
Why Can't Startups Get US Government Contracts? - callum85
https://news.vice.com/article/why-cant-startup-companies-get-us-government-contracts
======
patio11
Apologies for brevity (posting from a plane):

Small businesses can absolutely get government contracts, but becoming very
adept at doing this is a skill, comparable in execution difficulty to, I don't
know, SEO or cold calling. There exist many businesses in your town which,
month in and month out, respond to RFPs for government services in the five
figure or six figure range.

If there is any interest, I'll share Appointment Reminder's (unsuccessful) bid
for a government contract in Hawaii. That's not ordinarily a huge portion of
our business, but I became aware of the opportunity and it felt like a lay-up.
It wasn't, as I failed to discover a key piece of information (namely, that an
enterprise competitor had won the contract the year prior on a bid that was
half of the minimum that I'd contemplate), but the process was not
extraordinarily oppressive by the standards of An Adult Who Occasionally Plays
Like This Is A Real Business.

Long story short: the white-hot competition to deliver 100k phone calls a year
produced exactly two responsive bids, for $30k and $15k. The competitor, who
won, won with a one-pager that said "Details substantially same as last year;
if you don't have our old brochure on file let me know and I'll re-fax.
Signed, an employee whose only job is to file 250 bids for $15k a year and
probably gets a gift certificate if more than 50 turn into sales."

My model for that bid, by the way, was "$5k of AR services, $10k budget for
extra Twilio calls, $10k for software customization, $5k for anticipated
hassle." That's an internal model: Hawaii only cared about the final number.
(I can buy my competitor having economics which made their bid profitable at
$15k, particularly if they amortize engineering costs over multiple years of
anticipated renewals and/or they do enough similar business to amortize
customizations over multiple accounts.)

The cost of the process for us:

Two hours of reading accessible online documentation of vendor qualification
requirements for Hawaii, written at a 5th grade reading level.

One hour to understand the bid requirements.

Four hours writing a proposal which, like all proposals responsive to
government RFPs, is basically "The system will be capable of Copy Paste
Language From RFP Here. One sentence of elaboration."

Two hours of pushing faxes around to supplement the data collected by Hawaii's
(fairly painless!) online vendor qualification process.

One hour responding to a general excise tax audit occasioned by a filing of
Hawaii state business registration mandated by the process. (Result: we do not
owe it, as anticipated.)

$60 in out-of-pocket costs for various regulatory fees.

Plenty of companies do this stuff week in and week out, for everything from
"dig up a military statue and transport and replant it to a new location
without causing structural damage; $40k" to "400 orange jumpsuits; must not
contain any structural element capable of causing suffocation; remove all
elastic; shipping included; $8k." It's like any other sales process: you win
some, you lose some, you build processes such that your win rate costs you a
percentage low enough to allow you to still make money on the business.

~~~
bovermyer
You lost me at faxes.

In seriousness, though, I don't think it's fair to downplay the complexity of
government procurement. Having worked as a subcontractor of a subcontractor of
a contractor for a U.S.G.S. program, I've had some exposure to that world.
It's not pretty, and much of the complexity is needless.

Some of it is genuinely important, like accessibility and privacy
requirements. The vast majority, though, seems mostly to be the product of two
centuries worth of increasing bureaucracy.

This is not a problem that can't be solved, though. I don't think the
gentleman at the end of the article is correct in his assertion that this way
of doing things "is timeless." We just have to figure out how to pare down
bureaucracy a little bit at a time.

~~~
mgkimsal
This is an area that I'm doing a bit of work in right now, and there does seem
to be a certain level of difference between US federal govt, state govts, and
local municipalities. It's not that local govts are necessarily more lax, and
the ones I'm talking to still have regulations to follow, but they're
sometimes seem to be a bit easier to deal with.

------
drewpc
Startups can and do get government contracts, but the government isn't going
to come court you. You (the startup) have to figure it out yourself.

