There is no fool proof way to grow a successful government contracting firm. While some company leaders might vouch for a specific method for growth, they may only be speaking about their own experience, informed by their circumstances, their available resources, and the luck they encountered on the way to growing their company. While there are multiple paths to growth, there are thoughtful strategies small businesses can employ to grow within and beyond-plan in their target markets. These strategies are informed by Red Team’s experience working with new start-up companies, commercial companies pursuing federal work, and the thousands of small, midsized, and large companies with existing federal experience.
In Part 1 of this three-part blog series, we will discuss the growth, hiring, and investment decisions that companies need to make as they grow from a small business to a viable mid-tier competitor in the GovCon market. In Part 2, we will discuss the common characteristics we see in companies and leaders that succeed (i.e., meet their growth strategy objectives) and those that remain stagnant or shrink. Finally, in Part 3, we will cover perhaps the most important area for growth-minded companies: how to mitigate risk and remove the obstacles that stand in the way of growth.
Part 1 – How to Position Yourself for Growth
Growth strategy for the brand-new federal contractor – either start-up or commercial company looking to grow.
Most brand new federal contractors need to start with a plan in mind. Owners need to hone in on the federal market sectors/subsectors (including target agencies, technologies, domains) they want to target, the teaming partners they would initially contact, the events and associations they want to attend. Too often, new federal contractors start too broadly or don’t have a particular focus area. If a new company advertises themselves as having numerous capabilities, it communicates that they don’t do any of the services proficiently. Most large companies seeking teaming partners are looking for niche service providers or those with knowledge or experience in a specific federal agency, technology, or domain area. Any new small business should start with a specific area of expertise or focus – that will attract the interest of primes or government buyers to get their foot in the door and build their brand.
The key strategy for companies at this stage is to hustle and identify potentially viable opportunities that are smaller prime contracts or subcontracting opportunities. Most initial contract awards are done through an existing relationship or building a relationship with either a government customer or prime contractor. Remember that despite the contracting hurdles that exist with winning larger contract vehicles, if the government customer or prime contractor know, trust, and like you, your chance of winning initial work is much greater.
Growth strategy for the small business that is growing quickly with a mixture of prime and sub wins.
This is a size where many emerging small federal contractors exist. They’ve won some initial subcontracting work or were fortunate to win a couple of prime projects, either through a single award contract, GSA Schedule task order (if they have one), sole source (if they are a certified 8(a)), or through Simplified Acquisition Procedures. Some of these companies may have also won work through a SBIR/STTR program or through an OTA.
As companies approach this size, there should be an initial emphasis on hiring additional overhead roles including finance (or accounting), human resources (or recruiting), contracting, business development (or proposal) resources. The purpose of these hires is to offload some of the burden that the owner(s) and other business leads are handling during evenings and weekends.
Companies at this size should also start planning to invest in systems such as a cost accounting system (i.e., Deltek Costpoint) for potential cost plus work, certifications including CMMI and ISO, gaining a Facility Security Clearance, and other tools and technologies that will streamline day-to-day operations.
Companies should look for creative ways to take advantage of their size status including seeking joint venture partners (both small business and mentor-protégé) and finding more set-aside opportunities (especially IDIQs and GWACS) that are in their swim lane. Companies at this size should hire or assign growth responsibilities to an individual (or team) to lead business development initiatives – this should be a concerted effort to leverage the company’s size, value differentiation, and socio-economic designation for growth.
Finally, companies need to understand that the investment they make now will set up the company for success three years from now. Hence, the suggestion to target right-size investment in infrastructure, necessary overhead resources, and focused planning for growth.
Growth strategy for the small businesses that are 2-3 years away from exceeding their primary small business size standard (revenue or employee size).
A funneling process begins to take shape with fewer companies making it to this stage of their growth lifecycle and even fewer that can sustain their growth beyond this size. Companies at this stage of growth likely have more prime contracts then subcontracts including a couple of “larger” program awards and even 2-3 multi-award IDIQs or BPAs. Companies who have achieved this level of growth had likely focused their business development efforts on identifying, pursuing, and winning prime contracts over the prior 2-3 years, which is the amount of time it typically takes to win “sizable” prime awards. Companies who have challenges getting to this stage had likely never prioritized proactive business development strategies or relied on internal teams to lead organic growth.
Small businesses getting to this point have also likely diversified their customer base beyond their initial market sector/subsector focus (i.e. federal agencies/subagencies, technology set, domain area). For example, a company that may have historically supported TSA will likely have branched into other DHS components. However, it is rare for companies at this stage to unexpectedly win work in completely different markets – for example, it is less likely (although not impossible) for a DoD entrenched company to suddenly begin winning Federal Civilian contracts.
Why do so many companies fail to make it past this point? They delay hiring additional leaders needed to support growth, or they simply hire non-performers. At this point, small businesses need to hire strategically. These hires are no longer basic overhead positions to take on day-to-day tasks—they need to be leaders or executives who know how to sustain growth. The people you hired to get you from 10 to 50 people will likely not be the same people you need after you exceed 100 employees.
Finally, the key growth strategy for small businesses here is that while organic growth will continue to be the foundation of your revenue, inorganic (or net new growth) will need to be at the forefront of your strategy. This includes hiring outside thought leaders, asset acquisition, and targeted M&A activity. To outgrow your size standard, your company will need to take risks (and make investments) to grow your agency footprint and technical capabilities.
Growth strategy for the small businesses that are about to graduate or have recently graduated their small business size standard. Congrats…I think.
Very few companies make it here. While M&A activity drives the news, the media only writes about the companies that sell or win the largest contracts. For every company that successfully leaps into the mid-tier pool, there are hundreds of other small businesses trying to do the same thing. For those companies that graduate, there is an abundance of challenges that exist for mid-tier contractors competing against the largest integrators.
The mindset for companies at this stage should be to win any remaining strategic small business set asides that they are eligible to compete, establish partnerships to support their growth as a mid-tier company, and identify unrestricted opportunities they should pursue. It is critical for any small business as they take the leap to mid-tier that they develop a strategy to pursue unrestricted contracts. It will also be critical to gauge how long you want to remain a midsized company – if a company is successful in winning a handful of unrestricted contracts as a small business and then as a midsized company, they will have the luxury to decide when to sell. If a company is not successful in winning those unrestricted contracts, their decision to exit or sell may already be made up for them.
Companies at this stage should have strategic leaders in all areas of the company by function (finance, HR, BD, Contracts, Legal, etc.) and delivery (horizontal leads by discipline or vertical leads by agency). The business owner should be hands-off and only engaged in strategic decisions, captures, and financial investments. Leadership should open discussions with investment banking firms and M&A organizations, and even consider investments from investors and banks. At this point, it is critical for the business owner to stay out of the day-to-day operations.
The key for a mid-sized company to compete in the unrestricted market is to think, act, and plan your opportunity pursuits like a very large company. That means planning captures well in advance (1-3 years prior to RFP release). Most companies (even the largest integrators) are reactive to their opportunities and pipeline. Hire (invest) and assign enough capture and proposal resources for these programs – large businesses often act like small businesses and do not assign enough support on key pursuits. Finally, the combination of customer relationships plus the right solutions will lead to more wins.
Next in this series
In Part 2, we will discuss characteristics of successful business leaders and owners and what executives can do to maximize the potential to grow their company. In Part 3, we will cover obstacles to growth and strategies to consider to overcome those obstacles. If you need help with your business development strategy, organizational planning/growth, or simply with winning a strategic capture or proposal effort, please reach out to us. We’d love to talk.