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How to Start a Defense Contracting Company

Military Factory and Defense Contractor

Do you want to start a defense contracting company? If YES, here’s a complete guide to starting a defense contracting business with NO money and no experience.

It is no secret that the united states government gives out various defense contracts ranging from the building of war machines and ammunition to information technology, administrative or logistics based services to the public. However, landing one of these contracts is not as easy as one would think.

One cannot just simply apply for a contract when an opportunity presents itself, the first and most important thing to consider when going into a business like this is if you are a citizen of the country.

This is understandable because the company would be working for the world’s number one power in military prowess and sensitive information may be communicated in the course of finishing a contract. It would be careless for a nation as great as the United States to give access to delicate processes to a non-citizen.

Apart from this, serving in the military is also an added advantage to securing contracts. In as much as this is not written in stone as a law, it would appear that most companies that are defense contractors are owned by former military personnel that have retired or have been honorably discharged.

But if one has never had any kind of military experience, they need not be discouraged as hard work and meeting up with the various requirements can also put a new entrant over any competitive road block when setting up a defense contracting company.

The first step in setting up a company like this is to register it. There are quite a number of things the government looks into before they can clear one as eligible to receive contracts.

One of them is whether the person has a consistent financial record, if the person was dishonorably discharged from the military, the use of illegal substance, a lack of cooperation in submitting foreign passports, a track record of defying rules and regulations, proper mental health and so on.

These types of measures are taken to ensure that such contracts do not fall into the wrong hands as the United States of America has a lot of enemies. Apart from this, awarding such contracts to incompetent people may jeopardize military plans and operations.

Willingness to relocate is an advantage to those seeking defense contracts; this relocation of course, is within the United States but could also include overseas if the conditions allow. Doing proper research into the way this kind of business runs is very important, one way to carry out research is to speak to other defense contracting business owners, to find out from them about procedures and what to expect.

Steps to Starting a Defense Contracting Business

1. Understand the Industry

This industry is mostly made up of military aerospace and defense acquisition. Looking back at 2016, this industry was expected to generate total revenue of above $340bn US Dollar putting the annual growth rate (CAGR) of above 5% between 2012 and 2016.

This industry can be broken down into the nations need for the production, sales and servicing of military aircrafts and the manufacturing of military weapons and systems that are created to operate both on land, sea even in the air. In the past, the market for airlines have been cyclical with general orders skyrocketing for a good number of years and then taking a steep decline which results in the postponing of orders or even cancellation.

This could be attributed to the general changes that may occur as the year goes on, even if the United States may have already attributed a certain amount in its budget to this particular sector. Growth in the defense sector is strongly dependent on government spending as well as budget trends.

One of the global giants, Lockheed Martin, which could also be referred to as the largest contractor in this sector, enjoyed 70% of their revenues coming from this particular sector. While $33 billion US Dollars was the approved budget for 2018 which is expected to be used in purchasing over 200 aircrafts, however this is also subject to changes if war arises.

The lifeblood of this particular industry is research and development, and will rise rapidly during war, this affects the rate at which weapons are procured hence creating an opportunity for profits to be made, on the other hand when war is over or the general perception of risk passes away then spending in this particular area declines.

The United States defense spending is the largest in the world by a large degree; this is due to the need for the country to protect their diverse and vast national interests both within the country and around the world.

In as much as the amount allocated for this particular sector is made by national leaders, there has been a rise in defense spending amounts from about 9% of the Gross Domestic Product during the Vietnam War, to more than 34% of the Gross Domestic Product in recent times.

Most of the programs that create competition for the various companies bidding are very large, this means that any new entrant should have a sizable range of resources both financial and personal, so that they can compete properly with those who have made a name for themselves in the industry. On the other hand, there are smaller contracts that are designed specifically for smaller businesses to take advantage of.

2. Conduct Market Research and Feasibility Studies

  • Demographics and Psychographics

When it comes to business, knowing the characteristics of the clients you are anticipating to serve makes a serious difference as to how you go about approaching the market. Some of the important things to look out for would be the purchasing power of the potential clients, age bracket, location or even gender; all having something to do with whether the market will yield financial success.

However, if you are in the defense contracting business, you will have only one client. This client is the United States Government, so the demographics and psychographics of this particular client will have to take it’s attributes from the very nature with which the government would handle such a service coming from your company.

One of the major things the United States government is particular about is security, especially with the ongoing war against terrorism. So you should know that this mega client is looking for the cheapest way to get the best quality defense items.

It is safe to say that your client is price sensitive and due to the fact that there are quite a number of other defense contractors bidding for defense contracts from the government, it would be smart to find a cheaper way to serve the government in this purpose without missing out on quality.

3. Decide Which Niche to Concentrate On

When it comes to defense, there are quite a number of areas one can decide to specialize in. One can choose to focus on Information Technology services for the government. One can major in both software and hardware for the various gadgets in the military.

