Is Defense Work Worth It? The Hidden Costs + Untapped Opportunities for Machine Shops | Ep. 57

[0:00] I really see that these newer weapon systems that are being established by the, not just the large primes anymore, but the smaller companies that are coming up with new weapon systems, they have had so many prototypes that they’ve just recently received orders from the government to supply more. They’re going to have to ramp up their supply chain. So like, I see that as an opportunity for machine shops to say, let me reach out to them. Welcome to Buy the Numbers. Each week, we’ll explore the numbers that drive your business, from accounting and finance to operations and the exciting realm of mergers and acquisitions. Whether you’re a seasoned veteran or just starting out, our discussions will equip you with the insights and strategies you need to rein in the power of elevate your manufacturing company. Let’s crunch some numbers. Jason, this is your second Buy the Numbers with me. I know, I’m so honored at this moment. I appreciate it. You just don’t even know. Yeah, so for my listeners that don’t know, Jason launched a podcast on the Making Chips Network, what, three or four months, five months ago? Yeah, that’s right.

[1:17] The Manufacturing Blueprint. And what I love about it is like you, you know, we talk about a lot of stuff on all these podcasts and it all can sound really good in theory, but like you bring like a real like operational, like how to bring that to the floor or just to the building, not necessarily only the floor. That’s probably the only thing I know about, right? But I think that’s it, like, just like this. I mean, we’re just going to have a conversation, you know, we just want to talk about our experiences, what we’ve done right, what we’ve done wrong. Yeah, that’s right. Everything in between, so. Yeah, well, I love your show and I hope my listeners will go check it out. And again, I thank you for now joining me to co-host two of these. Honored. I am honored. And we have a great guest today. Turn it over to you. You can introduce yourself, like tell people a little bit, like what your origin story is and and what you do, and that’ll pretty naturally lead into what we’re going to talk about today. Okay, I am Lana Smith, owner of the Oakley office, and we bring novel solutions to defense’s boring problems. Okay. We offer a few lanes to do this. One is that we partner with companies who have a product ready to go to market and we want to introduce them into the defense side. We also support companies who have existing product lines that could come into defense in the resupply side of the defense market.

[2:38] And then we work with companies that are looking for intelligence from the Huntsville market. So we’re based in Huntsville, Alabama. Okay. And I have lived in Huntsville. I recently was a staffer at the Army Material Command, which is the four-star headquarters for the Army, managing all of the weapon systems that the Army has. And then before that, I professionally grew up rebuilding Army tanks. So I was at Anniston Army Depot the first half of my career, started… You physically were? Yes. Oh, that’s awesome. That would be fun. It was fun. I mean, I’m sure it’d be very hard too, but it sounds fun. It’s one of those where it’s fun looking back, right? Fun looking back. At the moment, you’re like, why am I doing this? That’s a good point. So many life choices that were questioned. Right. You would be walking from building to building and having to avoid an M1 Abrams. That was whipping around the corner. So… I’m actually running some Abrams parts right now. Oh, nice. Oh, I have so many questions. So do I. So with the Army, we have spent so much time maintaining the systems that we have and not always bringing in new systems, new weapon systems.

[3:57] So those older weapon systems we’ve relied on so heavily. And when they’re in the field and either maybe they get battle damaged or maybe they just, it’s time for their repair, like their overhaul, because you’ve got to maintain them just like you would, you know, you got to send them to the shop. That’s when you send them back to the depot to be overhauled. So a depot, the Army’s and the other services have it too. The Navy, the Air Force, they have these industrial complexes where you bring in the weapon systems, you completely disassemble them, send them through the complex. So sandblast. Yes. It’s better than new. Brand new. Wow. You buy thousands of parts for the things that you can’t repair and then you reassemble it. And so then you either, you’re going to do it better than new. Maybe you do it an upgraded variant. Maybe it’s the same variant, but that’s the world that I grew up in. And then while I was there, so I distinctly remember like 15 years ago, we would be trying to roll out these, the M1 Abrams. And first, let me say that when I got to the depot, I grew up with the generation that had rolled out a tank every day. One a day during the Gulf War. You had to.

