Defense contracting done right

Too often, many small companies vying for business in the U.S. defense market run scared when going head-to-head with larger contractors. Even though many agencies allocate a certain number of contracts for small businesses, some executives with these companies still complain that in this competition, the deck is stacked against them.

As a CEO of a small defense contractor, I understand why some of my counterparts feel that way. But I do not agree that small businesses are at a natural disadvantage. Quite the contrary; small defense contractors with the right management team are inherently set up for success ? they can adapt more quickly than larger businesses can to market conditions, share the business risk with their customers and attract top talent.

In doing so, these companies can even steer clear of relying on set-aside contracts as their sole approach to operating in this industry and thus avoid being labeled as a company with inferior capabilities and expertise.

Adapt and maneuver

Small defense contractors can be more responsive and faster than their larger counterparts to identify both opportunities and issues that arise for customers. In big companies, decisions are made in a more hierarchal fashion, characterized by longer time frames and lower risk tolerance levels.

Small businesses, in contrast, maintain flatter organizational structures and possess an entrepreneurial, get-it-done attitude. And while big companies cannot afford to take the monetary and reputation risks inherent in moving quickly, small defense contractors thrive on performing in high-risk scenarios, calculated to return exponential growth.

For example, we at DefenseWeb develop Web-based applications for military family and health care organizations. In the past, the Defense Department handled most of these initiatives internally, at higher costs and lower performance levels.

DefenseWeb claimed its niche by quickly uncovering a need that was not being met. We took risks to convince influencers and DOD decision-makers of the benefits of our tools over internal solutions.

Many of our earliest customers became evangelists, helping us open other agency doors. The result: DefenseWeb has grown into an organization employing more than 75 people and boasting significant profit margins and top-line revenue well into the eight figures.

Share Some Risk

Many large defense contractors operate on a cost-plus or time-and-materials pricing model, small businesses may find that offering a firm-fixed-price model is an exceptional way to compete.

Defense agencies view the latter fee structure more favorably, especially in software development, as the burden of risk for the project's success is shared with the vendor. Moreover, small businesses may find that more doors are open to them and that their group of contacts expands significantly by offering firm-fixed-price fee structures.

This type of pricing model is also a win for a small company's corporate culture. Such a model requires companies to be creative and entrepreneurial in their operations; continually finding ways to work smarter.

Firm-fixed-pricing also means defense contractors must either have a complete understanding of the contract specifications and requirements or a thorough understanding of the customer before executing. Large defense industry vendors tend to get lost in the dollar value of the contract itself, at the expense of knowing the ins and outs of the project scope.

Ironically, this lack of understanding often leads to costs overruns that, in traditional contracts, get passed along to the customer. With superior execution, small businesses can not only avoid this issue in a firm-fixed-price model, but also generate greater profit while increasing their customer satisfaction, referral rate and repeat business.

Attract Top Talent

Notwithstanding the pay and benefits a large defense contractor can provide, small businesses can offer self-starting or tech-savvy individuals the opportunity to be change agents. In DefenseWeb's case, we have prominent retired flag officers on our boards of directors and advisors. These individuals might have gotten more prominent and visible positions with larger companies, but their ideas, insights and contributions are given greater weight at our company than I believe they would at a big defense contractor.

Moreover, DefenseWeb and other similar small businesses have found that our corporate culture well-suited to retired active duty officers, who often look for ways to continue their influence. Smaller companies afford them greater latitude to do this than would a larger, more bureaucratic organization.

For motivated technical and business talent, small defense contractors may be a better fit than a larger entity because of the small company's more entrepreneurial culture. Such employees are also more likely than average employees to complete tasks with a greater eye to accuracy, ensuring productivity rates are high within the organization. The competitive nature of motivated technical and business employees also inspires other team members to try to increase their own standards and those of their peers. As long as the competition remains friendly and supportive, small defense contractors will see themselves outperforming larger companies in many ways.

Strong Management

The common bond that supports the inherent strengths of small defense contractors lies within their management team. Good executives will support and enhance the capabilities of the company's employees, while mediocre or poor leaders will hinder their staff's efforts. This is a fundamental need for any business, but crucial for small businesses.

Ideally, a defense contractor will be led by a management team comprising people with technical, military or entrepreneurial experience and expertise. The absence of any one of them could be detrimental to a small business's ability to realize its potential.

Douglas W. Burke is the CEO of DefenseWeb Technologies Inc., San Diego, a Web-services company focused on the defense industry. Burke can be reached at dburke@defenseweb.com.