The Defense Entrepreneurial Ecosystem is Missing the Point
Earlier this week, the Stanford Graduate School of Business experienced something of a kerfuffle when the group of students responsible for approving new student organizations rejected an application to stand up a defense tech club. Many patriots and leaders in the defense and dual-use technology industries1 were less than thrilled by the decision.
It’s not my place to critique what the MBA candidates at Stanford decided.
However, the defense startup and venture capital ecosystem didn’t just react differently than I wish they had; I think their reaction to the decision runs counter to the national interest.
A Period of Realignment
For over a decade now, the US government, which should be the biggest customer for American defense startups, has been trying trying to disengage from conflicts in the Middle East and Afghanistan and pivot to the Pacific. 2020 was a milestone year for this project because in March, the US Marine Corps published Force Design 2030, an ambitious plan to reorganize itself in preparation for great power competition, with a specific emphasis on preparing to fight in the Indo-Pacific region. This plan included divestiture of assets that planners thought would be less helpful in that region, and investment in assets that would be more helpful in a peer or near-peer fight. This is just one service; the DoD contains five others today. The consensus view in the national security community is very clearly that China is the pacing threat.
At the same time, across the country and on university campuses, the relationship between university students and the military has changed; the civilian-military divide is growing. While ROTC has returned to some elite university campuses, my impression is that the relationship between higher education students and the military has not particularly improved during this period. Post-secondary school engagement, including but not limited to universities, decreases student interest in the military. Put simply, defense matters less today at this stage in young peoples’ lives, both with respect to where older Americans are today, and with respect to where older Americans were when they were students’ age.
The students at Stanford GSB who make decisions about new clubs came to a conclusion that aligns with this new way of thinking (even if they themselves do not), in an ideological break from the historically patriotic traditions of Stanford University.
I want to be clear that I am not saying here that I think everybody in an MBA program should be unified in being interested in defense tech, or even necessarily a supporter of it. Some people have moral difficulties engaging in projects that may cause harm to others, and I respect that. Other people just aren’t interested in the domain; that’s fair enough. Not everybody is interested in everything.
The Response
Now, the entrepreneurial defense and dual-use community — both operators and investors — is rallying around interested Stanford students. On the face of it, this makes a ton of sense. The group authorizing new clubs just told the people in their industry to take a hike, and they’re not happy about it.
Heck, I’m not happy about it either!
But this response, throwing a party for the affected students, is a bad idea.
While DoD, the Intelligence Community, and the legacy military-industrial complex all got the memo about great power competition, it seems the defense entrepreneurial ecosystem…didn’t. That’s particularly bad timing, because defense tech as a venture category isn’t, well, doing so well.
Historical Context
In fairness, it’s not immediately apparent what members of the defense entrepreneurial ecosystem can or should do on an individual level to prepare for this change. Being contrarian is, after all, central to the identity of many extremely successful people who found and invest in startups.
To consider the issue in more detail, it’s worth looking at a few differences between how America experienced the Global War on Terror, in contrast with the most recent violent great power competition, World War II.
During GWOT, the military was an all-volunteer force. During WWII, the military drafted Americans.
During GWOT, there was a major emphasis on using small, elite special operations forces. During WWII, most battles were won using combined arms warfare at a scale never seen before.
During GWOT, civilians who didn’t have a friend or family member in the military were not regularly and severely affected by the conflict. During WWII, all civilians were impacted by rationing, and much of American industry totally reinvented itself to produce goods for the war; modern historians now call it the “home front”.
However, the conflicts are not totally dissimilar. In both cases, private industry stepped up to the plate to equip the military. Furthermore, entrepreneurs and engineers worked hard to develop better equipment and more efficient production methods.
What’s clear from looking at World War II is that success in modern great power competition comes from the country as a whole working towards the same goal. This enables mass production of a type we’re pretty unfamiliar with today. Currently, DoD overwhelmingly buys relatively low quantities of exquisite systems.
A Pivot Point?
Key technologies in the GWOT era of conflict were expensive pieces of hardware that we could only afford to buy a couple hundred pieces of, and which were used by relatively small numbers of small military units. I don’t think that’ll be the case going forward.
In the near future, key technologies are probably going to be relatively cheap, easy-to-mass-produce systems. Based on the recent strikes in Yemen, I expect we’re going to need a lot more individual pieces of military hardware — of every type — over the next twenty years than we have for the past twenty years.
America won WWII by mobilizing the entire population. We’re going to need to do the same thing again to be prepared to succeed in this new era of great power competition. We need to accomplish this now, before the war, because kinetic conflicts tend to be a come-as-you-are sort of affair; you bring what you have to the battle on the day the war starts.
It takes much longer to develop defense hardware in the 2020s than it did in the 1930s and 1940s. So to have any chance at success in this great power competition, we as a country need to agree on the importance of defense tech as enabling success in this endeavor, and back our interest in being successful with all the resources that its importance justifies.
That includes human capital.
The thing about focusing career marketing in this industry around particularly elite educational institutions is that it creates exclusivity, both in perception and reality. That’s precisely how we should not want to allocate resources if the goal is to increase the likelihood of success in a great power competition.
Reinforcing the present pipeline to dual-use entrepreneurship creates a vision of defense-related tech as both elite and exclusive. We need elite entrepreneurs working in dual-use spaces, yes, but we need as many of them as the American free market can bear. Since some will move on to different things and some will fail, we should aim to start with significantly more than the American market can bear, which is almost certainly more than any one academic community can or should bear.
The way to change that right now is for defense entrepreneurs and investors to use this moment to move away from elite universities, and pitch the importance of defense and dual-use industries to students at schools they wouldn’t otherwise have sought out.
To address the current level of concentration risk, this ecosystem needs to diversify its sources and create career pipelines from far more schools than it currently does. That means, among other things, de-emphasizing academic pedigree, and putting more value on the ability to deliver relevant results. Going to a highly selective university should matter far less than demonstrated patriotism, professional (or pre-professional for undergraduates) success, and motivation to create or invest in exciting new things.
This week has opened a relatively rare window for an entrepreneurial ecosystem to realign itself with well-defined objectives that are clearly valued by its biggest potential customer amidst investment uncertainty.
Defense-oriented founders and funders should take the opportunity that has been dropped in their lap.
“Dual-use” as a category of technology refers to products with both commercial and defense/intelligence customers. For example, GPS sensors above a certain level of precision are considered dual-use.