The Great DIB Extinction Event:
How CMMC Will Vaporize 39,000 Small Defense Contractors
And Reshape the Economic Geography of American Defense
By Jeff | Monadnock Cyber LLC | December 2025
Here's a number that should keep defense community economic development directors awake at night: 39,000. That's the conservative estimate of small defense contractors—machine shops, electronics manufacturers, software boutiques, and specialized engineering firms—that will likely exit the Defense Industrial Base over the next 24-36 months. Not because they lost a competition. Not because they delivered a bad product. Because they can't afford to comply with cybersecurity requirements that have technically been mandatory since 2017.
The Cybersecurity Maturity Model Certification (CMMC) isn't just a compliance requirement. It's an extinction-level event for the small business defense ecosystem. And the cities that have built their economies around dense clusters of small defense contractors are about to feel the shockwave.
The Numbers Don't Lie
Let's establish the baseline. According to Pentagon estimates published in the proposed CMMC rule, the Defense Industrial Base comprises approximately 221,000 entities. Of those, 74% are small businesses—roughly 164,000 companies. The Pentagon further estimates that over 118,000 companies will need CMMC Level 2 certification, which requires third-party assessment.
Here's where it gets ugly. A study by IPC, the global electronics trade association, surveyed 108 defense manufacturing members and found that 24% anticipate being forced out of the supply chain due to compliance costs. Apply that attrition rate to the 164,000 small businesses in the DIB, and you get roughly 39,000 potential exits.
"Only 1% of defense contractors feel fully prepared... This percentage has actually decreased from 8% in 2023 and 4% last year."
The readiness data is catastrophic. According to the 2025 State of the DIB Report, a study conducted by Merrill Research and commissioned by CyberSheath, only 1% of defense contractors feel fully prepared for CMMC assessments—down from 8% in 2023 and 4% in 2024. The average SPRS score among surveyed contractors is -12, according to the report, against a required score of 110. That's not a gap—that's a chasm.
Perhaps most damning: Pentagon estimates indicate 80,000 defense contractors need Level 2 certification. CyberSheath CEO Emil Sayegh noted in an October 2025 press release that only 270 organizations currently hold final CMMC certificates. Do the math. That's 0.34% of the companies that need certification.
The Cost Barrier Is Insurmountable for Most
DoD's own regulatory impact analysis pegs CMMC compliance costs at $4 billion annually, and between $42-62 billion over 20 years. For individual small businesses, the numbers are brutal. According to the proposed CMMC rule's cost estimates:
• Level 2 Certification Assessment: ~$105,000
• Annual Compliance Maintenance: $120,000+ (per Alluvionic survey)
• Even Level 2 Self-Assessment: ~$37,000
For a 25-person machine shop doing $3 million in annual defense work, that's an impossible lift. The 2025 State of the DIB Report found that defense contracts represent only 45% of revenue for the average DIB contractor. Many will simply walk away rather than spend six figures annually to maintain compliance for less than half their business.
The Geographic Shockwave
CMMC's impact won't be distributed evenly. Small defense contractors cluster heavily in specific metropolitan areas, and those cities will bear the brunt of this contraction. Data from the State Science and Technology Institute shows that SBIR awards—a proxy for small defense R&D contractor activity—concentrate overwhelmingly in a handful of states: California averaged 1,074 awards annually, Massachusetts 562, Virginia 291, Maryland 246, and Colorado 238 between 2013 and 2017.
Tier 1: Hardest Hit
DC Metro (Northern Virginia/Maryland Corridor): The Dulles Technology Corridor, Fort Meade cluster, and I-270 corridor house the nation's densest concentration of small defense contractors, according to regional economic analyses. An estimated 20-30% of all small DIB companies operate here. Expect significant consolidation as surviving firms absorb talent and contracts from those who exit. The region's managed service provider ecosystem will boom in CMMC compliance services while watching their customer base shrink.
Boston/Route 128 Corridor: Massachusetts ranks second nationally in SBIR awards, driven by university spin-offs and small R&D firms. A National Academies assessment noted that SBIR awards cluster heavily in "innovation clusters"—small geographic areas where high-tech talent concentrates. Many Boston-area firms do less than $5M in defense work annually and simply cannot justify $120K+ annual compliance overhead. Expect significant innovation pipeline disruption as these firms pivot to commercial or non-defense federal work.
Tier 2: Significant Disruption
Huntsville, Alabama: "Rocket City" has built a dense ecosystem of small missile defense and space subcontractors around Redstone Arsenal, as documented in Center for Strategic and International Studies research on defense industrial geography. ClearanceJobs reported 50% growth in job postings for the region in recent years. Many local firms are specialized manufacturing and engineering shops with fewer than 25 employees. Primes like Boeing, Northrop, and Lockheed will lose qualified subs, potentially forcing them to bring work in-house or accept supply chain gaps.
