It can be difficult for a small aerospace and defense company to grow, and many fail to make the transition to the world of open competition from the small-business status that gave them preferential access to government contracts.

With 1,300 employees and annual revenues of $270 million, Huntsville, Ala.-based Dynetics is in the final stages of that transition as it ventures beyond its base of high-tech engineering services into systems integration and product development.

From its beginnings, which involved reverse-engineering radar hardware for the U.S. Army, to its role as integrator of the Stratolaunch satellite air-launch system being developed by billionaire Paul Allen, designer Burt Rutan and commercial booster pioneer SpaceX, the company has extended its reach.

“To be healthy as a company, you have to grow,” says David King, executive vice president. “Our customers are typically the Army and the intelligence community, but they are getting more diverse and that is driving the company into new areas” such as space and cyber. King says Dynetics has gone past the small-business stage, for the most part. “We have been able to grow through the transition, but it is difficult. You need really good mechanisms to compete for business—'full and open' is a meaningful term.”

A hollowing out of the middle of the aerospace industrial base, as companies have consolidated into the major primes, has created opportunities for smaller players like Dynetics. “We are now large enough to take on bigger programs, but not so big that we think like the government's larger contractors,” he says. “There were mid-tier companies in the past to do that. It is why we have been successful in new domains like space and cyber.”

King says CEO Marc Bendickson's commitment to “do the right thing for the customer” frees up employees to make the right decisions. “It is not always about the bottom line.” Because the company is 100% employee-owned, the staff is free to focus on the long-term, King says.

Dynetics continues to be run like a small business. King notes that “there are things we have to do like a large business . . . but we still allow people to make decisions and not constrain them with rules and policies beyond what is essential.”

Organizationally, Dynetics is “very highly matrixed. Half or more of our folks are working for other divisions or units,” says King. “We are not afraid to seek experts elsewhere in the company and pull them in. Our senior technologists are very good at asking hard questions, and can roll up their sleeves and talk solutions. No one here is afraid to get into a good conversation—young and experienced in a room together.”

In addition to a rigorous selection process for new hires, the company runs the “Dynetics University,” which comprises 8-12 classes taught by employees in subjects as diverse as radar signals and ethical hacking, he says. There are approximately 120 graduates every quarter, and the classes change as employees come up with other ideas. “Continuing to educate people is what drives our innovation.”

One reason for the transition to products is to avoid competing for service contracts where rates are too low. “In the past our business has mostly been engineering services, but in recent years we have being moving into products, getting more into integrated systems and becoming a prime,” says King. “We have grown to be large enough and broad enough that we can provide integrated systems,” along with services, he says.

Dynetics builds instrumentation and telemetry for testing missiles, aircraft and UAVs. The company developed the attitude control system for Bigelow Aerospace's inflatable space habitat and built FASTSat, a small technology satellite that has been in orbit since November 2010. Its role on the Stratolaunch program shows that Dynetics “has some skin in the game,” says King. “It is clearly an area where we are taking a little more risk.”

The company does not see itself as a volume producer. “We are more a prototyping shop, building 10 or 100 copies of something . . . rather than making and selling widgets,” King says. Nor does the company see itself as a low-cost producer. “We value excellence more than giving people a bargain.”

The transition to integrating systems and developing products “is definitely a culture shift,” says King. “There are areas where we probably always will be in services, as it is a great business base. Our products are typically outside of the areas where we do a lot of services, to avoid organization conflicts of interest.

“It is a difficult transition to make as we grow from a small to a large business . . . [but] we are stepping up our game,” King says. “The best way to find more investment money is to grow at a reasonable rate per year. That is what we are trying to do now.”