Modernizing America's Defense Manufacturing Sector

Executive Order 14005 Just Reshaped $850 Billion in Defense Contracts. Here's Your Playbook. While everyone's chasing AI contracts, a seismic shift in procurement rules is creating immediate opportunities for American manufacturers. EO 14005 and the latest NDAA amendments aren't just policy updates. They're forcing the entire defense industrial base to pivot toward domestic production. The numbers tell the story: • Domestic content threshold: 60% today, 75% by 2029 • DoD waivers down 15% since 2021 • $14 billion in new U.S. manufacturing investments • 5-20% price premiums for domestic products. I've tracked every major DFARS update since the EO dropped. The pattern is unmistakable: Foreign suppliers are getting squeezed out. American companies are capturing contracts they couldn't touch two years ago. Three Immediate Opportunities: 1. Critical Materials Gold Rush The FY2024 NDAA Section 803 mandates 20-30% price preferences for domestic rare earths, semiconductors, and defense electronics. One Alabama supplier went from $3M to $47M revenue just by pivoting to domestic titanium processing. 2. Shipbuilding Supply Chain Section 1024 closed the naval vessel loophole. Every component—steel, propulsion, electronics—must meet domestic thresholds. $2.3 billion in submarine industrial base investments are flowing. If you can forge, cast, or machine to mil-spec, there's work waiting. 3. Rapid Prototyping Fast Track FY2025 NDAA Section 804 created middle-tier acquisitions for domestic tech, 18-month development cycles instead of 6 years. Small businesses with cleared personnel are winning these hands down. The Compliance Trap (And How to Avoid It): Higher thresholds mean more audits. CMMC requirements are expanding. Foreign ownership rules are tightening. But here's what competent contractors are doing: • Pre-audit supply chains NOW one Chinese chip can kill a $50M contract • Partner with established primes as certified domestic suppliers • Document everything MIAO waiver reviews require extensive justification Action Steps for Next 30 Days: Map Your Supply Chain: Every component, every supplier. The 60% threshold is today's reality. Target NDAA-Funded Programs: Counter-drone, shipbuilding, critical materials. These have dedicated domestic preference funding. Get ITAR/DFARS Ready: If you're not compliant, start now. The paperwork takes months. The Hard Truth: This isn't temporary. The bipartisan push for domestic production will outlast any administration. Companies clinging to foreign suppliers will lose market share to those who adapt. One contractor told me: "We spent $2M reshoring from Mexico. Won $67M in new contracts within 18 months." The math is simple. The execution is hard. But the opportunity is massive. By 2030, these rules could redirect $50 billion annually to domestic suppliers. The question isn't whether to pivot—it's how fast you can move. Your competitors are already reshoring. What's your timeline?

Future conflict won’t just be decided on the battlefield—it will be determined in our factories. In our latest op-ed, Chris Hill and I argue that it’s time to rethink how we build and support the Defense Industrial Base (DIB). Today, the system defaults to large OEMs and traditional suppliers. While they’re essential, overreliance on them has created dangerous concentration risk—and limited our ability to scale in a crisis. Meanwhile, the U.S. has ~250,000 small- and medium-sized manufacturers that remain largely untapped. These firms offer: • Flexibility and surge capacity • Innovative and cost-effective production • Geographic and supply chain resilience Strengthening this base isn’t just about readiness—it’s about deterrence. A nation that can rapidly produce, adapt, and sustain at scale makes conflict less likely in the first place. To unlock this potential, three shifts are needed: 1️⃣ Map the industrial base We need a real-time understanding of who can make what, where, and at what scale. 2️⃣ Lower barriers to entry Simplify contracting, improve demand signals, and expand flexible acquisition pathways so smaller manufacturers can participate. 3️⃣ Treat manufacturers as strategic assets Integrate them into long-term planning, invest in workforce and capital, and enable dual-use production. If we fail to act, we risk sidelining the very engine of American strength—our small businesses entrepreneurs and innovators. Future conflict won’t just test our technology, but our ability to harness the ingenuity, grit, and scale of American manufacturing at its best. Industrial strength is national strength. Read more: https://lnkd.in/gbsg8PQ3 #Defense #Manufacturing #NationalSecurity #SupplyChain #DIB

As we enter 2026, it is becoming clear that industrial resilience is the ultimate deterrent. The "War of Factories" is no longer a theoretical concept; it is the operational reality of modern conflict. Consequently, strategic investment is moving away from rigid, single-purpose platforms and toward adaptive manufacturing capacity. Six months ago, Norine MacDonald KC and I published New Defense Foundries, arguing that we must shift our focus from "product delivery" to "production agility." Looking at the trajectory of the sector today, that thesis has only become more urgent. We cannot rely on fragmented innovation that cannot scale. We need a backbone of high-tech, shared hubs we call "Defense Foundries" that bridge the gap between initial design and industrial strength. This paper outlines the blueprint for that ecosystem, including: The Shift to "Defense-as-a-Service": Why militaries are moving toward subscription models for capabilities rather than sinking costs into rapidly obsolescing hardware. Digital Twins & Simulation: How virtual certification is becoming the standard for speed. Mobile Production: The necessity of "factories-in-a-box" to close the loop between the soldier and the supply chain. Deterrence in 2026 will be defined by whoever can iterate faster. The industrial base must be re-engineered to meet that demand. Read the full paper here

