Is SBIR Replacing Venture Capital? The Story of HTX Labs (Podcast Transcript)

[00:07] Richard C. Howard: All right. Hey, everyone. Thank you for joining us this week on DoD Contract Academy podcast. This week we have an awesome episode for you. We are with Scott Schneider of HTX Lab. Scott, how are you today?

[00:21] Scott Schneider: I'm great, Ricky. Happy to be here.

[00:24] Richard C. Howard: Good. No, glad to have you on. We had a great conversation last week, and I know we also have Ashley on, who's your VP of Marketing, so she might be chiming in here and there with statistics and I'm sure whatever she could flavor the conversation with. But just to start off, maybe we could talk a little bit about your background. So I understand you're the CEO of HTX Labs and the co-founder. Maybe you could tell us a little bit about where you're from and how HTX came.

[00:54] Scott Schneider: To be sure, happy to. Yeah. I don't know how far we want to go back. It's been a journey. Originally from the East Coast, grew up in Philly, started out my career actually working for the Department of Defense with an FFRDC called the Institute for Defense Analysis back in the mid 80s, doing some really amazing AI work before AI was really a thing. And 35, 38 years later, full circle back to working with the Department of Fence. But that was not the plan. It's been certainly a circuitous journey from where I was to where we are now, but been in software and tech businesses for a long time. This is our third startup. So I've been in the startup world since 22 years of trying to figure out this startup business, small business kind of thing. But a brief tour of HTX labs. We started the company in January of 2017, and the original thought was, how do we take this really amazing technology, immersive Tech V R, AR XR, and take it out of beyond the gaming industry or beyond the consumer space and bring it into the enterprise? And we originally had no intention whatsoever of going after government work, DoD work. We're a small business, poorly funded startup. How do you really deal with acquisitions and contracts? So that was not our plan, but how do you take this into the enterprise, into an extra mobile or a Mastercard and have it make sense? Because it's not a server, it's not a laptop, it's not a printer, it's a headset. And how do you manage deploy this kind of technology? So we thought about things like identity management and network security. And how do I take, like I said, a consumer focused headset into the enterprise? And that was the original mission. And we've kind of adopted this training focus throughout our probably last three or four years. You can do a lot of things with this technology, and that's both a blessing and a curse. But we've really aligned on how do we disrupt the traditional way of training. How do we take this technology and apply it to how people actually learn, which is not by listening to necessarily an instructor or reading a PDF, but actually doing the thing. How do you develop efficiency and preparedness? And that's really been our focus.

[03:19] Richard C. Howard: So did you guys originally come from the gaming industry? How did VR and that type of technology become your focus area?

[03:31] Scott Schneider: I am not a gamer. I know it's shocking, but no, I am not a gamer, actually. I've been an enterprise software, oil and gas for 25 years, living in Houston, Texas. So we are surrounded by that space. So this was not on my radar at all, but we were approached by another company to see if we would be interested, if I'd be interested in funding a proof of concept around, of all things, active shooter training and virtual reality. So how do you not give somebody virtual PTSD, but how do you kind of introduce them to this potential experience that, unfortunately, is a thing? And they wanted to build a proof of concept. We funded that proof of concept, took it to a big conference, a corporate security conference, and got great reaction to just the innovation. And nobody was doing this in 2016. And we came back and decided to go ahead and spin up the company and the rest, as they say, is history.

[04:25] Richard C. Howard: Interesting. Yeah. I can remember vividly the first time I put a VR headset on and it was Enhanced Air Force Base. I was still an acquisitions officer. And up to that point this is probably 2016 or so, but up to this point, if one of the big defense companies was going to showcase, you know, an aircraft or a weapon system that they were going to build, they'd have a mock up that you walk through, usually in a trailer or something. And for the first time, this was and I think it was Boeing. I walked into the room and as the program manager, and they just handed me a headset and I put that on and all of a sudden I was in an airplane hanger. I was walking on the catwalk. I was looking at the aircraft. I could stick my head in and see the engines. I was 35,000ft, you know, and it was really provided a much better not only give me a better idea of what they wanted to produce, but, you know, it gave them a better way to present that technology to the Department of Defense and to the other agencies that are looking at that and funding it. So it's really interesting. I think it's come a long way in a very short amount of time. And obviously, I think as you alluded to, we've gone from it being something people are using for gaming to now you can provide a lot of different training with virtual reality and some of the new technologies that you wouldn't normally think, hey, maybe we could put a headset on and do some of that. So maybe go through a little bit about what you're specializing in now. And then we can talk about how you guys progressed and sold to the military and some of the other areas, right?

