Small Business Incubator

Inflation is high, the stock market is down, VC funding is difficult, and recession fears are on the horizon. So how are most startups and small businesses going to survive, sustain, and grow in this difficult environment in the next couple of years? Most startups and small businesses know how to grow in good economic times. But what happens when the economy goes south when recession strikes, when pandemics hit, and when the private sector and the consumers stop buying? How you hedge your bet in tough economic times will bring about the difference between immature youthful small businesses and sustained growth companies.

Small Businesses — You Need the Feds!

As a former US federal government CIO and the founder of ScaleUP USA Federal Business Accelerator, I would like to point companies to the opportunities within the US federal government marketplace. I even coined the term for people who build businesses around the federal sector. I called them fedpreneurs (federal entrepreneurs). These are folks that build a federal market for their product or service companies based on federal contracts, grants, and cooperative agreements. Today, let us discuss the Fedpreneurship opportunities and some of the common hurdles’ companies tell our Federal Accelerator they face in this arena. If you want to check if you are ready for doing business with the feds — check out this free workshop with ScaleUP USA offers. This workshop answers the following questions:

1. How much is the US federal government spending annually on contracts and grants?

2. How much is the US federal government spending in your region, state, county, city, or geography?

3. How much is the US federal government spending on products or services you build and sell?

Once you have answers to these four questions you can make up your mind whether you should focus on exploring the Federal Business Opportunities for your startup or small business.

The $10T Federal Opportunity:

The US federal government is the world’s largest $10T marketplace. According to USA Spending, in FY 2021, the US federal government spent around $7.5 trillion on grants and fixed charges and an additional $1.1 trillion on contracts and supplies. The federal government also directly or indirectly employs over 9 million federal employees, contractors, consultants, and others. Just to compare the entire venture capital industry in the US invested approximately $328B in the US in 2021 (Source: Pitchbook).

Top 10 US Federal Agencies by Budget | Source USA Spending Website | From 12/2021–12/202

The Feds Keep Growing:

The US federal government keeps growing in good times and in bad times due to its unique ability for deficit financing and the US dollar being the global reserve currency. Below is the data from USA Spending to prove it. Pay special attention to FY 2020 and FY 2021 where the federal government spending jumped by a whopping $3 trillion. As you may have noted this was the time of Covid. With the Biden administration being inaugurated several additional major pieces of legislation have been funded including the Inflation Reduction Act, Infrastructure Act, and the Chip Act. The federal system is flush with cash and continues to seek talented, innovative, and transformative companies of all sizes and shapes. So where are the companies?

Source: ScaleupUS.com with date from USASpending.gov

The Winners Keep Winning:

Our Federal Business Accelerator estimates that less than 1% of all the 32+ million businesses in the US ever registered to do business with the US federal government! Even a lesser number of startups and small businesses know how to do business with the “Feds.” The result is that the “winners” keep “winning” and the “losers” keep losing!

According to The National Equity Atlas, produced by Policy Link and the USC Equity Research Institute (ERI) that used SBA data, the number of small businesses receiving US federal government prime contracts fell again in fiscal 2021, continuing a multi-year trend. The most recent data show that 71,441 small businesses received contracts, down 5.7% from 75,726 in the fiscal year 2020. By contrast, about 125,000 small businesses contracted with the federal government in the fiscal year 2010. The question is why is the number getting lower when the opportunity is getting larger and larger?

US Federal Government Spending by States | Source: USA Spending Website | From 12/2021–12/2022

The Feds Need New Small Businesses:

The federal government is always seeking innovative and transformative startups and small businesses. The federal government knows that this is where innovation occurs. Getting innovative suppliers and contractors to work with the federal government not only allows these businesses but also allows the government to create better services for citizens and businesses. Let’s face it — our federal government is operationally run by federal contractors and suppliers. The better their quality, the better will be the services provided to us.

Why is the Participation of Small Businesses Low?

The question that needs to be answered is why startups and small businesses are not aggressively going after US federal government contracts, grants, and cooperative agreements. What is the issue? The federal business accelerator asked this question in one of the last sessions. The reasons given were interesting, but the reasoning may have been flawed.

