
Govtech: The $400B Market Hiding in Plain Sight - RonnieB
http://govtechfund.com/2016/01/govtech-the-400-billion-market-hiding-in-plain-sight/
======
ilamont
While there may be an attractive market, selling to the government is a
byzantine, frustrating process that puts startups and small businesses without
in-house contracting expertise at a disadvantage.

Before you commit to anything, study the processes that govern this space.
There are lots of requirements for getting into the system — my company (not a
tech startup, FWIW) needed to register for SAM (“The System for Award
Management is the Official U.S. Government system that consolidated the
capabilities of CCR/FedReg, ORCA, and EPLS”), Fedbizopps, GSA Vendor Support
Center (VSC), ACES (the private company which issues a digital certificate),
Duns & Bradstreet, etc. Then I had to bone up on general contracting
requirements and pass some tests before I could bid … and then discovered
individual solicitations have their own requirements, pricing restrictions,
vetting processes, and sometimes huge delays (for one that I was interested
in, the solicitation said “it may take up to 12 months or longer before an
offer is evaluated.”) (1)

I am assuming that the Govtech fund has in-house expertise that can help
smooth the way for new companies, but there will almost certainly be
complicated processes, time-consuming bureaucratic requirements, and huge
delays that cannot be circumvented. My advice would be to ask hard questions
about these issues before going down this path.

1\. [http://in30minutes.com/selling-to-the-federal-
governmentgsa-...](http://in30minutes.com/selling-to-the-federal-
governmentgsa-a-bureaucratic-nightmare-for-small-businesses/)

~~~
USNetizen
It's not that hard once you get used to it, and your industry seems to be an
exception to the case as what you experienced is not typical in IT. The upside
far outweighs the bureaucracy when you land your first $1M+ contract (or you
could just subcontract and avoid the bureaucracy altogether). It is, however,
a market that requires a lot more commitment than most startups are accustomed
to, which is why they try to enter and then give up shortly thereafter. It
requires a lot of relationship-building, learning, and such.

I've noticed, however, that military veterans tend to be very successful in
this space because they are accustomed to the jargon, the processes and the
requirements. Like I said, it's a learning curve, but one that pays huge
dividends if you stick with it.

Plus, your local SBA office has a special government-procurement officer in
there who will actually sit with you and go over things one-by-one, so no need
to ever go it alone if you get lost. They offer free training courses as well
in government procurement. The resources exist, but too few people are using
them.

~~~
AndrewKemendo
_It 's not that hard once you get used to it_

That's the point though. "Getting used to it" is a serious effort that a small
team doesn't have the time or bandwidth to take on. You have to stop doing
other things to work on the process, which may not yield anything because it's
such a complicated space to compete within.

Trolling FedBizOpps doesn't tell the whole story about prime vs subcontract vs
SBIR etc...and by the way the USG is net-60 or net-180 so you need to have the
runway to deliver on a contract for up to 6 months before you see any payment.

I know for a small team like ours (4 people) it's just not possible given the
uncertain outcome.

~~~
USNetizen
I disagree. The half-dozen agencies we work with are net-15 to net-30 at most.
We started out as a 4 person team just a year ago, and are now a 24 person
team working in this market. So it can certainly be done if you just put in
the effort to make it so.

Like I said, there are resources available to walk you through everything
step-by-step FOR FREE, you just have to reach out and take advantage of them.
No one can force you to do that, but you won't get anywhere if you don't start
somewhere.

~~~
fapjacks
Agreed. With enough spare time spent looking, you can find all kinds of
resources to hand-hold you through this process. Also, it is incredibly easy
once you know what to do.

~~~
USNetizen
Absolutely. It's like learning a new language - once you have the rules and
flow down pat, the rest comes a lot easier. For as hard as people think the
market is to break into, there are an abundance of FREE and funded resources
to help, but almost no one takes advantage of them unfortunately.

The government itself spends tens of millions of dollars trying to get small
businesses to participate, basically like saying "I'll leave the front door to
this massive market unlocked, you just have to walk up the stairs and open it"
but these startups all turn up their nose at them because they want to ride
the business escalator (e.g. whatever is low-hanging fruit/revenue), even if
it only takes them up a single floor in the long run.

I personally know more than a dozen privately-held and even family-owned
companies that I bet almost no-one here has ever heard of, yet each one takes
in more revenue than all of Twitter. These companies used no VC or investor
funds whatsoever and were "mere startups" just a few short years ago. And
people continue to ignore this market?

All it takes is a little bit of effort and commitment to reach astonishing
heights unparalleled in the B2B market. Add to that you also get to make your
own government more efficient, cost effective and innovative over time, so
what's the issue here?

