Should your company pursue government services as a business line? The advent of the stimulus package has raised the issue with a lot of commercial businesses: Is it time to move into government services?
Almost daily, I talk with company principals considering a strategic move into the federal arena. Billions of dollars, seemingly suddenly available, is an attractive lure to strapped and struggling companies. Perhaps your commercial services firm is floundering in the economic downturn. Or maybe you are successful in your market and looking to take advantage of current opportunities brought about by recent administrative decisions to allocate funds to federal programs. Either way, stimulus dollars are tempting, but the essential truths of marketing to the federal government remain constant.
Here, I address the top five myths I hear most often, counterpointed with the facts that belie them.
Myth #1: It is easy to sell to the government, especially if I have a “friend” on the inside.
Fact: The government is as savvy a customer as you will ever encounter.
The federal government has been purchasing goods and services for over two centuries and has a well-established and highly-regulated system—backed by law—for ensuring best value, minimizing corruption, and virtually eliminating subjective buying-decision authority. People go to jail for contravening procurement law. Do any of your commercial customers face that risk for a bad buy decision? That said, all business development is about relationships. Having a “friend” in the agency can be advantageous as a door opener, and can be invaluable in identifying opportunities, but you must present a solid value proposition and highly competitive pricing to win.
Myth #2: Government contractors make a lot of money. It’s a great way to “get rich quick.”
Fact: It’s a long game.
Large government contractors do generate a lot of revenue, the bulk of which is paid out in salaries to employees and to subcontractors and vendors. The story for small service contractors is much bleaker. It can take many years to turn a profit, even if you win a contract or two in your start-up years. Even with prompt payment regulations, you may have to carry a substantial payroll, and pay your subcontractors, for a few months before you get paid by the government.
You will need to factor in costs of recruiting, businesses development, and other expenses you won’t recoup through rates billed. (A recent poll revealed the cost of recruiting one senior-engineer can be as much as $20,000.) Also, you must be financially prepared for contract gaps, possible protests, and furloughs during which you may have to carry employees on overhead for one or more pay periods.
The typical sales cycle in the government for a known requirement is 18-to-24 months. That is up to two years for your business to support active marketing, business development, capture, and proposal efforts. Do you have those resources?
All of these factors must be considered, while keeping your salaries and your rates competitive and your books transparent. Do not expect to operate on revenues for the first three-to-five years.
Myth #3: I have a (Woman-owned, Veteran-owned, minority-owned) small-business set-aside status, the government has to give me business.
Fact: The competition just got tougher.
Disadvantaged business set-aside programs (Disabled Veteran Owned, 8(a), HUBZone) can be a great accelerator to a small business, and open opportunities not available to other businesses. The bad news is, you aren’t the only one who knows this and the competition among these groups is as tough as any. Many contracting offices are leery of “carpet baggers”—companies formed for the sole purpose of gaining a set-aside advantage. There are many qualified, capable, and experienced small businesses competing for set-aside contracts. You must lead with capabilities and have the financial ability to support the work once it is won.
Finally, the purpose of any set-aside status (with the exception of “Super 8(a)” and HUBZone) is to give your company a “boost,” to create a level playing field on which you may grow your business to compete on an unrestricted basis. Your objective should be to break through those size-standards with momentum as you grow your business, and make way for (and perhaps even mentor) small companies that still need the leg up.
Myth #4: Government small-business offices are there to help my business.
Fact: They aren’t there for you.
Small business offices exist to support their respective agencies in meeting mandated contracting objectives for small and disadvantaged business utilization, and to ensure the government receives best value through the contracting process when utilizing small businesses. You will not find a small-business advocacy mission in their charter. Bottom line, they work—not for you—but on behalf of the customer to whom you are trying to sell.
That does not mean the small business offices aren’t a great resource for your company. They can help you navigate many of the sticky wickets you will encounter. Just don’t lean too heavily on them for your marketing or business development, and never forget who they really work for.
Myth #5: If I respond to enough RFPs, I am bound to win some work.
Fact: Writing many proposals is probably the least-efficient business development strategy you can employ.
Iona Moon wins over 90% of all proposals bid because we concentrate the business development efforts of our clients toward those opportunities with the highest-probability of success. We advocate a rigorous and objective bid/no-bid protocol and we apply it early and often to every opportunity, at every stage prior to submitting a bid. Writing good proposals is critical. Knowing which proposals NOT to write can make or break your business.
There are many more variables to consider when charting a new business course. The decision to pursue federal business is a big strategic investment for your company. It should be carefully-planned, well-funded, and perhaps most importantly, led by a commitment and ability to provide quality service at competitive rates to the toughest customer you will ever love.
Best of luck.
© Iona Moon, 2009