Starting a defense company can be a challenging and daunting task but also exciting. For beginners in the defense sector, navigating the intricate web of defense product design, manufacturing, contracting and supply can be a bit overwhelming if proper research and guidance are not applied.
The defense industry is a major pillar for countries as it provides the essential tools for keeping the country safe from a variety of threats. For a long time, since conflict existed, people usually perceive the defense industry as just mere arms makers and sellers. However, that is not the case. The defense industry in one way or another influences and affects some part of our lives.
There’s a bond between National security and the defense industry. Frankly, they’re integral to modern life. For positive economic development to be sustained, every state requires an active, well-trained, well-funded military capable enough to act as a deterrent to hostile forces across all domains whether from land, sea, or air.
In today’s world, defense companies the needed technology, infrastructure, and supply chain to make a military effective.
In parallel to military equipment manufacturing and supply, defense companies are also in the vanguard of research and development of cutting-edge technology in use by all facets of society.
Most times it is overlooked but historically, the defense industry has provided much-needed scientific, industrial, and engineering innovation, and many of the inventions have been commercialized for civilian use. Which in the end have played key roles in advancing the quality of life for billions of people.
According to Ivor Ichikowitz the founder and executive chairman of Paramount Group – one of Africa’s top defense companies, in a report on Defense News, he opined that “… it is a truism that without peace and security there cannot be the desired socio-economic and human development of Africa.”
The defense industry is very lucrative, and there is a lot of money to be made. For instance, a look at African countries’ defense spending in recent times will give you an indication of the finances involved.
According to Statistica, Algeria spends $13.9 billion annually, almost $4 billion more than Egypt’s $10 billion annual expenditure.
There’s a general agreement that defense is integral to the well-being of every country, therefore investments in this sector are important.
On the other hand, conflict is in some way a business thus, where there is the availability of funds, you’ll find innovation and investment opportunities.
From naval vessels, fighter jets, drones, infantry systems, communication technologies, companies are investing in defense. And the military equipment used by states’ forces has to be made and supplied by someone. As an entrepreneur, this offers good business opportunities.
Give or take, as national security is tied intricately to the defense industry, therefore spending in the defense sector is a worthy investment because ultimately, you’re investing in peace, security, stability, and economic progress.
In recent years, even though more African countries are now spending large portions of their GDP on defense, however, just like any other business market, the defense industry is also governed by supply and demand.
Starting a defense company, like every other business requires several steps which are planning, experimenting, executing, and certification.
Planning involves outlining details of the proposed company; choosing a niche, as the defense industry is quite massive.
Consider becoming a vertical market provider, as they’re are focused on specific goods and services that meet the needs of a niche customer group.
Defense companies in a vertical market provide targeted insight and specialized services, they realize higher profits through a narrower customer base and more cost-effective marketing campaigns, and they typically have high barriers to entry for new companies.
Also, consider the financial aspects, to start a defense company, you’ll need to understand early that the only client that you will have is governments or their military.
So you tailor your offerings to cater to this type of client, but more importantly, because governments prefer to deal directly with larger and established entities, then your starting point should be as a subcontractor for a larger company.
Initially, your profit and margin will be lower but the positive side is that yo will understand the market dynamics, acquisition and sales, supply chain management, and customer satisfaction.
For this to work, you’ll need to identify people who know you, trust you, and are willing to work with you. You might also consider relocating your firm there.
For the supply side of things, it’ll surprise you to know that the components of high-tech military equipment (for example; Hellfire missile) used by advanced nations are crafted by little-known workshops with 5 to 20 employees.
Since modern supply chains dictates that manufacturing is distributed, then you don’t need to build a complete system (for instance; a Hellfire missile). You could just make the little gizmo that attaches the control fin to the body.
If you visit these types of workshops, you will be surprised to see parts of your favorite precision rocket system being welded together and sacked in crates and pallets all over the place.
This workshops use high-precision controlled by software and the operators mostly manage the process.
Although they don’t do all the fabrication, they supply the bigger company’s who assemble the final product.
To begin this process, subscribe to your local defense trade papers, go to the trade shows, make the connections, and figure out where your offering fits in.
The military is not just about weapons only, but also about the people who are soldiers, maintenance, administrators, medical, I.T. They too just like everyone else need to be catered for. You could tailor your offerings to provide for the need of the military personnel such as the design and supply of body armor, communication gadgets, tents, ration packs, thus making their work more efficient.
You could also focus on the innovative side of the sector, for example, by designing a radical new drone that is more effective than the current model in use by a certain military force. Maybe the military won’t buy it, but a larger defense company may invest in your research or buy out your business.
Finally, before venturing into the defense industry, consider talking with active-duty military personnel or veterans trying to understand their pain points, that is what they find difficult. Find something small that you can remedy. Maybe they dislike their uniforms, boots, water dispensers, communication gadget, or their equipment isn’t reliable in certain conditions. Focus on what you discovered.
So here are the steps you could follow in starting a profitable defense company.
- Solve a problem.
- Come up with an innovative and unique product or service.
- Have a strong plan and vision for the business.
- Have sufficient capital and cash flow
- Find excellent employees
- Be hard-working, work more than you expected.
- Don’t get discouraged by rejections from customers.
- Research your competition thoroughly.
- Consider starting your defense company as an S corporation which offers you a favorable flow through tax treatment, a C corporation which most venture capital investors prefer, or a limited liability company (LLC). A “sole proprietorship” can result in your own personal assets being at risk for the debts and liabilities of the company.
- Consider keeping the Corporate funds and the funds of individual shareholders separate. They should not be in the same accounts or combined for any reason.
- Build a unique and appealing website for your defense company.
- Prepare an effective Accounting and Bookkeeping System.
- Make sure all your employees sign a confidentiality and Invention Assignment Agreement.
- Set up a great marketing strategy. For your defense company to be successful, you must engage a great marketing strategy. In addition, for improved business sales, you must put your products or services, in front of potential clients. This requires online advertising through a reputable and trusted defense media platform.
- Offer exceptional Customer Service. Your firm should be able to respond to customer’s queries, requests, and complaints in a timely and polite manner.
You may need the following permits, licenses, or regulations to operate. Note that every country has its unique license, permits, and regulations. Therefore study your country of interest.
- Defense license
- National Permits for regulated businesses
- Sales tax license or permit
- City business permits or licenses
- Seller’s permit
- Federal and state tax/employer IDs