Why Startups Should Look Positively At Doing Business with the Feds

The 10 Perfect Reasons for Focusing on Funding from the Federal Government in Times of Crisis (or Not). 

We live in a world of darkness. The below performance chart of the Dow Jone Industrial Average on March 16th, 2020 proves it!

Dow Jones Industrial Average on March 16th at 11:06 AM EDT; Source: Google

There is panic selling happening all across the US and the world. Food shelves are empty, schools and colleges are closing, restaurants and bars are empty, public events are canceled, the happiest place on earth, Disney is closed, and worldwide traveling has shrunk. Businesses of all kinds are in distress. Survival of startups is in serious jeopardy.

This is not the first time such an event has occurred — 9/11 and the financial crisis of 2009 come to mind. 

Also, this is not the last time such a national crisis will happen. Is your startup prepared?

This is not a story of darkness, but a story of planning, strategizing, resilience and execution, by some companies who have learned how to hedge their bets and survive in tough times. 

This is a story of how many of the 32 million businesses in US should learn to operate. If you lead a startup or work for it, this article may save your startup, your job, or your business competitiveness (increased sales or reduced losses). 

Background — the Federal Business Accelerator:

I am a former Obama Appointee, and a Federal CIO. I joined the federal government during the financial crisis of 2009 and worked on various stimulus programs including the “Cash for Clunkers.” I saw first hand the power of the federal government, and I learned a lesson then, if I ever started a business, I will make a portion of it focused on the federal government. Why? 

Because in times of extreme crisis, the Feds will not only remain a reliable customer, but will likely end up greatly increasing federal spending levels (stimulus), as well as speeding up the federal procurement cycle (shovel ready projects) in order to stimulate the economy. There is already a talk of $2T in stimulus for the Coronavirus damage!

When I finally started my business, I focused on creating a digital, self-paced, video-based “Federal Business Accelerator” called ScaleUP USA. Our goal is to help startups build a US federal government practice. We, designed the Federal Business Accelerator Program after significant research, brainstorming, pilots, and interviews with the government and industry professionals and continue to improve and expand it. 

Business is normally steady, but it spikes up in times of national crisis, like the Coronavirus. I want to take this time to discuss why, and help you plan better for your startup or small business in national crisis — like now and in the future.

1. Hedge Against Recession: 

Let us face it, there is only one entity in the US that has the potential and the instruments to address national recession, and that is the US federal government. And yes, the government will act, because the elected representatives want to stay in power. Just check out what happened to George Bush (senior). 

So don’t put all your eggs in the “commercial” basket, leave some eggs for the federal marketplace. Plan now and execute.

2. Size of the Market: 

The US federal government is the world’s largest customer spending approximately $6.9 trillion in 2019. Based on the USA Spending website, in FY 2019 alone, the US Federal Government spent over $4.47T on grants and fixed charges and $926B on contractual services and suppliers! Surely, you should find a few million dollars here for your company, if you seriously try. 

By the way, just to compare the entire venture capital industry in the US invested approximately $136B in the US in 2019. 

3. Size and Number of Opportunities: 

The US federal government is an “equal opportunities ” buyer. It buys all things, small, medium, and large supplies from all kinds of suppliers. Plus the number of opportunities is enormous. Don’t take my word for it. Check it out for yourself. Go to Grants.gov to search for grants or go to Beta.Sam.gov to check out the contracting opportunities. 

And yes, if you don’t find something for your company, you are not searching correctly!

4. Size of Competition:

Since the marketplace is huge, you may assume the competition is huge too. Yes and no. The US today has around 32.5 million businesses. By our estimate, around 300,000 of these are registered to do business with the federal government and less than 50,000 are actively pursuing US federal government opportunities — going after the $5.5T in grants, fixed charges, and contracts directly or indirectly. 

That is a lot of money per company. What is your startup’s share of the federal grants and contracts this year? If you said nothing, you have a lot of work to do, now. 

