Profiting from the Public Sector
This year, we have witnessed two giant forces that combined to create a wave of interest in government contracting. First, the recession began to dry up many companies' traditional sources of business. Then, the federal stimulus package prompted thousands of company owners to think, "Hey, with all that spending, there's got to be something I can win." The stimulus has indeed prompted a fresh wave of government contracts in areas like transportation, public buildings, infrastructure, energy efficiency, scientific research, "green" projects, environmental restoration, information technology, and health IT. But if your company doesn't do those things, don't walk away. The stimulus money is small compared to the everyday purchases that federal, state, and local governments make. And the government buys just about everything. The question is whether you're willing to do what it takes to win the business.
Too often, entrepreneurs spend thousands of dollars in trying to win government contracts with no results. The reasons for failure come down to three common mistakes: unrealistic expectations, a shoestring budget, or shotgun tactics.
Take Time to Lay the Groundwork First, let's talk about the expectations. Thousands of frustrated business owners diligently hunt down bid notices, pump out proposals, then grouse when they don't win that the contracts are all wired for somebody else. But the truth is that success requires preparation. In my experience, the companies that consistently win contracts are those that research opportunities a long time before competitions begin. They adapt products or services for government buyers, and then influence the specifications. They implement new reporting and accountability, and they create targeted marketing campaigns and tactics to attract these new buyers. Most of all, they take the time to build relationships with buyers, influencers, and partners. You'll need time to do those things even if you want to simply supply or subcontract to a bigger company that holds the prime contract with the government. With all that in mind, you have to figure out if the investment required to win a contract fits your plans to grow your company. Win or lose, pursuing government contracts will change how you do business, and initially increase your expenses, not just your revenue.
The fix: Get smart. Before you leap into answering every request for a proposal, take a good look at what your competitors are doing to win contracts. Decide if you're ready for that investment. If so, then approach government contracts as a long-haul effort with your eyes wide open, your checkbook ready, and your team ready for change.
The second approach that leads to failure is pursuing opportunities on a shoestring budget. If your business is struggling, going after government contracts can hurt more than it helps. Why? Cash-flow horizons are longer than in the private sector, both to develop business and to get paid for your work. Government buyers are typically risk-averse, and take their time getting to know new vendors. Runaway success in the first year is rare. It can take 18 to 24 months of investing serious money and effort to develop relationships, find opportunities and partners, and prepare proposals before you turn a consistent profit. Many managers rightly decide that it takes too much time and risk to develop a new market. And, unlike in the private sector, most government contracts don't pay you up front. Unless you negotiate progress payments, you need enough funds to survive until after you do the work, invoice, and get paid. That big contract can put you out of business—and it happens!
So what to do? First, try to explore alternate forms of financing. Your current line of credit is often not enough to pursue the contract, win it, and finish the project. Even healthy companies are shocked to find that their bankers do not simply extend that line to finance a signed government contract. Asset-based financing is your cheapest money, but takes time to arrange. Alternative financing (aka "last-minute money"), is always more expensive, and will evaporate your profits.
The fix: forge a closer relationship with your banker. If you've decided to pursue government contracts, and have revised your marketing budget to support that pursuit, review your access to working capital and financing. Then visit your banker to find out about financing options before you launch your campaign.
The third trap is what can only be called shotgun tactics. We all know the classic pattern: If you go after everything, not much will reach the target. Too often, entrepreneurs go to FedBizOpps, the Web site where the federal government publishes opportunities and includes links to stimulus opportunities—and pump out proposals for anything that appears relevant. The result is that most of their efforts are off-target.
The solution, of course, is to focus. When you want to win government contracts, you have to research and focus tightly to win. Otherwise, you'll go broke trying. Savvy companies will scope out the competition and possible partners in order to position themselves to win opportunities long before they pursue opportunities.
Do Some Research Free Web sites offer extraordinary amounts of federal contract market intelligence. Look into usaspending.org, ccr.gov, gsaadvantage.gov, fpds.gov, and ssq.gsa.gov. These are all good sources if you're testing the waters and not ready for a big investment yet.
The federal fiscal year ended on Sept. 30. When the final stats are in on the 2009 federal fiscal year, spending will have topped $550 billion, an all-time record. Expect 2010 to look much the same. While the White House asked agencies to trim their budgets 7% over the next two years, that could simply leave room for spending on new initiatives. The federal government will keep buying. On top of that, the Obama Administration has set a goal of spending 70% of the stimulus money by this time next year. So far, almost 47% has been allocated for specific purposes; of that only 16% has been spent. That means there's a very stimulating year ahead—if you're developing opportunities long before the competition begins.