Welcome to the fourth installment of our series- Why Startups Don’t Bid on Government Contracts. Over the past month, we’ve looked at the lack of awareness, negative perceptions, and the financial and non-financial costs of the federal market and today, we’re going to look into one more, the chances of winning.
Now it’s no secret that government contracting is hard to break into, we’ve already been over that, but just how bad is the perception within the community? Well, 3/4s of companies that WANT to work in the federal space think that only “Established contractors are the only ones with a real chance of getting substantial contracts.”
These numbers are screaming, “why try if you can’t win,” and “this industry just isn’t fair.”
Like with most things, reality isn’t as bad as people think it is. Grant Thornton’s 2016 survey of government contractors found that in 2016 incumbents only won 54% of recompetes, not bad. But this is a very new phenomenon. In 2015 their survey found that incumbents won 3/4s of recompetes, if you were a new entrant would you invest the time and resources needed to get into the federal market if you only had a 25% of winning?
After years of LPTA people think that the government is only willing to pay for the commodity version of a service
With only 13% of young companies (less than two years old) thinking government work pays well, we expect that many of those companies will pivot or exit the industry depriving the market of the next generation of talent.
From my understanding and experience, winning a government contract tends to mean a company is best at winning government contracts, not best qualified for the job. Also, effectively navigating the contracting process is not necessarily an indication that the company operates in an efficient or organized way in its day to day business. Part of this is the application itself and part of it is the requirements for qualification. Streamlining the application process, so that all applicants are equally able to apply… and can compete on their merits would go along way
Whether or not this concern is accurate it is very real, and so long as it exists very few non-traditionals will invest the time and effort to go after government work. To dispel this belief, the government will need to conduct a thorough marketing campaign that highlights the number of non-traditionals that are currently working with the government and the number of companies that received early support from the government. By highlighting the win rates of the “outsiders,” startups and entrepreneurs will have a better idea of what success looks like, and ultimately will be more open to the idea of pursuing a contract.
In our experience, a significant proportion of government contracts go to very large corporations that act as Prime contractors with small businesses/startups acting as subcontractors. While the small business expertise and contribution to the project is critical to overall success, this arrangement is often quite difficult for the small business.
Solution: Attack the narrative and de-risk
To overcome this perception we recommend two tracks. First, push the true numbers. If incumbents only win half the time those are good odds for new competitors, we think the government should push that to encourage new entrants.
Second, the government could de-risk the decision to come into the market by:
- Creating a “non-traditional” set-aside: This could be a set-aside for companies that have done less than $X of sales to the federal government meaning that the winner will by definition be a non-traditional.
- Create more flexibility in direct purchasing (e.g. make Schedule 70 more nimble to add high-demand categories): If non-traditionals could rapidly get on schedule it would de-risk future engagement and allow PMs and KOs to buy from them
Thanks for reading this week’s post, we hope you enjoyed our insight. Keep your eyes peeled for the next post on The Value Of Winning. If you would like to read a full copy of the report with the Boston Consulting Group, you may find it on our website.