Last I left you, in Part 1, I covered what SBIR/STTR is and isn't, who it's best suited for, and how the three phases work. Now let me address where the motivated but naive stumble.

First Mistake: Chasing Topics Instead of Problems

Specific topics from AFWERX, DARPA, the Navy, and other agencies are often driven by concrete needs coming from operators, program offices, and warfighters who can't solve a problem with existing tools, while broader or more open-ended topics are sometimes used as a form of paid market research to find and mature emerging technology. If you are reading a topic for the first time and reverse-engineering a solution from the text, you are already behind. The companies that win are usually the ones that were working the problem with end users before the topic dropped; they see the solicitation and think, "Finally," not, "Let me see if I can make this fit."

Open Topics vs. Finding Your Own Sponsorship

Open Topic calls are exactly what they sound like. An agency publishes a broad solicitation—often through mechanisms like AFWERX Open Topics as part of the Air Force Research Laboratory (AFRL)—and invites companies to propose solutions to problems the government may not have explicitly defined. You identify a capability gap, articulate the problem, propose your solution, and compete. The aperture is wide, but so is the competition. You're essentially cold-calling with a proposal.

The alternative is finding your own Technical Point of Contact (TPOC) and sponsorship before you ever submit. This is where relationships matter. A TPOC is the government subject-matter expert—the engineer, program manager, or everyday specialist who owns the problem your technology solves. They become your internal champion, the person who validates the requirement, advocates for your solution, and often shapes how the topic gets written in the first place. Sponsorship means a program office or end user willing to put resources behind your transition. They're not just interested; they're committed.

The difference in win rates between these two approaches is significant. Open Topic submissions without a real TPOC are essentially unsolicited proposals competing against dozens or hundreds of others. Proposals with pre-established relationships and a TPOC providing clear sponsorship signal to evaluators that someone inside the government already believes this solution has legs. That doesn't guarantee an award—it still goes out for competition—but it fundamentally changes your positioning. You're not explaining why the problem matters. The TPOC already knows—and more importantly, they already know you. You're demonstrating that you're the right team to solve it.

How do you find a TPOC? Start with the problem, not the program. Attend industry days. Engage at conferences. Leverage your network, especially if you're an Encore Entrepreneur with existing relationships in the defense community. Read published topics and reach out to the listed POCs even if you're not ready to submit. Build the relationship before you need it. By the time the solicitation drops, you should already know whether your solution aligns with their priorities—and they should already know your name.

Capture Is Capture

And here's the part that frustrates newcomers: capture is capture.

Some awards appear pre-baked—because they mostly are. You'll see a topic drop and assume the winner was already chosen. Most times that instinct is correct—but not for the reason you think. That company didn't game the system. They understood the customer's pain points before the solicitation existed. They brought the chef, the ingredients, and the wait staff. They'd been in the building, talking to operators, refining their solution, and demonstrating value while everyone else was waiting for an announcement to tell them what to build. That's not an unfair advantage. That's capture. And when the topic finally drops, it still goes out for competition. The playing field is technically open. But if you're starting your capture strategy the day the solicitation posts, you're not competing—you're participating. There's a meaningful difference.

Second Mistake: Underestimating the Evaluation Process

Having scored proposals, I can tell you what separates winners from losers: clarity. Not clever writing. Not buzzwords. Clarity. Can you articulate the problem in two sentences? Can you explain your approach without forcing evaluators to decode jargon? Can you demonstrate that you've engaged with end users? The technical volume matters, but if your commercialization plan is built on unnamed "government and commercial customers," your proposal won't survive scrutiny. Evaluators recognize the difference between a real pipeline and wishful thinking.

Third Mistake: Treating Phase II as the Finish Line

It's not. Phase II is the starting line for everything that matters. The entire purpose of the SBIR/STTR program is to transition technology into the hands of users. If you can't articulate your Phase III strategy during your Phase II proposal, you're signaling that you haven't thought past the initial award. I've seen companies execute phenomenal R&D and then sit on a shelf because nobody planned for transition.

Bluntly: these are the reasons the best tech seldom wins.

Meanwhile, the companies that understood the game were already engaging with program offices, building STRATFI or TACFI matches, and lining up private capital to demonstrate commitment.

The Valley of Death Reality

Here's a sobering reality check: less than 5% of Phase II companies successfully convert to Phase III. Even fewer become a program of record (POR) many founders dream their tech becomes. That's not a criticism of the program—it's a reflection of how difficult technology transition actually is. The Valley of Death between R&D and production claims more companies than most people realize and for more reasons.

That said, becoming a POR isn't the only path to dependable government revenue. Most SBIR companies that achieve sustained government revenue never need a POR. They operate through Task and Delivery Orders, or IDIQ contracts under other appropriations. The federal budget is a complex ecosystem with multiple colors of money, each with different rules, authorities, and spending timelines.

