Recently it was examined why startup companies don’t bid more often on U.S. government contracts. But perhaps the bigger story is this: If startups were more heavily involved in government, government might be more efficient and less costly. Startups might even revolutionize government.
So the real question is: Why, for the most part, are these companies standing on the sidelines?
As we’re all aware, startups have been driving much of the innovation we see around us, creating the new processes, products and technologies that are changing our lives. Many companies largely unknown just a decade ago have revolutionized much of the U.S. and global economies, from retail, marketing and communications to entertainment, transportation, travel and lodging.
Yet our country’s largest employer and Washington’s biggest industry — the federal government — isn’t reaping the full benefits.
This doesn’t surprise us. Our firms, the Boston Consulting Group and Eastern Foundry, recently surveyed more than 100 startups and startup investors. Most of them told us they feel isolated from the work of government, deterred by the government’s lengthy and overly complex contracting process and by an overwhelming sense that newcomers aren’t welcome — that no matter how qualified a startup may be, government contracts will continue to go to existing contractors.
This suggests that federal officials aren’t doing enough to learn about the capabilities of such up-and-coming companies and provide them with every opportunity to compete for the government’s business.
More important, it also suggests that federal officials aren’t fully aware of what the business-startup community can contribute to government — new technologies, new ways of approaching challenges and new ways of doing things.
By their very nature, startup companies are lean and work quickly — meaning they can often do whatever needs to be done faster and at less cost than larger firms. But the very attributes that appear to give them a competitive edge when it comes to performing government work — their small size, agility, creativity and technological know-how — works against them when it comes to getting the work since startups rarely have large and experienced administrative and legal staffs familiar with the forms, procedures, rules and red tape — including General Services Administration schedules — that government contracting involves.
What, if anything, should government agencies do to bring more startups into the fold? Many of the recommendations we make in our new joint report, such as simplifying and speeding up the contracting process, involve efficiencies that would benefit all firms, not to mention the agencies themselves and, by extension, taxpayers.
But there is something they could do that might be especially attractive to startups: When seeking bids for a product or service, we suggest that agencies put more emphasis on what they want to accomplish — their goals — and less emphasis on how they want it done.
Currently, in our view, federal agencies tend to be overly prescriptive, specifying not only what they need but how they want the vendor to provide it. This focus on process rather than outcomes discourages innovation.
Instead, government bid requests, or requests for proposals, should focus on the results the agency wants to achieve. For example, if the National Park Service or the Coast Guard wants to reduce the cost of replacing the rotor blades on its helicopters that should be the focus of its RFP. Companies could then respond with different approaches. One company might propose a solution that prevents blades from breaking; another might propose the purchase of devices that measure blade strength, so mechanics know which ones need replacing; another might propose a lower-cost way of replacing them.
One concern we hear about startups, and it’s not an entirely unfair one, is that they have a high failure rate (60-80 percent, according to some estimates). Government executives, as stewards of the public purse, might have reason to be a little wary of startups bidding on their contracts since a startup statistically is more likely to start the work but not complete it.
The government’s current target is for 23 percent of all contracting dollars to be set aside for small businesses. There already are mechanisms in the procurement process and in contracting for mitigating the risk that a small firm will go under. These same tools could be used to mitigate the risk that startups will fail.
One of our survey respondents described the current contracting system as “slow, designed to favor a preselected winner, and looking for a specific answer.” If that’s an accurate characterization, this is not only hurting U.S. startups, it’s impeding the government’s ability to effectively serve the public.
Matthew Schlueter is president of Washington, D.C.-based BCG Federal, a wholly owned subsidiary of the Boston Consulting Group, which delivers commercial solutions to the public sector. Geoff Orazem is co-founder and chief strategy officer of Eastern Foundry, a D.C.-based firm that helps tech startups bring innovative solutions to the federal government. Danny Werfel is a D.C.-based partner in BCG’s public sector practice and a former top official at the IRS and the Office of Management and Budget.
