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I often hear from startup founders who are interested in selling to government agencies but don’t know how to get started. It’s easy to understand why: Each year, 90,000 state and local government organizations spend more than $1.5 trillion contracting with private businesses, and the U.S. federal government spends another $649 billion — all together, that’s a $2 trillion opportunity (roughly 10% of U.S. GDP). Especially now, as the macroeconomic environment becomes more challenging, public servants are an attractive new category of buyer for startups. Plus, selling to governments represents an incredible opportunity for real impact.
Here’s how to do it effectively, based on my experience working on both sides. I previously served on the innovation team for the San Francisco Mayor’s Office, and today I’m the founder of Pavilion, a startup marketplace connecting public buyers and businesses.
Start small: validate your problem and create your first case study
You don’t need to start with a big, flashy contract with a major metro to be successful in building relationships with government agencies; you need a product that is purpose-built for the public sector that works well for at least one government user. Even if you have a product in-market for the private sector, selling to governments is different. Start by prioritizing access to public sector users so you can build the right product and generate evidence that it works for at least one government.
As one example, my team at the San Francisco Mayor’s Office recruited Binti — a startup with a product in the private adoptions space — to work with the Health and Human Services agency on a specific high-priority challenge. It was taking more than 300 days to process potential foster care parents’ applications — too long for families and children who were anxious for fast progress. Through four months of unpaid product co-development, the Binti team worked closely with HHS staff to build a new product that significantly reduced processing time, increased the efficiency of social workers, and ultimately increased the number of applications received.
Binti didn’t try to take the private adoption product they built and sell it to governments; that approach would have likely been unsuccessful. Instead, it identified a specific need with a specific entity and invested in co-creating a product. This approach led it to go on to win a contract with HHS and, more importantly, it helped the company build the right product and generate evidence to de-risk the product for other governments.
There is no magic trick to identifying where you can plug in most effectively. Just like any sales or business development challenge, start with research. Dive into local government websites, pay attention to local news stations, and attend town halls. Consider attending professional association events (or even paying for a sponsorship to get on the agenda about the problem you’d like to discuss) to solicit ideas for problems or get closer to your target users. Some governments even have programs — such as Pittsburgh’s PGH Lab, Innovate Durham, or the MBTA’s Innovation Proposals program — that are intended to help connect new ideas with government stakeholders.
Identify a public servant champion and invest that relationship
It’s vital to pinpoint an internal champion who can advocate for your startup’s solution as part of the process to winning contracts. They’ll help uncover where the budget for your product or service might come from, shepherd the startup through the procurement process within their agency and — if you’re lucky — evangelize your solution to others in their networks.
Your internal champion is usually the individual who is most severely impacted by not having a tool or product like yours. The problem you’re solving is a burning need for them, and they can influence how resources are spent to solve that problem. You can try cold calling — especially if you’re just trying to learn, and not trying to sell — but a better approach is to meet in person. While you can’t buy public servants coffee or other gifts, you can show up at public meetings, attend or sponsor professional association meetings, or invite a public servant to a talk or public forum of your own design.
It’s important to remember that your internal champion may not be the decision-maker, nor do they need to be. Oftentimes there’s someone else in a more authoritative role that will decide if your product is adopted. It also doesn’t necessarily matter if your champion is someone who is in a prestigious role at a large, well-known agency. Look for someone who cares and is well-networked within their agency and ideally within their industry area of focus too.
Ready to sell to governments? Get ready to navigate procurement
So you’ve identified your problem and/or champion, and you’ve worked with your champion to co-develop a minimal viable product to bring to agencies. Now what?
To succeed in selling to governments, a vital step is to understand how procurement works, and the various timelines you’ll be beholden to. Typically, government buyers spending above a certain dollar threshold — often set between $5,000 and $50,000 for most governments — are required to purchase from businesses that have been awarded a contract through a formal competitive solicitation process. This process can take anywhere from 4-24 months.
Know upfront that your biggest challenge will likely be navigating the competitive solicitation process and plan accordingly with your champion. Having at least one or two strategies in place for how and when you’re going to make the sale, as well as a clear sense of what you’re willing to spend and develop out-of-pocket is key.
Set yourself up for short-term wins
To get some wins in the short term, outside of the sometimes years-long procurement process, I’ve seen a lot of success when companies decide to provide a proof of concept for free, or agree to a low-cost pilot under the agency’s competitive procurement threshold, especially if the solution doesn’t have a designated budget. But there’s a caveat: Be very wary of this specific strategy unless you already have a good sense of the agency’s formal procurement process — otherwise you could get burned by extremely long timelines that can kill a project before it’s even off the ground.
If you’re selling software, consider engaging with value-added resellers as a way to work around the competitive solicitation process and land an agency’s business. Another strategy is to keep your contract value under the specific threshold for that agency to avoid the RFP, or request for proposals, process entirely, or to be sole sourced (and waive the competitive solicitation requirement) at a lower dollar threshold.
Laying the foundation for long-term relationships
Eventually, it’s likely your business will want to secure direct relationships with government customers and sell above an agency’s competitive threshold. If you’re the only company offering what you offer, there’s potential to be sole sourced — a typically faster process that waives the competitive solicitation requirement, but still requires board approval and confirmation that your company truly is the unique provider of your product or service. But most companies will need to land a direct relationship and secure a government contract by going through an RFP process.
To open up the market, it’s possible to be awarded contracts via RFP that you can use to sell to other agencies without going through another RFP process. Including cooperative or piggyback language, having a broad scope and a menu of pricing options can help to serve different types of entities and increase the chances of winning more contracts.
If piggybacking is a new term for you in this context, you’re likely not alone — it’s when a government entity hops on (buys from) an existing competitively solicited contract, most often from a national purchasing cooperative, state or local entity. Working with national purchasing cooperatives or making sure that your contract award includes piggyback language when you compete for business at the local or state government levels allows you to have a “buy it now” option for selling to governments above the competitive procurement threshold.
In summary, selling to the government is more complicated than the average sales cycle; it takes a specific set of skills and knowledge, and perhaps you and your team will think it’s easier to stick to private-sector customers. But, with the right context and product, founders and entrepreneurs can be extremely successful in this category. The opportunity to have an outsized impact on the general population and grow your business — even during economic downturns — is huge, and often well worth the extra legwork.