The following two articles popped up on my radar screen and offer competing views of the advantages and disadvantages of trading with Caesar. As usual, you are best served by reading the full article.
Why Selling To The Government Can Downgrade Your Startup
First Greece, now Spain and Italy. Across Europe, historically solvent sovereign governments are suffering from an acute case of systemic deficits. Now, more than ever, government agencies in the US and abroad are lousy startup customers.
Although government customers are not without their merits, startups should only target such bureaucracies when they can obtain a market price and avoid an extended and costly sales process. By focusing on commercial enterprises that share your adVenture’s sense of urgency and profit motive, your startup can maintain its solvency and avoid a credit rating downgrade.
an entrepreneur’s two most valuable assets are time and money. Government customers abundantly waste both of these assets by negatively impacting a startup’s cash flows while causing it to spend unnecessary time participating in laborious approval processes and elongated sales cycles.
Vendor Approval Process: In the case of the US Federal Government, the steps a company must traverse to become approved by the Government Services Administration can take years and cost a small fortune of precious startup capital – time and money most startups simply cannot afford.
Slooooooow Mover: The typical government procurement process is not driven by a sense of urgency.
Slooooooow Payer: The government is a notoriously slow payer. Officially, the Prompt Payment Act requires the US government to pay its vendors in 30-days “after receipt and acceptance of material and/or services.” In actuality, payments routinely extend beyond this threshold, with 120-days outstanding not uncommon.
Capricious: Non-government customers sometimes make irrational decisions that are difficult to predict; government customers do so on a routine basis. As the decision makers come and go with the latest election cycle, a startup can lose a government account for no reason other than the newly elected officials want to give a hearty "thank you" to a company that greased the skids for them during the election. In addition, government budgets are prone to draconian, across-the-board cuts which often have no correlation to the efficacy of specific programs or vendors’ solutions. It is frustrating to lose an account to a formidable competitor. It is downright criminal to lose a hard-fought sale because of crony capitalism.
Set Asides: Despite the controls bureaucrats create to ensure a fair procurement process, it is any but. Most startups do not have the financial wherewithal to make adequate campaign contributions to purchase government set-asides or win no-bid contracts. In most cases, startups are “set aside” to make room for Big Dumb Companies (aka Big Dumb Campaign Donors), when it comes to obtaining lucrative government contracts.
Bro Factor: An inherent advantage startups enjoy is the Bro Factor. Unfortunately, this startup weapon is difficult to deploy when dealing with governments, due to the dispassionate nature of most bureaucrats. [Does this contradict the prior two factors?]
Mitigating Downside: Unlike the private sector, in which many buyers are focused on gaining a competitive advantage, the fear of loss is often the primary criteria motivating politicians and their appointees
High Volume / Low Margin: The combination of the low profitability of competitive bid contracts, the large size of many government procurements, and extended payment terms can be deadly for a fledging startup.
The Tierney Of Low Expectations: Post sale, governments are typically undemanding customers, due to the lack of accountability in most bureaucratic organizations. Aggressive commercial customers help startups improve its value proposition with frank criticism, product roadmap suggestions and new use cases.
Barrier To Entry: Once you are in with a government entity, the same inertia which made it difficult for you to secure the sale will make it similarly challenging for your competitors to displace you.
Low Default Risk: Unless you are selling to Greece, Mozambique or California, the risk that you will never get paid is relatively low.
Budget Drain: Government workers are trained to drain their budgets annually to avoid being granted a smaller budget in the following year. Approved vendors who enjoy an existing relationship with the government can leverage this inclination to waste money at the end of each fiscal year by pre-selling additional products and services.
Read more: http://infochachkie.com/government/#ixzz1dnGA8e2U
Procurement Service opens global resource market
The state procurement agency [of South Korea] has unveiled its strategy to widen exports of its procurement system to about 20 countries, paving the way for local suppliers to find deals abroad.Of course, Samsung is hardly a start-up company.
Public procurement market has been difficult to penetrate for local companies as many authorities have placed restrictions on foreign ownership and subsidies reserved for local suppliers. But regulations favoring domestic firms are being lifted with more trade pacts, creating level-playing field for companies to bid for deals from overseas.
The Public Procurement Service, tasked to manage state-owned land and properties, has put its priority in selling Narajangteo, an electronic procurement system developed by Samsung SDS.
Narajangteo, also known as MER-Link, manages government’s contracts with private suppliers by processing electronic bidding, certification, payment settlements, document distribution and workforce planning. Roughly translated as “national marketplace,” the homemade e-system helps to integrate and standardize procurement process. It has been sold to Costa Rica and Vietnam and Mongolia are scheduled to adopt the system within a year or so. Choi is confident he can expand this to Europe and Africa.
“Export of Narajangteo lays the groundwork for local suppliers to find deals from foreign governments. Selling the system widens Seoul’s network with foreign officials, which helps us share information with local companies,” Choi said. “(Importing countries) having the same system as we do is a great advantage to Korean suppliers trying to channel resources there,” he added.
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