Selling to the government is very similar to selling to any other
industry/company: you (the seller or maker) have to understand the customer's
acquisition process. The big difference is that the federal government is the
largest customer--millions of people and trillions of dollars. Therefore, they
have a lot of rules and they all attempt to ensure "fairness" when the
government tries to acquire something.

How do you do begin to understand that behemoth? Here are some tips:

-You invest some (a lot) of time understanding the Federal Acquisition Regulations (FAR) [https://www.acquisition.gov](https://www.acquisition.gov). There are training classes available online and in person.

-Speak with acquisition specialists or contracting officers to understand the regulations specific to your product/industry.

-Learn about the specific rules/advantages that may apply to your company. There are many many preferences for small business, veteran-owned companies, disabled-owned companies, women-owned companies, etc.

-Understand what "fair" means to the federal government in the context of acquisition. It doesn't mean "the best solution". It doesn't always mean "the cheapest solution".

-Learn how to navigate the government's Request for Proposal (RFP) and Request for Information (RFI) processes so that you can be a part of delivering answers/solutions to the problems that the government has determined they have. The big government contractors have this stuff figured out. They know how to read an RFP and respond, even if they don't have the solution themselves.

-Understand the concept of "prime contractor" and "sub contractors". Prime contractors often win large government contracts but decide to/have to "sub" some of the work out. There are often regulations on how and what types of companies they must sub work out to. For example, AT&T may win a large networking contract but sub the work out to 10-15 other smaller companies to execute.

~~~
mynameismonkey
We run a data/dev shop inside a non-profit 400 person company that is mostly
gov contracting. _We_ will come courting. Most of our contracts require us to
satisfy some percentage from five to 20% small business/woman/minority-owned.
This could be services, consulting, pencils, you name it.

We. Cannot. Find. You.

The small businesses we know and love are not suitably registered with the
fed/state certifications. We routinely have to document what we did to try and
find adequate set asides. We'd love to be doing more business with small
businesses, but yes, the paperwork is a hassle. But if you sub contract, you
can negate 90% of the problem, let the prime contractor deal with it.

~~~
Quequau
I have a good friend who has run his own 2-5 person shop for years and lately
he says that they're often excluded by decree because the contracts stipulate
some sort of minimum size of business that is acceptable.

Do you have any suggestions I might pass on?

~~~
drewpc
The concept of "fairness" that I talked about in my previous post applies
here. If two companies submit proposals in response to an RFP seeking to
acquire 1,000 Widgets and Company A responds with a price of $10,000 while
Company B responds with a price of $20,000, the government is required to
chose Company A because they are cheaper. However, if Company B is a small
business/minority-owned business/service-disabled-veteran-owned-business/etc,
the contracting officer can choose Company B _because_ it fulfills other
requirements to support those types of businesses.

I could see some small cases where the government would restrict the size of
the company responding to an RFP, but there are also ways around that. The
small business can contact the contracting office and protest saying they were
unfairly considered for that acquisition and usually will win.

The key to the Federal Acquisition Regulations (FAR) is that they try in
earnest to support and encourage fairness when awarding contracts.
Furthermore, the government goes out of its way to give the "underdog" a
better-than-equal chance at winning the contract.

As another poster said, the small business can't lose out on other reasons
(i.e. certifications, financials, etc). It could be that they're losing
contracts for very different reasons.

Here are some links for reference:

SBA size standards: [https://www.sba.gov/content/small-business-size-
standards](https://www.sba.gov/content/small-business-size-standards)

GSA Small businesses:
[http://www.gsa.gov/portal/content/202261](http://www.gsa.gov/portal/content/202261)

Small business set asides:
[https://www.acquisition.gov/?q=browse/far/19/5&searchTerms=s...](https://www.acquisition.gov/?q=browse/far/19/5&searchTerms=small%20business)

Protests:
[https://www.acquisition.gov/sites/default/files/current/far/...](https://www.acquisition.gov/sites/default/files/current/far/html/Subpart%2033_1.html)

~~~
vonmoltke
> If two companies submit proposals in response to an RFP seeking to acquire
> 1,000 Widgets and Company A responds with a price of $10,000 while Company B
> responds with a price of $20,000, the government is required to chose
> Company A because they are cheaper.