The best defense is a good (funding) offense. Investors, governments, and builders are all in on defense tech. In recent weeks, we saw major deals and announcements including Anduril's oversubscribed $2.5B Series G, Anthropic's release of defense-specific models, and Impulse Space's $300M Series C. 🚀 Defense tech is having a breakout year – on track for a record-breaking year with projected investor participation up 31% YoY to nearly 1,000 unique investors. This surge represents the highest level of investor interest ever recorded in the sector. The momentum is particularly striking given broader venture market headwinds, signaling that defense tech has become a must-have allocation for institutional portfolios. 💸 The investor base is diversifying beyond traditional defense-focused funds, with generalist VCs like a16z and 8VC developing specific theses in the sector. These investors bring Silicon Valley playbooks — rapid iteration, software scalability, and platform thinking — to an industry historically dominated by slow-moving defense primes. This cross-pollination is accelerating innovation cycles from years to months in critical areas like autonomous systems manufacturing. 🌏 Geopolitical tensions and the Ukraine conflict have validated the strategic importance of defense tech, driving both government and private capital allocation. Earnings call mentions of "defense" reached an all-time high in Q1 2025, while major tech companies and the hottest AI startups are forming consortiums to compete for DoD contracts. This mainstreaming of defense tech reduces reputational risk for investors and opens institutional capital pools previously unavailable to the sector. In chatting with Justin Fanelli (CTO, Department of Navy), it is clear that the increased investor and builder is fueled by the government's increasingly innovation-forward appetite. "Investors and founders who have backed this sector and mission have moved the needle for national security, even while we've been slow, reluctant buyers. We are now overhauling the way we buy at scale. We have shifted many buyer orgs from program offices to more flexible portfolios. This is one of several ways we're putting far more emphasis on impact and value. Innovation adoption and commercial-first pushes have already made us more adaptive and resilient. We want a wider base of high performers. What's better than competition to serve those who serve all Americans better? Recent AI and raise news shows there's more room to make bigger impacts. If we nail this, I think it's fair to expect impact and investment will continue to grow." Curious about the defense tech markets and companies seeing the most interest? Explore the data and insights for *free* in the comments.

Wake Up, Washington – We Need a Drone Industrial Base Now This morning, Ukraine reportedly wiped out nearly a third of Russia’s strategic bomber fleet using cheap drones and some innovative but relatively simple ground tactics. This isn’t just a headline—it’s a flashing red warning for the United States. If they can do it there, someone can do it here. Any non-state actor with a boat, a handful of drones, and basic planning could threaten U.S. military bases, ports, or critical infrastructure. This is not a moment for more studies, cautious speeches, or incremental policy tweaks. It is a moment for decisive action. Last year the U.S. government reportedly purchased a total of just 4,000 drones. In Ukraine, they're making and deploying multiples of that each and every day. Let that sink in.  America’s small, innovative drone manufacturers must be empowered to deliver scalable, secure, and effective systems—but they cannot do that without deliberate, unapologetic federal backing. That means a wholesale change from a cycle of requirements setting and program funding. The blindingly fast technology cycle that defines today's small UAV segment is not a feature of current circumstances - it defines how the it will be going forward. No requirement will ever again be fully defined. No program will ever be complete, and the process will never end. That means we must build an industrial machine to relentlessly adapt and innovate. Multi-year procurement commitments, funding for dual-use production lines, streamlined approvals, and modernized export policies are essential if we want to match the scale that national security now demands. Let’s be clear: the established defense primes are not the answer. Their models are built around slow, multi-decade programs, cost-plus contracts, and bureaucratic inertia. The solutions we need will come from smaller, faster-moving companies that have the technical edge but need the resources and clear demand signals to ramp up. Without federal leadership, they will remain trapped in low-rate production, unable to meet either domestic or international needs. We’ve faced moments like this before. When the stakes were high, we mobilized the Manhattan Project, we launched Apollo, and we transformed American industry after Pearl Harbor. We know how to do this when we choose to act. The time is now. The tools are ready. The only question is: will we summon the courage, vision, and urgency to build the drone industrial base this country needs—before the next crisis hits us at home?

