tech leaders from the startup world. I'm your host, Tim Winkler, the creator of hatchpad, and I'm your other host, Mike Gruen. Join us each episode as we bring together two guests to dissect topics at the intersection of technology, startups and career growth. Hey everyone. Welcome back to The Pair Program. Uh, Tim Winkler here alongside Mike Gruen. Um, so Mike, we were kind of having a little, little chatter on this earlier today, but, uh, have you been, you've been following the Ovechkin gold gold tracker?

Mike Gruen: 00:00:46

I mean, I have no choice, even though I'm a Rangers fan, uh, in DC, you kind of have no choice, but, uh, and it's, you know, it's a momentous thing. Uh, it's, uh, I have mixed opinions on it, uh, cause you know, uh, but at the same time, like any, any, any records that can be broken, it's awesome. Um, it's awesome to be, you know, part, you know, be alive during that time or whatever, and seeing it happen and. Um, certainly a prolific goal scorer who probably would have broken the record had it not been for COVID and for, uh, what was it like a short and see a couple of short and seasons and other things. A couple of short seasons. Yeah. So, uh,

Tim Winkler: 00:01:22

yeah, it's, it's pretty, it's pretty exciting time just, you know, as of this recording anyways, like, yes. The other day he had, you know, two goals and, um, I think he's about 51, 52

Mike Gruen: 00:01:32

out, something like that.

Tim Winkler: 00:01:33

He's 52 out, but who's counting, right? Uh, but the, the record is, is held by Wayne Gretzky is. Those listeners that aren't privy to this is Ovechkin considered the greatest goal scorer, one of the greatest goal scorers in professional hockey. So up there with Gretzky, um, he's at 894 and Ovechkin's 52 goals short of breaking that. So anyways, I bring it back cause it's kind of a good, uh, full circle from when our first episode and we both wearing our, our jerseys and, uh, given some, uh, some hockey love, but, uh, Yeah. Exciting time heading into playoffs, uh, hopefully for us. I know that you're, you're in the, in the, in the race, but we'll see. Yeah. We'll see

Mike Gruen: 00:02:16

how far the right now that the Rangers have good coaching, we'll see if we can get a little further.

Tim Winkler: 00:02:22

Yeah, we, we could use some players. Um, all right. So let's, uh, let's, let's talk about, uh, today's episode. So we're going to again, continue on this kind of deep dive into the pivotal role that technology plays in. Modernizing government operations. Um, with this episode, we're going to focus on, uh, the, the valley of death, uh, for startups in the defense sector. So to clarify on the valley of death, um, and, and more broadly, maybe just in tech innovation. Uh, this refers to a gap that startups face, uh, between say, demonstrating the viability of their technology and being able to scale it to a point where they can secure. Um, investment and contracts and kind of sustain. Uh, so this, this will kind of, this covers areas like funding, like the funding gap, uh, obviously like we'll talk about regulatory and bureaucratic hurdles, uh, product market fit challenges, uh, long sales cycles. And scalability, uh, and integration issues. So to add a little bit more context for our listeners and prep for today's discussion, um, to, to bridge the valley of death, there's initiatives like small business, innovation, research programs, or servers, uh, which will be referenced quite a bit today, uh, are pretty critical. Um, and so what those are, they're providing non dilutive funding to help startups develop. Their technologies to a stage where they're attracted for further investment or procurement. Um, and as well, entities like defense innovation unit and Afworks, who is, you know, um, organizations we've had on in the, in the past, they can help startups with navigating, uh, the, maybe the, the complex defense procurement ecosystem, um, and help match, uh, technologies with, with opportunities within, in defense. But as I'm sure our guests will point out today that it all sounds great, uh, in theory, but, uh, it's nowhere near that easy and, and there is a lot of work to be done, uh, to make that process You know, work efficiently, uh, for commercial startups. So, uh, with that, I'm going to go ahead and, uh, intro our, our two guests that are joining us today. So we have, uh, a Neil Alvarez, uh, a Neil has a distinguished military background, a former. B 1 pilot and terminal attack controller with the Air Force, also worked for a few years in the test and evaluation community. And Neil has spent the past six years with the Defense Innovation Unit in Boston. Uh, Neil, thanks for joining us today. Alongside Anil is Warren Katz. So Warren is a former founder of a dual use startup, Mac Technologies, that was actually funded by Defense Sibbers and was later acquired. He was a managing director for an Air Force accelerator powered by Techstars. Um, also noting that that was the first startup outreach effort by AFWERX. Uh, and then most recently he's served as the chairman of a nonprofit, the alliance for commercial technology in government, which has a mission to streamline the integration of commercial technology into, into government operations. Um, so both of you guys welcome for, uh, to join us, uh, on the pod.

Aneel Alvarez: 00:05:51

Yeah. Thanks for having us.

Tim Winkler: 00:05:53

Good stuff. All right. Now, before we dive into the discussion, we will kick things off with a fun segment called pair me up. Uh, Mike, you kick it off on to lead us off.

Mike Gruen: 00:06:04

All right. So, uh, I'm going with actually a pairing from my childhood that you're, that I'm seeing disappearing. Uh, so it's a disappearing pairing and that is swing sets and playgrounds. Uh, I think it's springtime. I go on lots of walks. I don't know what it's like where you guys are, but in Montgomery County, Maryland, uh, basically the schools have mandates. They can't have any fun things on their playground anymore. No moving. It's very, uh, it's all about safety. I get it. But swing sets just are tough to find. And, uh, I have so many core memories as a kid growing up on the swings, playing around the swings, getting hit by kids on the swings, whatever it is. Uh, so. That's my pairing. It's sort of a disappearing thing. Um, I know lots of people have the little playground sets in their backyard, but there's, there's something very different between those and the really big, like swing sets that, you know, I'm, I grew up with at the elementary school. So that's my, uh, that's my, my parent today.

Tim Winkler: 00:07:00

It sounds like a county problem to me. We've got parks popping up over here. I've seen some pretty interesting playgrounds popping up. Um, but you know, I could see that you could be, as I said, are you guys seeing that? I don't know. Are you seeing, uh, a lack of, uh, playgrounds around?