Colorado Springs: The Space Command ecosystem includes many small cleared shops that face the same "comply or die" decision. ClearanceJobs consistently ranks it among the top five cities for defense employment.
San Diego: Navy-focused small contractors in electronics and communications will see significant attrition. Military.com identifies it as a top-10 defense job market, with network systems and data communications among the fastest-growing occupations.
Tampa/St. Petersburg: SOCOM support contractors clustered around MacDill Air Force Base, many of them small specialized firms providing niche capabilities, face consolidation pressure.
Tier 3: Sector-Specific Pain
Sterling Heights, Michigan: According to the city's economic development office, approximately 65% of all defense work produced in Michigan happens in Sterling Heights and surrounding Macomb County—primarily ground vehicle manufacturing. Small machine shops in the tank and armored vehicle supply chain face acute compliance pressure.
Dayton, Ohio (aerospace R&D clustered around Wright-Patterson Air Force Base) and San Antonio (Cyber Command at Lackland, training and simulation contractors) will see similar disruption in their specialized ecosystems.
The Market Restructuring Effect
What we're witnessing isn't just attrition—it's a forced consolidation of the defense industrial base. The dynamics are predictable:
1. Small firms exit → Talent and contracts flow to mid-size compliant firms
2. Primes vertically integrate → Bring subcontract work in-house rather than manage supply chain compliance
3. Regional consolidation → Surviving compliant firms in each hub absorb market share
4. Geographic shifts → Some work migrates to lower-cost compliance regions
Prime contractors are already acting. SecuriThink, a CMMC consulting firm, quoted a Leidos executive's position on supply chain readiness: "If a supplier isn't going to be certified for 12-15 months, then Leidos will not be able to 'use them'... the supplier would be 'off the team' and 'not be part of the bid process because we run the risk of not winning that award if they cannot be certified at the time the award is given.'"
The irony is acute: cities with the highest small defense contractor concentrations will see the most absolute job losses, but they'll also have the deepest talent pools to absorb displaced workers into surviving compliant firms. Rural and secondary markets without that absorption capacity face a bleaker picture—their defense contractors may simply disappear with no local alternative.
The Uncomfortable Truth
Here's what DoD officials won't say publicly but is obvious to anyone paying attention: CMMC is, intentionally or not, a mechanism for shrinking the supplier base. Fewer, larger, better-capitalized contractors are easier to audit, easier to manage, and theoretically more secure. The 39,000 small shops that can't make the cut? Acceptable losses in pursuit of supply chain security.
Katie Arrington, performing the duties of DoD CIO, put it bluntly at a Washington summit earlier this year, as reported by Summit 7: "If industry had complied with NIST 800-171, CMMC wouldn't be so hard." She's not wrong—these requirements have technically been mandatory since 2017. But "technically mandatory" and "enforced" are two different things. Arrington cited a DoD review from 2020 that found contractors with compliance plans extending to 2099. That era of tolerance is over.
"89% of defense contractors have already suffered financial, reputational, or business losses from cyber incidents."
The 2025 State of the DIB Report found that nearly nine in ten defense contractors have already suffered losses from cyber incidents. The case for enforcement is strong. But the collateral damage to the small business industrial base will be severe.
The Opportunity in the Wreckage
Every extinction event creates ecological niches. For companies positioned to help small contractors achieve compliance—or to absorb their market share when they fail—the next 36 months represent a generational opportunity.
The math is stark: 80,000 companies need Level 2 certification. Only 270 have it. The assessment bottleneck alone will create chaos. The companies that can offer cost-effective compliance paths—enclave solutions, managed security services, or turnkey CMMC packages—will capture enormous market share.
Alluvionic's recent survey of small contractors found that 38% have already experienced business development benefits from their CMMC preparation efforts—compliant firms are winning work from non-compliant competitors. Early movers are being rewarded.
For regional economic development organizations, the warning is equally clear: your small defense contractor ecosystem is about to contract sharply. The question is whether you'll help your companies get compliant, watch them exit the market, or attract compliant companies from elsewhere to fill the gap.
The Bottom Line
CMMC isn't coming. It's here. The final 32 CFR rule was published in October 2024 and became effective December 16, 2024. The Title 48 DFARS rule enabling contract requirements is expected by summer or fall 2025, according to DoD officials quoted by Summit 7. Prime contractors are already requiring certification from their supply chains. The enforcement mechanism is locked and loaded.
For the 39,000 small defense contractors facing this binary choice—comply or exit—the clock is ticking. For the cities that depend on them, the economic shockwave is inevitable. The only question remaining is who will adapt, who will consolidate, and who will disappear.
The Great DIB Extinction Event has begun. Position accordingly.
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Monadnock Cyber LLC is a Guerrilla AI Lab building superhuman intelligence-enhanced tools. We're solutions architects—AI Plumbers—who invent, patent, and license AI-powered systems that give small players big-player capabilities.
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