[5:13] Yes. Yes. Yes. So the mentality, the culture there was just like production heavy. Like they knew that they had a job to do and it had a consequence at the end of the line that they couldn’t ignore. So it was very much production heavy. Let’s get this done. And so by the time I’m there in the 2000s, it’s still that same culture, but we start realizing we can’t access as many parts as we had been accessing. So we would look for where’s the actuator? Where’s this thing that we need? You have a right torsion bar and a left torsion bar. Somebody that makes the left torsion bar is going out of business. Right. Now, what are we going to do? How are we going to handle this? Challenge. Even 15 years ago, it was clear that we were losing so many mom and pop shops. And so that’s how, when I decided it was time to step away from civil service, I wanted to be able to work with the smaller shops and say, okay, what’s it like now to enter defense? How do we get you back into the defense industrial base? Jason. So defense is probably one to 2% of my business. Yeah, we’re definitely a little more than that. I would say maybe 20, 25. So it’s a sizable chunk that you need to maintain and grow and sustain.

[6:28] That’s correct. Yeah, absolutely. And of course, I mean, we’re in the middle. I mean, you got every, not every machine shop in the U.S. is here, but a lot of them, right? And a lot of them are very defense heavy. I would say anything around 20 or more percent of your business. It’s important. That’s an important industry to you, right? You know, for years now, I mean, you know, I’ve been in the business for nine years. So all I’ve heard the entire time is it’s this shortage and the risk of the defense industrial base. And of course, it’s broader than that, right? I think it’s the entire industrial base. You know, there’s things that draw people to the DIB, and I think there’s people, there’s things that push people away from the DIB. And I’m a little bit curious from you, Jason, like, so you have a sizable piece of your business in that space. How’s your experience of dealing in the DIB? Yeah. I mean, overall, it’s been pretty good. Like, I think a lot of times you kind of go in with some preconceived notions and sometimes those are accurate and sometimes they’re not. I mean, there’s a little bit of a mix and it probably depends on which platforms you’re on, where you’re at, which, which branches you’re dealing with and whether you’re, you know, with the proms or not, you know, all of those things really make a difference in how that works. But I think, you know, one of the things as a machine shop that was really advantageous for us or that I felt like was a pushed us into that more was the fact of a lot of the products are ITAR restricted or there’s other restrictions, which meant it’s domestic only. So we’re only, you know, we’re, we’re working on domestic product and we’re dealing with, you know, products that have to stay in the US. So that, that was a real advantage for us.

[8:00] I felt like from a, from a shop standpoint, because we’re not having to do the competition against the low cost countries and where there’s just so much different set of rules that are going on. When I bought Hill, there was very, very little defense work next to none. One of the, one of the shops I bought though is actually called Military Parts, Inc. So you can imagine there’s a fair amount of, you know, defense work in that shop. It wasn’t exclusively defense work, but I like, I’ve kind of come with a little bit different approach and we’ll kind of get to some of that later. But I love how you talked about though, like there’s so many, it depends, right? So like the defense work that I’ve had historically, I just, I didn’t love. Right. The defense work I currently have, like, I love this client. Like they’re so great to work with. They’re easy to work with, you know, financially, like, I mean, like our cash cycles with them are great. You know, all those types of things. And, you know, of course this is by the numbers and I like to talk about numbers and the finance behind things. And, you know, I’ve talked to a lot of shops that, that reach out or like, I’m just struggling. Like I’m working really hard. I’m growing, I’m doing things. Like I’m not making any money, I’m broke. And, you know, sometimes you get in and you get into talking to them and, and, you know, it’s exciting to get this new work, but if you don’t set it up right on the front, like you talk about some of the regulatory stuff and compliance and all those types of things, you know, there can, some of it can come at a pretty high cost. Hey folks, listen up.

[9:26] You know, that manufacturing buyers don’t ask simple questions. They’re asking about product compatibility, materials, specs, lead times, application fit, and they want answers before they even talk to sales. That’s where Navoo comes in. Navoo adds AI chat to your website, trained on your own content. So visitors can get reliable, accurate answers in real time. It helps buyers find the right product, understand the right application, and take the next step without forcing your team to answer the same questions over and over. And setup is simple. Navoo works with your existing website. It connects with tools like HubSpot, Salesforce, and Slack, and gives you visibility into what visitors are actually asking. See what your website has to say at navoo.co slash makingchips. That’s N-A-V-U dot C-O slash makingchips. So you laid this foundation for us, and I just kind of wanted Jason and I to lay our foundation of the type of work you’re talking about.

