There are a number of cultural obstacles the Defense Department faces in attracting technology companies into the defense market with excessive bureaucracy topping the list, an aerospace and defense investment expert said on Monday.

The Pentagon’s initiative this year to reach out to Silicon Valley to attract emerging technologies “you have to applaud as a good start,” but the issues the department faces here are “more cultural ones than economic ones,” Pierre Chao, the founding partner of the aerospace and defense consulting firm Renaissance Strategic Advisors, said at a panel discussion hosted by the Center for Strategic and International Studies.

Pierre Chao, founding partner of the strategic consulting firm Renaissance Strategic Advisors. Photo: Renaissance Strategic Advisors
Pierre Chao, founding partner of the strategic consulting firm Renaissance Strategic Advisors. Photo: Renaissance Strategic Advisors

Chao said that corporate America is “flattening down the layers of management” with companies becoming more horizontal instead of vertical yet the government typically operates with multiple layers management between the “engineer on the ground” and higher ups.

This vertical management and the accompanying command and control structure is “the most significant” cultural difference between emerging technology firms and how the Defense Department operates, Chao said.

Another cultural issue that also has nothing to do with money is how tied the Defense Department gets to programs while Silicon Valley is willing to kill something that isn’t going well, Chao said.

“We set the bar so high for success on the defense side that once something comes over the bar we tend to defend it regardless of what’s going on because it was so painful to get to that point,” he said. “Silicon Valley is exactly the opposite. [It has a] Very wide aperture. Take in as much as you can but extremely quick kill mechanisms by which if something begins to stumble and fail you shoot it and you move on. That is not how the Defense Department works.”

There are also trivial cultural matters such as dress codes that separate the daily lives of employees at technology companies and the Defense Department, Chao said.

Chao also said start up companies focused solely on defense technologies face difficulties in finding capital backing.

“It’s extremely hard to find start up capital from true venture capitalists,” Chao said.

For small technology companies there are pockets of funding such as small business innovative research awards, Angel investors include former defense people that know the sector, spin-offs from larger defense firms, a small number of venture capitalists, and government incubators such as In-Q-Tel, Chao said. However, these capital sources are “not at the scale that the broader sort of innovation economy is able to tap into,” he said.