Mike Gruen: 00:07:22

The playgrounds exist. It's just the swing sets and metal slides and, uh, anything,

Tim Winkler: 00:07:27

anything that might, might, for sure. I haven't seen a merry go round in a long time. Yeah. So I'm, I'm, I'm, I'm following on that. Yeah. Um, swings, uh, I don't know. It's actually interesting. Like we, we, um, we've got a 15 month daughter and we have yet to put her in a swing, so we're actually getting ready to do something this weekend. I'm pretty excited cause I know she's going to love it, but, uh, yeah, swing sets were Huge throwback to childhood. Um, but yeah, I don't know. I see him. I need to move. I'll put in a, put in a word. Um, cool. All right. Um, for my parent, I'm going to go, uh, with something that's basically teed up perfectly for, uh, what we're all about here on The Pair Program. And, uh, that is a pairing of a mentor with their protege. Um, so that's a relationship that. meets innovation and new ideas. Uh, guidance helps kind of fit, helps form those future, you know, innovators or those future disruptors. Um, I personally, you know, would shout out a mentor in my professional career, a long time friend of mine, his name is Chad. Uh, he always encouraged me to. Just got to take on risk, uh, live outside of my comfort zone and, uh, help shape me into the, the entrepreneur I am today. So the mentor and their protege is, is, uh, my parent for today. Um, and I know that we've, we've talked to, for, for countless hours about some of those relationships, Mike, but, uh, but yeah, you know, every, every guest that comes on this show, you know, has some sort of a good, good mentor or has a good story around somebody that they have mentored. Um, I'm going to pass it to our guests at this point. So, uh, Neil, how about a quick intro and your pairing?

Aneel Alvarez: 00:09:14

Yeah, thanks. I think you pretty much covered my intro. Um, didn't mean to be a career Air Force officer, but that's about where I am right now. Probably a few more years to go. Uh, and the last six years, the defense innovation unit's really been great. You know, spend most of my time in operations and trying to see you're seeing the other side of the fence, acquisitions, and especially the way the defense innovation unit does it. It's been eyeopening and a great experience. Um, yeah, quick note on the, on the second to last pairing. If somebody hasn't invented it already, and I bet somebody probably has, you just need a video game swing set. The virtual reality swing set exists. Unfortunately, I bet it's going to. Yeah, for me, that's a, that's an easy one. I'll go with one. That's just kind of timely. Uh, I'm going to go with lithium ion batteries and motors connected to wheels. Uh, we just not too long ago about our first American car, first electric car, Tesla. And oh, my goodness. I know I got a wife and kids and all that. And that brings me joy. But the Tesla, absolutely unbelievable. I have not felt acceleration like that probably ever, right? Nice to fly fighter style and bomber aircraft. I mean, it is just amazing. And I I'm so excited that they went for performance. You know, they prioritize that over every other goal. It's just an absolutely unreal machine. That's great. That's awesome.

Tim Winkler: 00:10:32

You use the, um, The auto drive feature. How's that work for you?

Aneel Alvarez: 00:10:36

I actually don't like it, right? Because there's there's so many Uh safety features built into it. You pretty much have to have your hands on the wheels and eyes facing forward It's kind of pointless and I love driving it. So I tried it once never never again. I'm sure someday amazing It's kind of My opinion, not quite there yet. And I love driving the car.

Tim Winkler: 00:10:54

Yeah, cool. Yeah. I love, love Tesla's. Um, awesome. Uh, Warren, how about yourself? Quick intro and pairing.

Warren Katz: 00:11:02

All right. Thanks a lot, guys. So Warren Katz, I think he did a good job of insuring me, uh, in the beginning, um, entrepreneur myself, founder of a company, had a good exit, became an investor, pretty common arc. Um, but I, I found that, um, it was very, very, very difficult to get the best stuff sold into government. Just a bunch of barriers. So, uh, dedicate a lot of time, less. A couple of decades in how to make how to grease the skids for commercial product companies that invested in something built it finished it and now just want to sell it to the government instead of having it knocked off or remade or delayed or whatever. Um, as far as my pairings go, uh, you know, at this point, I'm sort of like a quasi retired guy, but, uh, everything I do revolves around food and beverages and things like that. Um, so from my childhood, uh, I don't know if you guys know what a fluffer nutter is. But it's a sandwich that is made from peanut butter and fluff. And I think the, uh, the reason why it was invented is to get kids to eat something healthy. You have to slather it in some kind of candy. So fluff is this marshmallow cream that I enjoyed. It's, I don't know, a hundred years old. It was invented here in Lynn, Massachusetts, I think, is the fluff factory, actually. It's still around after a hundred years. Um, so yeah, uh, falafel and peanut butter on a fluff and utter is one of my childhood delicacies and, uh, it is a, uh, telling lesson on how to get somebody to do what they don't want slather in candy, enticement to get them to do what they don't naturally want to do.

Mike Gruen: 00:12:35

I definitely have strong memories of a couple of kids at my, at my summer camp who that's what that was like their go to every day. And, uh, And then not wanting to get into the swimming pool with them because they always had like stuff all over their face, just

Tim Winkler: 00:12:54

covered in fluff and appreciate that fun fact on, uh, you know, the origination sort of where it came from. That's, that's great. Um, cool. I will put a bow on, on that segment and, uh, move into the core, uh, of today's discussion. So the way I kind of see this conversation flowing, I think it'd be helpful to begin with just kind of painting the picture of maybe the current state of affairs and, um, it's making sure that our listeners. Are caught up on what, you know, several programs entail, um, some of those different phases, uh, how, how the programs are leveraged. And then, you know, some of those challenges that startups face in, in that journey. Uh, and then next we can talk about the government reform that's needed for a healthier ecosystem. Warren, I'm sure you have plenty of, uh, thoughts on this topic. Uh, and then, uh, I did want to make sure that we covered Something that Warren, we, we kind of riffed on, on our disco call was the federal acquisition streamlining act, uh, FASA and the importance of this law. And, and we can talk a little bit about a few examples that, of how this law has proven useful in real world, real world scenarios. Um, so Ania, maybe we'll start with you and just, uh, just a little bit more context on, you know, maybe the current state of, uh, of the ecosystem and a little bit more context on, on SIBRs as well.

