What I Have Learned - Part 1

What I Have Learned - Part 1

This first post is about new start ups wanting to focus on government as a customer. I'll summarize first then add detail and story after for those who want to go that deep.

I believe that to be successful as a startup with the government as a customer you have to take one of two approaches:

  1. You have to have a 2-5 year ramp of funding to survive off of until you can get the contracting process rolling. This applies even if you have a long history with the government and government sales. Startups are different.
  2. You have to be as commercially viable and independent in the private sector first, so that you have the resources to survive the contracting process.

There are exceptions to these rules but they require a lot of luck and right place / right time to happen and shouldn't be counted on.

Now for the story.

For about 13 years I worked in the government and for a big chunk of that time I was a Primary Investigator under DOE and wrote / sold proposals to fund my team from other government customers such as DOD and the IC. I was successful enough, performed well, and built a network of great customers. Eventually I decided to start a consulting business and believed it would be a piece of cake to leverage my network and my funding experience to keep on doing what I was doing under my own umbrella. I received some advice from a potential customer and the same thing was repeated to me by a COTAR which I promptly ignored.

"Become viable and independent first selling to companies. If you try to bootstrap on the government you'll go out of business"

That first year was hellacious. My self and my partners maxed out our credit cards traveling to DC for meetings. I spent about 50k in time and expenses to win a 400k BAA and the customer left the government organization not long after removing the chance for follow-on / repeat business. I would get close to closing a deal only to have the COTAR be rotated out and the new one choose to start the process from scratch. We almost didn't survive. Around the 2nd year I pivoted and focused on commercial clients and grew the company to ~25 people. Then I started working on the government side and ended up bringing in several million dollars in contracts. My previous success and experience selling from withing a large institution did not matter much at all, what mattered was that my company was viable and strong on its own.

After 7 or so years I decided to spin off and do a software startup focused on selling a specialized product to the government. After about 50 or so attempts we landed some VC funding which I thought would allow us to survive until the government bought. Our VC was associated with a major government vendor and told us it took them about 5 years of work before they really got rolling with a government contract that would let them survive and that we should prepare to go through something similar.

This advice we also promptly ignored and staffed up to about 50 people over about 6 months thinking that if we made the product excellent as fast as possible, and with our even better network and experience, they would buy. We had many, many positive meetings with the potential customers, assuring us a contract was right around the corner, especially if we made just one small tweak. We adapted, chased, and tweaked. We spent millions in the belief that they would buy. They didn't. We burned through our ramp and got ourselves into serious trouble.

A mistake I've seen made over and over by startups is that they are comprised of an executive and sales team with deep government experience, from INSIDE a large organization, and misjudge the timeframe required to close deals based on their past experience. If you've been super successful inside of a Raytheon or a Lockheed or a National Lab and you can close deals within a month or two, realize that there is a massive machine behind you that makes that possible. The second you step outside of the machine, many of your advantages reset and you can expect it to take years to close deals, even with people you have worked with for a long time previously.

There are many reasons for this which have to do with things like:

  • COTAR's trust in a large business vs a small one
  • The MIPR process
  • Company certifications
  • Past performance (the company's, not yours personally)
  • Budget conditions
  • Competitor behavior

Many times the government will engage an FFRDC or similar entity to evaluate your offering on their behalf because your company is new and unproven. Often, this entity is actually your competitor in that particular space, with predictable results.

The takeaway is that its important to be aware of these conditions and realistic about the timeframes involved in closing government deals. Have a sufficient ramp and burn it cautiously, multiply your closing date expectations by at least Pi, and consider focusing on commercial first to become strong enough to succeed in government.

Thanks for listening.