~~~
aswanson
I'm shooting you an email. I'm in your area of the country, have worked for
large defense primes in data security, and need some guidance.

------
spangry
And this figure only covers government IT procurement...

When you look at how government has traditionally interacted with citizens,
it's indistinguishable from a monopoly service market. In the past, this was
the only feasible way to deliver many government services. However, the result
is the same as any other market monopoly: inefficient production and above
welfare maximising pricing (albeit indirectly paid via taxation).

Government Web APIs fundamentally change this, and I'm not just talking about
'open data'. A whole bunch of monopoly markets suddenly become highly
competitive markets (especially since digital service production tends to
occur at around 0 marginal cost). The value to the economy could be many times
the figure discussed in the OPs article. Tim O'Reilly was so far ahead of the
times when he published his chapter on 'Government as a Platform' in 2010
([http://chimera.labs.oreilly.com/books/1234000000774/ch02.htm...](http://chimera.labs.oreilly.com/books/1234000000774/ch02.html))

More recently, in Australia they've just set up their own (kinda crappier)
version of the UK GDS and published an API design guide. I think the excerpt
from this article basically sums it up
([http://www.themandarin.com.au/48771-dto-make-creating-
apis-m...](http://www.themandarin.com.au/48771-dto-make-creating-apis-
mandatory-federal-agencies/?pgnc=1)):

 _" However despite all these challenges, the cause [government APIs] is a
great one and could do more to transform how government IT operates than many
more public steps.

If the DTO [Australian GDS] can pull this off, have agencies fall in line and
have APIs start rolling off government IT ‘production lines’, it will have
single-handedly justified its own existence and transformed how government
works, even if it doesn’t achieve anything else in the next few years."_

------
devonkim
Veterans will dominate in a lot of these contract bids because they have
veterans preferences and many get disability points on their contracts, too.
The federal employment system heavily favors veterans and oftentimes lowers
standards of employment just to bring in more veterans into companies. Then
add in that companies can be essentially paid extra for hiring a veteran on
certain contracts and you are left with a heavy bias for employees and
leadership whose primary experience in organizations is the old school,
rigidly hierarchical military.

Trying to work with some of these guys in a start-up setting outside DoD space
is no more frustrating than trying to work with a corporate developer that's
never had any job besides at IBM their whole lives. It doesn't mean they're
bad or unintelligent, but the rigor and emphasis upon certain organizational
structures and workflow processes are just plain useless knowledge in a start-
up focused upon execution.

There's a lot of cultural horrors that will keep out motivated, smart folks
from working with the government. I've spent well over 10 years of my life
hoping to be the change that I was recruited for, but it's just not enough to
be smart and motivated as much as well connected to incumbents that are
fighting very hard against change because their very expensive meals and
Mercedes S500s depend upon keeping things as stable as possible. This is the
precise opposite mentality of the technology giants in industry.

~~~
USNetizen
Firstly, your perception of veterans is woefully wrong and misplaced. Veterans
set-asides in contracting actually do very little to help a company as there
is still much legwork to be done. Even then, you stereotype veterans as
"rigid" which is simply not at all true. I see envy in your post, not facts.
Companies are NOT AT ALL "paid more" for having veterans on contracts. Labor
rates are the same regardless of the status of the employee. You're
facilitating the spread of rumors, stereotypes and hearsay which is why people
think badly of this market. Veterans are given preference for hiring, yes,
because they have a skillset that too few private sector employers realize
unfortunately. There are studies to prove that point.

Secondly, "focusing on execution" and not processes is why so many startups
die in a growth stage because it too often means chasing revenue only with few
long-term plans. The government is inherently a long-term market. You need to
have a long-term view. True, if you're developing a dog-walking app or
glorified to-do list, yeah, it's not a market for you. But if you really want
to do something game-changing and want to build something of note, I see no
better place for it. Look at Palantir for example. There are hundreds of other
examples.

Lastly, you can't just sit around waiting for "change", you have to make it
happen. I used to be a GS-13 employee, fairly high up at one of these
agencies, and I voluntarily left a secure job to make more of a change and I
see it happening. It's rewarding, but you have to push for it and take risks
or else nothing will ever come of it. I speak from experience actually doing
this. How many else here can?