[06:02] Scott Schneider: Yeah, like I said, when we started out, we were working with the Enterprise and we would build virtual tours. We would create a digital twin of someone's office and introduce an active shooter threat or a training experience. But back in 2018, we got introduced to the Air Force. We collided with them at an accelerator we worked out, we operated out of in Houston, Texas. We didn't have anything gov related, but we had this platform. And so we were pulled into pilot training next, which was the initiative, was around what's the next generation of pilot training look like, how do we overcome this pilot shortage? Sure. And then we moved into maintenance training. Next, once again on the maintenance side. And right now we have gravitated for better, for worse around if you fix them or fly them within the Air Force of the Navy, that's really where our focus is. And we aren't former, we're not veterans, most of us are not pilots. But as you said, this technology has come a long way and continues to accelerate in advance. And we can do things in a virtual world that you simply can't do in the real world. You stuck your head into a virtual engine. That's not possible in the real world. So we are able to give our user superpowers and be able to turn that C 130 that's behind me on the zoom screen completely transparent and show you how the Avionic system works. And that is a way better way of learning than looking at a schematic on a piece of paper. We are now fully involved with the US. Air Force and the US. Navy and we are focused on creating a better war fighter, a more prepared and proficient war-fighter. Interesting.

[07:45] Richard C. Howard: So you mentioned you got your start with an accelerator. Could you briefly talk about what that is?

[07:51] Scott Schneider: Yeah. So once we sold our first company in 2012, I went to work for them for our contract for three years and then jumped right back into it. And this was an accelerator that started up in in Houston, Texas around 2016. And it was, you know, I didn't know what I was going to do next, but I knew it wasn't going to be big corporate America. We were going to go back and do something small and innovative. And they provided space, they provided mentorship. In some cases, they provided capital. And really, had it not been for us working at a station in Houston, in Houston, we would not have collided with this Lieutenant Colonel with Afworks, working out of Boston, Texas, who was in Houston looking for some of this immersive technology and capability. And had he not seen where we could take this, we would not be on the course and trajectory that we are on right now. And since then, we've made the best of programs that are offered through the Congressional and Department of Defense around SBIR, small Business Innovation Research Awards. And frankly, the Department of Defense has been our venture capital firm, and they have provided a level of funding non dilutive that's been extraordinary. And we've made the best of it and really built out and matured our platform over the past, I don't know, four or four and a half years.

[09:16] Richard C. Howard: Okay, awesome. You're definitely not the first company I've talked to that has been taking advantage of the SBIR program. But more specifically, Afworks is the one that keeps coming up over and over again, almost no matter what company I talk to. And they really are doing a great job with the civic program and working with companies and whatnot. How did you find the process? So you went through your accelerator and did they introduce you to phase one, SBIR? Was that your first kind of submission?

[09:52] Scott Schneider: It was not through the accelerator, but actually through this Lieutenant Colonel in the Air Force. So we were working on pilot training next. We were subbing to a large prime, so this was not an SBIR. And about three months into that, they saw what we were doing and they came back to us and said, okay, now you need to go direct. You need to get an SBIR, work with Afworks. And this Lieutenant Colonel Eric From was with Afworks and kind of a dual role between Afworks DIU and still active duty. He said, you got to get on SBIR phase one. And phase one, as we know, this was 2018, so it was less competitive than it is now. There are a lot of people taking a bite of the SBIR apple. Back then. We did a phase one, three months, $50,000 to really do one thing, and that is go find a customer. Go find an Air Force customer and figure out product market fit, and find someone with a need that we can do R and D and adapt our platform to address their need. And we've done three phase ones I think we've got. And then we transition some of those to phase two S and also sub-direct to phase two S. And now we're also on a phase three. So it's not easy. It is competitive, but Africa has done a really nice job of doing AMAs and educating industry on how can you turn your capability into a dual use capability and apply it to the requirements of the airmen and the war fighter.

