What’s the difference between US Government sales versus selling to the Commercial market?
It’s like night and day.
Sales and Marketing to the government truly are the flip side of those functions in commercial activities. You really can’t believe how different government and commercial 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.
US Government Sales & Marketing: Everything’s Different
In a traditional government contractor, there is often no one with a sales title. There may be some 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 usually the chief salespeople of the company. Often they are former government employees. In the case of a military contractor, they are frequently an ex-general or ex-colonel in the military. Key to their hiring was that they are very well connected in a government or service branch that the company is targeting.
Included in their charter are some “light” Marcom activities–putting together basic marketing collateral, and coordinating a few targeted trade shows. That’s the extent of common activities that a commercial company would consider to be “marketing”. In addition to this dedicated “Marketing Department”, much of the technical selling of individual deals is done at the engineering project manager level.
Of course, it’s not just the sales & marketing functions that are so different in the government world, in contrast to the commercial space. Almost everything is! The typical government contracting business model at a high level more closely resembles a grocery store than it does a typical high-tech company. Operating margins are very thin, but project profit is pretty much guaranteed once you’ve secured a contract. Up front R&D (“IR&D” in government terminology) is generally discouraged in the government contractor world; as it’s a great way to lose money, as described below.
But 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 upfront R&D can easily wipe out the thin margins that the typical government contracting business yields.
Government contractors and Grocery Stores
Successful growth in the government contracting model works like this: Hire an ex-employee from the government agency that you are targeting your “marketing” at. Leverage that relationship to secure a contract, expending only the bare minimum of upfront product development expenses. Then assign and/or hire people to staff the project, and of course, do a good job executing the project. Add a new “marketer” from another agency–rinse and repeat. If the contracting agency gives you the opportunity to do government-funded IR&D along the way, go for it.
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 pure government contractor. In the government world, your “market” is one customer, or a small number of government agency customers, who are basically specifying the product for you. Thus no need for product management or marketing. There are a few salespeople, but as I mentioned earlier they usually have marketing titles. The actual marketing tasks are few and far between—collateral creation, trade shows, a party here or there, and maybe the company website. Speculative R&D is usually a path to losing money. That’s the quick summary.
Difficult to Jump between US Government Sales & Commercial Sales
As you might imagine from the discussion above, it’s difficult to move between the two worlds of commercial and government. The skill sets and business models which lead to success are quite different. That’s the reason that most government contractors that have tried to enter commercial markets in any major way have failed abysmally. US government sales-oriented companies typically don’t have the entrepreneurial cultures found in commercial high-tech companies. They also usually lack fundamental Market Evaluation and Product Planning skills required for success in the commercial world—because it’s not required in their core government 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 a successful jump into the commercial side. But especially if they have been very successful in the government business, a difficulty emerges that wouldn’t be obvious on the surface. And this can be the worst factor of all: Most successful senior managers tend to fall back on what I like to call their “Common Business Sense” when they encounter new or stressful situations.
This is true of managers in any type of business, not just government contractors. 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 these two types of businesses is fundamentally different. Often things might work out better if cross-over execs took the OPPOSITE path from what their instincts told them. This is NOT an easy way to do business.
Commercial Companies Selling 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 these two disparate 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 going in the opposite direction?
Fortunately, it doesn’t necessarily need to be quite as 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 secure significant revenue from government agencies by leveraging your normal commercial marketing efforts.
A winning approach
A number of years back, I was running a startup commercial software product group, within a company that was otherwise a pure government contractor. This startup group 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, via government contracting activities. For a lot of different reasons, almost none of that help ever materialized.
But a funny thing happened—this startup software product group ended up with 40% of its revenue from US, state, local and foreign governments. This was without a government-specific product, no real marketing advantage provided by our well-connected government contractor parent and no special government focus in our own sales and marketing programs. And frankly at that time – no expertise in government sales!
Contrary to what some believe, if you have a great commercial, standard product offering that has real efficacy within the government, the agencies and branches will find a way to purchase it. Our product was aimed at IT Network Administrators, and the needs of these folks in the government were quite similar to their commercial counterparts. The government market is huge and we did quite well in the government sector. With a few modest investments, however, we could have done even better. So what steps should a commercial software or hardware company take 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 typical production environment your product costs hundreds of thousands of dollars, or even millions, it’s very helpful to have a low entry-level price. Less than a thousand dollars per unit, and ideally less than $500. This will allow a motivated government prospect at the departmental level to acquire your product initially by “going around” the laborious, lengthy, confusing—and often competitive or “wired”—contracting process. Even if you have to go through a contract later to secure the full production purchase quantity, the bidding process may later be “written to your specifications”.
Hire an experienced US government sales executive
This can NEVER hurt. It helps to have someone with contacts in your target agencies to head up your US Government Sales Division. This will allow you to participate in contracting activities. If you can’t afford an employee, consider a consultant with the appropriate expertise.
Place your products on the GSA schedule via an established Government Reseller
Getting on the GSA (Government Services Agency) via your own company can be 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 to the schedule. GSA resellers 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. Many will tell you otherwise, however. But it does make it much easier for your 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 some best practices for US government sales & marketing. Hopefully, there’s a nugget or two in there that can help you. Post a comment with a few of your own tips and please share this article with your colleagues if you found it useful.
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what a great post thanks for sharing.
Tim Ristine says
What a wealth of information. I was aware of these differences, but Phil added many helpful details. I often think about how our commercial company could expand our customer base by doing business with the govt. We develop custom software applications, mobile or web-based, but do not have a standard product to put on the GSA schedule.
Phil Morettini says
Tim, thanks for reading–hope things are well with you and Sanjiv.
Jim Lee says
Good info, Phil. The GSA schedule strategy also puts a layer of interface between the Commercial vendor and the Government customer, which lets your reseller handle the interface challenges – Federal Acquisition Regulations, DARs, etc. The GSA schedule lets a vendor dip a toe in the water, but taking the next step really does require an infrastructure for bids, relationships, and expertise in how the government actually procures.
Phil Morettini says
Thanks for your comments, Jim. You are absolutely correct–and those “next steps” may or may not be appropriate/worth the effort depending on the specifics of the business.