Relying on SBIR Prevents Scale
The biggest mistake defense startups make
This line is really about how few defense startups turn a small R&D award into a real procurement program. SBIR is meant to fund early proof of concept work, not to buy fleets of finished systems. A startup can win a Phase I or Phase II award, build a demo, and still never reach the budget lines, contracting path, and internal champions needed for a large deployment. That is why Anduril treated a FAR Part 12 commercial contract as the real inflection point, because it meant the government was buying a product, not just sponsoring an experiment.
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SBIR has a built in bottleneck. Phase I is small proof of concept funding, Phase II extends the R&D, and Phase III is supposed to be commercialization, but SBIR dollars do not fund Phase III. The handoff from research money to real procurement is where most companies stall.
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The official program itself tracks a Phase I to Phase II transition rate, which shows the system is optimized around research progression, not guaranteed scale. Even getting from one SBIR phase to the next is a benchmarked hurdle, before the much harder jump into a program office budget.
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FAR Part 12 matters because it is the rule set for buying commercial products and services. In practice, that is much closer to a normal product sale. For a defense startup, crossing into that lane is a sign the buyer sees something ready to purchase and field, not just something interesting to study.
The next wave of winners will use SBIR sparingly, then get onto a commercial or programmatic contracting path as fast as possible. Defense startups that build around repeatable products, clear mission demand, and budget owners with authority to buy will keep separating from teams that spend years living inside pilot grants.