[11:27] Richard C. Howard: Sure. No, I agree. I think it's a great program, and especially if you have a new technology or anything innovative, it's a great way to get your foot in the door. Now, when you got the phase one, because you mentioned that, hey, you weren't you didn't have any prior government experience or military experience. And most of the people in your company kind of fall into that boat. Did you find just for those listening, if this is the first time they're tuning in, the SBIR process, the Small Business Innovative Research process, is just kind of like you said, right where the government is. It's almost like venture capital for you can in a lot of cases, modify an existing solution for government need or maybe help develop your technology. And it comes in phases, right? So phase one, as you mentioned, it's usually a smaller amount, usually somewhere between 50 and 150 grand. Typically you might owe a study or something at the end of that. But really the whole point of that is they want you to find somebody, in this case the Air Force, but depending on the agency, someone to sponsor or say, hey, we could really use that. Maybe they're going to sponsor a demonstration or let you develop it on their base or whatever the case may be. So I guess when you're on a phase one, once you win that, it's great. But now you have a new problem set to deal with and it's, hey, I've got to find somebody to actually sign a memorandum of understanding and be my sponsor so I can apply for the phase two, which is really where the money is, right? So that's where I can't remember what the I want to say that the max SBIR is around 1.3 million now.

[13:02] Scott Schneider: But I just want 1.25 million. It was 750 back when we started 2019, but now it's at 1.25 million.

[13:11] Richard C. Howard: And you can get matching funds too, from your sponsor. If they want to, they want to kick in funds. So it can certainly go higher than that money if you have funding, that can drive a lot of things. So how did you find the process of trying to find that initial sponsor? Did you find it through a connection that maybe Afworks introduced you to or like some others on the show, they made it their full time job to just go meet as many people as they could and kind of hunt until they found the right individual. What was your experience like?

[13:41] Scott Schneider: Yeah, I think it's like any good business development initiative, it's a multipronged approach and certainly Colonel Fram helped us with Afworks, who brought us into pilot training next. But frankly, I spent a lot of time on LinkedIn. And you just have to know who you're looking for. And with no previous government experience, no affiliation whatsoever with the US Air Force, we had to kind of figure out what is a staff sergeant, what is a tech sergeant, what is Lieutenant colonel, who are the influencers decision makers. And we found a need we made contacts on, like I said, frankly, on LinkedIn. And if you can say you're on a phase one that gets their attention, you're legit to a certain extent. And we need them, they need us kind of thing. That's how we got our first phase one. And like you said, the deliverable was a study. We did a little bit of prototyping just to kind of more to educate them on what our capabilities and show a bit of the art of the possible. And then, yeah, you have to find somebody who's willing to not put in money because it's congressional money, it's not Air Force money.

[14:55] Richard C. Howard: Right.

[14:56] Scott Schneider: But they have to commit time, be our technical point of contact our TPAC, be a subject matter expert, and go on that potentially 21 month, 24 month journey of a phase two. And then you have to think about, okay, how are we going to transition this to Air Force money? At phase three? We started the Sipper process, and it's a double edged sword because you can become addicted to it. But at some point, as we say internally, you have to get off the Sipper train and you have to be on a no kidding, real contract. But it is a, it is a process. And, and we thought phase three was the, the Holy Grail and it, it's part of it, but it's not. I mean, there's, there's, there's life beyond that. And you really have to sustain this as a, as a programmer record. And, and that's where, where things get really interesting.

[15:44] Richard C. Howard: Yeah, I know that. I mean, every stage, I think, presents its own challenge. And I think a lot of the different companies I speak with, they'll talk about how excited they were at each phase and then kind of as reality sets in, they realize what's actually necessary to get to the next phase. Not that any of that is impossible, it's just that there's going to be a new challenge as you kind of make your way through there. One of the interesting things about SBIR in particular is, and I've said it on the podcast a lot for those that listen, but in the government, typically 99.9% of the people you talk to are never going to be able to buy anything from you as a company. But the civil process alleviates that because, you know, typically you need an acquisitions office to put a company on contract, and then you need the funds, which are either going to come from a requirement and you need a requirement. So you need a requirement, you need funds, and then you need an actual warranted contracting officer and probably a program manager and a team behind them. But with SBIR, that alleviates that. Now all of a sudden, because a lot of times for new companies, one of the mistakes the company will make is they go right to the user, well, hey, I sell parts or tools that could fix an aircraft, so I'm going to go start reaching out to the maintenance squadrons on the flying basis. Typically, unless it's a small dollar purchase, they're never going to buy $100,000 or $2 million worth of tools from you. They don't do that. The acquisitions guys do that. But if you have something that the maintenance squadron can use, maybe like a training tool, like a virtual reality training tool, right. Well, now all of a sudden you might be able to get them to sign that MOU or their group commander or wing commander on that base. So now all of a sudden, it makes it easier for them too, because it's not their money, it's the SBIR money in a lot of cases. So now they don't need funds to do it. They're just committing time typically. Right. And you can go to the person that has the need. So at least in that regard, it can make it a little bit easier. Especially for someone not trained on military acquisitions, defense acquisitions, to identify somebody to actually sign off. And it sounds like you did just that through LinkedIn primarily.

