Defense boards have spent the past several years managing a problem they rarely name out loud: their portfolios are built around funding lines rather than around what the military needs. Every appropriations cycle reshuffles priorities, programs get restructured, and money migrates from one account to another. Companies that organized themselves around a specific line item discover how quickly value evaporates when that line moves. Daniel “Dig” Gallagher, President and Chief Executive Officer of GEMSTAR Enterprises, has watched this pattern repeat across 20 years leading in the U.S. Navy and 25 years growing businesses at Lockheed Martin, General Dynamics, and L3Harris. His read is blunt: budget volatility is not the risk. Building a company that cannot survive it is.
Anchor The Strategy To The Mission, Not The Budget Line
The distinction Gallagher draws is deceptively simple, and most boards get it wrong. “Budget lines change. Mission needs endure,” he says. Undersea warfare, secure communications, data links, and unmanned systems remain critical year after year regardless of which administration is writing the budget or which program office happens to be in favor. A capability tied to an enduring mission need finds a home even when the specific program funding it disappears. A capability tied to nothing but a contract vehicle does not.
That reframing changes what a board should be asking management. Gallagher puts the test in a single question: which of our capabilities will our customers need regardless of the funding climate? It is a harder question than it sounds, because the honest answer often exposes how much of the portfolio exists only because someone funded it once. Boards that run this exercise seriously end up with a shorter list of genuine capabilities and a clearer sense of where capital should go. Boards that skip it keep mistaking revenue for durability, which works right up until the cycle turns.
Grow Into Adjacent Markets With Discipline
The second defense against budget volatility is breadth, but Gallagher is specific about the kind of breadth that works. Adjacency is not diversification for its own sake. It means pursuing markets where a company’s existing technical expertise gives it an advantage, while reducing its reliance on any one source of revenue. The discipline sits in the pipeline: a deliberate spread of pursuits across related markets, maintained before anyone needs it.
Gallagher has run this play. Early in his time at Lockheed Martin, he led a submarine business that needed a new direction. The team studied the market, set a clear plan, and went after adjacent opportunities in sonar and messaging systems. Revenue grew from $189 million to $430 million in three years. The number matters less than the mechanism behind it. A disciplined pipeline across related markets gives a company room to adapt when one area slows, which is the entire point. Boards tend to treat adjacent market expansion as a growth initiative to be funded when conditions are good. Gallagher’s experience argues the opposite: it is a resilience measure, and the time to build it is before the slowdown arrives.
Invest Ahead Of The Next Technology Transition
The third move is the one boards find hardest to justify, because it requires spending money on a future that has not yet shown up in a requirements document. Naval history, as Gallagher reads it, is a sequence of turning points: propulsion, fire control, and integrated battle management. In each case, the companies that invested ahead of the shift did not merely survive it. They shaped what came next and set the terms competitors had to meet.
Gallagher is clear about where the current one sits. “AI is the next one, and it will change how the Navy fights and decides,” he says. That second verb carries the weight. Decision-making is the part of naval operations that has historically been slowest to change and most consequential when it does. Boards that fund AI readiness now, he argues, position their companies to lead when budgets follow. The sequencing is the whole argument. Funding arrives after the transition is obvious, and by then the companies that waited are buying their way into a race others have already been running. A board approving AI investment today is not betting on a budget line. It is buying the option to be credible when the line appears.
Taken together, the three moves describe a posture rather than a plan. Strategy tied to enduring mission need, a pipeline spread across adjacent markets, and capital committed ahead of the next technology shift. None of it depends on predicting the next budget correctly, which is the point, because nobody does that reliably. What it does is reduce the number of ways a single appropriations decision can damage the business. Gallagher’s framing puts the responsibility squarely with directors, not management. Operating teams are measured on the current cycle and will optimize for it. The board is the only body in the company with a mandate long enough to ask whether the portfolio will still make sense in five years, and the only one positioned to fund answers that do not pay off inside one.
For directors sitting on defense companies right now, the uncomfortable version of the question is whether their current portfolio reflects deliberate choices about enduring capability or just the accumulated residue of past contract wins. Most boards have never audited the difference. Gallagher’s experience across both sides of the relationship, as a Navy leader who defined requirements and an executive who had to meet them, gives that challenge unusual force. Budget cycles will keep moving. The companies that hold their value through them are the ones that decided, early and on purpose, what they were going to be good at.
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