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5 Federal Market Questions for Tech Companies

September 16, 2021 / Dcode

by Mya Zemlock, GovHub Program Associate at Dcode

The U.S. government is the biggest buyer of tech in the world. If you aren’t considering the federal market, why not? The financial opportunity alone is massive (and shielded from market fluctuations). Plus, you could help the government better serve Americans every day.

The government desperately needs commercial tech, but let’s be real — breaking into the federal market is hard. There is a lot of time, money, and risk involved. Here are a few things every tech company should think about if interested in scaling in the federal market: 

Product-federal market fit

This may be the most important consideration when deciding whether it’s a good idea to enter the federal market — does your product or service directly align with a problem the government needs to solve?

The government operates on a budget that is established based on its priorities and must comply with federal regulations in order to acquire goods and services. Companies that can prove their use cases directly relate to a government priority and comply with the various federal regulations and security requirements have an easier time accessing the federal market than companies that do not.

Your funding

Startups often rely upon capital investments, but if you’re considering entering the federal market, where that funding comes from could pose a problem. The government is an incredibly risk-averse organization and will not work with companies that receive funding from a foreign adversary, as they are considered a threat to the supply chain. 

Commercial traction

Companies with good commercial traction have a proven performance record, which can assuage any concerns the federal customer may have about the applicability and reliability of your product. They are also well-equipped to pursue business opportunities in the federal market, as they have the reliable customer base and steady revenue streams necessary to fund the long and arduous process of getting on contract with the government. 

Government buyers are particularly interested in companies that have strong commercial traction and a use case that can be adapted to government missions (dual-use technology), as it saves both time and money.

People ops & maturity

Landing your first government contract is a big deal — and it’s often a big investment. Many government contracts require companies to scale internally to meet requirements or provide the necessary level of support. This is why companies that have the capability to scale are more likely to succeed in the federal market. 

A good indication of your company’s maturity are growth patterns: Does your company have consistent, rapid growth patterns with few bottlenecks? Can your company sustain its size and operations during slow business cycles? If your answer to these questions is “yes,” then you may have what it takes to weather the long government procurement process.

Stage of growth

Early-stage companies can often feel overwhelmed when faced with high barriers to entry in the federal market. They often lack the commercial traction and steady revenue necessary to weather the federal procurement process; however, there are plenty of opportunities for early-stage companies to get funding for R&D and scaling initiatives. This includes the SBIR/STTR program, which can create more opportunities for federal contracts in the long-run. 

Although these programs are immensely useful, it’s best not to rely on these programs to create your runway for the federal market; instead, consider them opportunities that can be leveraged once you have already established your runway with commercial sales.

Late-stage companies are less likely to worry about the costly procurement process, as they have already demonstrated their product market fit and have solid commercial traction. They often see breaking into the federal market as a business opportunity that expands their reach and grants them credibility. 

However, some venture capital firms don’t want their late-stage companies to focus on the federal market because federal revenue is both unpredictable and difficult to attain. This concern can be mitigated by having a well-staffed, dedicated federal team to identify opportunities and expand your network.

Don’t go it alone

There are a variety of factors to consider when evaluating your company’s readiness to enter the federal market since the process is long, tough, and costly. It’s a risk that you should treat as a long-term investment, no matter your company’s stage or maturity. But it’s even more important to remember this: you don’t have to go it alone! 

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