They aren't _required_ , but not doing so will necessitate a good
justification. The Small Disadvantaged Business (SDB) designation is basically
an automatic justification, but not the only one. Contractor past performance,
the reasonableness of the bid, and other considerations can drive the
government to actually choose a higher bidder. It also matters whether Widget
is off-the-shelf or bespoke; the contracting officer tends to get more
discretion in the latter case.

------
ejcx
Like others have mentioned, in my experience small startups can and do win
Government contracts.

Most founders have intimate knowledge of the contract process and a large
network from previously working at a large DoD contractor. Once they have this
information and rolodex, they normally have an easy time running a small
defense contracting firm as a sub on large contracts and winning their own
through contract vehicles like SBIR.

This is also the story of how all those mega-mansions in Great Falls and
McClean VA came to exist.

~~~
mtberatwork
> Most founders have intimate knowledge of the contract process and a large
> network from previously working at a large DoD contractor.

That's precisely part of the problem. Without a clearance, prior past
performance or any other form of insider access, it's incredibly difficult and
needlessly complex to navigate your small business through the maze of the
procurement process.

~~~
cookiecaper
I've never seriously pursued it, but at SLCC, there is a guy whose specific
job is to help little companies break into government contracting. You can
meet with him and he'll tell you where to register your company and how to get
the ball rolling on becoming eligible for contracts. He'll help you bid on
specific contracts afaik.

You don't necessarily have to navigate the "incredibly difficult and
needlessly complex" infrastructure without help.

~~~
mtberatwork
Yup, there's an entire cottage industry that has developed just to help
companies through the procurement process. I get spammed by them every day.

------
something123
In my own experience working in defense, there are tons of small businesses
working on contracts, the government is forced to spend so much money on small
business that they often simply throw away money. I worked on R&D for a
military system which I 100% knew the gov't didn't care about and threw in the
garbage.

All the big projects force the big guys to subcontract to smaller companies

The problem is actually completely different:

There is no way for a "little guy" to become a midsized company b/c the
government is completely incompetent and relies on the huge defense
contractors for guidance. The gov't has VERY little internal expertise - so if
you have a brilliant new idea that is perfect for a midsized company to
execute (which will often have to be on an existing platform built by one of
the big companies) they have to go to the big companies to see if it's
feasible. The big companies ofcourse say it's impossible and then (if it
actually was a good idea) they steal the idea and implement it themselves.

So unless you can go from doing SBIRs (ie. under 200 employees) to build a
whole tank on your own - you're fucked

~~~
drewpc
"the government is completely incompetent and relies on the huge defense
contractors for guidance"

This is the catch 22 of any business. If you don't know something, either you
hire people with that knowledge or you contract it out. If you can't properly
supervise the work/project/acquisition because you don't have enough depth of
knowledge, then it's very hard to get a good solution. In the end, the
government is at the mercy of private industry because the government can't be
the best at everything.

~~~
something123
I don't really see the catch 22. The gov't could have the best if they payed
appropriately (which they don't, and they end up with a lot of lazy people
that are there for the retirement benefits)

The governement ultimately does have experts, but there are too few and
they're spread too thin. They end up not having enough knowledge to make
unilateral decisions

They also are often in semi-indepedent roles competing again the small
businesses. Think of the JPL or all the "Labs" (Lincoln, Lawrence etc.) or the
teams at MIT. They have their own agendas which doesn't hold technology
acquisition as it's focus ( it's more about supporting the funding of their
lil corner)

------
Spooky23
These good government groups complain about this stuff, but they are the
reason we have this ridiculous situation. Google "New York State Appendix A"
for a good example of standard contract terms that you need to comply with to
do business with that state government. Examples include:

\- You must certify that you don't use certain tropical hardwoods.

\- You must report on minority and female employees in some circumstances. You
must meet goals for hiring subcontractors owned by the same.

\- You need to certify that you've divested assets in Iran

\- You must certify that you don't discriminate against Catholics in Northern
Ireland.

Understanding how to navigate this stuff and not get in trouble requires
"fixers" (ie. lobbyists, congressmen, etc) and domain expertise to stay
compliant with everything. Competitors have to meet these too, and will submit
grievances to screw up your contract awards. For a startup, that's death, as
you'll hire people and buy stuff, and not get paid.