As the world continues to advance towards a more digital age, it becomes imperative for the government to have state of the art programs, software and information technology to provide proper protection to the vast arsenal of defense machines such as missiles, drones, super computers and the likes.

As one who offers your services to the government in this particular area, the possibilities of you becoming relevant are endless. There are a lot of programming algorithms required to operate and secure the nation’s defense grid and focusing on that particular aspect as your specialty will prove to be a very lucrative business.

Another area one can choose to specialize is focusing on one particular war machine. Examples could be tanks, aircrafts, drones or any other defense vehicle that may be used to provide better security for the United States of America.

Although if one chooses to specialize in the building of these war machines, one must realize that the level of competition would be very high when it comes to securing government contracts, not to mention the level of pressure that accompanies such a responsibility.

One can also specialize in the supply of ammunition to the government. Either one’s company manufactures the weapons or they have a contract with the manufacturers to make these weapons available for the government. Another area that can receive specialization could be in the area of researching new and formidable weapons that can shift the balance of power even more towards the United States.

In any business, finding your niche gives you a greater chance of specializing and concentrating your forces towards a particular aspect. Experience is one of the major things the government looks at before they pick a company to work with in this capacity.

The Level of Competition in the Industry

There are about three factors that make the defense contracting business a very competitive one to delve into. First of all there are already other companies who may already have been supplying the very same kind of services you want to offer.

These are the first set of competitors to look out for. This is a major challenge because when it comes to the practices of the government, security and consistency are usually elements that reflect safety.

The government would usually want to work with a company they have been working with for a longer period of time than jump on a new company. They would have already done all the background checks for that company and they already know the estimated time of arrival of services and so on, so it may be challenging to get into the mix of these transactions.

In addition to that, new entrants are constantly coming into the system. These new entrants may make it very challenging to establish one’s company as a formidable business with the government. These new entrants, for instance may not have an already set of practices one can easily research, in order to understand what their special competitive edge might be.

They may not have had past business experience to expose what their manner of approach to the market is going to be, so it may be difficult to develop a strategy to win the government’s attention over them. This is not like other businesses that have always been there, whose records can be investigated. New entrants are like new born babies, one would have to compete with them head on.

4. Know Your Major Competitors in the Industry

Knowing those who are already in the market is always smart. Competition cannot be won without one knowing whom one is competing against. It is right to say that some of these well-known brands have become giants in the industry over the years. Below are therefore some of the leading Defense Contracting businesses in the United States;

  • Lockheed Martin
  • Boeing
  • Rolls-Royce
  • Textron
  • Airbus
  • BAE Systems
  • General Electric
Economic Analysis

In a particular sense, this type of business can be economical if what you are supplying the government is easy to come by. But this is not the case because of how competitive this industry is. Even if making your services available to the government is relatively easy, beating off competitors may become the place where you may be demanded to make a smart use of money.

Networking, lobbying and various forms of engaging the system are very important activities that will assist one’s new business stay relevant and this is the part that may need a major input of funds.

One the other hand, if what you are offering the government is something as capital intensive as building war machines like aircrafts, tanks and so on, then in addition to the work of winning against competitors, political and environmental factors not to mention legal and social issues, funding such processes will be tasking on the wallet. To enter the industry on that level, you must have raised a decent amount of money and value adding relationships.

5. Decide Whether to Buy a Franchise or Start from Scratch

In this kind of business, one could say that buying an already successful business franchise is one of the best approaches to success. This is because the government already knows the name of the brand you want to work with.

The government has already built some kind of relationship with this brand and relationship has already been paying off. Buying a franchise would appear to be the best way if one can find a company willing to make this type of offer available to new entrants.

There are usually checks, balances, screening and other requirements that companies have to go through in order to be considered for contracts from the government. A franchise would have already gone through such screening processes, making it easier for one to focus on generating new business.

As opposed to starting from scratch and facing the uphill battle of passing all the screening processes and then winning over competitors, developing fresh supply and value chain activities as well as building proper relationships between industry decision makers. All of these may take a lot of time and resources before actual profits will begin to be realized.

6. Know the Possible Threats and Challenges You Will Face

The very first set of challenges you will face when going into this type of business is political. As this business deals with the government as it’s only client, the government has set up very strict criteria for those who will be awarded defense contracts.

Some of these requirements may prove to be challenges for you and your company, and may even delay the launch of your company. Because of changes in the global political climate, some of these conditions can change to favor or sometimes threaten the success of one’s company.

Due to the sensitive nature of this type of business, legal requirements for setting up and running the company may present a major challenge for aspiring defense contracting businesses. Certain legal requirements that may be easy enough for any other type of business to acquire, but because this type of business deals with the country’s defense, such legal requirements may be customized to fit the business.