[10:43] So how do you help guys like us in this space? What things do you do to help fill this gap? I mean, we’ve got to build this dib, right? Like it’s critical. So I would ask if you are interested in like a new design or if you’re more interested in a print, right? Like which lane do you operate in? And then if you’re somebody that, if you say, I am willing to do X, Y, and Z within my current capabilities, there is a very long search essentially that has to happen to say, well, who is actually buying this? And so that’s where we come in. And so let’s say you’re a small shop and you know that you’re really good at making rivets. Okay. Well, then we would know that would be a consumable item. We would know that, okay, your main customer would be the Defense Logistics Agency. Okay. Well, let’s go see how do they typically buy? Well, they buy through their dibs website. You can also find it on sam.gov. But oh, by the way, this means, let’s back up. Do you already have a cage code? Do you already have your unique entity identifier, that UEI? Do you already have that set up? Do you already have the dibs set up, like the dibs account? And so, oh, by the way, you’re also going to have to have your joint certification program, your JCP. You’re going to have to have these things. And the JCP is one of those that requires you to have the NIST level that is just like having CMMC level two.

[12:12] Okay. It’s just without the audit. Right. So, you then are self-certifying to say, my IT is to the point where I could have an auditor come in and do it. So, there is certainly this long laundry list of things that you have to do before you can even say, I am ready to enter the Defense Industrial Base. And then it comes down to Defense Logistics Agency DLA. They may not buy. If you’re used to doing runs of thousands at a time, they may actually be looking for 50. Oh, wow. And so, then you have to be prepared to have that strategy in place, which is something that we would work through with you. Like, am I going to target those 50 if I know that I need to make a run of a thousand? Or maybe I do the run of a thousand. I sell them the 50. I find a distributor to sell the rest to, or I hold it because we have seen that there will be more demand coming. You’ve already made it then. And so, then you sell it to them when the demand opens up again. Because the department, they know it. They’ll say it themselves. The defense is not a very good customer. And because we don’t know what we’re going to need every time to repair a weapon system. Right. It’s very hard to buy things that align with what the shops expect to see in their order book.

[13:36] Yeah. So, I think, you know, we were talking briefly before we hit record. And, you know, I definitely have some negative opinions, I guess we could say about, and you just brought up several of them. Right. And Jason, you did too. Here’s where I look at it. I mean, this is just my viewpoint. I’m not saying I’m right. There’s shops so much bigger, better, and faster than me that are killing it in the dib, you know, like, but here’s where I look at it. It’s, you know, you just brought them up. I mean, you know, what’s the cost of all that compliance? Yeah. Right. Your ITAR and your CMMC and your, you know, your NIST and all this stuff. And oh, by the way, we’re only buying at this price. And the only way you can make money is make a thousand of them, but we only need 50 of them. And we don’t know when we’re going to buy the other 950 of them, but you can sell them to someone else. And I mean, there’s cost to everything I just said. Yes. Right. There’s, I mean, I think I heard the average cost of like a shop, like my size, your size, Jason, for CMMCs, you know, maybe a hundred to $150,000. Right. Right. So like, just looking at that alone, like how much revenue do I need to be generating to cover the cost of say a hundred thousand dollars? Yeah. That’s a fair question. Right. Yeah. I mean, you can wipe out all the profit. That’s right. Of all your defense work. And this is by the numbers. Right. I mean, that has to be the question that’s asked. And there’s, you know, like we are, we’re ITAR.

[14:55] We don’t do a whole lot of that work, but what is that a couple of grand a year, three grand a year or something, right? That is cost to do. It’s the price of entry, right? Like I can’t even do that work if I don’t have it. I’m about to not be able to do that work if I don’t have CMMC. Right. I’m about to not be able to do that work if I don’t, you know, like all these things. So, you know, you total it all up and let’s say it costs you a couple hundred thousand dollars a year to do business in this space. Just do the flip. Like what’s your net margin, right? Like let’s say you’re doing really well at 20% net margin, which most people aren’t. You better be doing at least a million dollars a year of that business for the $200,000 it’s costing you to do business, right? So really you need to probably be at 2 million, right? For it to be profitable. And then the flip side of it is I can’t price that in, right? Like I don’t get that in my margin, right? So I’m a little bit curious of how you currently deal with it and how you help people deal with it. Yeah. I mean, I think it’s the same way for us. I mean, it’s, it’s trying to justify those numbers. I mean, it’s just like everything you look at in your shot, but you’re going to buy a new machine. Well, let’s run the numbers is do you have enough work? And I think that’s going to be that barrier for people. Like if you’re already established in the industry and you’re already supplying to a supplying a large amount of product that requires the CMMC certification, then you’re going to get it because that’s part of your business. There’s going to be some things it’s like, I don’t have a choice. Like I have to get it.