~~~
patorjk
> Veterans are given preference for hiring, yes, because they have a skillset
> that too few private sector employers realize unfortunately. There are
> studies to prove that point.

This seems a little like hand waving. Can you go into what skillsets you're
talking about and what these studies are? For certain jobs I can see their
experience helping, but I don't see how they should be given preference across
the board, especially for technical jobs (ex: given two DBAs, I would imagine
you'd want to hire the one most skilled at being a DBA).

~~~
USNetizen
And who better at being a DBA than someone who did it, for example, for the
intelligence community processing millions of records per day/hour? Who better
for supporting IT systems than someone who did it in the middle of the desert
during combat operations? Life stateside has nothing comparable to that level
of experience or pressure.

You can Google it. There are dozens of studies showing that companies that
favor or are led by veterans are more stable, have higher morale, better
cohesiveness, etc. The skills, in particular, they bring are typically "soft"
\- leadership, adaptability, teamwork, integrity, confidence under pressure, a
truer world-view, character, etc. but more and more bring highly advanced
technical skills, particularly in the cyber realm. Trying finding those in
your average college grad who only knows what he/she experienced on campus and
read in a few books.

Technical skills aren't everything - they can be taught comparatively easily.
Other skills are ingrained in a person through experience. Those are the
skills I speak of. If you are hiring only for pure tech ability at that one
moment in time and not for the "whole person" then you have a truly short-term
view. Even Google and other tech giants realized this.

~~~
EvanPlaice
You're assuming every military network admin was directly responsible for
keeping the system up and running.

The reality is much different. Usually, it's a small minority of exceptional
individuals that keep things running while the rest skate or gain merit
through other means (ex high PT scores).

Even then, training for a speciality often covers the bare minimum to operate
the equipment for a few reasons. First, training must be standardized across
each MOS leaving little room for differentiation. Second, training standards
are often set by senior ranking NCOs/COs who may have risen through the ranks
for reasons other than technical ability.

Any role requires a higher degree of skill (ex engineering) or higher degree
of differentiation (ie systems design) are passed off to contractors because
the time/money costs of training an entire MOS to a higher degree of technical
ability are too high.

It's gotten to the point where security has shifted to civilian-only support
because the service members can't be trusted to follow best security practices
when their superiors take a 'make it happen or your career will suffer'
stance.

It's really common for the most talented/capable service members to leave the
service and immediately return as contractors. They get paid more and don't
have to deal with all the rank-and-file BS. The system doesn't reward talent
in spite of good intentions.

I'm not trying to bag on veterans. I worked as a contractor and personally
know many individuals I wouldn't hesitate to follow to the end of the earth.

Some individuals are truly exceptional in terms of leadership and/or technical
ability but stating that all veterans can be lumped into that group is naive.

------
wmeredith
It's not hiding. It's a cesspool of bureaucracy and nepotism that almost by
design weeds out those with the disposition for creating good software.

~~~
USNetizen
What have you done to try and fix it? Looking in from the outside you can
speculate all you want, but maybe do something to work your way inside and see
what it is really all about. There you'll see things can change, but you have
to be willing to put in the effort, but too few are unfortunately.

~~~
avs733
the deeper I get in this thread the more I like you.

I used to do contract work for a number of small businesses (call them
startups if you like...at least one fits the term) that sold to FedGov,
specifically DOD. They had many of the same complaints I see here, what I saw
was a mismatch of priorities and expectations that gets lost in a see of
translation problems...especially when you involve the USMC. The process is
often the way it is for very good reasons. However, the reasons may not be
apparent or operate on the same paradigm as those in the startups world are
used to.

As with any subcommunity within culture there is a lingo and a language and a
way of doing things. The folks in here have their own (I mean we are on a
website hosted by a business incubator named after a math operation). What I
feel like is going on in this discussion thread is a classic case of 'I don't
understand it so it is bad'. It looks very poorly on the startup community,
and reinforces stereotypes about us as a group.