Again a change in this legal landscape can be expected from time to time and such changes can affect the business negatively. A hostile environment also presents itself as a possible threat for this kind of business as it may make it very difficult for supplies to be made.

7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)

Limited Liability Company is the very best legal entity for this type of business because of the huge possibility for things to take a turn for the worse in this business. Imagine if you can, that certain products you designed for the government’s defense malfunctions

You will be dealing with a lawsuit coming from the government of the United States of America. The full legal force of the government would be coming down on the individual if their business is registered as a sole proprietorship. There is a very strong chance that the government may not want to do business with a sole proprietorship or even a private partnership.

Although in some very unique services, they can consider working with these types of legal entities, but in an industry with so much competition and so many checks and balances, the government has a better chance of awarding these contracts to businesses that are Limited Liability Companies than any other type of legal entity. The government in itself is not an individual, so they would always want to work with a company, not an individual.

8. Choose a Catchy Business Name

Although the government is looking more into a company having proper documentations, its stakeholders being of a clean reputation and so on, having a catchy business name can add just a little bit to the appeal of the government, although it is not of great importance what one names their company when they want to run a defense contracting business.

Of course, if one names their company a name that presents ties to terrorism or organized crime, then it will present an instant red flag, so in that case what one chooses to call their defense contracting company matters. If you are therefore considering what names to use when starting your own Defense Contracting business, here are some names you should try;

  • Optimum Group
  • Alexaire Incorporated
  • Reagent Group
  • Technoplax
  • Showville Alliance

9. Discuss with an Agent to Know the Best Insurance Policies for You

In the United States of America, regular businesses know how important it is to be insured; in fact some businesses are not allowed to operate without some very specific insurance. Running a defense contracting business is no different, in fact, having your proper insurance policies will add to the appeal for the government to fully consider your bid.

It has been repeated time and time again in this article that companies that intend to receive these contracts from the government must keep to strict rules when it comes to obtaining the proper papers for operation. It would make no sense to cut corners on this particular aspect because one is dealing with the government directly.

Some of these insurance policies may be difficult to secure but necessary if one expects the United States government to work with them. Some of the basic insurance policies that you should therefore consider purchasing if you intend starting your defense contracting business in the United States of America are;

  • General Insurance
  • Payment protection Insurance
  • Overhead expense disability Insurance
  • Credit Insurance
  • Deposit Insurance
  • Risk insurance
  • Liability Insurance
  • Health Insurance
  • Workers Compensation
  • Business owner’s policy group insurance

10. Protect your Intellectual Property With Trademark, Copyrights, Patents

Depending on the type of service or product you want to make available to the government, filing for Intellectual property protection may be necessary. One may need to patent new technology for certain devices like drones or even fighter jets. It could even be protection for a unique weapon design.

Yes one needs to look strongly into the kinds of services or products they intend to provide for the government, although it may not be likely that the United States government would want to steal a person’s original idea.

One needs to provide these types of protection as a sign of professional practice, even if the government may not be disposed to stealing one’s ideas. Other companies within or outside the field can take such design or ideas for themselves and this can pose a problem. So in order to avoid this type of experience one needs to protect their intellectual property.

11. Get the Necessary Professional Certification

It is popular knowledge that most of those who go into defense contracting businesses are ex-military and must have completed at least one tour in a military war effort mission. So simply waking up in the morning and deciding to start a defense contracting business without any experience in the armed forces, defense or intelligence agency may make the business a little challenging.

In as much as the above stated fact is seen as the norm, the major requirement is that whoever is seeking to start a defense contracting business must be a United States citizen.

Other requirements like becoming a graduate or receiving a special certification may not be as important as whether the person is a citizen of the United States. So it is safe to say that one’s citizenship is the singular most important criteria for qualifying for government contracts in the defense arena.

Then having served in the army is a major advantage as well. Other certifications would have to do with the exact type of service one intends to provide for the government.

12. Get the Necessary Legal Documents You Need to Operate

Some of the basic legal documents that you should have in place if you intend running your own defense contracting business in the US include;

  • Certificate of Incorporation
  • Operating Agreements
  • Business License and Certification
  • Data Universal Number System (DUNS) Number
  • Business Plan
  • Insurance Policy
  • Employment Agreement
  • Non-disclosure Agreement
  • Operating Agreement for LLCs
  • Employer Identification Number (EIN)
  • Consulting contract documents
  • Online Terms of Use
  • Online Privacy Policy Documents
  • Company Bylaws
  • Memorandum of Understanding

13. Raise the Needed Startup Capital

Getting funds for any business may require being able to convince people about the profitability of the venture. Having a strategy is a plus as many who may be willing to make their money available for you would want to know exactly how revenue would be made.