Aneel Alvarez: 00:14:17

Yeah, um, so it's probably worth clarifying D. I. U. actually doesn't use servers at all. Uh, our instrument of choice is the other transaction. Uh, so be happy to talk about that. Uh, Warren, I know lives more in the super world and it's probably better place to talk about that specifically. Uh, but the other transaction is probably just as relevant to this discussion. I normally explain it's something along the lines of, if you look at the federal acquisition regulations, procedures by which things are acquired in the government. It's like a 1990s New York City phone book. I mean, it's just enormous with every potential risk mitigation measure under the sun baked into these things. Um, and so what happens is that acquisitions officers and contracting officers by all the risk mitigation measures that would be needed may be needed. That might be a stretch for the purchase of an aircraft carrier. They might apply that to the purchase of a, uh, small unmanned aerial system, which just doesn't make sense because the cost of implementing those risk mitigation measures probably far outweighs in most instances, the total value of the risk that you're trying to mitigate. Uh, and so other transactions were actually created in the 1950s to allow NASA to move a little bit faster. And then they were updated again in the middle of the last decade. Uh, and, and by comparison, you know, you have the New York City phone book example with an OT and other transaction. You start out with a blank sheet of paper. And then it's on that the parties involved, the contracting officer, acquisition officer, the, uh, organization you're trying to do business with actually write in all the risk mitigation measures that are applicable to that specific acquisition. Um, there's oftentimes a lot of reluctance to do so, right? So it's like handing a chef, a bunch of food, uh, or a bunch of ingredients and telling him or her to make something versus handing him or her a recipe. And for better or worse, most folks in the acquisition world would prefer the recipe than to just be handed a plate of ingredients and have to make something. Uh, but DIU does do that exclusively. We use other transactions exclusively, and it allows us to move much, much faster because risk mitigation measures we're implementing specific just to that acquisition. Um, now the big difference between OTs and CBERs. CBERs, uh, as is implied in the name or the full name, it's a grant, right? It's a tax taken off the top of the acquisition budget. Okay. That organizations are allowed to use to fund small businesses to, you know, research and develop capabilities that they think they're going to need versus another transaction is purely just in a, you know, contracting method acquisition method. Interesting.

Tim Winkler: 00:16:42

Perfect. Yeah, that, that's helpful. I, I didn't, uh, point out in the intro kind of the, the OTs, um, so appreciate you covering that and building a little bit more awareness on, on that as well. Um, we'll dig deeper into some of that as well, but Warren, why don't you, if you want to kind of just quickly expand on your, uh, your two cents on it and then we can keep going.

Warren Katz: 00:17:03

Yeah. So Neil is exactly right. And OT is a contract type of contract structure. And in fact, some of my companies, many of my companies have had their phase two SBIRs use an OT as the contract mechanism. So there are two sort of orthogonal things, but can use each other. Um, the CIPRA program is, is a grant program exactly like a Neil described. It was developed about 40 years ago, the early 1980s. The best way to describe it is. It was kind of like a government seed stage venture capital fund. They take, they take, uh, what's today a 3. 2 percent tax. Off the entire R and D budget of the entire federal government is not just D. O. D. It's the entire federal government. So it's about 4Billion dollars a year now, and that cash is given back to the same people. It's taken from, but when it's given back, it's got some strings attached. You have to award these grants and. A phase one, which is anywhere between, I believe, uh, on the low end, 75, 000 today to a high end of two 50 for a phase one. And if, uh, the company is successful, they can be, uh, awarded a phase two, which I believe is up to 1. 9 million today. So a fairly significant chunk of change for a really small, innovative startup company at the pre seed level, uh, can help the company avoid. Taking venture capital at that most expensive stage of the company before they start derisking the product. And then if they want to take venture capital later, then they can, but they're in a stronger position. They can keep more of their equity. So I, I view it as a very attractive alternative to taking very early stage VC for a lot of these deep tech, hard tech companies. I myself, uh, built my entire company only on SBIRs. I never took any venture capital. Which I highly recommend to anybody who can possibly do that, because when you do have an exit, you have nobody to share the money with, which is a wonderful thing, uh, at the end of the rainbow, but a lot, a lot of the companies, a lot of companies, I'm an investor in, and I've helped to accelerate do both. They take and raise money. Uh, through, through angels and venture capital and the government is starting to, uh, recognize and encourage that, especially through things like the Air Force's, uh, TACFI and STRATFI programs, which are, are wonderful phase 3 ish follow ons to, to the phase 1, phase 2 SBIR program. A lot to talk about with SBIR. It's a wonderful thing. If you know how to use it right, hasn't been abused. Over the years by companies that view it just as sort of, you know, a corporate welfare sort of thing. You've, you've heard of the term silver mills. We can go to a whole conversation on silver mills. So, it has been abused by some and Congress is trying to figure out how to put the screws to that. Uh, but wonderful, wonderful program funds, a lot of companies fund a lot of, you know, if you look at the greatest successes. Out of the Sivir program, you get companies like Amgen, Qualcomm, 23andMe, Ginkgo Bioworks, iRobot, AeroVirement, Broadcom, all these pieces of Broadcom. These are multi billion dollar companies that got their start at the SBR program, went on to raise venture capital into other things, but phenomenal ROI, uh, for, for government dollars. I'll, I'll stop here and see where you want to go.

Tim Winkler: 00:20:28

Yeah, so Neil, we were talking a little bit about, um, on our discovery call of like some of those, those pitfalls of where you go, once you hit a certain, a certain plateau, um, if we want to maybe expand on that and just kind of, maybe this will just kind of pick apart a little bit of some of those pain points, but the way that the system's currently kind of structured, um, and then we can flip it back to Warren as well.

Aneel Alvarez: 00:20:54

Oh, yeah, sure. Uh, so I agree with Warren completely. I'm a huge fan of the Simber program in general. Um, But yes, depending on where you sit as a stakeholder in the innovation ecosystem, it's important to understand the nature of what you're dealing with might be the best way to say, uh, so oftentimes find myself at conferences and talks, uh, inside of our conversations with companies that have received a grant. And they think they're on the fast track to a big government contract, uh, because they have a separate phase 1. Uh, and, you know, some, some education is probably warranted there where, you know, getting from a super phase 1 to a transition is just unbelievably difficult because you have this whole thing called in between planning, programming, budgeting, and execution. Uh, so, like Warren said, you got this I misspoke earlier. I said, attacks on the acquisition budget. Warren said it correctly attacks on the R and D budget is what it actually is. Uh, then organizations get some of that funding to hand out to small companies that they think are developing capabilities relevant to their mission. Um, but you think about skin in the game, right? So if somebody gives you free money. And they tell you, you have to spend this in a certain way. And if you don't, I'm going to take it back. It's not like you get to keep it. Of course, they're going to spend it, right? Whether or not it's going to yield some kind of long term benefit for them. They're almost definitely going to spend it. Uh, and as a recipient of that money, you may not necessarily see the incentive structure behind that organization that's spending money on you. Um, so as a company, what I normally advise them is it's really important to understand where the requirement is coming from for whatever it is that they're receiving that money from. And it doesn't have to be a requirement, but you know, ideally it would be, uh, if it's not a requirement, if it's just A-D-A-D-O-D or a government organization giving them a super phase one grant, that's fine. As long as they understand that that's what it's right. Maybe it's $50,000 for Aase one grant and then it's gonna end. That's great. You know, it keeps the lights on for a few more days. Um, but it's really just understanding what the end game is. So I said a little bit more about the ideal is if there's actually a requirement behind that end game, right? So if there is a, an organization in one of the services that has a hard and fast requirement for some capability that doesn't quite exist from a technical perspective yet, and they, in conjunction with an acquisition organization or handing out this, you know, maybe a series of super face ones to help develop technology, That is, um, that is going to fulfill a funded vetted requirement someday. That's the holy grail of what companies probably want to be looking for. Uh, but that's, that's really tough to find. And as a company, you can kind of prod your, your government handlers into trying to figure out what that is, or, or at least explaining to you, uh, what the nature of the end game in that particular case might be.