~~~
et2o
Is it really "ridiculous" to not use endangered tropical woods, or to report
minority or female employee statistics?

I understand it's a headache, but these seem pretty logical.

Here is the link:
[http://ogs.ny.gov/About/appendixa.asp](http://ogs.ny.gov/About/appendixa.asp)

~~~
Afforess
Yes, it is ridiculous. I can not imagine how the choice to use tropical woods,
or the number of minority employees would impact the final result of a
_business contract_. The government should be concerned with the end result,
not the minutia.

This sort of detail-peddling is why only massive corporations can attain
government contracts. Regulatory capture is the inevitable end result.

~~~
eropple
The government is concerned with the shape of the society it represents as
well as the end result. Accepting some inefficiency for social good is a
feature, not a bug. Even when it makes you mad.

And, as described numerous times elsewhere in this thread, it's not that hard
for small companies to get governmental work. But the process is different,
for reasons that are not themselves unreasonable, and most don't really want
to play with stuff like FAR. (Which is part of why many large governmental
contracts require subcontracting to small companies--itself but the most
efficient process, but a good one for growing those small companies.)

~~~
mindcrime
_The government is concerned with the shape of the society it represents as
well as the end result._

No it isn't, it's concerned with perpetuating itself and its bureaucracy and
maintaining whatever hold on power it and its people have established... and
with grabbing more power when and where possible. Any social good the
government does is just a happy accident / side effect.

------
azaydak
There are startups that in fact ONLY have government contracts. There are
mechanisms that allow small startups to be awarded contracts without the need
to compete with larger companies. The advantage in this approach is that
founders don't need to go find venture funding, allowing them to retain more
ownership of their company. This gives them the ability to have more to offer
to new and talented employees. The disadvantage... well the government work
slowly (which is counter to the silicon valley culture of rapid development,
growth, and sell).

------
mindcrime
I think they can, but a lot of it comes down to your willingness to play "the
game". An example of what "the game" can look like is illustrated in this
email we received from In-Q-Tel:

    
    
        Hi Phillip,
    
        I am with the investment team at In-Q-Tel
        (www.iqt.org), which is the strategic 
        investing arm of the CIA and other US 
        intelligence agencies. We invest in 
        innovative companies that are building 
        cutting edge commercial technologies that 
        may enable the agencies we work with to 
        rapidly develop and deploy new capabilities. 
        In addition to investing, we also in almost 
        all cases purchase some amount of product 
        and services from these companies. 
        Our customer agencies then frequently 
        make follow on purchases directly 
        with the companies.
    
        I recently came across some news 
        coverage of your company. I am contacting 
        you because your social collaboration 
        technology might be of interest to the 
        agencies we work with. Would you be 
        interested in having an exploratory conversation?
    
        Please let me know if you have some 
        time over the next couple of weeks to talk further.
    
    
    
    

So in this particular case, I think the implications are pretty clear - "take
money from us, and become a puppet of the military-industrial-defense-
espionage complex (MIDEC), and we'll help make sure the MIDEC buys lots of
your product".

Possibly a good deal for people who are into that sort of thing, but we chose
not to pursue it, as I don't have any interest in supporting the
CIA/NSA/DIA/DHS/FBI/ETC.

------
vinceguidry
After I got out of the Air Force, I worked briefly for a guy making running
lights for F-16s. They had maybe 5 regular workers and would take on temps
like me to help with the workload. Doesn't get any smaller than that.

Should we really be surprised that the market for rocket launches into space
is somewhat more difficult to get into?

------
ryandvm
Because the incentives are set up such that it is more rational for
governments to have a predilection for predictability over risk - even if the
predictability means it will take much longer and cost much more.

