Imagine a company that makes its money designing and building sensors for defense applications. You might expect that company to focus primarily on the usefulness of products to enhance battlefield capabilities. Indeed, they would. But there is a business side to designing and building sensors as well.
Rock West Solutions is a California company that specializes in sensor design and signal processing. In addition to healthcare, industrial and commercial applications, Rock West Solutions also works on defense projects. They acknowledge that the business side of sensor development has to look beyond mere capability. Good business requires developing products and systems capable of staying with the market as it moves.
Size and Scale
A great article from senior contributor Loren Thompson made its way to the Forbes website in early April. The thrust of that article was an explanation of why Thompson thinks Raytheon Technologies is on its way to aerospace and defense dominance. Many of the principles he applied to Raytheon Technologies can also be applied more broadly to companies like Rock West Solutions.
At the top of Thompson’s list of factors in support of Raytheon Technologies is scale. His definition of scale is actually more in line with size, but that could be a matter of semantics. The point is that merging the two companies that created Raytheon Technologies also created the single largest aerospace company in the world. It has the financial prowess to do whatever it wants to do.
Smaller companies that make sensors for defense applications have to be able to keep up with companies like Raytheon Technologies. They do not necessarily have to be of the same size or scale, but they do have to be able to scale up to meet demand. If they don’t, Raytheon will go elsewhere.
Thompson also brought up the idea of company focus in explaining how Raytheon does business. Likewise, the company will need suppliers down the line whose focus on their contributions to Raytheon products is strong and unwavering.
Such a strong commitment should be expected from companies that supply products for defense applications. Neither defense contractors nor the armed forces can afford to be anything less than totally focused or they risk potentially devastating consequences. When you are designing and building sensors for military applications, you absolutely must get it right.
Not having that focus will lead to a company being dumped faster than penny stocks in a bear market. That is obviously not good for business.
One final point we can take from Thompson’s article is the need for companies like Rock West Solutions to be prepared for market diversity. As Thompson explains, most of the money to be made in aerospace and defense is an aftermarket production. An extension of that is taking one’s products outside of U.S. markets.
Raytheon Technologies needs a whole host of sensors to build new aircraft. Some of those aircraft will be sold outside of the US. That means there will be a whole separate market for replacement parts. That is where the real money is made. As such, sensor suppliers have to be prepared to sell their products all over the world. If they rely on U.S. markets alone, they are not going to get very far.
There is more to being a successful sensor technology firm than building sensors that work. Companies also have to look at a wide range of business issues that will affect them above and beyond the effectiveness of the parts they produce. Get the business side of it wrong and it may not matter how good your sensors are.