Mike Gruen: 00:23:43

Is there any situation in which they're doing that from where they're, it's that same requirement and they're doing it across multiple companies and you're, I mean, like, I assume that they, as the government, I'm not just going to pick one horse. I'm going to bet on a bunch of ponies. Um, is that, is that the case?

Aneel Alvarez: 00:23:59

Yeah, absolutely. And again, I'm not as well versed in the super world, but I don't think Afworks is doing this anymore, but in their first few years they were. Awarding something like 1500 super phase ones per year. Uh, and so if there are particular tech areas where the air force, you know, really needed some concerted development, they're probably gonna end out a lot of super phase ones to companies in those areas.

Tim Winkler: 00:24:22

I want to, I want to kind of jump right into, um, uh, a little bit worn specific with, with what the Alliance for commercial technology and government is doing. So this is a non profit, uh, that, that you all formed and, and, uh, Expand on a little bit on the, something like these use cases that you, how you're getting involved and then, you know, why, uh, you know, what these big areas that you feel there's room for reform.

Warren Katz: 00:24:51

Yeah, so it just follow on exactly to, uh, where, uh, Neil left off. I'll point out 1 thing about the silver program and how it's money and spend it was given back to. It's given back to researchers in the research community. So for the first 35 ish years, uh, a laboratory researcher and his white coat in the laboratory gets this money back and spends it on a little company to try to make a product. It's not necessarily, it wasn't necessarily the case that that researcher himself or herself actually knew the end user war fighter and who was going to use the thing and didn't really have a connection to that, the actual End user the product, and then the company finishes their prototype. It works and they go back to that research scientist and they say, I have no clue who would actually buy this. The company is thrown back on the company to go find the end user. Uh, learn about what this requirements process is that a Neil was. Was alluding to and then start the process to get money aligned for this brand new thing. Nobody ever thought of in the D. O. D. and that is the value of death. Whereas the company thinks, oh, my God, you're Mr. Research scientist who gave me this 2M dollars. You're in the Air Force. How do you not know who would use the product at the end that you have this all set up for me already so that this this process is smooth. The federal government's a very big place. The army itself is a big place. The Air Force itself is a big place. So this, this went on for 30 years, the company essentially thrown into this, you know, 5 year long or plus even bigger than that process of understanding how things get, uh, get, you know, products get built and the product is finished and ready to buy. Um, and so it's this horrible, horrible, horrible problem. So, uh, what we do at the alliance is try to make that gap nothing. Uh, bring that gap down to zero so that as the company is making the thing, uh, the end users already engaged right at the beginning. The end user can kibitz on what they need and don't need the requirements are either being set up or already are being broadened. To include the possibility of this new thing, and the budget is, um, you may have heard of this P. P. B. E. reform thing that just. I dropped a suggestion for how to make the budgeting process better to make the budgets a little more general purpose so that when a surprise new thing shows up out of nowhere, the money is already in a budget to buy the thing, even if it's a, it's the requirements process didn't foresee it and didn't specifically design it. So, that's kind of in a nutshell, that's kind of what the alliance is trying to do go to Congress. And work with Congress to figure out how to take advantage of surprise technological developments, whether they came to the SPR program, came to a or came 100 percent from commercial venture capital backed. Private companies that finish the thing by on their own nickel or on a VCs nickel and then magically show up at the end said, Hey, I got this thing. You didn't think of it. It's done. Our adversaries around the world are buying it. Uh, giving it to their war fighters on the battlefield. They have it today. Do you want it now? Instead of having. The U. S. warfighters wait five years to get this thing, or even worse, creating this, this, unfortunately, this happens to the, even to this day, creating a new program in the DOD to pay a large defense prime by the hour to remake the thing that was available today for billions and billions of dollars, have our warfighters be forced to wait around for a decade, and then be handed something that's already obsolete, that's worse, that's Then what our adversaries have been using for a decade and all the while, screwing over that little startup company that had the thing finished or stuck their own neck out, risk their own capital, took VC money. Uh, and finished it and got to the finish line, uh, taking out all the risks that Neil was talking about that phone book that he's talking about. All of that risk mitigation is all in the developmental part of developing a product. Okay. If a private capital, if those companies. Finish their own if all the risks are gone yet, uh, the government still, you know, attempts in a very blunt fashion to apply that phone book of rules to the company. They already finished it. You know, the risk, the whole thing. So, none of those those risk mitigation, uh, the bureaucracies and processes are. Are appropriate anymore. Yet the phone book is still hurled at the company that finished it already and took all the risk out. Uh, so that's what the alliance does. We're trying to, uh, make the D. O. D. and the government a warm, receptive customer to the 2nd, uh, A hot new product technology or a company shows up at the front door. They are sucked in like a vacuum cleaner whisked through the process directly to the end. Users might use the thing that the product is quickly assessed. It shouldn't have to meet all of the requirements that a, a fantasy process, uh, we can talk about the requirements process in a, but basically it's a bunch of guys in a room that, you know, smoke dope and spitball and fantasize about sharks with laser beams on their heads and space vehicles, space motorcycles and, and, uh, come up with this fantasy list of requirements that, that the prime contractors love. Because then they engage in a fiction writing contest to write this proposal. They know full well that they can't make. But then the government sets aside billions of dollars, and they start making it, and seven years go by, and they say, I'm sorry, we can't do sharks with laser beams or space motorcycles. It was just too hard. But give us another 10 billion, and we'll try a little harder. And it's a monopoly at that point, and it's too big to fail. So they can't shut it off. That's the requirements process. Fortunately, there are laws on the books that say, you know, what, if a commercial item shows up and it meets some of the requirements, and it's better than what the warfighters using today, you have to buy it off the shelf. And he's going to have to, we have a, a legally mandated preference for buying finished commercial articles over remaking from scratch and developmental product. The problem is that those laws are just not FASA. And those laws are not obeyed. They're, they're You ask a PEO, a government contracting officer, they won't even believe it exists, those laws, because they're so, they're, they're, they're so completely unenforced, uh, that, that, uh, it's like, it's treated as like, like it's not there. So, bottom line, that's what the alliance does. We are trying to make it so that the innovator shows up, they're swept in, sucked up and, and. And their products purchased massive quantities very, very quickly with the least amount of friction. That's a fan. That's, that's our goal. They ain't there yet, but that is our goal.