[17:53] Scott Schneider: Yes, we did. And yeah, the whole government acquisition process and contracting processes was completely and still to a certain extent, it's a foreign concept because you're right, you can meet with people and they say, I've got money, I've got funds to commit. Can you provide the contract vehicle? And in the commercial world, that's not a thing. Like if they have budget, we just go but now you need a contract. So like you said, you need multiple components to really move forward. It was challenging, but yeah, that's exactly how we the Sipper process does alleviate that. If you can find a customer, like for a phase two or a direct to phase two, if you can find a customer who's interested, who will sign the MoU, and you can put together a compelling technical volume, you have a really good chance. Congress puts out $2.6 billion a year, roughly, to this civil program. It's a lot more competitive, so there's a lot more participants. But if you can get that, then the contract shows up. I mean, that's once you get it awarded, you just have to go through the contract process and negotiate that and, and get started. And we want when we won our first phase one and our first phase two, we were ecstatic. But now it just gets harder and harder because you're looking for bigger opportunities where you can make now you've been convinced and you've convinced your audience that you can make an impact. We can improve warfighter readiness or preparedness. Now we want to go bigger. And it just gets at every level, gets more and more complicated and challenging. But it's worth the mission.

[19:32] Richard C. Howard: Yeah, it definitely is. And if you start in your small business, if you start with, hey, we need a program of record created for you're going to probably put the brakes on and everything really fast. But if you're starting with SBIR and you slowly make your way with contracts up to that point, then I think it becomes a much more doable process. So when you entered, let's talk about phase two, because when you guys got into that Phase two process, now all of a sudden you are, I'm assuming, developing the technology out for government use, possibly doing a demonstration. Can you talk a little bit about that process and maybe some of the positives and negatives?

[20:12] Scott Schneider: Yeah, that was largely part of our work with maintenance, trading Next out of Kelly Airfield and the commanding officer at the time, actually, you talk about small businesses leveraging the SBIR program to improve their capabilities. The Air Force is getting better at using the SBIR vehicle as well. I mean, this commanding officer found three or four or five companies that had Phase two s and pulled them all together to build a much larger capability for the Air Force. We spent a lot of time building out our platform because we had always envisioned if we can build a platform, they will come. But in our case, we need a platform. And we needed content.

[20:59] Richard C. Howard: Right.

[21:00] Scott Schneider: Because a PlayStation with no games is not interesting, and games with no PlayStation not interesting. So we had to really address both. But once you get on that Phase two, you're now really doing R and D. This is not about finding a customer. You found a customer, you found a need. And now it's a question of, okay, what do I need to do to adapt my commercial capability to address the needs of the end user? And that's what we focused on for that phase two. And then we took a Phase two that we had and we transferred it to the Navy interesting. From the Air Force to the Navy, which had never been done before, and now they have a process, but they didn't have a process at the time. So it was a long, probably a twelve to 15 month process just to, to get across that, that chasm, so to speak, over to the Navy. And, and so we are finishing up our Phase two with the Navy to take what we did with Polytran next on the T Six Alpha and, and apply that to the T Six Bravo, which pilots out of the Navy learn on as well.

[22:03] Richard C. Howard: So when you say that you transitioned it over, do you mean that you had completed a Phase two on the Air Force side, but used that contracting mechanism? Navy could put you on contract basically without a competition, based on the fact that Phase two. That's awesome. No, that is interesting. And I guess I'm learning something every time I talk to somebody on here. But just to clarify what I just said for maybe the uninitiated and to expand on what you said about, hey, you can have funding, but if you don't have a contract vehicle or a way to put someone on contract, that could be a stumbling block. The government can't just put a company on contract. Meaning because even if they have money and a vehicle, necessarily because there's competition requirements, a lot of different things than the Far, the Federal Acquisition Regulations. One of the amazing things about SBIR is if you're an SBIR phase Two graduate, that can allow the government to sole source of contract to your business and that can eliminate a lot of barriers and stumbling blocks if you have that. So it sounds like you don't even have to now stay within service. So if I company with a SBIR phase two in the Air Force, I can now take that at least to the Navy, possibly to some of the other branches. I don't know the army or Marine corps?