~~~
HillRat
That, I think, is the key observation that the article essentially ignores in
favor of trivial sidebar issues (like acronyms for procurement systems that
haven't been used in three years). Governments are structured as large, top-
down bureaucratic entities; their projects, unsurprisingly, tend to be
structured as large, top-down bureaucratic endeavors. Some of this is due to
structural concerns (fund-based accounting imposes limitations on how you
procure and encumber expenditures) and some due to substantive concerns
(agencies do not have the space to "pivot" their operations; when you're
responsible for public safety and welfare, incremental iteration can be a
pretty risky play); in either case, it certainly, as you point out, biases
governmental organizations to caution, trading money and time for
predictability.

Unfortunately, as we know, in project management unameliorated risk is a
compounding factor, and iteration and hypothesis testing are some of the few
risk sinks we know about in practice. Squaring that particular circle is the
holy grail for practitioners inside the government and out.

------
pmorici
"According to a report released by Public Citizen last May, the contracts the
government counted toward its small business targets in 2013 "included some
held by the largest companies with which the government does business."

The reason the above happens is because people start small businesses and then
when they win lucrative contracts the large companies buy them. The article is
a good overview of a dysfunctional system though.

~~~
zaphar
Yep. It's all about the contract vehicle. An existing contract with the
government is worth it's weight in gold because it's easier to extend a
contract than to get one.

If a company has an existing contract with the USG then they could get bought
just for the contract.

------
moron4hire
I think this is really only true for big-ticket military contracts, which are
designed to siphon money from the tax payers into the wallets of specific
crony contracting firms in the first place.

If you're a small startup, there are dozens of ways to get into government
contracting. Start looking at your city level. My home town even has an open-
access procurement website where I can sign up, register my credentials, fill
out my tax paperwork in advance, and configure email alerts for different
keywords on procurement contracts that they post. If I had 5 employees--
instead of my company being just a loose conglomeration of three consultants
working on three completely different projects but sharing our billing--then
I'd be able to even bid on some of these GIS software contracts.

I know my state has a similar site, I just haven't gone through it yet. I'm
pretty sure federal has such a system that a number of the different bureaus
use.

------
csense
> "the Federal Acquisition Regulation, which is 1,895 pages long."

> "We're passing laws within an election cycle, and when administrations
> change, our tendency is to layer in more laws instead of reforming the ones
> we already have"

The problem is that our laws are simply too complex. If I was President, I
would refuse to sign a law that didn't (1) expire if not explicitly renewed in
20 years, (2) fit on 10 pages (with standard font size, margins and line
spacing), and (3) result in a net reduction in the size of the legal code (by
repealing old laws of greater length than any new text introduced).

~~~
et2o
Not to side on the side of onerous regulations, but this is a little naive.
There is good reason that many of these laws are as long as they are. Things
have to be explicitly laid out in legal language.

~~~
keenerd
Still, laws must be written before they can be enforced. Some adjustment
should be expected. I've occasionally wondered if it would be possible to have
a "Deletionist Party" who's sole political aim is simplification of the legal
code.

~~~
s73v3r
I think they would quickly find out why there are the nuances carved out in
the legal code. Writing laws for millions of people, let alone 300+ million,
is insanely complex.

------
tsotha
A relative of mine worked in contracts while he was in the USAF. He hated to
deal with small companies, because you could never count on them to deliver.
On more than one occasion while he was there the Air Force took delivery of a
half-finished doo-dad (satellite or sensor or whatever) because the company
that won the contract went out of business before they could finish. Picture
the shell of a satellite with wires hanging out next to a big stack of
documentation of questionable value.

And then there were the companies that couldn't deliver on time but hadn't
gone out of business yet.

