How BAE Systems Identifies “Win-Win” Opportunities with Startups

By Lilly Milman |  August 23, 2021

BAE Systems, the British aerospace company headquartered in London, was the first large defense contractor to take a partnership approach to technology scouting, according to Stephen Russell.  

Stephen Russell, Deputy Vice President and General Manager of FAST Labs, BAE Systems

“What’s unique about our approach is that we typically don’t seek to acquire intellectual property or partial ownership of entities we collaborate with,” he says. “Rather, we seek to partner with small companies or other parts of the innovation ecosystem to mature promising technologies into capabilities we can jointly offer to our customers. … The benefit to FAST Labs is that we gain access to emerging technologies with potential to improve the products we offer our end users. The benefit to our partners is that we provide them with a path to our markets and we mentor them on working in the defense and aerospace industries.” 

Russel is the Deputy Vice President and General Manager of FAST Labs, the company’s innovation organization. Technology Scouting is one of its three core elements, alongside R&D Product Lines — which seek to discover and develop technology capabilities — and the Portfolio Technology Strategy group, which defines the future technology needs for the company. The Technology Scouting group was formed in 2018, after company leadership decided to incorporate best practices from innovative non-defense technology companies in order to further develop its R&D arm. 

In a recent interview with InnoLead, Russell spoke about why FAST Labs added a technology scouting group, how it prioritizes its emerging technology partnerships, examples of failures and successes with startups, and more.

Tapping Into Commercial Opportunities

One large reason for the reorganization of the R&D group, which led to the creation of the Technology Scouting group, was a significant decrease in global R&D spending by the US Department of Defense over time. While BAE Systems is largely a defense contractor, the company noticed that there were more opportunities on the commercial side as well. 

“If you go back a few decades, the United States Department of Defense R&D funding represented over a third of global R&D spending,” Russell explains. “If you fast forward to now, the US Department of Defense R&D spending is less than two percent of global R&D spending. … We want access to that other 98 percent of the research and development that’s going on. That’s great, innovative work that we wouldn’t have access to if we just focus on our more traditional customer set of the large department defense or some of our larger commercial partners that we work with.” 

Using Mentorship to Solve Contract Challenges

Like many large companies, BAE Systems faces the challenge of overcoming its own complex and cumbersome processes when it comes to partnering with smaller companies. Oftentimes, Russell says, small companies are not staffed to handle the needs of larger organizations. So, in order to execute on a successful partnership, it can fall on the corporate side to adapt to a startup’s resources and needs rather than the other way around. 

“At one point in the early days of our Technology Scouting efforts, we attempted to use our standard contractual process with a very small company. Through no fault of their own, that company had no experience with such contracts and really didn’t know how to address our contractual needs. This put the collaboration at risk before it even really got started,” Russell says. “In that case, we were able to work within BAE Systems contracting and supply chain functions for assistance, and the team was able to find a solution that balanced Department of Defense contracting requirements with the capacity of the small business.” 

Mentorship is another way a large corporation can coach a startup to prepare for its processes. At FAST Labs, experts from within BAE Systems are paired with startup leaders to help them navigate things like contracting and “understand what’s going to be required to become either a trusted supplier in the Department of Finance marketplace,” which commercial-oriented startups tend not to be experienced in.  

Looking for “Win-Win” Opportunities

One of FAST Labs’ most successful recent partnerships was with PeakMetrics, which was part of the 2020 Air Force Accelerator Powered by Techstars and the winner of the 2020 National Security Innovation Network COVID-19 Countering Disinformation Challenge. BAE Systems and PeakMetrics collaborated on three Department of Defense proposals, a Small Business Innovative Research effort, and BAE Systems funded a research project by PeakMetrics. 

“We were able to pull this off because the BAE Systems’ principal investigator (PI) looked beyond the current need and thought about the evolution and integration of this capability for [Department of Defense] applications,” Russell says. “The PI’s foresight is a critical element to success.”

However, in addition to foresight, BAE Systems also benefited from the fact that its Technology Scouting group was looking for “win-win” opportunities. First, the team looks at hundreds of startups, using a variety of channels like the accelerators TechStars, MassChallenge, and Capital Factory. Eventually, they select a handful of companies that could fill gaps in the company’s current technology offerings. 

“The win for us is it’s a way to get innovative technologies that we wouldn’t be able to develop into our products quickly, and the win for them is we provide a path to market for them that wouldn’t exist for them if they weren’t partnered up with us,” he says. “So, when we find that small subset of companies that seem to fit that model, then we engage more aggressively, and that’s where we work…with them on contracts, or…even we partner together on research.”


Stephen Russell’s Best Practices for Corporates Working With Startups:

  • Be a partner looking for “win-win” opportunities that provide a path to market for the startup and access to promising technologies for the large company.

  • Be sensitive to the challenges of small businesses and startups. For example, what may seem like a small contractual or invoicing delay to a large company may put a small business in jeopardy.

  • Be careful not to levy “big company” processes on a small business not staffed to deal with such processes.

  • Do not expect military-ready products from a small commercial startup. Instead, work with them to mature their technologies, processes, and products.