The U.S. government is the biggest customer in the world for small businesses.
Finding new customers is a tough task all small businesses face. One option many never consider is taking on the federal government as a client.
Government procurement – having the federal government purchase their goods and services – can be a big boon for small businesses. The government needs a lot more than just items for the military, so small businesses that aren't defense contractors shouldn't look the other way on these opportunities. The U.S. government spends hundreds of billions of dollars each year on a wide range of commercial items.
While many may think government contracts only go to large corporations, that isn't the case. The law requires the U.S. government, which is the largest customer in the world, to consider buying from small businesses. In total, the federal government awards nearly one-quarter of its service contracts to small businesses, according to the U.S. Small Business Administration.
As the president and CEO of TargetGov – a government contracting, business development and marketing consulting firm – and procurement advisor to American Express, Gloria Larkin knows just how lucrative federal procurement can be for small businesses. Larkin's clients have won more than $4 billion overall in federal agreements.
We recently had the chance to speak with Larkin about government procurement, procurement policies, the benefits for small businesses of working with the federal government, and how small business owners can put themselves in the best position to beat the competition and land those agreements to become federal contractors for their products and services.
How government procurement can benefit small businesses
Q: What are the benefits for small businesses to work with government agencies?
A: There are four extraordinary benefits for small businesses selling services or products to the U.S. federal customer. First, this is the world's Fortune One customer, meaning it buys more of virtually every product or service than any other customer in the entire world. Every year, the federal government spends more than $500 billion buying from companies of all sizes, and of that, more than $110 billion was purchased from small businesses located throughout the United States.
Second, any size small business can sell to federal customers, in any industry, from one-person operations to those with five, 10, or 40 or more employees. The third benefit is that there are federal customers in every state and all major cities, located in business office parks (agencies like Social Security and Health and Human Services) as well as military bases. These federal customers prefer working with businesses that are located near them, so small businesses often have an advantage, especially when located nearby to the targeted government agency/office or military base.
The final and critical benefit is that the federal government mandates that small businesses are paid within 15 days of submitting an accurate invoice.
Q: How do small businesses find available government contracts?
A: The beauty of selling to the federal government is that there are free government-run online tools and databases listing opportunities or contracts. The website used by the majority of federal agencies is called FedBizOpps, and it is available at www.fbo.gov. By clicking on the advanced search form, one can search by keywords describing the products or services, and even add your local state and surrounding states if desired.
A tip is to keep the search simple, with just a few criteria at first. Once you see the initial results, if too many, you can always narrow down the search if needed. Please note that any website with a .gov at the end will not charge any fee to access this information. If there is a fee being charged, double-check the web address to confirm the exact .gov address and make sure you are not at a different website.
How small businesses can secure government contracts
Q: What is required of a small business to become a government contractor?
A: There is only one mandatory step required of any business to become a federal contractor, and it is to log in and register at the System for Award Management at www.sam.gov. One can register as a company or even an individual. Once again, this is available at no cost. If you are being charged any money to register, you are not at the sam.gov website.
You will need basic information, including a tax identification number for your business. Other information to gather before registering includes a DUNS number, available at no cost from Dun & Bradstreet, and your bank routing and account numbers. The SAM registration site offers an extensive help site if needed.
Q: What does the government look for when choosing which business to award a contract? Does it always come down to price?
A: The government customer is very risk-averse. This means that a small business has the best chance of winning business when it can prove its experience and capabilities with strong references.
A general rule of thumb is that it is best to build a track record of providing services or selling products to the corporate or consumer customer before tackling the government as a customer. Pricing is also important, and one must be competitive.
Additionally, strategies for selling products will differ from strategies for selling services. For example, if a product is a commodity, like a pencil or computer, low price is an important (but not the only) factor. If one has a unique product offering specific benefits, then pricing may be more flexible.
A more unexpected way to get a leg up with selling to the government is to market the fact that you accept credit cards as a method of payment. The government uses credit or purchase cards for any single transaction up to $10,000, including services and products, and has made more than $30 billion in purchase on credit/purchase cards every year. The small business benefits because they see the money in their bank [for transactions] less than $10,000.
Q: What is the biggest mistake small businesses make when trying to sell to a government agency?
A: One of the biggest mistakes a small business makes when trying to sell to a government customer is not realizing that this is mainly a relationship-based market. Decision-makers want to know from whom they are buying, why the service or product is different or better, and the plans in place to deal with any surprises, like delivering products in a challenging environment or providing continued services when an employee quits.
Delivering on time and on budget is a basic expectation in the federal market, and developing a strong relationship with buyers before they sign on the dotted line to purchase something is important to success. This takes time and effort and can pay off handsomely when one is successful.
Q: Are there certain industries or types of small businesses that are better suited for government procurement?
A: The federal government buys virtually any type of service available, including administrative, engineering, janitorial, scientific, accounting, legal, landscaping and even construction services.
Products include anything needed to run an office, hospital, military base, airport, cemetery, or to support an education system. If your business sells to the corporate marketplace, there is a very high chance that the government customer will buy from you as well.
Q: What piece of technology could you not live without?
A: I could not live without a great customer relationship management (CRM) tool. When the business was just me, I used a CRM system to be my memory assistant. It never let a call, meeting or note fall through the cracks. Then, as we grew and every employee needed to know what was happening with every client and prospect, that CRM system was even more important to track every communication and to-do for every client and prospective client. [Related: Looking for CRM software? Check out our best picks and reviews.]
Q: What is the best piece of career advice you have ever been given?
A: The best career advice I ever received was on a dark day, when I was let go from a company and I happened to attend a networking event later that same day. As crestfallen as I was, the first person I told gave me a hearty "congratulations!", shook my hand and told me, "Now you can look forward to an even better situation where they appreciate what you do!" This dramatic change in perspective fueled my entrepreneurial spirit, and from that day forward, I never looked back – that was when I decided to start my own company.
Q: What's the best book or blog you've read this year?
A: I read numerous industry blogs related to government contracting issues, whether they are legal, accounting, rules and regulations, government agency, or business development issues.
I find that blog posts by other industry and government experts help keep me informed and challenge my assumptions. My favorites include the PM Legal Minute, WIPP in Action blog, Global Services blog, the Aronson CPA blog and, of course, the TargetGov blog.
Q: What's the biggest risk you've taken professionally? Did it pay off?
A: The biggest risk I have taken was starting my own business without realizing the financial wherewithal needed to sustain the effort until profitability was reached. Today, I tell new entrepreneurs to plan for at least six and up to 12 months before seeing a profit.
This means having funding/savings/loans to meet all business and personal financial obligations as well as fund the new business expenses. If one does not have enough money for all obligations and startup costs, it will take longer to see results and reach a profit – which is what happened to me.
I ran the business out of the house a while longer than planned. But eventually, as we outgrew the home office space, hired more employees and moved into a larger office building, I am delighted to say the risk has paid off beautifully.