Op-Ed: To Startups Thinking of Selling to the Government, Think Again

In April, Ashton Carter, the Secretary of Defense, asked the young and enthusiastic entrepreneurs of Silicon Valley to focus their attention on the government’s toughest problems. While the offer would pay richly in personal satisfaction, it is a questionable business move. And with the possibility of a government shutdown in the horizon, it isn’t even a question or choice for young, resource constrained tech companies.

Working with the government has always meant slim margins, delayed payment, and possible jail time if you make a mistake during the complex process. But it also means a long term, stable revenue stream. That predictability  which has enabled many companies to grow and reinvest profits into developing innovative products for both the public and private sector.

When a government shutdown interrupts that predictable revenue stream, companies often have to lay-off employees, halt R&D, or even declare bankruptcy. These companies quickly realize that their is no reason to work with the government if it is an unreliable customer.

The 2013 government shutdown lasted over two weeks and in the two years since, roughly 100,000 small businesses stopped working with the government and only 25 percent of small businesses registered to bid for contracts. That means a 25 percent decrease in bidding competition and 25 percent drop in the number of companies innovating new solutions for the government and by extension, Americans.

A shutdown now would cause even greater damage because we are particularly dependant on the success of American entrepreneurs for our global standing. China is hungry for new ideas and has the capital to invest, whereas, in America, the government is the least attractive customer.

The OPM hack, Healthcare.gov, and the F-35 are all reminders that we desperately need to support the private sector — especially those working on cybersecurity, agile development and manufacturing.

Right now an entrepreneur in Silicon Valley and a researcher in Boston are coming up with the next great big data tools that could be used to beat the stock market or identify terrorists. Their team is small, their funding is shrinking and they only have the resources to pursue one customer. They know Wall Street would pay them on time, while it looks like Pennsylvania Avenue is soon to be closed for business. Which one do you think they will choose?


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Geoff Orazem is the CEO of Eastern Foundry, an incubator, accelerator, and services provider for government contractors and technology companies.  

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