In this environment, it’s often assumed that the winners simply managed to rise above the flood while the rest got washed away.
But there is another reason, and many of the established corporations in America know if very well. In fact, large companies are so dialed in to the strategy that they are stealing the opportunity from smaller companies even though by law, nearly a quarter of all of this business has to go to smaller organizations.
Can you guess where I am going with this? Right. Government contracts.
Almost half of all Fortune 1000 companies rely on government contracts to form the basis of their marketing and sales strategy. (The percentage goes higher as you look into the Fortune 500.) Many of them will go so far as to acquire a smaller company for the contract – which is one reason why few small companies are engaged in government business.
While most start-ups and entrepreneurs focus their efforts on building a product that consumers will want, this orientation often neglects the inherent profitability of the government contract.
The prevailing wisdom is that local, state and federal governments contracts are difficult to get and usually assigned to the lowest bidder. While there’s some truth to this, it’s also true that the government is required to ensure that the contractor makes a profit. This is usually referred to as the “cost-plus” model.
This means that instead of relying on the grueling pricing strategies of the consumer market place for income, companies can (with adequate documentation) set a price and stick to it for the life of the contract…unless conditions change, in which case the income often goes up, but rarely down. This allows a company to build a reliable core business that covers operating expenses, thereby enabling increased focus on growing the business instead of just surviving.
There is a lot of paperwork and regulation that goes along with having government contracts, but this is true of many private sector contracts as well. If you’re willing to take the time to do the footwork, the government contract can provide a strong income base on which to build the rest of your business.
Even innovative businesses like Web 2.0 applications have a role to play here. Health care, transportation, infrastructure repair and business processes can each be made more efficient with more intuitive software, big data collection, and cloud services.
So as you develop your business plan and take it to venture capitalists for consideration, remember to include a strategy for engaging government contracts.