[16:24] Right. But if you’re not at that level, then if you’ve got $100,000 or $500,000 worth of business a year, then it’s probably not worth it to go that route. And so I think we’re going to see a lot of shops that were supplying products. We’re going to see them start drifting away. And then that’s going to open up more opportunities, you know, for the people that have it. And I agree with that completely. I mean, that’s the decision I’ve been trying to make is I don’t currently have enough work to justify spending all that money. But I also know that there’s going to be 3,000 people disappear. That’s right. Oh, yeah. That they can’t do the work. Yeah. Right. So at which point in time then if I can, you know, presumably there’s going to be millions of dollars of opportunity available to me. Yeah. It is that kind of chicken and the egg. I mean, do you invest for it to come or do you make that investment based on what you currently have? Yeah. And that’s going to come down to like each owner is a little bit different in how they attack things. Like some people like just jump the gun and like they see an opportunity and 30 minutes later they’ve already bought that or they’ve said we’re doing it. And then there’s other groups that it takes six months, you know. Well, we’ve talked about this decision many times and it’s a similar decision. Like you buy the machine before you have the work or do you buy, you know, you buy the machine and go get the work? Yeah. Right. Like it’s, I mean, but like you said, it’s, it’s going to be owner dependent and stuff.

[17:50] So use me as an example. Like how, like, where would you advise me and like, how would you walk me through now? Like making this decision and doing these things and like, and use Jason too. Jason’s doing work. I’m not doing very much work. Like. So we’re going to say you are somewhat established. You’ve got some parts you’re supplying. Sure. And so my first question would be, are you supplying direct? Are you supplying to us prime or another sub? And then depending on that answer, we either like see if there’s a way to do more in that space, we would want to look and see what the demand is. So, because I’m assuming there’s a cage code tied to these items, we would go and we would be able to identify if there’s other sources that can also supply it. And so if we see that you are truly the only source based on my background, I’m going to say, let’s see what we can do to keep you in here, like keep you in the defense industrial base, because we don’t know that anybody else can do it as well. Right. Right. And then we’re going to see who else might be buying it because we think about defense just supplying our army or Navy or air forces, but also like there is a commercial side. Sure.

[19:06] For foreign military sales. Okay. So whatever you’re supplying in theory, if it’s for an established weapon system, there are going to be multiple countries that have that same weapon system. Okay. And so there are people out there who have supply chains like distribution avenues for those countries. Okay. And so we would target and say, okay, well, let’s see if we can get you in with them and see if we can increase your current orders for what you’re already doing. Right. So it’s not necessarily bringing in a new product, but it’s just increasing the quantity that you’re supplying. Gotcha. What I love about that, and again, it kind of goes back to usually the theme of most of my shows. It’s like, I’m not telling you to make this decision or that decision. What I want to always introduce to my listeners is the things you need to ask to make the right decision. What are the options? Yeah. I will say the department based on the NDAA that came out last year, this was published in December. There is a new initiative called the Civil Reserve Manufacturing Network. So they say it as CREMN, and this is an opportunity that says the Department of Defense, Department of War wants to see who is in the United States, who is making stuff, what kind of capacity do they have? Are these shops interested in potentially if we get to a point where we need to surge production, are they interested in us saying, here’s an incentive, stay in our role, like let’s see what we can work out together. And so that’s something that there was a session this morning here at INTS where they talked through what they’re doing with that.

[20:44] So the department is like actively seeking industry input to understand what would make it valuable for the shops, but also structuring it in such a way that it’s sustainable. So that’s an interesting conversation that is going on right now. And there is a system, it’s called the LINX, L-Y-N-X. And so like you could go to that and say, yes, I’m interested. The government stuff is so good with acronyms. Everything is an acronym. I mean, everything, everything is an acronym. It’s ABC soup. Crazy. So that’s interesting. You know, like, let’s see what’s happening. And that’s what I love about what you’re doing and what you’re helping people with. And I love having you on the show is like, you just got to make good, I mean, you have to make good decisions for you. There’s no right or wrong answer. That’s right. Right. Like it’s just, you need to, but you also need to understand the decision you’re making. Yep. Right. I mean, you may choose to make a, you know, bad decision on paper because you have a vision three years from now, what you’re going to be doing or whatever. Right. And that’s okay. That’s not what I’m here to tell people. They should or shouldn’t do. I just want to, I want people asking more questions and making more decisions. You had a question. Yeah.