[23:20] Scott Schneider: I think you probably could with the Navy and Africa publishes Is. They now have a fairly automated process where you just submit your phase two and it's not automatic, but there's a much more automated workflow that has to go to jump over to the Navy. At Art, when we did it, I think we got introduced to the folks on the noctsd side and then we had to kind of re-propose and recall volume and go through the whole contract thing, but we did not have to compete it. And that's key.

[23:50] Richard C. Howard: Yeah, no that's huge. That's really interesting. So for I guess any company that is a Phase Two graduate in hearing this, that's now an option. Another thing is a lot of times the contracting officer or the program manager on the other side of the table might not even be aware of what Phase two can do as far as putting a company on a contract. A lot of them do, but everybody doesn't. And I've had to actually write for some of our clients at the justification. So it might also be worth knowing that or putting a head for those listening, some justification down that you could hand somebody on the other side, on the government side, so they understand, oh, I do have a means to put this company on a contract because of the Sipper phase two and the requirements and the law associated with that. That's great. So you've been through the Phase Two and it sounds like one of your Phase Two s at least was a combination of your business and maybe some other Phase One winner companies getting together. I don't know whether combining your technology or whatnot did that result in a demonstration of some sort?

[24:51] Scott Schneider: It did, and it actually turned into something within the US Air Force called Motor, which is the next generation learning management capability. And it's what we call a coalition of capabilities. So it's four or five different companies who have come together to integrate the technology, whether it's an experiential learning capability like ours or a digital classroom capability, cognitive engine, virtual instructors, over the shoulder kind of virtual pilot. So to speak all of that together to deliver a much larger capability in this case to the Air Force than just our individual kind of siloed capabilities. So that's what has come out of that and it's moving towards a program of record, which as we know all who've been in this business a bit, is a challenging nontrivial exercise to figure out how do you get into the FY 23, FY 24, FY 25, Palm, and the NDA budget? So that's that's where that's hopefully going.

[26:04] Richard C. Howard: Yeah, I know. That's great. And yeah, just program of record for everyone. That all that means is now we could call it Scott's Virtual Training Program. That's not what it's going to be called, right, but there could be a program called Scott's Virtual Training Program. And once it's a program of record, then you have a pot of money that's associated with that. So now year over year that program of record will get funded. It's managed by PEM at the Pentagon typically, and then there's going to be an acquisition shop and a program manager in charge of those efforts. So now you have somewhat you have funding and requirement and someone that's in charge of actually making sure that if you're providing that to certain units in the Air Force that year over year, the right spending is taking place. And if you need more money or more people or modifications, at least there's a team there to support you. And you're not always hunting for the funding and the offices to help you out there. So this is interesting. So now we've gotten through the phase two and I think you've done a couple of phase two, as you said. Can you tell everyone a little bit about what a phase three is and how you ended up with a phase three?

[27:09] Scott Schneider: Right. So this was, again, that maintenance training next transition process. And it really should not be called a Sipper phase three because it really has very little to do with the Sipper program. I mean it is the transition from a phase two to a phase three and that's the connection there. But it's where Air Force is putting their money into the game and committing more time and obviously the expectations are higher, but it's a real, no kidding, government contract. We're on a phase three and we're on our third option on that. And it's a contracting vehicle that frankly not a lot of contracting officers, at least when we got on ours in 2019, 2020 we're familiar with because there's an IDIQ, there's Boas, there's BPAS, there's very traditional contracts and this is a silver phase three, which actually can be any kind of contract in terms of the contract vehicle. So there was a learning curve for the contracting officer and for us it was kind of the blind leading the blind. But we've gotten past that now and I think they figured it out and it's easier once you can convince your customer that there's a capability here worth maturing. A phase two is about proving, doing R and D and proving that this could work. Phase three is really about scale, like. How do I scale this across 700,000 airmen within the Air Force and the broader DoD? And that's got to be the focus area. And frankly, that takes a lot of capital to do that, depending upon what you're trying to do. So phase three, they can be pretty capital intensive, but it is where the Air Force is investing their time and money. And that's when you really, you know, direct a phase two at the end of it there's, there is no capability for the airmen. Like the government didn't buy anything, they invested. And now it's up to both parties to figure out how do we transition this? And this is the proverbial Valley of Death is how do I get across that valley of death into a long term contract where I'm not bidding every, you know, three or four times a year on sivers because you can't get momentum. This is the double edged sword of a siver, as it is easier, but you can get hooked on it. And if you get hooked on it, there are times when you build capability that may not be in your best interest and may not be in the best interest of the warfighter. And so this is where, phase three, this is about scale. How do we take this and get it to the real need?