"What do we do here? We could fine them a bunch of money for being late, but
if we do they'll go out of business and we'll never get the thing they're
supposed to be making for us. I guess in theory there's a chance they could
still deliver if they're still around."

------
bane
There's a ton of startups that get U.S. government contracts. It's not hard
and in fact the government specifically sets aside something like 30% of
contract awards to small businesses and other disadvantaged businesses.
There's an entire industry of forming startups that only chase after small
business set asides, then sub in a major government contractor to perform the
work -- acting as a pass through. Startups that are very good at this end up
"owning" lots of large contracts and then end up being acquired as a division
of a larger defense contractor so they can squeeze the last few percent out of
the contracts the startup holds.

Rinse, recycle and repeat. There's lots of very wealthy Beltway residents
who's career is just spinning up businesses to do this. It's a kind of a
parallel system to what goes on in the Valley.

------
brokentone
Oddly Khanna's paper, while referenced, is not linked. Here is the original if
anyone is interested:
[http://lincolnlabs.com/innovation_report](http://lincolnlabs.com/innovation_report)

~~~
chrisabrams
Thanks for sharing - I don't know why they wouldn't link it.

------
mshaler
I personally executed several first-time transactions with multiple government
agencies (mostly IC) while our start-up was still less than 100 people. It's
not fundamentally different from typical enterprise sales, just involving
different tactical obstacles.

The follow-on transactions, however, were much more challenging as the Beltway
Bandits (prime contractors) dramatically increased the friction for us to be
able to expand our footprint. We still succeeded, mostly because our
technology was superior and we had the right agency (not contractor) advocacy.

------
rhodysurf
In the Ocean/Marine Engineering field tons of smaller businesses are
government funded. A lot of the times though, they are sub contracted by a
company like Lockheed Martin or General Dynamics

------
pnut
Pretty sure they can via SBIR program, if it's still around.

 _edit_ [https://www.sbir.gov/](https://www.sbir.gov/)

------
ticktocktick
Because 20 year olds may not have the extensive government contacts required
to land big money contracts.

------
zeidrich
Two things:

1 - Regulatory capture.

2 - Startups might be efficient because they're lean on things that might be
important to government. Like a small IT firm handling a presidential
candidate's e-mail server.

#2 feeds #1 because lobbyists suggest important rules and regulations that can
be justified by government which increase the barrier of entry to startups.
Oh, you don't have certification that you do this? Oh you haven't submitted
for these checks? Oh you haven't been reporting on this? If you haven't done
all of these things, then you aren't eligible to win this contract.

Individually these points can be logically argued and make sense on a case by
case basis. It's just that the enterprises that are in bed with the government
already put themselves in a position where they are compliant with the new
regulations that they're going to make, and then lobby to make those
regulations to force competition to scramble for compliance at the last
minute.

------
debacle
For us, the biggest problem was the sales cycle. For a $30k project we were
looking at a ~10 month sales cycle. With normal clients, we could have closed
a $30k sale in six weeks.

------
Floegipoky
'Why Can't Startups Get US Government Contracts?'

Simple: startups represent market disruption, and bureaucracy by definition
can't deal with disruption.

------
cwyers
[http://ourincrediblejourney.tumblr.com/](http://ourincrediblejourney.tumblr.com/)

------
douche
I've worked for a company that had a handful of relatively lucrative defense
contacts (not multi-million $ deals, but significant cashflows, especially
considering how low-maintenance they were from a support perspective).

It was a husband-wife owned startup, but I believe actually incorporated under
the wife (the CFO), which gave a leg up in certain DOD bidding processes,
through various woman-owned-business grants and policies.

------
joesmo
Invest money in buying politicians (lobbying) and you'll get a ton of
government contracts. What's that? Startups don't have money to waste buying
politicians? Gee, I wonder why they can't get these big contracts that
constantly go to unqualified companies (healthcare.gov anyone?) and pay orders
of magnitude above the actual cost of building a product ... yeah, it's a
total mystery.

