Unlocking DoD Contracts: A Startup's Guide to Success in Defense Procurement

For startups, working with the Department of Defense (DoD) can feel like stepping into a fortress of bureaucracy — procurement is slow, compliance is daunting, and identifying decision-makers is like navigating a maze in the dark. Yet, for those who learn to successfully navigate these hurdles, the rewards can be enormous.

Why the DoD is a Lucrative Market

The DoD is one of the world’s largest and most stable customers, spending hundreds of billions on modern defense systems and technology annually. Unlike volatile consumer markets, defense contracts not only offer funding but also long-term sustainment. Small wins can lead to multi-million-dollar deals, resulting in high-margin, predictable revenue streams. Additionally, building technology that strengthens national security carries undeniable appeal in supporting our country and our interests as Americans.

The Challenges of Selling to the DoD

However, this market is not for the impatient. Sales cycles take years, compliance is non-negotiable, and understanding who buys what, and through which funding mechanisms, is as crucial as having a strong product. Startups must approach the DoD with a strategic, long-term mindset — because while the opportunities are vast, so are the barriers to entry.

How the DoD Purchases Technology

Selling to the DoD isn’t as simple as pitching a product and securing a contract. The military operates on a rigid, multi-year budgeting system — PPBE: Planning, Programming, Budgeting, and Execution — dictating what gets funded, how, and when. The Future Years Defense Program (FYDP) is a rolling five-year budgeting cycle that shapes long-term defense investments. Each branch submits a Program Objective Memorandum (POM), which is a funding wishlist, but inclusion in a POM doesn’t guarantee funding; Congress must approve it through the National Defense Authorization Act (NDAA).

Understanding the Funding Mechanisms

Understanding the “colors of money,” or the different categories of DoD funding, is equally important. The first three colors of money are allocated each year in the defense appropriations process. Research, Development, Test, & Evaluation (RDT&E) supports early-stage research and prototyping, making it the most accessible entry point for startups. Startups often pursue Cooperative Research & Development Agreements (CRADAs) with government customers, which can help them understand end-user requirements.

Contracting Pathways: SBIR / STTR

Breaking into the military procurement system requires navigating multiple entry points — each with its own trade-offs, timelines, and levels of control. Two of the most well-worn paths are the SBIR and STTR programs, which provide non-dilutive capital to fund early-stage companies developing high-impact technologies for defense applications. Phase I grants fund feasibility studies, while Phase II supports prototype development. The real opportunity lies in Phase III, where successful startups move beyond small-dollar grants into sole-source government contracts.

Additional Funding Pathways

The DoD has established additional funding routes to help transition innovative capabilities from prototype to production, including the Strategic Funding Increase (STRATFI) and Tactical Funding Increase (TACFI) programs. These programs extend SBIR-backed technologies into larger DoD contracts, bridging the funding gap before full-scale procurement.

The Importance of Relationships

Understanding who makes purchasing decisions is as critical as knowing how to secure a contract. The Defense Innovation Unit (DIU) serves as a bridge to commercial tech, while Program Executive Offices (PEOs) manage the lifecycle of major acquisition programs. Startups that engage PEOs early and align with an existing or emerging Program of Record (POR) significantly increase their chances of securing long-term funding.

Navigating Compliance and Security

Scaling in defense is not just about technology — it’s also about politics. Startups must engage with both military leadership and lawmakers to ensure their technology remains funded. Compliance with FedRAMP, CMMC, and ITAR is non-negotiable for defense sales. Startups that neglect these requirements risk losing contracts late in the process.

Learning from Successful Startups

Startups like Anduril and Palantir have succeeded by mastering the intricate dance of contracting, procurement, and political buy-in. Their journeys illustrate the importance of demonstrating impact, leveraging flexible contracting pathways, and finding champions within the system to push technology into real deployment.

The defense market isn’t built for speed, but startups that grasp how it operates can unlock massive opportunities. Understanding how money flows through the PPBE process and the POM ensures a startup isn’t just pitching an idea, but securing a place in future budgets. The key is knowing how decisions are made, who holds the purse strings, and how to navigate the system — all while being patient and strategic.