Tim Winkler: 00:32:05

Yeah. And I, and I believe what you're referring to as well as like the, the legislation that you, you kind of shared with me that draft legislation anyways, the small business commercial transition program that that's what you all are taking and presenting, uh, to Congress.

Warren Katz: 00:32:20

Yeah, so that's actually, it looks like it's going pretty well. There's going to be the chunks of that. That whole legislation is going to come out very, very soon. It may be part of the 2025 SBIR reauthorization legislation itself because the SBIR program is up for reauthorization in 2020, 2025. Um, but, uh, yeah, it's, it's formalizing that smooth transition from the phase 2 prototype into phase 3 full scale production. Which really doesn't exist at this point. The closest thing to it is the air forces stratify program, which is part of it was efforts attempt to do exactly this. And it's a, it's a 3 way funding program between. Some silver money, some venture capital money, and some. A war fighter and user acquisition money, which is great. It's awesome because that is a bridge essentially. From prototype into full scale production, but it's, uh, it's only for the air force. It's, it's a little restrictive right now. So, essentially, this, uh, small business commercial transition program is more of a formalization of this throughout the entire treats the money a little more flexibly. Um, I, I, I think it's wonderful, obviously, but, uh, we'll see how what Congress thinks about and whether it actually gets in, gets in the legislation.

Tim Winkler: 00:33:38

Very interesting. Um, so, yeah, and, you know, we can kick it back to you. I know that you had, um, uh, an idea of that came to mind about the servers as well. Then I think you were going to. Uh, touch on, or you could just pick up where Warren kind of left off as well.

Aneel Alvarez: 00:33:53

Yeah, maybe I'll do the latter. Um, I was thinking it might be worth just jumping up to the 50, 000 foot view here, make sure we get a holistic view of how, how this works and where what we're talking about fits in. Um, I'm sure most Americans were like me before I went into the military, assuming that the Air Force, Army, Navy, uh, Space Force Marines fight wars, but they actually don't. They're just force providers. They train and equip the force in law. That's all they do. They don't fight wars. Instead, the U. S. has split up the world into some number of combatant commands. There's a combatant commander for each one of those combatant commands, like Indo Pacific Command, European Command, African Command, etc. And those are the organizations that actually fight wars. The services just provide forces to those combatant commands. Um, and so the services given that model don't necessarily know what's needed for war fighting. I mean, I think that with a grain of salt, they kind of know, but the combatant commands, the ones who are actually fighting the war should be the ones who really understand what they need to fight wars. So, for the most part, it's the combatant commands that are writing requirements and then passing those on to the services to fight about and decide what's going to get funded and what's going to get executed in terms of acquisitions. Um, so if you're in European command and you decided you need a loitering or, you know, a ton of loitering munitions to hang out over Ukraine, and you write that into a requirement and hand it off to maybe the army or the air force. Um, that's that's kind of like how requirements get generated from that grassroots level, and then they kind of filter upwards through the chain of command. Uh, and then when they get to the top of the services, the services again, fight about it, decide what they're going to put forward in the president's budget. That's how that process gets started at an absolute minimum. That's going to take about 2 years to go from, uh, requirements after the requirement is decided upon for it to get vetted, run into a president's budget. Congress fights about it, ask and staffers, house armed services committee, so the service, many staffers are going to fight about it. Um, so realistically, and probably 3 to 5 years, you're going to see what's called a program element line. In a national defense authorization act that, uh, funds the procurement funding, uh, that gives an acquisition organization, the permanent funding to go out and start executing on that acquisition. Talk about some captain in European command writing this requirement 3 to 5 years from now, there's going to be the funding to actually go after that requirement. Might be over, obviously, right? Hopefully. Um, and that's the start of the acquisition process, right? That's the starting gun, which is really a shame. And then you think about tech development cycles that are, you know, probably two, three years, we've seen massive advances. So if you write a requirement for something in 2024, They're going to have the funding for it in 2027 or 2029. I mean, the tech's going to be far different from what you thought it was back in 2024, right? I mean, the whole system is just so antiquated, literally from the 1960s. This is the McNamara when he was Secretary of Defense, Vietnam era method of acquiring for the Department of Defense and that PBBE Reform Commission that Warren mentioned was intended to try to update it. I haven't actually seen the results. Um, I didn't, I didn't necessarily know they were out there, but It'll be great to take a look. Um, so with the separate process, what, what oftentimes happens like with organizations like Afworks is that, uh, they present AF companies present efforts with, with things that they think are of importance to the air force right near some air force, major lieutenant colonel says, yes, that looks interesting. Uh, let's find it with a super face one 50, 000. And then like Warren mentioned, um, let's say they even get a super face too, so a little bit more money to really develop the capability. And now it's somewhat viable. Cool. It's on that company to try to figure out what requirement to match that up to. And for someone that doesn't know the inner workings of, uh, the Air Force, it's virtually impossible. Uh, when I said in a, you know, in the National Defense Authorization Act, there's going to be a program element line that gets handed off to what's called a program executive officer. And so the Air Force has only 14 or 15 of those that are broken up by functional areas. So there's PEO for fighters, PEO for bombers, PEO digital, et cetera. They're the ones that execute the acquisitions, then within each of those are going to have maybe a G. S. 12 to 14. So kind of like a mid level office officer civilian. Um, that's going to be handed or tasked with leading that acquisition. So what are the chances that that G. S. 12 or 13 that's developing the acquisition strategy? It's going to actually get married up with this company that might have the perfect solution to that acquisition, uh, that has that silver face to like, there's no mechanism to make that match right now. Uh, not in any kind of repeatable way. That's really unfortunate. You know, you've got, you've got the alliance trying to, um, trying to bridge that gap and some of the legislation warrants putting forward will hopefully bridge that gap. But that's really the fundamental challenge thing with the server program is you start with some amazing solutions. That then have to go find the problem right