[22:01] My question was a little more along the lines of, let’s say like not just a shop, let’s say I have an actual product. Okay. Right. That product I have that maybe we’ve designed that it can be used for something that’s already being used in the military. Maybe it’s a new product coming into the military. What does that process look like to get that through? Okay. So let’s set the stage again and say that the, all the services have these pots of money, they’re appropriated dollars, and they’re different colors of money if you’ve ever heard that. So research and development dollars, you’ve got procurement dollars, and then you’ve got operations and maintenance dollars. And so what we were just talking through, those, that’s essentially a resupply of existing weapons systems and the parts that those are needed. So that would be funded from operations and maintenance funding in most cases. And so that’s why it’s a different kind of approach. Now, in this case, if you have a new product that you’re, you said, this is fabulous. Somebody like this would be perfect for Air Force or Navy or Army, whoever it is, it would be perfect for them. Then that’s typically going to be something that we would see coming out of the R&D dollars, possibly procurement. Okay. But because you already have that product, you’ve got to create the demand. You’ve got to create the interest on the inside. And what’s so fascinating with the services is you’ve got at least three people that you’ve got to appease at all times.

[23:25] So you’ve got to find the operator who is actually going to use it. Guess what? They don’t have the money. So you’ve got to find who can actually fund it, who’s got the purse, and then you’ve got to find who will make the contract a reality. Okay. And so that’s where we come in to assess, okay, so you’ve got this awesome product and we work with a couple of companies who really do have interesting solutions that we’re partnered with them. And we’ll either do like a demo to show it to various potential customers, whether it’s from the acquisition side or from the operator side. But we make sure that we’re getting their product out in front of the customer to do customer discovery and validation at the same time. Right, right, right. So we make sure that somebody’s actually interested and then we say, okay, where would this fit? Is it going to fit with somebody that already has money? So is it something that we could like partner up with somebody that already has a program running? Could skip one of those steps. Yes. Okay. Yes. Or do we need to create our own demand strong enough that they just fund us directly? Okay. And then depending on what TRL you’re at, we could either… Oh wrong, that’s TRL. Okay, technology readiness level.

[24:42] Okay, thank you. Yes, the acronyms again, right? So if you’re at like a six or seven, that means you’ve got a strong enough prototype that you’re ready to like test it. And so a lot of times the Army, the Navy, the Air Force, they are looking for very specific things. So they put out these project calls through the SBIR, the Small Business Innovation Research Funding, and they consider it America’s seed fund. Okay. And so it’s not just through the DOW, but almost every agency has some of the seed money. Okay. And it helps fund new prototypes. Is that where they’re asking somebody, hey, we have this problem. Yes. You solve it? Yes. Okay. Yes. I think that’s probably something. I mean, how many times have you ever heard of that? Like, I mean, I don’t know. That’s not something that’s real commonly known. I feel like, I mean, maybe everybody does know about it, but I feel like… Jason, I’m not sure very many people expect me to solve their problems. So I just, I just don’t get that call very often. I usually, I’m better at creating problems than solving problems. Now that I will attest to, but yeah. Yeah. No, that’s true. So with that money, then you can, it will essentially help you finish out your product and get it to the customer. I gotcha.

[26:02] Right. But then you have to figure out, well, who’s going to want this product in five years? That’s right. So that’s where we also support and say, okay, well, based on the POM, the, which is a version, like there’s something you have to do in the budgeting process. Is it going to be funded from this project office or this project office? Because who are they like, which operator are they supporting? A little bit of an art. It’s, it is. So again, you said so many things right there that make me go, I don’t even want to mess with that. I mean, like how long does that process take? Oh man. That sounded long. Yes. Yeah. Again, it leads back to me going, I don’t want to do that. The, and I, and I, I, again, I’m not trying to be negative. I want people thinking right. Because, and I’m, I’ve been guilty of it. We’ve all been guilty of it. You like, oh, I got this great new PO. Yeah. And you just run with it. And then, you know, a good PO can put you out of business. Right. Right. Because you can’t cashflow that production cycle. If you can’t, I mean. How do you buy the material for this huge contract? That’s going to be $200,000 worth of material. And, and your customer is not going to get it for maybe, I mean, at least three months. Right. Let’s say.

[27:20] And then they may not pay you for another three months. Oh yeah. Yeah. It’s a big deal. No, I, and again, that’s, that’s the only reason I keep pointing out. Like that’s why the only reason I’m trying to be like, I’m challenging a little bit, but. Oh no. For sure. Especially if we go into a shutdown, like, and then they can’t send out anybody to like certify that the product is real. You like, that’s on you. Like you still don’t have the funding because they haven’t been able to check the box and say, yes, here it is. Yeah. Your funding may be tied up because a bunch of politicians can’t get along. Yeah. But here’s, so going back to the SIBR and that seed fund there for years, this has been a thing, right. And so like research labs and scientists, they really like that seed fund because it gives them like a sandbox to plant. But we’re to the point where there is a large push to move things from concept into production and like true manufacturing rights. So what I would expect to see would be that these people who have created these great ideas are going to have to start finding shops to actually produce it. Okay. Because the story that we are hearing time and time again is who’s going to scale? How are we actually going to scale to produce all of these new weapon systems? And so that’s where like building the relationships and the community and understanding, because the people who have the great ideas are probably going to be in some innovation ecosystem and they’re going to like maybe go a few cities out and look for a manufacturer. Sure.