Reframe the paradigm of FedGov not as focused on efficiency but instead on
processes and procedures in the name of fairness and the whole thing starts to
make more sense. I do acknowledge that fairness in this case being an often
abstractly applied and defined process.

------
joshmn
For anyone who has experience in selling to Govs (successfully or not), I'd
love to hear about it.

~~~
USNetizen
About 70% of our revenue comes from the federal government, including cleared
work. We specialize in this space and have customers across a half-dozen or
more agencies.

The sales cycles can still be pretty long, but mostly for IDIQ's with $30M+
ceilings. We've received small $500k contracts that took over 9 months to
award and, on the other hand, $3M+ contracts that took just a month.

A lot depends on the department/agency, and even organizations within the
department/agency. It varies so widely but the key is getting to know your
customer and anticipating the cycle. Relationships are absolutely crucial to
getting government sales - the boilerplate they put out as RFP's hardly ever
tell the full story of what the customer needs.

Also, leverage your set-asides and find reputable partners to team with. Can't
stress this enough - it's the only way to compete against the behemoths in the
market who have far more name recognition amongst contracting officers (who
can be extremely risk averse). If the government isn't your target market, you
can start winning work as a subcontractor and working your way up the ladder,
getting to know your program manager customers who make the purchase
decisions.

Two books I recommend as well -
[http://www.apress.com/9781430244974](http://www.apress.com/9781430244974) and
[http://www.amazon.com/Zero-Billion-Entrepreneurs-
Government-...](http://www.amazon.com/Zero-Billion-Entrepreneurs-Government-
Contracting/dp/1940013046)

~~~
hudibras
>Also, leverage your set-asides and find reputable partners to team with.

This is something that I've always wondered about. Contracting officers and
large contractors are desperate to team up with start-ups (otherwise known
outside Silicon Valley as "small businesses") so why don't more start-ups use
government contracts as a no-strings-attached method of raising cash or
bootstrapping?

Maybe it just doesn't sound cool or sexy to say that you're basically working
for Uncle Sugar...

~~~
USNetizen
I think too few of them realize how powerful (yet easy) SBIR and CRADA
programs are - free funding to develop a product, courtesy of DoD, HHS, etc.
Up to $750k per year. I know entire $50M+ companies that specialize in SBIR
R&D alone even, then license their product patents.

Heck, Oracle started out as a DBMS for the CIA. Almost all of the founding
semiconductor companies of Silicon Valley were funded in large part by defense
work (missile guidance). People forget this, but I think the realization of
its potential coming back around. ([https://www.sbir.gov/about/about-
sbir](https://www.sbir.gov/about/about-sbir))

What's cooler than developing products used instantly by up to millions of
customers all at once? Once you overcome the stereotypes of working with the
government, you realize how truly amazing and transformative it can be if you
do it right.

~~~
devonkim
So much software I've written for DoD customers becomes shelfware it's an
embarrassment to the country. Half a billion dollars of taxpayer money going
into random big data projects that mostly line the pockets of commercial
software sales engineers and so few incentives to finish the job correctly in
the current funding atmosphere (the squeaky wheel gets the grease) that almost
all the DC area boutique, "elite" developer shops have had to sell to attempt
to try to stay afloat.

Just look at the insanity that is DCGS and how useless it's been compared to
our old friend Palantir when 80% of the point of DCGS was the government
wanted to own the software itself and have it work on its own terms. It's
almost a billion dollars in and last I saw the active user count was in the
dozens - they counted test users in those figures. This is almost exactly the
path of repeat failure I've seen in private sector when everyone was laughing
at AWS as "not enterprise ready" then proceeded to spend millions on some
random cloud-ish solution of hodge-podge software by contracted teams and now
the same vendors are scrambling to match features or cost with AWS as sunk
cost fallacy rears its ugly head. My current F50 customer is a major AWS
proponent and is whittling down its legacy in-house IT after the massive
savings and performance improvements over the internals mired in decades of
worthless IT manager-centric designs and their associated failures. The same
kind of transformation is what needs to happen in government but the machine
is too invested in bureaucracy-ware companies that always get the funding over
really hard tech companies. The current Pentagon procurement model is shifting
toward more commercial partners and moving away from the companies that did
their bidding historically and contributed to the mess (Trailblazer ring a
bell? That's a VC's entire cap portfolio blown out in like 7 years for zero
business value gained).

