The federal government spends around $600 billion each year -- nearly the size of Belgium’s entire economy. As long as we pay taxes (and they are one of two certainties in life) the federal government will always have budget. Among the largest beneficiaries are technology companies. Roughly 15% of federal spending is dedicated to IT work. It’s no wonder that most large tech firms have created organizations dedicated to the federal market. Opportunities abound for smaller companies as well, since US law mandates that the government award at least 23% of contracts to small businesses.
Doing business with the Defense Department, Civilian, and National Security agencies can lead to a substantial contribution to companies’ top line if they are willing to put in the time, dedicate resources, and most importantly, passion for the mission.
Success also requires a solid strategy and the patience to stick with it through potentially years of effort to land a single contract. Oh, and be prepared to translate the acronyms. You’ll become intimately familiar with a bunch of them, like CRADA, FIPS, and FedRAMP.
The federal market’s unique culture and procurement processes present challenges that will frustrate the most seasoned executive. Countless times you hear C-suite officers say, “I completely understand this will take a patient business development effort”. Only to be followed by, “where’s the revenue?” In my more than 35 years of tech company experience, the last 20 years working with federal customers, I’ve noticed that senior executives in the private sector are eager to dive into the public sector but tend to lack the patience to maintain a presence. Those who stick with it will be rewarded.
Here are five things companies need to consider before they dive into the federal market:
1. It’s more competitive than you think.
With so many large and small players vying for federal contracts, competition is extremely intense. That means it’s all the more important for vendors to carefully examine -- and be able to articulate -- how and why their product, service, or solution is a specifically great fit for the agency it is targeting.
For example, at one of my previous companies, we realized that some features in our communications software product were ideal for ruggedized kits used in the field by the military. So, we doubled down on developing those capabilities and eventually inked a sizeable contract with the Defense Department. Victory! But it was hard-earned, with several proof of concepts to show why our solution was better than a multitude of other vendors’ software. We also spent well over $1 million and 18 months in JITC (Joint Interoperability Test Center) certification.
The lesson? Whenever a company sets out to land a federal contract, expect a tough fight. Be all in or get out.
2. If you are a technology company, certifications are a fact of life.
Remember those acronyms I talked about? FedRAMP (the Federal Risk and Authorization Management Program) provides a standardized approach to security authorizations. FIPS (Federal Information Processing Standard) is a set of cryptographic standards for hardware and software. JITC (Joint Interoperability Test Command) governs certification for military IT applications.
All are rigorous testing protocols that a vendor must undergo, at their own expense, to be eligible for a technology contract. Companies need to understand that these are a fact of life in the federal market, and they will need to invest time and money in the process.
3. Closing sales takes longer than you think.
Companies that want to do business with the federal government had better gird themselves for long sales cycles. In fact, it’s better to think of the effort as business development rather than sales, because it may take years of up-front activity before the check is signed. (In fact, the term “sales” even tends to have a negative connotation in some federal purchasing circles.)
For example, the government has a process called CRADAs (Cooperative Research and Development Agreements). These are agreements between an agency and a firm to collaborate on research and development, and they underpin efforts to transfer the R&D benefits of the private sector. If collaboration is successful, meaning your firm can enhance or accelerate the federal mission, the effort leads to a contract IF there are no OCI (Organizational Conflicts of Interest) issues. CRADAs are great, but two or three years may pass before the agreement bears fruit in a contract. Thus, companies must adopt the mindset of investing in a long-term relationship that could set them up for success in the future, not trying to make a fast sale. Fast sales simply don’t happen in the federal space.
4. Unpredictability comes with the territory.
We’re talking about the government here, so some political uncertainties will always be a given. The annual budget cycle may affect project funding. Agency appointees often change with a new administration, which may mean having to re-build relationships with decision-makers. Regulatory changes may alter purchasing priorities. The last thing federal go-to-market teams want to hear is continuing resolution. If you think COVID brought the procurement cycle to a standstill, try developing business under a CR.
As with the previous three points, nothing can be done about this -- it’s just another factor that companies entering the federal market need to factor into their planning.
5. You need the right people.
I’ve found that a company’s best representatives are technical engineers who present well and are ultimately trusted. Yes, all customers buy from people they trust, but it’s particularly true in the federal market. Selling into the federal sector doesn’t involve much schmoozing -- since federal rules forbid most types of entertaining -- so you need someone who can effectively get down to brass tacks, and truly understands the mission.
Domain expertise in the federal market is all but required. That’s not to say a commercial account manager can’t be successful, but they better not ask what DoD is. Then there is the added requirement of the clearance when working with national security agencies. In order to have a conversation about a particular project in a SCIF (Special Compartmentalized Information Facility) requires a special clearance and/or a read-in. Thus, who a company hires is very important to its prospects.
One additional point beyond these five: If your company is based outside the US, the formation of your federal organization requires special consideration depending on the activities that are of interest. It’s a complex topic for another time.
Bottom line: Companies that are genuinely passionate and enthusiastic about the mission of our federal customers are the ones that have a greater chance of success. Given the challenges of this space, you need to believe in what you’re doing.
As I’ve found in my 35-year career, working on behalf of our men and women who serve our great country will be the most rewarding work you’ll ever do.