[28:56] But then they’re eventually going to have to start looking elsewhere. And they’re going to, so like shops across America need to be ready to say, like, I have this capacity, I have this availability. And so I can support as, you know, like if somebody has something new they’ve created that is ready for production, they need some, they’re not going to be the ones to produce it. Right. Right. Interesting. If you’re looking to increase your spindle uptime without adding any headcount, check out the Hennig Workflow Automation System. I’ve seen it. I love it. It’s a compact automated pallet delivery solution that lets you work ahead of your machine so your shop never stops. You can load up to 40 pallets with material, fixtures, programs, and just let the workflow cook. The Hennig Workflow is designed for high mix machining, works with a wide range of machines, and even with a 125 pound payload on top of a 300 millimeter pallet, yet still takes up less space than most competitors pallet automation system. That means more production, fewer manual changeovers, really just a practical path to high profit lights out machining. Learn more about Hennig Workflow by visiting hennigworldwide.com slash workflow. So what I love about everything you’re saying is we just an hour ago or so recorded a podcast about hiring.

[30:19] You know, we, we, we’ve talked about, you know, HR and hiring people and so forth. And, and we all the time talk about like shop owners need to get the hell out of the way, right? Like don’t be the bottleneck. And that, that so often we are, I mean, I am, you are. I definitely am. You know, pick what you’re good at, you know, like stay there, but then like hire the, you know, hire the things you’re not good at or the things you don’t like or whatever it is. What I love hearing about this is like, I don’t want to navigate everything you just said, right? Like, I mean, as soon as you were done with that last statement, I was like, that sounds miserable. I’m pretty sure you had to shake him to wake him up. Right. I’m like, I don’t want to do that, right? And, and I also know that I don’t have anybody on my team that can do that. Right. Right. Like, so whether you’re like talking about hiring, you know, like getting a recruiting firm to hire the best people, or you want an IT firm to make sure you have the best IT or you’re doing automation integration. Another skill set I don’t have is everything you just said. Right. Right. So it’s, it is great to hear that there is help if I want to do those things. How does that look though? Like, can I afford you? Yeah. I mean, again, I just added another cost on the, on pursuing this business. Right. So what does that even look like? Right. So using the example of we’re going to just, we’re going to work with a shop that has an existing product that would more than likely start, like we would talk through it and more than likely start out as a project fee.

[31:42] Okay. We have a product, we call it Forge and Field. And so we assess, it’s like a market assessment inside of defense and we match your capabilities to opportunities to say, like where everything we’ve talked through, like how would this work out for you? And then, and then build out a project plan with milestones and deadlines. So all of the compliance that would be required to get to the point where you can actually produce what we think you should be able to produce if you so chose with your risk profile, that would be our first step so that you could understand. And so that would be the project fee of about $15,000. And then we would turn into it, like if you wanted us to partner with you for execution, we could do that too on more like a smaller retainer basis. I gotcha. I gotcha. I like that. You’re going to give it like a checklist, like here are the things that you got to make sure you got to have in place. And then that lets you make your decision, you know, cause then you can really start to evaluate that financial side of it. And the operational side of it, is this something I want to pursue further? Or do we need to like step away at that moment? Well, and again, I mean, if you don’t do that, like I don’t do much of it, right. And it’s no different. I don’t do a lot of aerospace for the same reasons. Okay.

[33:00] So, because I mean, as you know, it’s highly regulatory where we have branched off and like, oh, we can do this aerospace or we can do this defense, you know, the compared to like my oil and gas work, my industrial work, my, like my space work, even for example, you know, it’s, I mean, there’s a lot more to keep track of. Oh yeah. Right. And one little slip up can, you can not get paid cause you didn’t do the right paperwork. Right. So back to your point, like if I’m coming into this new and I need to check all those boxes, it’s the only way I’m going to be successful. Right. If I check all those boxes, I can be successful. If I don’t, I will not. Yeah. So again, if it’s not what I know how to do, I ought to hire somebody that does know how to do it, right? You’re right. And teach me and, and like walk me through this to a point where it can be a successful piece of my business. Yeah. Yeah. Because it really is a lot, when you’re ready to enter defense or grow in defense, it’s essentially pulling the trigger on an organizational change. Sure. And being ready to look at things differently. If you have to like re-scope your, your IT systems and, you know, maybe you have to change some of your entry processes, all of that can. Yeah. Like your contract review of a PO is, is a hundred percent more critical than, than the contract review I do on making a winch. Yeah.

