There are a lot of question marks over the year 2023 if you are a business owner. We’re looking at inflation and a possible recession. We’re looking at global conflict and corresponding economic shifts. And with all of these uncertainties up in the air, many companies with decent commercial traction are growing more attracted to the idea of transitioning their technology to diversify their revenue stream with federal funding.
While there are a lot of great opportunities and benefits to pursuing federal funding, there are also some barriers and processes to consider when beginning the process.
As you begin this process, it’s important to have a full picture of federal funding and an understanding of how that realm operates differently than doing business in the commercial sector.
Requirements vs. Relationship Driven
Business in the private sector tends to exist around who you know. If there is a strong relationship and an understanding of the problem, the private sector can provide a lot of opportunities.
The government, however, operates differently. It is shaped around competition, and it focuses primarily on processes and price. There are thousands of pages of documentation outlining how the government sets up a competitive process, gets dozens of proposals, and drives multiple vendors to come in and play.
Such competition often turns the process into a race to the bottom on price, because price tends to be such a highly weighted factor in all acquisition selections.
four Unique Barriers to Entry
This requirement-driven nature, and the need for competition, of the federal sector tends to create a lot of unique barriers to entry, particularly for those who are used to doing business in the commercial sector.
1. Poor Understanding of Problems and Solutions
Because of the depth of roles required to do business with the government, there tends to be a poor understanding of both the problem at hand, and the solutions that are needed.
Many decision makers in the government have a poor understanding of what the actual problems are. It’s hard to keep a lot of talented technical engineers within the government, because if they are any good, they can get higher paying jobs with better flexibility on the private side. So the government can have a high turnover rate, and this can cause trouble in keeping someone with a strong understanding of the problem and the needed solution.
You’ll find that a lot of government employees are hesitant to talk with people in industry. Unfortunately, there are a lot of stigmas around what is and is not allowed in this area, so most are taught to tread with caution.
Because of this, proposals are an essential entry point into federal.
A key aspect to an effective proposal is compliance. If you so much as have a page too many, your proposal will get thrown out.
Criteria can change as well, so it is important to make sure that you are up to date on what these requirements are and implement all the requirements before submitting.
4. Longer Sales Cycles
Another important aspect of federal funding to note is the longer sales cycle. While federal can be much more reliable than commercial (meaning, if you are told you will receive a set amount of money, you will indeed receive that amount of money), it can also take significantly longer for that promised payout to occur. Afwerx has helped to shorten that timelines a bit from an average of 12–18 months, and we’ve now even seen it come closer to a 6–9 month timeline to start getting traction.
With that in mind, do not base your strategy around a short timeline for payout.
My rule of thumb is: plan to start nine months before. What this means is, whenever it is that you want to have an established federal customer for improving your company revenue stream, you need to aim to start about 9 months before that. Depending on the route you take, this can even be 12–18 months, but in our world, usually 6–9 months to get some money flowing is a little more standard.
Is working with the federal government different than working in the commercial sector? Absolutely. It is process driven with many unique barriers to entry, which can take a lot of time and patience to navigate.
However, once you work your way past the barriers and through the process, it can be a really effective way to diversify your revenue stream.
Learn more about the process and the benefits of a Phase III focus next week in Part Two: The Transition from Commercial to Federal: What You Need to Know About the Process.
Check our other blogs on the topic:
Business with the Government: How Different Could it Be?
Subsidizing Your Commercial Tech with Federal Funding
Pursuing Federal Funding: Access to an Alternative Non-Dilutive Capital Source Amid Rising Interest Rates