TD Shepherd attended the 2022 annual EDA conference (EDA as in European Defence Agency), which took place on December 8th in Brussels. The conference featured several panel discussions as well as regular keynote speeches. The most important takeaways from the conference were:
— the €70B increase in defence related investments until 2025;
— the recognition of the importance of dual-use technology and its missing support in the current innovation landscape;
— the need for easing procurement rules for the (European) Defence departments;
— and last but not least, the need to be able to rapidly scale production when circumstances require this (industrialization of the supply chain);
— The latter includes the drive to secure (synonymous with “localization”) that same supply chain.
One of the challenges that comes with design services is the cyclical nature of the services business. When the economy tightens and corporates are watching their operational expenses, the first step will be to halt any external contracts/contractors which are not deemed absolutely essential.
Whereas the earlier (staircase) model is a good approach in scaling up revenue and creating new revenue streams, the foundation of the company is still based on the service model: headcount continues to be the main driver (typically up to 60-70% of revenue). In terms of (enterprise) valuation the additional revenue streams, however, will already make a significant difference.
Design services companies typically start small (some exceptions when it concerns management buy-outs) and natural growth is a slow process as it requires hiring and training of engineers based on/driven by the revenue stream of the company. Growth of business is tied to growing the team and it is not always easy to find the engineers.