[34:24] You know, I mean, not that that winch is any less important. It’s just the requirements, the regulations that all that are not as heavy. Well, you’re probably essentially on top of the certification that you need, you need another employee, which is the next number of dollars a year. And that’s going to, you know, have to be dedicated to reviewing those contracts and making sure the documentation is correct. So I guess that would kind of lead me to a question, you know, how would a shop, you know, what are the indicators that tells a shop, okay, we’re ready to take that step or maybe we’re not quite ready, but we would like to do that in the future. And we need to tidy up a few things. Are there any, any, anything that you’ve seen in your experience that would lead somebody to that? We have worked with quite a variety of shops. And one thing we’re seeing is if you are not in defense at all, and we walk through the forge and fill a process, if you do not have full executive buy-in, it’s not going to fly. This is not happening. That makes sense. Yeah. Because it is that such an organizational change, whether you’re changing, you know, the actual design or whatever, like it’s going to be a shift. But now if you’re already in defense, or if you know that you have a partner who has a steady demand, so I really see that these newer weapon systems that are being established by the, not just the large primes anymore, but the, the smaller companies that are coming up with new weapon systems, they have had so many prototypes that they’ve just recently received orders from the government to supply more. They’re going to have to ramp up their supply chain. So like, I see that as an opportunity for machine shops to say, let me reach out to them.

[36:08] And so like, it is another administrative burden because then you have to go to, you have to find all of these new companies and go to their supplier portal and sign up and like, let them know that you’re out there. And then, oh, by the way, they, because it’s defense, they expect the capability statement and they expect all of that. I think we had talked previously, there’s something like the working capital fund. I don’t know. Is that something else that kind of falls into this? So that’s how the working capital fund within the army is how all of the depots are managed. Like they exist within a working capital fund. So they receive order. This is a fun fact. When you hear of a depot, you might, so I just explained that I worked on the tanks rolling through, right? But we did not own the tanks. The tanks were still owned by somebody else. The depots are essentially the mechanic. Yeah, right. Somebody else sends it in. And so they get the service work done. And so those orders come from appropriated funds, and then they can be operate them within a working capital fund, which means if an installation is in a working capital fund, they don’t shut down when the government shuts down. Okay. All right. That makes sense. Okay. Okay. Because they have that. So they operate without making a profit. All of our budget work made sure that we recovered every cost that we had. And then that we, if we had something extra, we would essentially give it back to our customers in a reduced rate.

[37:34] Maybe some years we needed to recoup a little bit. And so the rate, that was part of how we built all our rates every year. Hey guys, if you’re making chips, your tooling should never be the thing slowing you down. Canon Metal has spent decades helping manufacturers cut faster, run longer, and get more out of every setup. From turning and milling to hole making, threading, and beyond. They build tooling designed for the real world demands of the shop floor. And it’s not just about buying another insert or another end mill. It’s about finding the right tooling for the job, making sure you’re improving your tool life, reducing your downtime, and making every spindle hour count. Whether you’re just trying to solve a stubborn application or improve productivity, or just get more consistent results. Canon Metal has the tooling and the expertise to help you personally. Learn more about what Canon Metal can do for your shop at canonmetal.com. As we start to wrap up, that’s actually a great segue into what I wanted to ask you too. So we see a massive reshoring effort in manufacturing in general, right? We see a current administration that’s very much about like strengthening the industrial base. We know we need to strengthen the defense industrial base specifically. I know there’s plenty of shops like me out there that are just kind of not participating, right? For all the reasons I’ve mentioned, there’s plenty of great shops out there that are participating. There’s lots of regulatory restrictions.

