The largest enterprise customer in the world – Washington, DC – continues to evade the Valley, and it’s the Valley’s fault!
The public sector is perhaps the most significant buyer of new commercial technology out there, with purchasing power unrivaled by any private entity. Landing the government as a customer provides a significant competitive advantage to a startup. It is a stamp of validation from one of the highest-bar purchasers of enterprise tech, and the source of a substantial and incredibly sticky revenue stream, which allows a startup to outpace its competitors. Yet, the Valley still fumbles the ball, almost every time. Why?
The answer requires spending thoughtful time following the first rule of business: know your customer!
Investors like SineWave consistently emphasize the importance of an entrepreneur knowing their customer. This means not just knowing their needs, but also how their business works, how to land an enterprise sale with them, and how to expand that initial sale into a greater opportunity. When trying to navigate the public sector for startups, investors fail to follow their own advice in many ways.
Most VCs and entrepreneurs think the customer here is a Senator or Secretary, but they would be wrong. The goal is that $5M / $10M / $25M check, and those checks don’t come from Congress or even the Secretary. These checks come from the folks running public sector “businesses” – the folks who actually drive initiatives forward. They work 9-to-5, don’t have LinkedIn pages, and control billions of dollars – and you aren’t going to meet them at your fancy fundraising dinners. Unless you spend time on the ground, get to know the real decision-makers, and learn to speak their language, you’re going to get lost in a black box.
As you get to know these folks, you will realize that the public sector is not just a single customer. Instead, it is composed of many customers, probably more than the Fortune 500, with just as much spending power, but also just as many different needs. The Department of Defense, for example, includes hundreds of different buyers, each with a different set of business requirements and goals.
Understanding where lock meets key is essential. Once you figure out who your specific set of customers are, you need to know how to sell to them. VCs and entrepreneurs are great at selling a vision – what can be and what will be. After all, that’s what makes our jobs so exciting in the first place. But when selling to any customer, you need to sell reality. Customers want to buy a solution that is secure, reliable, deployable, and able to drive results now – not 3 years from now or 3 days from now.
When we started SineWave nearly a decade ago, we posited that being able to help commercial startups navigate the world’s largest revenue streams would give us a competitive advantage as a venture firm. Turns out, we were right. By landing our startups hundreds of millions in revenue from the public sector, SineWave rose to the top percentile of venture fund returns. Every once and a while we see an established fund or a new player pop their head up and try to do the same – Valley folks love to pretend they understand the public sector, and DC folks love to pretend they understand the needs of commercial tech entrepreneurs. The reality is that you have to have your feet deeply grounded in both worlds and speak both languages to properly target and secure coveted public sector revenue. Navigating the black box requires focused expertise, effort, and relationships, but the promise of unlocking such a massive revenue opportunity is well worth the effort.