Where Does the US Federal Government Spend Money? Source: USASpending.gov

5. Nationwide Opportunities:

Now you may ask, we are not based in DC, so how do we get federal business? We get this question asked a lot. The simple answer is, the government spends money everywhere, all across the US, in Europe, Japan, Iraq, and even Afghanistan. You need to know how to search for opportunities. It takes some time, effort, and training but the opportunities exists. 

Do you know what the government spends in your neck of the woods and on what? You should. You could get federal dollars to your startup and your community and help create new jobs and increase your competitiveness, especially in times of crisis. 

6. Set-Aside Opportunities:

We have heard it all, I am a small business, I can't compete with the big folks. Or I am a minority, who cares about me. According to Small Business Administration (SBA), the current government-wide procurement goal stipulates that at least 23% of all federal government contracting dollars should be awarded to small businesses. There are currently four categories under which your small business can be certified:

Women-Owned Small Business — 5%

Small Disadvantaged Business — 5%

Service Disabled Veteran Owned Small Business — 3%

HUBZone — 3%

According to our ScaleUP USA’s past research, many times Small Businesses pursue set-aside certifications at the wrong time, in the wrong category, and as a stand-alone strategy — wasting substantial financial resources and time. Therefore, learn, then plan, and execute. 

7. Transparent Selection Process:

One of the best reasons to work with the US federal government is that they have a very transparent company selection process for grants or contracts and this process is publicized before selection and followed. It is the LAW. The other advantage is that all the federal agencies follow consistent rules, regulations, and policies under the Federal Acquisition Regulation (FAR) or its DOD sister regulations — DFAR. You understand it once and apply it multiple times. 

This is unlike commercial, local government or state government entities where rules, regulations, and policies change from entity to entity causing confusion. 

8. Non-Dilutive Funding:

The government typically funds in two ways, grants and contracts and in the majority of the cases does not take equity in your company. Hence the investment is dilution free. Terrific in any situation, but especially in crisis-driven times like the Coronavirus spread. However, working with the US federal government is complex and therefore, that is the barrier to entry, else all 32.5 million businesses would be working with the federal government. 

So your challenge is to educate yourself on how to win federal grants and contracts and then execute flawlessly, so you win more business and don’t land up in front of the congress committee or in the Washington Post! 

9. Payment on Time:

Have you ever had to haggle to get your payment from your buyer? Do you need to worry about that when you work with the federal government? No. The federal government’s “Prompt Payment” rule makes sure that valid and proper invoices submitted by vendors are paid on time by federal agencies. If a vendor submits a proper and valid invoice, the agency must pay it on time. If not, the payment is late.

In most cases when an agency pays a vendor late, it must pay interest. Prompt Payment regulation determines those interest penalties.

10. Protecting the Seller:

The federal government is unique. If you lose a bid, you can ask for a “de-briefing” to understand what mistakes you made to learn and improve your win rate. If you think the government did not follow the rules and regulations, you can file a formal protest. And yes, if the government does some snafu after you won that cost you more money than anticipated, you can file for claims and appeals. 

The federal government does a lot to protect the seller, but also expects the seller to be educated, diligent, and honest in its partnership with the government, or you face stiff penalties. So watch out!

In Summary:

Unfortunately, for those who do or plan to do business with the government, there is no formal learning process to vision, strategize, plan, implement, and continuously improve their federal business growth strategy. Many therefore muddle their way and lead by trial and error and often fail. Therefore, take the time to educate and train at the Federal Business Accelerator, so you can go after the normal federal opportunities as well as the “extra” stimulus funding that will start oozing out shortly from our federal government! 

Remember, the Early Bird Catches the Worm!

About the Author:

Nitin Pradhan is an educator, technologist, and social entrepreneur based in the Washington DC metro region. He is the former award-winning CIO of the US Department of Transportation and an Obama Appointee. He leads the ScaleUP USA’s Digital Growth Accelerator including the Federal Business Accelerator, the Federal Career Accelerator, and the Career Trajectory programs. Business and government leaders can connect with him on LinkedIn.