”To avoid becoming obsolete, the American military needs to make major reforms. It can start by shaking up its processes for acquiring software and weapons. Its current purchasing process is too bureaucratic, risk-averse, and slow to adapt to the rapidly developing threats of the future. For example, it relies on ten-year procurement cycles, which can lock it into particular systems and contracts long after the underlying technology has evolved... Similarly, the United States must look to purchase from a wider pool of companies than it typically uses. In 2022, Lockheed Martin, RTX, General Dynamics, Boeing, and Northrop Grumman received over 30 percent of all Defense Department contract money. New weapons manufacturers, by contrast, received hardly any. Last year, less than one percent of all Defense Department contracts went to venture-backed companies, which are generally more innovative than their larger counterparts. Those percentages should be far more equal. The next generation of small, cheap drones are unlikely to be designed by traditional defense firms, which are incentivized to produce fancy but expensive equipment. They are more likely to be created as they were in Ukraine: through a government initiative that supports dozens of small startups.”

America’s Arsenal of Democracy Needs a 21st-Century Reboot: We’ve seen it firsthand in Ukraine and Israel—our stockpiles can’t keep pace with modern conflict. If deterrence fails, replenishment delays will cost lives. Bret Boyd, CEO of Sustainment, writing in National Review, makes a clear, compelling case: It’s time to build a Manufacturing Ready Reserve (MRR)—a scalable network of small and mid-sized U.S. manufacturers ready to surge when needed. - 98% of U.S. manufacturers employ fewer than 500 people. - Most aren't in the Defense Industrial Base—yet. - Software, AI, and targeted incentives can unlock their potential. A “Freedom’s Forge” for the digital age would connect our commercial manufacturing ecosystem with national defense, enabling speed, scale, and resilience. A Manufacturing Ready Reserve wouldn’t just prepare us for the next fight—it would deter it. If you're interested in the subject, be sure to check out: - Ellen Lord – Former Pentagon A&S chief who strengthened defense supplier networks and introduced CMMC to protect them. - Jerry McGinn, Ph.D. at GMU – Writes on bridging WWII-style mobilization lessons with today’s tech and policy tools. - Katherine Boyle at Andreessen Horowitz – Pushes for dual-use manufacturing startups as part of national industrial resurgence. - Bill Greenwalt at American Enterprise Institute – Warns of declining deterrence due to U.S. industrial erosion; calls for bold reform. - Mackenzie E. Eaglen at American Enterprise Institute – Highlights critical gaps in warfighting capacity due to underfunded stockpiles and slow ramp-up. - Bradley Bowman at Foundation for Defense of Democracies (FDD) – Argues for scaling U.S. weapons output to serve allies and deter adversaries. - Nathan P. Diller at Divergent – Proposes AI-managed “civilian hardware reserve” using advanced manufacturing. - Dr. Seth Jones at Center for Strategic and International Studies (CSIS) – Produced the "Empty Bins" report showing U.S. munitions would run out fast in a China conflict. Who else are you tracking that is following this subject closely? After reading Apple in China by Patrick McGee, I'm even more concerned than ever that we are not ready to re-supply the next prolonged fight. #ManufacturingReadyReserve #ArsenalOfDemoracy #Sustainment

In an era of peak ambiguity, shifting geopolitical tensions, and asymmetrical warfare, our defense posture won’t just rely on the quality of software we can build; it will rely on the speed in which we can adapt, iterate, and deploy new innovation. As my partners Paul and Alexa recently wrote in their piece on the rise of applied software for hardware-intensive industries, we're entering a new era where software is no longer layered on top of the physical world—it’s integral to development from the start. We believe deeply in software-defined hardware as a driver of future resilience. That belief underpins our investments in defense companies like Helsing, Anduril Industries, Applied Intuition, and Saronic Technologies. But software-defined hardware is just one piece of the equation. There’s a broader ecosystem that is needed to scale innovative hardware. A key part of this is software for testing and deployment. One of the most persistent bottlenecks in innovation is proving real-world viability. In many sectors, a few hacker-engineers can scrape together an MVP, ship a small batch of prototypes, and iterate from there. But for the defense companies, the high standard for validation in the real world is costly and complex. As an example, autonomous aircraft can be built in months, but take years to certify. Companies like PhysicsX and Nominal are tackling testing and simulation to reduce waste and shorten development timelines, while enabling superior product design. PhysicsX delivers deep learning–based simulation software, embedding intelligence across the entire product lifecycle, from concepting and design to manufacturing and operations. And in the field, Nominal collects, structures, and activates raw field signals to give operators and engineers real-time visibility into how complex systems are performing. These systems aren’t just for tech-native startups. They can support mechanical, electrical, and aerospace engineers at legacy firms, streamlining processes and unlocking innovation across incumbents and emerging players alike. We’ve embraced “build, test, learn, repeat” in the software world. Now we need to bring this to the hardware world with purpose-built platforms that understand the nuance of development in critical industries. We need tools that make fast, continuous iteration possible. Resilience begins with rethinking how we build, test, and deploy in the physical world. Read more from Paul and Alexa here: https://lnkd.in/gih37kyY