The Defense Boom Will Not Last Forever

The current expansion of the U.S. defense budget feels like a generational opportunity for government contractors, and in many ways it is. Pipelines are full, award values are climbing, and some companies are on the verge of doubling in size on the back of contracts that haven’t been signed yet. I understand the excitement. I also understand what happens on the other side of it, because I’ve watched it play out in real time with businesses I’ve worked with closely.

The hardest part of this conversation is that the excitement is legitimate. Passing on a genuine growth opportunity is its own kind of failure, and owners who sit on the sidelines while their competitors win work will answer for that decision later. But growth and durability are not the same thing, and the defense contracting market has a long history of reminding people of that distinction at the worst possible moment.

When the phone rings after the budget shifts

Early in 2025, a client of mine — a defense contractor I had been working with for some time — called to tell me he had lost 30 percent of his business overnight. A contract cancellation with no warning and no transition period. We had spent months discussing what his business needed to be better positioned for growth and, eventually, for a sale: better accounting systems, stronger financial policies and procedures, a move away from the informal processes that were creating friction across the organization. He knew the work needed to be done. He just hadn’t done it yet.

When he called, his message was direct. “If I don’t have a business, I won’t need new accounting software.”

I understood exactly where he was coming from. Losing a third of your revenue overnight is a crippling blow, and any owner in that situation is going to focus every available hour and dollar on stabilizing the revenue line. I’m not sure I would have done anything differently in his position. But here’s what I also knew: the administrative weaknesses that had been slowing him down before the contract cancellation didn’t disappear when the contract did. They became more dangerous because now he had less margin for error and fewer resources to fix them while simultaneously trying to replace the lost work.

The problems that felt manageable during a period of growth became structural liabilities the moment the environment turned against him.

That story isn’t unique to him, and it isn’t unique to the current moment. It’s the version of events that plays out, in some form, every time a significant policy shift or budget reordering moves through the federal market. Some contractors are positioned to absorb it. Many are not, and the difference usually has very little to do with the quality of their work or the strength of their customer relationships.

What the current boom is concealing

I’m currently working with a small business that provides top-secret engineering and manufacturing services to the Department of Defense. The current expansion of defense spending is very real for them. They have outstanding proposals with a high probability of winning that would effectively double their revenue within the next 12 months, and the owner is rightfully energized by what lies ahead.

But doubling a business is not just about revenue. Winning those contracts means increasing staff by roughly 25 percent, committing $500,000 in immediate equipment expenses, another $500,000 to retrofit an existing facility, and an estimated $3 million to construct a new building that would consolidate manufacturing under one roof. The financial logic behind that investment is sound if the work holds. It becomes a very different conversation if, three or four years from now, the defense budget contracts and orders decrease or get canceled.

I’ve had that conversation with this owner directly, and I want to be clear that this is not meant to be a pessimistic take on his situation. Nobody has a crystal ball, and I’m not in the business of talking clients out of pursuing legitimate growth. What I am in the business of doing is helping owners think clearly about the enterprise they’re building, not just the revenue they’re chasing. A $3 million building is a long-term commitment in an industry where spending priorities have always swung, and where the things that get funded generously in one budget cycle tend to draw scrutiny in the next.

This owner recognizes that current back-office operations must be strengthened to support his existing work, not just any new work. He also knows that a business that can run without him will be more attractive to buyers when it’s time to transition. He’s considering both the growth opportunity in front of him and the enterprise he must build to endure. That’s exactly the right frame.

Concentration risk doesn’t care how good your work is

The other part of this that doesn’t get discussed enough is customer concentration, a risk that cuts across the entire GovCon market, whether you’re growing or contracting. My current client has six to eight government customers, with a single contract accounting for more than 25 percent of revenue. That’s not unusual for a business of his size, but it’s the kind of exposure that changes the character of a growth decision considerably. Doubling the business on the back of a few new awards doesn’t necessarily reduce that concentration; depending on how the wins are distributed, it can actually make it worse.

I’ve seen what that looks like when a sales process exposes it. I worked with a call center staffing firm — roughly 90 percent government, nearly 600 employees. They went through two back-to-back attempts to sell the business within six months. Both buyers walked away after seeing the fragility beneath the revenue numbers. Operations ran almost entirely through the two owners. Decision-making authority was limited, and key contracts were tied to SBA size standards that wouldn’t transfer to an acquirer. The business was growing fast. The owners were talented operators. But the enterprise wasn’t structured to survive scrutiny. Even basic due diligence made that clear.

The growth story was real. The transferability wasn’t.

The question worth sitting with

None of this argues against growth in the current environment. The defense budget expansion is a genuine opportunity. Contractors able to absorb this growth should pursue it aggressively. The problem is that most GovCon market conversations now focus on pipeline, probability of win, and contract vehicles. Few discuss whether the business under the revenue is designed to operate at its future size.

What I’ve seen, across the businesses I’ve worked with, is that growth doesn’t create the problems that eventually surface. It reveals them. The contract cancellation that crippled my client’s business didn’t expose new weaknesses — it exposed the ones that were already there, waiting for a moment of pressure to make themselves visible. The buyers who walked away from the staffing firm weren’t discovering problems; they were seeing clearly what had always been true about how the business operated.

The defense contractors who will be standing in four or five years are the ones who treat the current environment as an opportunity to build, not just to grow, who use the revenue tailwinds to strengthen the operating architecture underneath the business at the same pace they’re expanding it. That means distributing decision authority so the business doesn’t collapse into a bottleneck when the owner is unavailable. It means documenting institutional knowledge before the people who carry it move on. It means building governance that functions as a real operating mechanism, not just a compliance posture.

The spending that looks durable today has looked durable before. And every contractor who has lived through a budget cycle knows what comes after that.

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Robert Jones is the founder of Corvata, an advisory firm that helps U.S. government contractors build more valuable and transferable businesses through structured enterprise readiness.