If one has done their research, then securing funds will not be as difficult as compared to if they had not done their homework. Therefore, some of the financing options you can explore when seeking for start-up capital for your Defense Contracting business include;

  • If you have savings or investments in the stock market, you could get money from there as startup capital.
  • Another excellent option is to sale landed properties or any other kind of property you own for the money to start up.
  • As you put your company together, you can sell shares of the company to interested investors.
  • One of the benefits of having social support structures like family and friends is to be able to ask them for soft loans to start up your venture.
  • The bank can be able to assist your venture by making a loan available for you, you could apply.
  • You could meet private investors or search for those who would be willing to partner with you on this venture.
  • Business angels and seed grant organizations are also another avenue for getting funding for your venture.

14. Choose a Suitable Location for your Business

The choice of location for your defense contracting business will have to depend on the exact service you intend to provide.

Seeing this type of business does not cater to the general public, it may not be required to have its location at a very accessible area in town. In fact, the more obscure the location, the better in some cases, as the company would be dealing with very sensitive information about the country’s defense.

Certain things that other businesses would have to think about may not apply to a business like this. If manufacturing is part of the services one intends to provide, then such a manufacturing plant can be in an area in town where the industrial wastes provided by the manufacturing process will not affect people living in town.

The manufacturing plant can be in the outskirts of town, while the administrative office can be at an accessible place. These are some of the key factors that you should consider before choosing a location for your business;

  • The local laws and regulations in the community/state
  • The demography of the location
  • The proximity between the location and the government facility where deliveries would be made.
  • Accessibility and road network of the location
  •  Security

15. Hire Employees for your Technical and Manpower Needs

This will depend on the nature of your work; assuming you are contracted to manufacture various war machines, then you would need the necessary manpower and equipment to help meet the demands. If you are into ammunition manufacturing, then the various machinery needed to create such items would be necessary, in addition to the amount of personnel needed to run such machines.

There would be need for an administrative staff for the manufacturing plant as well as an administrative staff for the administrative office in case both are operated in separate facilities.

If the services you intend to provide are more Information Technology inclined, then you may not need to hire heavy machinery or have two separate facilities to operate. One may simply need an office space with computers, filing cabinets, printers, major staff, support staff and so on.

In any case, you would need a business development officer, Lawyers, Accountants, Secretaries, Managers and so on. Various technical appliances needed for the administrative arm will be computers, chairs, desks, tables, inverters and so on.

The Service Delivery Process of a Business

After one must have been approved by the government to receive defense contracts, one would be required to regularly check the website provided by the government for contracts they are willing to make available to the public. When browsing this website, one can see offers made public by the government.

The next step would be to bid for the available contract, it should be noted that the government is always looking for cost effective bids to work with, but quality is also a major concern for the government. After the bid is made, and the contract awarded to the company, then the company proceeds to executing the contract as agreed and then delivering such items, products or services to the government.

16. Write a Marketing Plan Packed with ideas & Strategies

When it comes to business, marketing is the key to generating leads and boosting sales. Once a company has successfully identified its market, they would now have to look for ways to gain a greater share of the market. However, for a business like this, the various marketing techniques may not apply seeing as this business does not look to the public for patronage.

There may be no need to promote the business on the internet, advertise on radio or television. However in order to further market your company’s services to the government and also make yourself presented as a strong contender for the offers made by the government; you may need to do a number of things. Some of which are listed below;

  • Introduce your business by sending introductory letters alongside your brochure to the various military facility directors.
  • List your business in the local directories
  • List your business in the yellow pages.
  • Attend international defense conferences and expos, to network with industry players

17. Brainstorm Possible Ways to Retain Clients & Customers

Since the government would most likely seek low-cost options as they seek contractors, then one of the best ways to gain a competitive edge over other industry game players is to effect a low cost strategy approach. But simply cutting down the cost of production will not be enough seeing as one would not want to operate their business at a loss.

One of the low cost strategies to implement is to ensure that the major service to be provided is cost effective, but there should be additional support items or services that can be pricey so as to recover whatever difference that was made by the first offer.

For example if the company provides some type of software for securely operating government drones and this particular software is cheap for the government to purchase, then various plug-ins, add-ons and updates should now be the area where the cost differences can be balanced so that the company can still makes profits on the offer. This type of strategy can also be applied to the manufacturing of ammunition, weapons or any other kind of service.

18. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity

Where other kinds of businesses thrive on being loud about what they do, a defense contracting business does not need to be so loud about what they do, since their major client is the government and most of the services they provide ought to be private for security reasons.

There are quite a number of ways to boost the company’s brand within the defense contracting industry and the military as a whole. Below are the platforms you can leverage on to boost your brand and advertise your business.

  • Brand all your official cars
  • Ensure that all your staff members and management wear your branded items at regular intervals
  • Make sure your business has an online presence
  • Use direct approach by calling decision makers and informing them of what you do, in addition to applying for contracts formally.