Research, Development, Test, and Evaluation (RDT&E) funds are where SBIR lives, but once you've proven your technology, other appropriations become available. Operations and Maintenance (O&M) dollars fund day-to-day activities and can be used to purchase proven solutions at the unit level. Working Capital Funds (WCFs)—like those managed by the Defense Logistics Agency (DLA)—operate on a revolving basis and can procure goods and services without annual appropriation cycles. Procurement funds cover production and fielding of systems.

Different organizational levels have different spending authorities and access to different budget types. A squadron commander might have a Government Purchase Card (GPC) with a $25,000 single-purchase limit. A wing can access different pots. A Major Command (MAJCOM), division, or program office operates at another scale entirely. Understanding where your technology fits—and who has the authority and budget to buy it—is just as important as the technology itself. You don't need a POR to build a sustainable government business. You need to understand the funding landscape and position your solution where the money already flows.

Build Dual-Use Technology

This is why I always encourage companies to use SBIR/STTR capital to develop dual-use technology. Build something that serves both government and commercial markets. The government actively looks for this as an evaluation criterion—it signals that your technology has broader viability and isn't dependent on a single customer for survival. But more importantly, it's your hedge. If Phase III doesn't materialize, if the program office loses funding, if priorities shift—and they will—you still have a commercial path forward. You've built a business, not just a government science project.

STRATFI and TACFI: Force Multipliers

Let me explain STRATFI and TACFI because they're force multipliers. These are AFWERX mechanisms that blend SBIR dollars with program office funds and private investment. When combined with the original SBIR, STRATFI deals can reach total project values on the order of $15M–$30M. TACFI is smaller but faster. Both require demonstrated commitment—your investors, your program office champions, your ability to prove this isn't just a science project. When I ran an innovation lab, we had STRATFI and TACFI deals running alongside Phase IIs. The portfolio included everything from robotic aircraft wash systems to autonomous airfield damage repair. The common thread? Every project had a transition plan, a user advocate, and matched funding aligned before we spent dollar one.

The Reality Check

Here's the reality. The SBIR/STTR program rewards companies that already operate like defense contractors. The paperwork is real. Compliance is real, and there's a lot of it. If you're a startup founder who believes you can succeed with a pitch deck and enthusiasm alone, you'll face a steep learning curve. The government doesn't buy vision. It buys execution. It buys risk reduction. It buys proof that you can deliver a capability on contract, on schedule, within scope.

But here's the opportunity. If you have real technology, a real problem it solves, and the discipline to play a longer game than your next funding round, SBIR/STTR is one of the most powerful tools available to a small business. You retain your IP. You keep your cap table clean. You build past performance that opens doors to contracts you couldn't access otherwise. The government becomes your customer, your reference, and in some cases, your co-investor—all without diluting your ownership. And if you do choose to raise, having the backing of the government makes it easier for investors. They stop treating you like "Red 23" and more like plain "Red"—you're no longer a single long-odds spin, you're part of a broader, de-risked bet. That fundamentally changes the equity dance.

Playing the Long Game

However, this is a nuanced game. The regulations, the relationships, the funding mechanisms, the evaluation criteria—none of it is intuitive, and very little of it is written down in a way that helps newcomers understand how things work versus how they're supposed to work. It's also a long game. The timeline from first engagement to sustainable revenue often spans years, not quarters. Companies that expect quick wins typically don't survive long enough to see the payoff.

The reward, however, is worth the patience. Building a defensible position in the federal market—with past performance, established relationships, and proven technology—creates opportunities that compound over time. But getting there requires tenacity. You will face rejection, a lot. You will lose competitions you thought you had won. Program offices will go dark. Funding will get cut. Champions will transfer or retire. It's worth mentioning again: the companies that succeed aren't necessarily the ones with the best technology. They're the ones that kept showing up.

Having a guide helps. Someone who's navigated the system, understands the unwritten rules, and can help you avoid the mistakes that cost time and money. Whether that's a mentor, an advisor, or a consultant who's been on multiple sides of the table, the learning curve shortens considerably when you're not figuring everything out through trial and error.

I've watched companies progress from the valley to a Phase III production contract. I've watched more companies with superior technology fail because they couldn't navigate the system. The difference isn't luck. It's understanding the government as a customer: a capricious, poor communicator with a confusing sales cycle that happens to pay very well and on time.

Final Thoughts

If you're a founder with Ferrari-like tech, I highly encourage you to consider SBIR/STTR opportunities with the understanding that it is not a shortcut. It's an on-ramp three exits closer to your destination. And like any on-ramp, the speed you're carrying when you merge determines whether you enter the flow of traffic or end up stuck on the shoulder getting passed by minivans.

For those who grew up—or raised children—in the 80s, there's an axiom about knowing and the battle. In SBIR, knowing is two thirds.