[29:55] Richard C. Howard: Right? Interesting. So I had another gentleman on, his name was Oliver, and I want to say he was with street smart VR.

[30:03] Scott Schneider: But very what's that Oliver Notewear. Yeah, we know.

[30:07] Richard C. Howard: Okay, yeah, great. No, very similar story as far as how they started moving through the Department of Defense and developing through SBIR. And he described something that he called the bottom up sales approach. Right? So how he would then take his SBIR kind of license to get that sole source contract and start going to the units, the individual units, to see if they could find funding and whatnot to put a company on a contract, which is almost the exact opposite of what I recommend. But in this case, especially after you've been through SBIR and you don't have a program of record that's necessarily dedicated to what you're doing, I guess what I'm trying to say is what you're doing is training, right? So it fits in with what units are doing. Right? So units are if it's maintenance training or pilot training on aircraft, well, we have programs of record that fund pilot training or maintenance officer training or maintenance troop training. So I think if I understood what he was saying, that they were using some of that money, their training dollars, to make small purchases along the way while they're trying to get that program off record. Have you tried anything like that or do you have other interest from units? Because there's always money available, follow up funds. There's a lot of different places they can get it. Have you had any of that experience or is it mainly just kind of sticking with SBIR so far.

[31:34] Scott Schneider: No, I think we're starting to expand outside of SBIR, and we have a Boa in place now that's focused on Immersive training, both from a commercial kind of software licensing as well as an R and D perspective. And so we've used that a couple of times. And again, having that contract vehicle, if there's fallout funds and there's no place for them to fall for you, you can't get them. So having a contract vehicle, sometimes it's good to go get a contract vehicle in place even if there's no money on it right now. Sure, because when money is available, you can drop it on there and move forward. But, yeah, we are, you know, we're moving more towards the larger IDIQs where we can do a multi vendor IDIQ across Matchcoms. You know, we've been primarily focused on Air Education and Training command. We now have a contract with Global Strike on the B 52, working with Air Combat Command. And so it's important, yes, to go take those SBIRS and capabilities and shop them. And for us, we've spent most of our time at the squadron level. And that's a never ending process because those are the users, that's the end user, that's the real customer that we can affect and impact. But you've got to work a top down as well. And so we're trying to work at the congressional level on the Hill to really understand in our case, how do you make immersive technology, immersive training, just a part of the program? It's just like a CBT or Elearning or a PowerPoint in terms of it's just a part of the training program, so to speak. And we're trying to get to the general officer level and to headquarters Air Force. You've got to kind of start the top, bottom and top and kind of meet in the middle because a tech sergeant, staff Sergeant, can't necessarily commit funds and innovation. In our case, it's time for us to get out of innovation and into execution and scale. And innovation funds are limited, and they're used for exactly that, to innovate. And we'll always innovate, but we have a capability now that we need to scale across the Air Force. And that's why we're looking for bigger contracts, IDIQs and leveraging the Boas and BPAS and those kind of contract vehicles.

[34:02] Richard C. Howard: Yeah, I know. It becomes a little more complicated right as you start climbing up and going past SBIR and when you're talking about talking to Congress and getting funding put into the palm. And just for those listening too, you could be a company and it's involved in immersive technologies or anything else and get a wedge put into the funding process for virtual reality training or whatever it may be, but it's not going to say HTX.

[34:36] Scott Schneider: Use HTX.

