Au courant, there are a lot of conversations about the state of government acquisition, particularly with respect to tech. There also seems to be a great divide in terms of understanding: startup founders are either familiar with commercial sales or government sales. Very few have experience with both. Too often, that leads to unrealistic expectations (on either side) regarding revenue streams. SineWave helps demystify the differences, so we’ll take a quick shot at meaningfully simplifying the differences….it’s what we do!
Investment Timelines:
The United States Government (USG) takes a long view regarding investments that may take years to reach mature production levels. And we’re not even talking about R&D. Most weapons systems requirements have evolved from experiences with the last generation of platforms and represent big, new challenges in the operating environment and available technology.
Commercial, For-Profits (CFPS) CFPs generally take short term views regarding investments. If a company is publicly traded, the corporate valuation, as reflected in its stock price, literally rises and falls based on public quarterly earnings calls. Even if privately held, corporate valuation is set by the owner investors, who demand similar quarterly reviews of planned versus actual earnings. Generally, investments are expected to show a positive impact on financials in some agreed and relatively near-term and measurable timeframe. Based on the market vertical, anticipated returns may average multiple months or, for highly capitalized activities, multiple years.
Measures of Success:
The USG measures mission fit, as articulated in written requirements, as its principal criteria for success, with cost and schedule close seconds. In fact, USG often gets “trapped” in very formal acquisition processes that attempt to hold all of these constant from inception and over the life of a program without easily allowing the Program Manager to settle for an 80% solution within a set budget and timeline.
CFPs primarily measure financials as a means of assessing their success. Owner investors have multiple places they can invest their capital and largely track financials to determine where they will put their next dollar. Proffered capabilities may or may not be based on the most current technology or the best value offered in the market. Often, being “first to market” creates brand recognition and garners early adopters a pull-through effect that warrants “shipping” with “good enough” but less than complete feature sets.
Budget Planning Cycle:
The USG Executive Branch plans budgets 5 years at a time and REVEALS to Congress the next year’s need, one year at a time. For major programs, Congress will get a view into total cost, but not the overall program plan.
CFPs generally plan annual budgets only a few months before they begin execution. Based on market conditions, projected earnings, available capital, and product plans and goals, CFPs opportunistically determine where to place near-term investment bets.
Funding Sources:
The USG fully funds development to its own requirements either because they really are unique or because relatively inflexible requirements processes prohibit the use of “best fit” commercial capabilities. While some of this is understandable (e.g. Do you want your financial information in a “good enough” secure IRS network?), some are attributable to a lack of good communications between government and commercial and/or “edge” requirements that are not yet met in commercial capabilities and are “must haves” for successful completion of a multi-hear activity at the outset. Given the formal USG acquisition process, Program Managers are not incented to consider the intersection of their own delivery needs and commercial product plans.
CFPs either self-fund or raise capital externally to satisfy their unique requirements. Cash flush CFPs may choose to self-fund new product lines or may raise funds through external entities for capitally-intensive projects such as new buildings or infrastructure. CFPs license non-mission functionality and will adapt internal processes to available functionality, rather than demand customization to faithfully replicate existing processes.
Contract Awards:
The USG executes competitive awards to “qualified” providers, so as to preclude the government “picking winners” with inadequate information. Selling to the USG includes specific accounting systems and criteria, cybersecurity standards and certifications, costing models (including permitted G&A), and foreign entity interactions. Contract awards employ thorough, highly structured processes. Once a contract is awarded, it is nearly impossible to move the work to a different supplier.
CFPs may employ timely competitive awards or preview and select candidates with expedited contractual processes. CFPs who are NOT government suppliers may contract how and when they see fit. While CFPs generally have guidance for acquiring capabilities, they are lightweight and heavily biased to timeliness and cost effectiveness. Very few are awarded a priori as guaranteed multiple years in duration.
Workforce Compensation:
The USG pays employees at standard rates, largely based on years of experience and competency, independent of discipline. What that translates to is the same pay scales for a senior technical, marketer, or finance professional – and generally below market value – compared to commercial counterparts.
CFPs pay stellar performers whatever the market requires and will support as a means of retaining their services. Many CFPs have pay band guidelines that they apply as a “rule of thumb” for classes of experience based on discipline. They also have other significant means of making their employment “sticky” for top performers, including stock grants, bonuses, and benefits.
Mission/Vision Focus:
The USG workforce focuses on public good. Government officials feel personally responsible for ensuring public safety and national security. For example, preventing corruption in our state and local governments, in our food stuffs, in our supply chain, and in our critical infrastructure are “callings” for our public servants, who spend their careers thinking about and acting on potential threats – or mistakes – to prevent harm to our populace.
CFPs prioritize contribution to profitability through measured productivity. CFPs generally flow the CEOs financial goals into each of the production units in a way that makes concrete each production unit’s expected contribution to short-term corporate financials, through increases in revenues and/or reductions in expenses.
As you can see, USG buying differs significantly from CFPs for a variety of reasons. As a result, the timelines associated with USG contract award can be significantly longer than for CFPs. Conversely, once the USG has awarded a contract, that vehicle exists for a very long time and is quite dependable from a recurring annual revenue perspective.