Warren Katz: 00:38:48

now. And I'll interject here that Afrix implemented a major fix to their SBR program about 3 or 4 years ago, where a company is not allowed to submit their phase 2 proposal without that end user warfighter customer signed on to be a customer. And this threw a huge wrench into the Cibber program, because to be frank, a lot of these companies, uh, the Cibber mill certainly didn't really care whether there was an end user, they were doing Cibbers for that, just for the Cibber money. So they flipped out that now there actually has to be an end user customer involved and actually have to deploy a war fighting item. That was a very unusual new thing. And, uh, a lot of the, you know, a lot of the scientists who were using this money as free science money. Inside the government was also a little pissed off because, well, you have to actually have a real, uh, use case here for this, uh, this item. I, this is just free, you know, funny money, uh, as Dr. Roper called it a resort cash. When you go to a vacation to a resort and they give you the free wampum points, you know, it's free money. I don't have to do, you know, so anyway, that was a major, major change. Which, uh, you know, did piss off a lot of people in the ecosystem was a major, beneficial, really positive change. At least now, the company is, you know, you can't go forward and get money unless there's actually a real user at the end of the rainbow. Now, whether the real user, uh, actually has a requirement and the budgetary line to buy more of the stuff when the phase two is over, that problem didn't go away. But at least at this point, uh, the company has an actual customer that wants the thing. If they finish it, phase 2 SBIR usually takes 2 years, 2 million dollars. Maybe they don't actually finish the thing. Maybe somebody leapfrogged them in the interim. So that was a major, major beneficial change, at least in the Air Force side. Uh, and I will comment that the Navy has always done a little bit better job connecting, uh, their big programs with the SBIR program, but that went a little too far in the Navy. And that the Navy programs themselves started using their just to shore up defects in their, in their big ongoing programs. So, they kind of blended that money into their acquisition program. And therefore, there were really no innovations, new products being developed. It was just. Being used as supplemental programmatic money. So as we adding and adding that to acquisition, so they went a little too far on the Navy side that they have a tremendous, a tremendous transition record, the Navy, the transitioning SBIR products into Navy programs, but their innovation. You know, metric is poor because they've been treating it like contract money, not like venture capital to develop a new product. So, there's still, unfortunately, a huge gap in the requirements and the PPBE for something surprising and new, but at least the Air Force with both StratFi and this MOU signature requirement for end user customer did kind of connect the dots a little better for, um, for the phase 2

Mike Gruen: 00:42:05

companies. So it sounds like, sorry, um, like we're solving on the one side, right? The trying to get, there's these solutions in need of a problem and trying to marry that up. I'm going back to the earlier and the backdrop to some of my favorite stories from my friends who actually served overseas. Um, and all of the like in field innovation and stuff that they had to do because they couldn't get what they actually needed. And it was all on the, you know, like. Sort of the backdrop for that was right. They technology that they needed was really difficult to come by. Um, is there anything being done on that side to sort of help with that captain and saying like, okay, I have this requirement, but I can't wait five years because by then, whatever I need it for is going to be gone.

Warren Katz: 00:42:49

So, so, so there is a shortcut and, uh, you know, uh, uh, Anil did a great job of, of describing the plate of ingredients handed to a chef. Uh, and the chef's gotta do it. So I have a, a, a similar analogy, uh, that may be a little, uh, uh, different. I think an Neil got a chocolate out of it. I view the defense acquisition system as a Swiss cheese. So meaning that you can enter any, if you're a big block of Swiss cheese, you can enter at any hole. And as you're passing through the middle, you can exit any hole you like, if you're smart enough to know which hole you're given the hole you're entering, but you're, you're smart enough how to navigate inside. You can exit any hole you like. Okay. Because it's so, so complicated and intertwined. But there is the ability to say, look, if I want something fast, and this is where FASA and FAR part 10 come in, which are the regulations that should be mandated and enforced a million times more than they are. And a lot of our legislative effort is about enforcement of FASA and FAR part 10. Step 1 is to do what's called commercial market research. That's the most important step that's usually either ignored or short shrift if a captain on the one, you know, on the, on the firing line wants an article. This is the 1st thing that he or his, his, um, you know, PEO program manager can and should do is commercial market research step. 1 is scouring the planet for anything close to it. That's done and available and buyable today off the shelf. If it's close, you're legally mandated that you're supposed to buy it and you can buy it immediately. Uh, if you've got the cash sitting aside, uh, and you, and you have the requirement or you have a broad enough requirement, you're supposed to buy it. Now, so these are two impediments, having the cash and having the requirement. Okay, how do you solve those two things? Well, FAR Part 10 has a magnificent clause. That says, if the commercial item that you found doesn't meet all the requirements, you have to do two things. One is you have to go back to that captain, that warfighter, and say, hey, captain, we found something that's pretty close. It's missing these three features. Is that good enough for you? And if that question ever gets asked, The captain invariably says, yeah, hell yeah, I need it. Now I'm fighting here. Okay. I can't wait seven years for the perfect. The perfect is the enemy of good enough. This thing that you've brought me is good enough. Give it to me right now. I want it right now. Okay. If the question legally required question to be asked, usually doesn't. Okay. And the second thing that has to happen is if that captain says, you know what, those three features and missing two of them, I can do without, but this one, I really, really kind of need. Okay. Well, then the procurement person is supposed to go back to that commercial vendors and say, Hey, we'll buy a bazillion of these from you, but you got to add this one feature. We really kind of do need this one feature that question also legally has to be asked. And, of course, any vendor in their right mind is going to be, of course, I'll add it well, tell me what the feature is and we'll negotiate it. But if you buy 38, 000 units. Of the thing. Yeah, I'll add it. I'll add it on my own nickel. No problem. Okay. If the quantity is high enough. So that's what FAR part 10 says. Okay. So there's, so if the procuring officer program manager is doing their job, they're, they're trying desperately to find the close enough commercial item and trying to match make with, with the needs of the warfighter and get to yes. And get that war fighter, that thing instantly. Okay. But the problem we have is that, uh, the, the, the frozen middle, the, the, the program officers, the PEOs, the contracting officer, and the prime contractors that are making all their money from making everything from scratch because they sell their time by the hour, that's how they make things. They actually don't have much interest in getting to yes for that captain. They have interests, unfortunately, parochial interest in getting to know, uh, getting to know means they all make more money. Getting to know means that program, that program manager, that contracting officer, they're going to have a 20 year long job they're going to have to be able to run this multi billion dollar program for decades, they're going to have job security, they're going to have. Cashier, they're going to have a credibility, a huge budget, huge influence, huge staffs. Unfortunately, these parochial interests. That's sabotage the market research mandate that we're talking about. Now, if the, if the incentives. We're changed so that those people were somehow deeply rewarded for getting a yes. Then that's what would have happened. Then we'd go back to the Swiss cheese. Okay. Then they will come out the hole that says, you know what? That commercial item is good enough. I've swear it's good enough. I'm going to beat up the captain and twist his arm to make sure that he, that, that the commercial items good enough for him. And I'm going to beat up the vendor. So they put in that one or two missing features and I want to be done with this in 30 days. I'm going to be finished and onto my next. Procurement thing in 30 days, because if I get stuck on a decade long developmental program, my career is over. So it's by changing these incentives that the people in the middle will change their behavior and they'll try to get to yes, instead of what they're currently doing, which is trying to get them now,