[39:02] There’s costs and doing the business, all those types of things. You just mentioned like the working capital fund, like, you know, providing some assistance there and some buffer from some of that. What types of just like fundamental changes to the way the government is doing business with the private sector? Do you think could like clear some of those hurdles for me? I mean, what other, what are we not doing as a country to encourage guys like me to do some and Jason to do more? And you’re living and breathing it every day. Like what could clear some hurdles for people and what can we do to try to help make that happen? Oh man, oh man. Because defense relies so heavily on appropriated funds, you have to think about your congressional representation and be prepared to tell them like where your pain points are and what it would take for you to enter defense. The current initiative where they’re really focused on bringing in suppliers is through that CREMN, the Civil Reserve Manufacturing Network, where they just want to identify who’s out there. And then with that, the more they hear from industry, the more they’re able to target, okay, well, these are the barriers that we can address to actually make it easier. And so they’re moving relatively quickly with that process. So I’m hopeful that like we will see some traction with that over the next year and it is congressionally mandated.

[40:28] So it is something that will have to be done. Yes. Yes. Jason, tell me, give me your opinion on this as a shop owner. So CMMC, I mean, I fully trust and believe in the need for CMMC, right? I mean, first of all, it’s nothing new. It’s just, you have to prove it now. Yeah. Right. Like you were supposed to be doing it for the last 15 years. Yes. You just didn’t. But let’s say the average cost is a hundred grand. There’s 19,000 job shops like you and I in the United States. That’s $1.9 billion to just become compliant. Just gives you the ability. Just to open the door. That’s right. Right. $100,000 is a lot of money in my shop. I’m assuming it’s, I assume same for you. A lot of money in my shop. Yeah. Now $1.9 billion is a ton of money, but it’s not necessarily on the scale of the government. I mean, like whether you agree or don’t agree with any certain appropriate, you know, money, you know, aid we send this country or how we tackle this problem or a bridge we build or whatever. Right. I mean, we spend billions of dollars all the time. Right. Like to me, a hurdle could be give us a tax credit for the costs it takes. I would spend the a hundred grand. That’s right. CMMC would make me a better shop. That’s right. Whether I’m doing, it would make me a safer, better shop.

[41:45] Even if you don’t. Even if I don’t do the work. That’s right. Right. But if I achieved the certification and it cost me a hundred thousand dollars and it makes me a better shop and I could get some sort of tax credit to that, like I would do it. I wouldn’t even think twice about it. That’s right. Let’s go. Yeah. And I think if they look at guys like us and say, okay, you know, shops under a certain size, under certain revenue, number of employees, whatever, let’s help them out a little bit. Right. I mean, we spend $1.9 billion on all sorts of things. Right. Things that I don’t think are helping our defense industrial base. Yeah. Right. There’s gotta be some ways like that just will help. I mean, I’d love to do some of that work. I’d love to help. I’d love to strengthen our country. I’d love to do all those things. But at the end of the day, frankly, I mean, patriotism doesn’t pay the bills, right? Right. Like I need money to pay the bills. And even if it took you paying 10% of that. Exactly. Like you certainly would do that. Like a $10,000 bill is something you can swallow a lot easier than $100,000. Yeah. You can work that into it. And I’ll spend the money first. You can give it back to me. That’s right. Right. Like I’m not asking you to give me the money. Yeah. Like I’ll spend it. I’ll show you what I spent and give me a credit for it. Yeah. Right. I think there’s things like that. Like if we did go talk to our delegations and say, hey, do this one little thing for me here. I mean, they seem to find a billion dollars all the time to do all sorts of stuff.

[43:01] Right. I think there’s lots of things like that. And it’s these types of discussions, I think, that can lead to some ideas and discussions that we can take to our congressmen or senators. Because I do believe in what we’re trying to do. I mean, I know I’ve spent most of this kind of being the contrarians of the conversation. But I mean, I would love to do the work. I would love to support the effort and the national security and all those types of things. But not at the cost of everybody else. I can’t cost my business money. That’s my take. I wish there was a way to get that. Just that one example I said. I mean, to me, that seems like such an easy solution. And that’s perfect. And then the inverse of that is you could either do CMC or you could maintain two employees. Right. And so then it becomes a workforce issue. Absolutely. Do I actually supply into the defense industrial base or do I actually build up a robust workforce? So how do people get a hold of you? I am certainly on LinkedIn, Lana Smith, and I am at the Oakleyoffice.com. Oakleyoffice.com. All right, Jason, thank you again. Yeah, it’s a pleasure. It’s great meeting you. Very nice to meet you. Listeners, thank you. I would say reach out. I mean, if you’re already kind of navigating the defense space, if you want to, you’re not sure how to, reach out. I mean, I learned some stuff today. I think I want to have a follow-up conversation with you in the next couple of weeks.

[44:23] What are you doing in 15 minutes? Do you want to go grab a drink? Thank you both. Appreciate it. And we’ll talk to you next time.