“The federal government is very powerful; startups and small businesses are afraid to work with it.”

Yes, the federal government is very powerful, but it goes out of its way to work with startups and small businesses. It has many dedicated opportunities called set-aside contracts and grants for startups and small businesses which we will discuss in the future including those for Minorities, Women, Veterans, and Hubzone-located companies. The federal government actively seeks to work with small businesses. If only the startups and small businesses came out of their comfort zone and started working with the feds we will have a winning combination.

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The federal government is complicated, bureaucratic, and getting orders takes lots of time, effort, and money.”

Yes, the federal government is very regulation-driven. However, if you understand the basics and know the step-by-step processes for winning and contract execution, the opportunity for growth is simpler, faster, and immense. The problem is for those who figured out a way to win in the federal marketplace do not have much incentive to educate the competition on the winning processes. We are changing this with the comprehensive federal business accelerator growth program. In our opinion, the Growth Index (Total dollar value of wins ÷ Total dollar resources expended to win) is much higher in federal opportunities for small businesses, than in private or commercial sector opportunities. Where are startups and small businesses regularly going to find multimillion-dollar set-aside contract opportunities or dilution-free grants if not in federal?

“The federal government does not pay on time and that can cause problems for small businesses.”

Not true! The federal government does its level best to pay on time. There are special regulations relating to payment on time to small businesses, especially sub-contractors by larger prime contractors assuming of course that the work was done as required, on time, and as budgeted.

“The federal government opportunities are mostly rigged, and small businesses have no chance.”

Not true. While rigging federal opportunities is technically possible, in my experience as a former federal CIO, it is very very rare. This is because of the processes that are incorporated in acquisitions as well as the oversight provided by several different entities including the program office, the contracting officer (CO), the Inspector General (IG), and the Government Accountability Office (GAO). There are also very definite processes for making appeals if your startup or small business thinks, you were unfairly treated by the government or the competition.

“The federal government only provides opportunities in Washington DC.”

Not true. While it is true that most of the federal government offices and agencies are located in the Washington DC metro region including the suburbs of Virginia and Maryland, the place of performance of most of the contracts and grants provided by the federal government are all across the nation and even internationally. If you know how to search for opportunities in your region and work with your local ecosystem you can win and execute significant government business locally.

“Start-ups and small businesses don’t understand how to work with the federal government.”

Yes, this is a fact. Most businesses of all sizes and shapes have little to no understanding of how to do market development, business development, and sales development in the federal marketplace. They make mistakes, lose a valuable amount of time and money, get frustrated, blame the system, and move on. The smarter companies seek advice from federal business accelerators, learn the tips and tricks required to grow in the federal marketplace, follow a step-by-step approach, adapt, and grow.

“Federal Government conducts a lot of audits and review of their contractors and suppliers — scary.”

Yes, this is a fact. But this is being done for your protection. Regular audits and reviews reduce the chances of fraud and mismanagement. Also, this allows problems to be identified early and often and to be corrected swiftly. This benefits the company involved, its partners, the government itself, and the citizens and businesses which fund the government. If you understand the processes for working with the federal government and execute them properly there is nothing to be worried about from these audits and reviews, just consider these as your routine company health exam.

Your Next Step:

What should be the next step for your start-up or small business? You should look at systematically learning how you can grow your small business in the federal marketplace. This does not mean you jump up and down and try to become a federal prime contractor to the government immediately. Becoming a prime contractor requires expertise, experience, capacity, and capability that is most often not found with smaller young companies. There are simpler, cheaper, and better ways to build your federal road map. Our Federal Business Accelerator’s experience helping start-ups build such a roadmap is a successful gateway to building a profitable federal practice. The free workshop will guide you in your growth strategy in the federal marketplace. 

About the Author:

Nitin Pradhan is the former award-winning CIO of the US Department of Transportation and an Obama-Biden Appointee. He founded and led the ScaleUP USA Federal Business Accelerator program and the ScaleUP USA newsletter and works with businesses to build their US federal government practices. Business and government leaders can connect with him on LinkedIn.