Mike Gruen: 00:48:16

that's an amazing summary of like my experience, like I haven't spent too much time in government, but like the perverse incentives that just exist that really. Slow things down, move things in the wrong direction. And it's just, that's the way the system is like, Oh, we have this money. We have to spend it. Like we're not incented to save. We're not incented to do things quickly. We're not incented to buy a commercial off the shelf solution. We're incented to create our own and build. Um, so that's, that's

Warren Katz: 00:48:46

fortunately in 1994, when the first commercial products of my company were coming out and I'd show up at the program managers that show up at the prime contractors. And after a while, they would be earnest and honest with me. And they'd look me in the eye and say, Warren, this product does do everything we need. It's perfectly suitable. It's done today. And it's cheap. It's one 10th the price we're going to pay. But please want to understand we make all of our money by remaking this crap over and over and over and over again. We are have no interest in buying your off the shelf item. It will be too cheap, and it'll end too quickly. Okay, I'm sorry to bring you the sobering news. And I had literally I had government PMs who had enough respect for me to look me in the eye and tell me this to my face. And I On more than one occasion. And at that point is a commercial product. And it's like, ah, you know, what do I do? Where do I go? Okay. And that's why this, this arc of my career took that turn 30 years ago, because of that honest, you know, answer that I got. So I've been trying to change the incentive structure and the enforcement. You gotta have both carrots and sticks. You have to have incentives, enforcement, both. Otherwise this isn't just, it's just, isn't going to happen.

Tim Winkler: 00:50:03

Yeah. I, I, uh, I love how that became a part of your journey. Uh, you know, the, what you're doing with the Alliance from, you know, what you experienced early on as a entrepreneur and that's kind of, you know, the, the picture we're trying to paint for a lot of our listeners that are, you know, maybe building something or especially if you're dual use, right? Like protecting yourself on one side to, you know, make sure you have revenue coming through the door. If it's on your commercial side, while you're, you know, You know, kind of working the lanes on the, on the federal side. So it's, um, it's, it's, you know, again, I don't think we're here to paint like the grimest of grim pictures, but the reality is it's not, it's no cakewalk. And, uh, and those timelines that you just described, Neil, I mean, Hey, that's daunting, uh, considering how quick tech is moving. And if you can't innovate within a, you know, that gap of shorten that three to five years, that's, that's an issue. So, um, love that the reform is, is, is being pushed and by, by folks like yourself.

Aneel Alvarez: 00:51:04

So there is actually another maybe exit hole to use Warren's analogy out of that Swiss cheese. Uh, so I mentioned before combatant commands, they fight wars, they don't buy things. That's a little bit fungible, right? They do have operations and maintenance budgets that they can spend in the current year for capabilities. Uh, and more and more what we're seeing, especially out of the most relevant tech. So a lot of companies are selling their tech as a service, right? And so that's something combatant commands can buy as a service in the current year with current year O and M operations maintenance funds. I think that's one of the best models because you're getting the latest tech. You don't ever have to take ownership of physical things and you get what you need. Uh, instantly, right? So some examples like satellite services in the run up to Ukraine when, uh, Putin was amassing forces on the border of Ukraine saying, no, we have no intent to invade Ukraine. That was commercial satellites out there that the government was buying from commercial lenders. Government was buying the imagery from commercial lenders. Um, you know, not that that was not multi million dollar government satellites producing that imagery that was commercial that the Biden administration was able to put out to the public because it was completely unclassified, all bought as a service. Uh, it's a great company on the west coast, sail drone, uh, wind and solar powered sailing vessel. They launched out of somewhere in California. I can't remember where, sailed to wherever in the world you want. You have your, your sensor package on the vehicle. Uh, you never take, take ownership of the vehicle. 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: 00:53:55

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: 00:55:09

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: 00:55:20

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: 00:57:04

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: 00:57:23

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: 00:59:33

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: 01:00:06

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: 01:00:22

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: 01:00:30

It's probably the number one answer that we get, right? Really?

Mike Gruen: 01:00:33

Yeah. What's, uh, what's the best piece of, uh, career advice you've been, you've ever been given?

Aneel Alvarez: 01:00:41

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, you know, leading to something. That's what the vision is. That's, you know, form your team around, uh, that's it in 1 sentence. But, um, yeah, that's really shaped. I think. How I operate at work more than anything else.

Mike Gruen: 01:01:10

Uh, what's one cultural value you think is really important to foster?

Aneel Alvarez: 01:01:16

Um, I mean, there's the, there's the, you know, the standard ones that hopefully your parents taught you when you were three. So I'll skip those, uh, like the integrity and all that sort of thing. Um, but now I, I don't know if I call it a value, but coalescing around a vision or any organization, uh, and rallying people around that vision. I found to be really critical.

Mike Gruen: 01:01:37

Suspecting that might be a theme. Uh, in a word, what's the biggest challenge facing, like the defense tech space right now? one word. Or you can use a phrase. I was expecting you just to say vision. word

Aneel Alvarez: 01:01:57

can be really offensive, but I'll say it anyway. People.

Mike Gruen: 01:01:58

What was that? People, uh, uh, what type of technologists thrive, uh, in that, in, or people in general in the defense tech space,

Aneel Alvarez: 01:02:10

uh, should thrive or actually thrive? actually thrive. Unfortunately, it's process oriented, folks.

Mike Gruen: 01:02:19

Uh, what was, uh, your childhood dream job? Uh,

Aneel Alvarez: 01:02:24

astronaut.

Mike Gruen: 01:02:27

Uh, if you could live in a fictional world from a book or movie, which one would you choose?

Aneel Alvarez: 01:02:32

Oh, man. My wife and I are watching Stranger Things right now. Let's

Mike Gruen: 01:02:37

skip that one. Terrifying. Terrifying. That's not the one I'd choose.

Aneel Alvarez: 01:02:42

Yeah, same. It just, the first thing that popped into my head.

Mike Gruen: 01:02:45

That's good. Uh, what's the most outdated piece of technology you can't live without? Uh. Uh.

Aneel Alvarez: 01:02:56

I don't know if I'd say it's outdated because, uh, I use these things all the time, but, you know, I'm renovating my entire house and I still find myself with like a hammer all the time. I have nail guns and auto hammers and everything, but I have a physical steel hammer that I use continually.

Mike Gruen: 01:03:11

Sounds good. I don't think that'll ever go out. Uh, at least not until we have the AI robots doing all the pounding. Um, Uh, what's a, uh, charity or corporate philanthropy that's near and dear to you?