Getting meaningful things done will always win over bureaucracy and cronyism
in the long run, and the current federal climate is nothing like it was
decades ago that actually took real risks for some pretty great gains.

I'm sure things can be done in the federal system but the change is so slow
and I'm not getting any younger while I wait for approvals and market
confirmation from people that lost their passion for technology decades ago.

~~~
EvanPlaice
The issue is, product development in the DOD is a high risk low reward
proposition. It puts the careers of individuals who have dedicated their
careers to the government on the line.

Nobody gets a merit boost for successfully fielding a new tactical system. If
they do a good job, their accomplishments are dismissed as 'business as
usual'. If things don't go well, it could irreversibly tarnish a lifetime of
hard work and dedication.

The bureaucracy barriers are in place to protect people's careers. The 'move
fast and break things' mindset will never be accepted when somebody's career
is on the line.

Contracting fills the gap because if things go bad, blame can be shifted to
the contracting organization. It's not uncommon for contractors to continue
picking up new work despite a trail of failed projects. They're just 'playing
the game'.

------
Spooky23
It's a tough market for a startup. I've worked for state .gov, and probably
oversaw about $20M-50M in purchases annually.

Some downsides:

-Our procurement cycles are very long, sometimes as long as a year.

-Procurement contract vehicles are a horror show. The contract terms and conditions are often not negotiable, and may impact your ability to get credit, etc.

-You may find difficult to deal with services terms imposed by some procurement regime.

-If you don't have a field sales force, you'll probably need lobbyists to get meetings.

-You'll need to deal with all manner of crazy compliance regimes. HIPPA, FERPA, IRS 1075, CJIS, etc. Plus local policy.

-If you "partner" with the IBM/Unisys/Dell/EMCs of the world, you may find yourself screwed holding recievables for the big vendor, used as a straw man by the vendor sales team, forced to use high cost/low quality consultants from the big vendor, or otherwise messed with.

On the upside, .gov is usually terrible at negotiations, and they look at
spending differently than commercial customers. You can make a fortune selling
stuff, but you're not going to do it with traditional SaaS business models.
You need to invest substantial time, energy and dollars into the pre-sales
process.

------
niels_olson
I'm on a DoD network and this site is blocked. I'm not sure whom I should be
more skeptical of, Ron Bouganim or my network operator.

------
jaybna
There is a reason most banks exclude government receivables from line of
credit borrowing bases. It is a legitimate market, but it is hiding in red
tape and not plain sight.

~~~
USNetizen
That's not true at all and simply more hearsay and rumor. Banks see government
receivables as reliably as if you invested in treasury bonds with cash assets.
It's the only customer in the world that is 100% guaranteed to pay, on time,
as long as you perform to standard. You're speaking to the wrong people if
someone told you that. I'm speaking, however, from experience.

------
hackaflocka
I want to build "organizational operating systems" for govts. (incorporating
"best practices") using FLOSS ERP software (I've done e-Government research in
academia, and I can also code).

People who have experience in this space: is there a market for such a thing
or do govts. prefer commercial (i.e. non FLOSS) software systems?

------
tdaltonc
This is the epitome of an industry where people with good ideas could benefit
from being paired with insider advisors.

------
jlas
So who'll be the next GovWorks?

[https://en.wikipedia.org/wiki/GovWorks](https://en.wikipedia.org/wiki/GovWorks)

~~~
USNetizen
GovWorks was focused on only a small subset of the government market and rode
the dot-com boom. I've personally known companies grow from $1M in revenue to
over $100M in revenue in a span of only 5 or 6 years in the government space,
even in a lousy economy. It's the hype of Silicon Valley that you have to
avoid. Government, especially Federal, is a market that is driven by different
principles than most others out there, which many startups don't understand
before they try to enter it. So they expect immediate returns and just give
up. It doesn't work like that.

~~~
infinite8s
Do you have to be based in DC for that?

------
godzillabrennus
I'm helping out a govtech startup founded by my father. It's crazy how few
funds are out there for this.

Also, kudos to Civis Analytics for growing beyond govtech.

~~~
selimthegrim
What is Civis doing now beyond govtech?

------
daodedickinson
Crazy the deals FAST Enterprises has landed. I definitely expect to see more
competition there.

