We aim to increase participation of diverse, local, and small businesses in government procurement by radically lowering the costs of selling for all suppliers.
By Mariel Reed
At Pavilion, we aspire to see a step-change increase in the number and diversity of businesses selling to the public sector within the next decade. To achieve this goal, we must radically reduce the costs of selling to governments for all businesses.
Every year, state and local governments spend $2 trillion in taxpayer dollars in procurement, buying products and services from businesses to ultimately deliver services to residents. Public procurement is a massive industry (nearly 10% of U.S. GDP), yet participation of businesses– especially diverse, small, and local businesses–is lower than expected given the size of the market opportunity.
Governments want to buy from these types of businesses. Greater competition enables governments to deliver better public services at lower costs to taxpayers, since competition places pressure on businesses to lower prices and/or increase quality. There are also social and political reasons to encourage broader participation from businesses in public procurement. Doing business with local suppliers can help spur economic development in a region; prioritizing women-owned, minority-owned, and other types of diverse businesses can help achieve equity goals.
Many public entities like the City of Boston; the State of South Carolina; Portland, OR; Kansas City, MO; Santa Fe, NM; and thousands of others have set explicit participation goals; revised their procurement rules to prioritize contracting with diverse, small, and local businesses; or increased investment in supplier education. Still, participation by these types of businesses in the public sector lags. Over the last two decades in Massachusetts, the total value of contracts awarded to minority-owned businesses has dropped by 24%.
It’s not just diverse, small, and local businesses; the vast majority of startups and new businesses don’t sell to governments. Lengthy sales cycles, ambiguity around the sales process and buyer, and negative experiences deter startups from selling to the public sector. When it comes to innovation, governments (and therefore taxpayers) are missing out or years behind.
If we want to see more businesses–including more diverse, local, small, and innovative businesses–to sell to the public sector, we must radically reduce the costs of doing business with governments for all companies.
Reducing the costs for all participants benefited especially diverse participants in higher education enrollments. In 1919, Columbia University released the first modern college application as an eight-page form, and other top institutions followed suit. Since each institution had its own unique application, the process of applying to college required careful navigation of separate forms, requirements, and timelines (and, of course, physical submissions). The costs and complexity of applying to college deterred many low-income, first-generation, women, and minority students from enrolling. Then, in 1975, fifteen schools joined together in The Common Application Experiment (“Common App”), allowing students to complete a single form to apply to their institutions. In the 80s, more universities joined; in the 90s, there was an online version of the App. Today, over 1 million students each year use the Common App to apply to over 750 member institutions. The Common App has helped universities dramatically increase enrollments of nonwhite students, students eligible for Pell Grants, and first-generation college students.
Technology has been an important tool for reducing costs and widening participation. We look to online marketplaces (think: Etsy, Amazon, Care.com, Lyft and Uber, Airbnb, UpWork), which have expanded participation of one or both sides of the market, creating opportunities for entirely new transactions to happen. By reducing costs– the time required to gain access, or the financial investment, or both–these marketplaces have made new supply available (more people selling products or services, providing care, driving, offering up a room in their home, freelancing, etc.).
With a focus on public impact, we take inspiration from the Common App and tech-enabled marketplaces as we build Pavilion. Within the next two decades, we aspire to significantly reduce the average cost of generating a public sector sale for all businesses.
Today, participating in a competitive solicitation to win a contract is too expensive: it can take 4-24 months and cost a business up to $1.5M just to submit a response. Most businesses must win a new contract to generate a new sale, so subsequent sales are also expensive. Generating a sale from a shareable contract reduces the average cost of doing business– as a supplier, it’s less expensive to sell using a contract you’ve already been awarded. Most of the businesses that leverage shareable contracts are established players in the public sector space. We’ve seen that many other types of businesses have been awarded these contracts, but don’t realize that they’ve won a contract, aren’t aware of this procurement option, and have trouble gaining visibility with public buyers.
For example, we recently helped a veteran-owned business generate a new sale to a new public entity customer, who discovered their contract on Pavilion’s platform. This business was not aware they’d been awarded a contract by a public entity they could use to sell to another public entity halfway across the country. As we onboard suppliers with shareable contracts to our platform, we see diverse, small, and local businesses disproportionately benefit from opportunities to be discovered by and sell to new public customers, who are looking for them, too.
We’re focused on onboarding this latent supply–helping all suppliers who are qualified by at least one shareable contract sell through our platform. Still, there is also a huge opportunity to encourage new suppliers–suppliers that have not yet been awarded a government contract–to start selling to the public sector. We think about onboarding new supply in two ways: lowering costs for suppliers and increasing incentives for public entities to take risks working with new suppliers. While we can’t help a supplier generate a first sale, we can help that supplier sell at a lower cost in subsequent sales, which we believe will encourage new entrants to the market. And, by helping governments leverage data to spot gaps in the market, and by financially incentivizing governments to fill those gaps, we can help public entities take smarter risks working with new, non-incumbent suppliers.
We’re energized for a future in which the vast majority of businesses sell to the public sector. We see Pavilion contributing to this future through technology that reduces the costs of doing business for all suppliers, which we believe will disproportionately benefit disadvantaged and non-incumbent businesses. If you’re energized by this mission, we hope you’ll join us.