[34:39] Richard C. Howard: It would be great if it could. Right? But I think a lot of people think when you go and you lobby or you're talking to the Pentagon and you're trying to get that funding worked, that, oh, well, these companies like Boeing are just getting their name put in there. That's not what happens. They get that wedge, and I know you understand this, they get that wedge of funding put aside. But then it still has to go to the acquisition shops to now do the Solicitations and decide how they're going to put a company on a contract, which, like you said, that's why it's so important to be working at multiple levels, because you want to have a relationship with that acquisitions office that's going to be putting the Solicitations out there. You want to let them know that you are kind of involved with this process so they can decide what the best way of putting companies on contract for something like this is. Do you have any ideas who would be are you working with the acquisition shops or have you targeted anyone in the Air Force that you think could potentially be the recipient of that funding and who might be involved or is it still not even close to that level yet?

[35:46] Scott Schneider: There's certainly specific contracting groups that we're working with in San Antonio, Kelly and Randolph. The center of the universe for us right now is San Antonio and Shepard Air Force Base at Wichita Falls because that's the center of gravity for aircraft maintenance training. So the contracting units around those two areas were really focused. But you bring up a good point about really get to know your contracting officer even in the civil process because they can make things smooth or not, not intentionally. It's just if you're not ready to meet their needs, even though you get awarded the SBIR, it can be a process to get on contract or it's not that you have to roll over, but you need to be amenable to how this process works. So getting to know we had a really good contracting officer who now is at Capital Factory in Austin, who once again, we didn't know what we were doing and she was very well versed in SBIRs and afworks and contracting officers, so we got lucky. But it's important to really make friends with your contracting officer.

[37:07] Richard C. Howard: Yeah, no, agreed. And I think that's something that a lot of small businesses don't realize, or at least they don't realize it for the first couple of years, and then they get burned. Because I think it's easy to assume that everybody on the government side knows what you're doing, and it's kind of focused on the effort, but especially with a contracting officer who probably has hundreds of things throughout the year that they're responsible for putting on a contract. And I don't know if you had a program manager kind of above her that was kind of managing the program at large, but it's easy for they're doing their job and just scrambling, trying to get the work done right in the amount of time. And they're usually working very long hours, so there's usually nothing intentional on their part by not conveying information. It's just sometimes it's out of sight, out of mind. So it's really on the company to stay in touch with the contracting officer or the program manager, whoever you have the relationship with, and be asking them, hey, do you still have the same contracting process in mind for our next iteration? Because sometimes the government changes contract vehicles. Sometimes what you're on, we might hit a ceiling on a NASA soup, and now they're pivoting to something else to get the next iteration of delivery orders or contracts moving. So it's extremely important to have that conversation. It sounds like you had a great relationship with her and she kind of walked you guys through the process, so that's good to hear.

[38:33] Scott Schneider: Yeah, she did. And at first it's like you want to get on contract, but once you get on contract, you also need to figure out how to get paid in a timely fashion. And back in the day, the Air Force was exploring, how do I do this? Using credit cards. And we were part of that pilot project where they were paying us through a credit card, and that introduced challenges as well. But, yeah, we had a really good contracting officer who helped us through this whole process.

[39:01] Richard C. Howard: No, that's okay.

[39:01] Scott Schneider: My dog barking in the background. Okay.

[39:04] Richard C. Howard: Mine's outside right now barking at the painters, so it's all good. So you came from a completely different industry. You came from oil and gas and then went into virtual reality, and now you're basically virtual reality training but with the Air Force. So it's quite a bit different, it sounds like, than what you were doing before. How have you felt about that experience? Are there some things you missed about oil and gas? Or are you kind of glad you're at where you are now?

[39:33] Scott Schneider: I think there are certainly things about oil and gas that I miss, but this is a great mission, and once again, and thank you for your service, Ricky. I'm not former Air Force. I'm not former military. Our team loves this mission. We've hired some veterans lately through the Skill Bridge program and others, and it's just a great mission to be to play whatever small role we can in preparing our war fighter to be ready all the time. So, you know, at the end of the day, we're still building software, and that's what I've been doing for 38 years. So it just happens to be really cool software and really effective software and valuable and and we're going to keep doing this until someone tells us to stop. But we love the mission, and we think there's a it's a target rich environment. There really is a need for just better training and just in time training. I haven't changed the engine or service the engine on the C 130 in a while and I'm deployed. How do I get just a refresher on how to do this and that's? With the advent of immersive tech and portable headsets, I can I can ship a headset with every airman, wherever they are, and they can pop into the headset, practice on a virtual C 130 that looks just like the real one. With limited aircraft, you can't take aircraft out of service. So there's a real it's a natural fit. And so we we love the mission that we're on, and we're going to we're going to keep working at it.

