What’s the difference between selling to the US Government and selling to the Commercial market?

It’s like night and day.

Sales and Marketing to the government is truly the flip side of commercial activities. You really can’t believe how different these markets are–until you’ve actually come from one side–and tried to go over to the other. I emphasize tried, because it usually doesn’t work out very well!

First of all, in the Government world the term “marketing” is a standard term. But its meaning in the government world is very different from its definition in the commercial world. When you hear someone talk about “Marketing” to the government—they really mean SELLING. That’s in large part because those businesses that deal primarily, or exclusively with the government really don’t do much in the way of marketing in the commercial markets sense.

Everything’s Different

In a traditional government contractor, there is usually no one with a sales title. There are often a couple of people with grand titles like “Vice President of Marketing” or “Vice President of Business Development”. These people have very little in the way of real marketing responsibilities–they are the chief sales people of the company. They are often former government employees, and in the case of a military contractor, frequently an ex-general or ex-colonel. Key to their hiring was that they are very well connected in the government or service branch that the company is targeting. Included in their charter are some “light” Marcom activities–putting together data sheets, and coordinating a few targeted trade shows.  That’s the extent of activities a commercial company would consider to be “marketing”. In addition to the dedicated “Marketing People”, much of the technical selling of individual deals is done at the project manager level.

Of course, it’s not just the sales & marketing functions that are so different in the government world vs. commercial. Almost everything is! The typical government contracting business model more closely resembles a grocery store, than it does a typical high tech company. Margins are very thin, but profit is pretty much guaranteed once you’ve secured a contract. Up front R&D (“IR&D;” in government terminology) is generally discouraged, as it’s a great way to lose money. IR&D; can also be funded by the government; that is utilized heavily but it has limitations. Spending an amount(without government funding) that would be modest in the commercial world on up front R&D can easily wipe out the thin margins that the government contracting business yields. The government contracting model works like this: Hire an ex-employee from the agency that you are targeting your “marketing” at. Leverage that relationship to secure the contract, with a minimum of up front product development expenses. Then hire the people to staff the project, and of course do a good job executing the project. Add new “marketer” from another agency–rinse and repeat.

So for those purely commercial readers out there, this must sound pretty different than what you’re used to. That’s only because it is! There is no Product Marketing/Product Management function in a true government contractor. In the government world your “market” is one customer, or a small number of customers, who are basically specifying the product for you. There are a few sales people, but as I mentioned earlier, they’re called marketing people. The actual marketing tasks are few and far between—collateral creation, trade shows, a party here or there.

Difficult to make the Jump

As you imagine from the discussion above, it’s difficult to move between the two worlds. That’s the reason that nearly EVERY government contractor that has tried to enter commercial markets in any major way has failed abysmally. Government-oriented companies typically don’t have the entrepreneurial cultures found in commercial high tech companies. They lack fundamental Market Evaluation and Product Planning skills required for success in the commercial world—because it’s not required in their core market.

Senior managers at Government contractors are often profoundly aware of all of this. They may intellectually understand that they need to do things differently for their companies to make the jump to the commercial side. But especially if they have been very successful in the government business, a difficulty emerges that won’t be obvious on the surface. And this can be the worst of all: Successful senior managers tend to fall back on their what I like to call their “Common Business Sense” when they encounter new or stressful situations. Often they don’t even realize that they are doing it. Unfortunately, when an executive with a government contractor utilizes their “common business sense” to make a decision involving a commercial business, the results can be disastrous. The “right way” of doing things in the two businesses are so fundamentally different that it might work out better if they took the OPPOSITE path from what their instincts told them. Not an easy way to do business.

Commercial to Government

So what’s a C-level manager in a commercial company, which would like to secure some government orders, to do? Given the different business cultures of the two markets, it seems pretty daunting. Those poor government guys who have tried to go commercial have had their hats handed to them—does the same fate await me?

Fortunately, it doesn’t necessarily need to be so bad. If you are selling services, or highly customized products, you may need to closely replicate the government-contracting model, if you are going to be successful. If you are selling fairly standard products, however, it may be possible to gain significant government business leveraging your normal commercial marketing efforts.

A few years back, I was running a startup commercial software product group within a company that was otherwise a pure government contractor. It was a diversification effort for the company. Our sister groups within the company were all very successful, and extremely well connected within government contracting and procurement circles. I expected, and was promised, a lot of help in placing our products in large quantities within various government agencies and military branches. For a lot of different reasons, that help never materialized. But a funny thing happened—this startup software product group ended up with 40% of its revenue from US and foreign governments. This was without a government-specific product, no real marketing advantage provided by our well-connected parent, and no special government emphasis in our sales and marketing programs. Contrary to popular belief, if you have a great commercial standard product that has use within the government, the agencies and branches will find a way to purchase it. Our product was aimed at Network Administrators, and their needs were similar to their commercial counterparts. The government market is huge, and we did well in the government sector. With a few modest investments, however, we could have done even better. So what steps should a commercial company do to maximize its penetration in the government marketplace?

Tips for Success

Create a great product—Above all, your market research and product planning are the starting point to success. Make sure to include a few potential government customers in your upfront planning, which should ensure that you don’t miss any special requirements they might have. This is a huge market you don’t want to miss.

Have a modest entry-level price for your product—Even if in a production environment your product costs hundreds of thousands of dollars, or even millions, it’s very helpful to have a low entry-level price– ideally less than a thousand dollars per unit. This will allow a motivated prospect to acquire your product initially by “going around” the laborious, lengthy, confusing—and often competitive—contracting process. Even if you have to go through a contract later to secure the full production purchase price, the bidding process may then be “written to your specifications”.

Hire an experienced government sales executive—This can NEVER hurt. It really helps having someone who knows his way around your target agencies, to head your Government Sales Division.

Place your products on the GSA schedule via an established Government Reseller—Getting on the GSA (Government Services Agency) via your own company is a long and complex process. For most commercial entities, it isn’t worth the effort. It’s much easier to give up a few margin points to a reseller already on the schedule. It’s much easier for him to add your products. They won’t do much for you in the way of promotion, and I’ve found that being on the GSA schedule in most cases isn’t REQUIRED to buy your products (although some will tell you otherwise). But it does make it easier for the customer inside the government, and if nothing else, raises their comfort level. They will know that they won’t face a major hassle to buy your product.

That’s my take on selling to the US government. Hopefully there’s a nugget or two in there that can help you. Post a comment with a few of your own tips.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

Tweet