Ray Lopez, center, president and chief executive of Engineering Services Network, Daniel Shapiro, left, ESN’s chief operating officer and Dennis Groh, chief marketing officer. Once solely focused on Navy work, this defense services contractor diversified into information technology. (Evy Mages/For The Washington Post)

Raymond Lopez Jr. spent three decades in the Navy, starting out as a seaman apprentice and retiring with the rank of commander. When Lopez and his wife Carol started Engineering Services Network, a defense services company, in 1997, they built their business on Navy contracts, growing from a small start-up into a $38 million-a-year enterprise. Lopez felt like he had never really retired from the Navy.

But when the clouds of budget cuts gathered in Washington a few years ago, he realized it was time to move out of his comfort zone. The Crystal City company decided to diversify its business — a hot button word in defense contracting circles.

Back in 2004, ESN had worked on a $551,000 Air Force contract. Seven years later, when Lopez was looking to expand outside of Navy work, the connections established on that job helped the company win a crucial five-year, $38 million IT services contract with the Air Force.

The experience cemented Lopez’s decision to enter information technology. More than half of ESN’s business is still generated from providing engineering, operations and technical support services for the Navy, but federal IT jobs — managing tasks in cybersecurity and software development — now account for nearly 30 percent of its revenue. The company has worked with the Air Force, the Department of Veterans Affairs and the Department of Health and Human Services.

“When we started off, we were a little shaky,” said Lopez, the company’s president. “But you have to change, you’ve got to be able to look forward and take on acceptable risks to survive.”

As the waves of sequestration hit, ESN’s revenue dropped like most other contractors. The company stayed afloat, partly because of its diversification strategy and also by cutting costs to make business more efficient, said Daniel Shapiro, ESN’s chief operating officer and a former Navy man himself.

As a result, ESN managed to keep its workforce largely intact over the years. The company employs about 250 people, scattered at project locations in the United States and Japan. The Arlington office comprises 15 administrative employees. Lopez’s office wall is littered with nautical memorabilia, from a ship’s wheel to paintings of boats.

It may have weathered one storm, but Lopez says ESN faces the same set of challenges plaguing the industry right now — fierce bidding for every contract, delayed project start dates and making smart hires.

ESN graduated from the Small Business Administration’s 8(a) business development program, which promotes small disadvantaged firms, in 2006. Technically, the company is now a large defense contractor, placing it in a category that includes Lockheed Martin and Northrop Grumman.

But the company still operates like a family-owned small business, trying to get its bearings in a new environment. Lopez calls this in-between zone “purgatory.”

“If you’re a services company, you’re in purgatory the minute you go big,” he said. “By law, you are just like Lockheed or [General Dynamics], but how on God’s green earth are we going to compete with them?”

When ESN was starting out, it participated in the Defense Department’s mentor-protege program, which paired established companies with up-and-comers. Anteon, ESN’s former mentor company, has since been acquired by General Dynamics.

Dabbling in the IT sector has taught the former seamen some valuable lessons.

Any future growth lies in hiring the right people, Lopez and Shapiro say, so that’s where ESN is investing its profits.

“Things change daily on the IT side,” Shapiro said. “If you can’t invest in the people to keep up with that, you’re outdated before your contract’s up.”