[41:08] Richard C. Howard: No, that's awesome. No it sounds like you guys are passionate about it, and it is a super interesting niche. And at the end of the day, you could save a lot of lives with that type of training, especially when you're talking about flying the guys, fixing the aircraft, making sure that they are current on the current systems and they have the skills they need to keep everyone safe is critically important. So I'm glad you guys are working on it, for sure. I would love to see what you guys are doing and keep tabs on you as you move forward. As we're coming to a close here, maybe we could close with what you're looking to do from here and if there's anything I can do for you or how people can reach out if they're interested in working with you guys.

[41:52] Scott Schneider: Yeah, HTXlabs.com certainly visit our website and reach out. [email protected] happy to have a conversation. In terms of our mission right now to deploy, our vision is to deliver this learning capability across the Department of Defense and across the US. Air Force. There are certainly challenges. We talked about the Valley of Death, we didn't talk about cybersecurity. But there's a process within the Air Force and across the DoD called the ATO Authorization to Operate on a Secure Air force Network. That is a miserable process and a time consuming, expensive process, and anybody who's in it knows it. There's no easy answer. But if we are going to we have our near peer adversaries and we know who they are, and if we can't field this kind of capability and a lot like these capabilities more efficiently, more quickly, and take a bit of a risk, we're going to fall behind even further. And so companies like us, we're trying to bring the tech to the war-fighter, but there needs to be barriers taken out of the way to really get it in the hands of those who can benefit it. That's my bit of a soapbox, but like I said, without the Air Force and the civil program, we may not be in business. When COVID hit, it affected a lot of businesses. It actually affected us, ours, in a positive way because airmen couldn't get to the base, couldn't get to the flight line to train. I can give them a headset and they can sit on their couch at home and get reps. So that was key to us. But this needs to be even easier for companies who are private sector commercial focus to come into the DoD and do business.

[43:44] Richard C. Howard: Yeah, no, I couldn't agree more. We have just done a few episodes with people that specialize in the FedRAMP process and some of the other processes that can help a company get to ATO platform one. And there's a few different areas out there because we'd probably be complaining for the next 2 hours. The brutal atl. And by the way, on the government side, too, I think that people right now are clapping on the government side and the business side because that process does take a long time and in a lot of ways, it's getting more complicated and a little bit harder to get that approval to operate. And it is one of the major it was a stumbling block and a major point of concern for me as a program manager in the Air Force. And it is now working with small and large businesses.

[44:38] Scott Schneider: I'm happy to report that we're two weeks away from our ATO, not just from a business perspective, but it opens up huge opportunities for us to deploy more broadly because a lot of the questions we get are do you have an ATO? Okay, no ATO how do I use your stuff in a secure environment, so to speak or whatever. And we can't so now we get to answer that question in a lot more positive manner than in the past.

[45:06] Richard C. Howard: If you can, you're right. I mean if you even whether in person or responding to an RFI, if you can say hey, we're at O'D on Air Force System X, then all of a sudden everyone on the other side of the table realizes that you have a security requirements necessary. You've been through the process once, you could do it again. That ATO question is now starting to turn into are you FedRAMP? Are you on platform one? Are you so there's some additional things that seem to be being asked but Scott, thanks for coming on. I really appreciate everything you guys are doing over there. This has been an awesome conversation and I think our listeners are really going to benefit from it.

[45:44] Scott Schneider: I've enjoyed it, enjoyed the conversation and yeah, I encourage people to reach out. We're happy to help others. Small businesses are trying to figure out how to get into the new business with the DoD and like I said, we had no intention but it's been a great as challenging, it's been a rewarding journey and so I encourage others to engage as well.

[46:05] Richard C. Howard: Awesome. Well hey guys, if you want to talk to Scott, all of the contact links will be in the listener notes. Thanks again to Scott and HTX Labs for joining us today. This is DoD Contract Academy and if you want to learn more you go to Dodcontract.com and check out some of our free training there. Thanks everyone for listening and we will check you next time.

If you enjoyed this episode, you can also check out Jim Abercrombie & Trek10's DOD Contract Journey where Jim as the President of Trek 10 shared an amazing government contract journey that you don't want to miss!