Aneel Alvarez: 01:03:25

I'd probably go with, uh, I mean, not, I wouldn't say near and dear, dear to me, but the one that kind of the approach they respect the most is the Bill and Melinda Gates type approach of treating it like a business, uh, from, from soup to nuts, you know, you want to do the most good for the most number of people, um, moving away from the mom and pop model to what we know, yeah, our capitalist world is the most effective way to get things done. Yeah.

Mike Gruen: 01:03:51

Uh, and finally, if you could instantly be an expert at something, what would it be?

Aneel Alvarez: 01:03:57

Uh, programming. Cool. I took C and I shouldn't even say this. I'm old. I took Fortran. Like that's the only language I actually programmed in.

Mike Gruen: 01:04:08

Modern language would be awesome. Fortran, I believe is still in use. Uh, I have friends over at NASA.

Tim Winkler: 01:04:19

All right. Well, thanks so much. Good stuff. All right, one, let's knock this out and then we'll wrap. Um, what is your favorite part about serving as chairman for the Alliance?

Warren Katz: 01:04:31

Uh, it's to get to see, uh, some of, you know, what I've, uh, proposed to staffers and congressmen actually show up in legislation. It's very rewarding to see that, um, sausage get made and a little, a little sentence or 2 here and there, or a concept actually make it all the way to the finish line. Actually, 1 good example is that open topic thing, and Neil. I mentioned that was pioneered by, by AppWorks actually. They, they stole it from NSF and then in 2022 and they pioneered it and made it very successful in 2022. It came out in the, uh, SBIR Reauthorization Act of 2022 that all of the services in the DOD are now required to have an open topic once a year. So from a huge arc starting in 2018 or so, finally through, uh, a piece of legislation and they, and they sabotage it and they don't really do it right, but at least it's in law at this point.

Tim Winkler: 01:05:23

What's one myth about working with the government that you want to debunk?

Warren Katz: 01:05:29

Uh, one myth. It is actually just people. So you do, you do think that it's just this giant phone book of process. But you know what? That giant phone book of process was Invented by people who are sitting in a room, writing it up at some point. And even some people in the government, sometimes they, Oh, the process says this and the process that process was invented by human beings at some point in the past, so it can actually be uninvented and unmade by another room full of human beings. Okay. It's not, it wasn't passed down by God to Moses on the Mount with the twin tablets. It can, we can, we can actually modify this. It's we're allowed, we're allowed to, to modify this. So that's, um, and that actually does not from people outside the government, it's people inside the government who feel that, that, uh, this, this, these tablets that were handed them 30 years earlier, uh, are not modifiable. No, no, in fact, uh, we can modify this if it makes sense.

Tim Winkler: 01:06:25

What's one piece of advice you'd give to someone looking to invest in defense tech startups?

Warren Katz: 01:06:31

Uh, make sure it's a dual use investments of a defense thing goes a tango uniform, as they say, uh, or, or just, uh, winds up getting delayed by 5, the average 5 years before it, uh, it, um, you know, it gets procured large quantity that you have a fallback that you have multiple paths to realize the 6. And by the way, that's. Some of the advice I give a lot of companies who are thinking about bidding on the SBIR program, I tell them, don't count on the government, DOD, being your large scale purchaser of these things when you're done. Take their money as free venture capital, bootstrap your commercial product, And be successful commercially. And if the government does show up later as a customer, wonderful, but treated as, as free venture capital, take your idea, put a hat, perfume and lipstick and pearls on this pig, make it look like what the government wants to buy, but, but have a commercial market in mind.

Tim Winkler: 01:07:31

Great advice. Who is a mentor in your life that has influenced your

Warren Katz: 01:07:36

professional career? Uh, I would have to say, uh, Leonard Nimoy or Mr. Spock. He's my, my childhood hero. Uh, and, uh, it just, it's so pleasurable being logical about, uh, about things. So yeah, I would say Mr. Spock.

Tim Winkler: 01:07:54

What's an app on your phone that you can't live without?

Warren Katz: 01:07:58

Uh, probably Waze.

Tim Winkler: 01:08:02

What's the biggest

Warren Katz: 01:08:03

fish you've ever

Tim Winkler: 01:08:04

caught?

Warren Katz: 01:08:05

Uh, I actually caught a 54 inch striped bass once. And it was, uh, uh, not a keeper. I had to send it back. That was a very sad day. 54 inches striper, uh, Rhode Island waters. Yep.

Tim Winkler: 01:08:20

God. Uh, what's a charity or corporate philanthropy that's near and dear to you besides the alliance for commercial technology and government? I

Warren Katz: 01:08:31

have to think very, very hard about that. There's plenty. Along the lines of what Anil was saying, there's a charity in Boston called BUILD, B U I L D, that funds high school children to start up little startup companies in their high schools so that the allure of entrepreneurship convinces them to go to college. It was a very, very interesting thesis and concepts. So I volunteered there, donated money. That was great. And then I'm an animal guy. I love cats. I'm surprised one of my cats has not graced us with his or her presence during this podcast. They happen to, they usually show up at inopportune moments. Um, but, uh, the Potter League for animals, uh, is a charity in Rhode Island that, uh, that my wife and I are involved. What's the worst fashion trend that you've ever followed? Uh, worst fashion trend. I think I had bell bottom pants, uh, back in the seventies. I seem to recall way back then, uh, don't have any, any more and my fashion dedication. So you know, I have a mullet, okay. And I've had this mullet now probably for, for almost 50 years. And not at all a mistake, and I'm bringing it back all by myself. It's, it's, it

Mike Gruen: 01:09:45

always comes back. It's coming back. It's, I mean, it's, it all comes back. Absolutely. Bell bottoms, bell

Tim Winkler: 01:09:50

bottoms are back.

Warren Katz: 01:09:52

Nothing.

Tim Winkler: 01:09:54

I, I have to have one final bonus question just because of, uh, your animal shirt collection that you, you, uh, tipped us off to at the beginning. So what's your, what's your favorite animal shirt that you've got in your collection?

Warren Katz: 01:10:05

Oh, oh, that's a great question. Um, right now is really up there, but actually the one I gave out when I ran the tech stars program, I gave, and I gave Dr. Roper one of these shirts. And I'm really kind of mad. He hasn't worn it yet publicly, but it's a, a giant cat fighter pilot, uh, in, in sunglasses. I gave him hundreds of these out to, uh, to everybody, but that's gotta be my favorite is the cat. That's how the pot kitty fighter pilot

Tim Winkler: 01:10:35

All right, gentlemen, it has been a pleasure having you share your experiences with us. And I know driving change in the government is no easy task. So, uh, appreciate you on the efforts that you're, you're making and pushing us forward and grateful for your time on the pod. I appreciate you joining

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us.