Government contractors strategize less about how to expand to support commercial clients than their counterparts in the private sector strategize about breaking into the government market. This is strange. Setting aside weapons systems, the government buys many of essentially the same products and services as businesses in commercial industries. So, opportunities for growth abound for the smart government contractor looking to grow.
Few federal sector small businesses successfully expand to support commercial clients simply because they do not set up properly to realize the value of growing this way. Going commercial can be a challenge and it’s reasonable to wonder if it’s worth the trouble. Let’s talk about the major benefits of expansion and how to increase your odds of success.
It isn’t hard to see why many government contractors hesitate to go after commercial markets. After all, focusing on RFPs, monitoring legislation, and keep track of all the other relevant information put out by the government regarding procurement is enough to keep any business busy. Besides, no savvy business leader wants to expand into a new market at the expense of current operations.
There are three reasons why going commercial can be a smart use of resources under the right circumstances:
1. Commercial buyers move faster than the Federal ones.
The procurement process for government contracting is comprehensive and the cyclical nature of government work can leave you in limbo waiting until the next big opportunity gets green-lighted. By comparison, commercial buyers move lightning quick. As long as you are prepared to deliver in line with commercial expectations, you will likely find the private sector pace to be invigorating.
2. There are fewer barriers to entry in the private sector.
There is less of a learning curve when it comes to selling to the private sector. Whereas with government contracts, you must wrap your mind around complying with strict government regulations, procurement, and thousands of acronyms, there is less to learn in the commercial space.
While the federal government customers will tell you exactly what they need and expect you to explain exactly how you will deliver, commercial clients flip the pitch. If you expand to support commercial clients, they will expect you to figure out what they need, develop the product or service to solve the problem, and convince them that your solution is best.
3. You have more negotiating power with commercial customers.
Whereas the supporting federal customers require that you maintain accounting records in a particular way, can penalize you for offering discounted rates to other customers, limit your profits, and terminate your contract for convenience, with commercial customers, you can negotiate terms that are more favorable. Overall, working with commercial customers gives you more leverage and flexibility when it comes to pricing, delivery, and negotiating terms of your contract.
When we discuss lateral growth with clients, one big hurdle seems to be an unwritten rule that once your business heads down the government contracting road, there’s no turning back. But as long as your corporate structure doesn’t make expanding into the commercial space prohibitive, there are few reasons not to grow this way.
So, let’s look at the actionable steps you can take to expand into the commercial market.
1. Determine What the Impact on Your Business Will Be
It’s important to realize that growing your business does not mean abandoning your current operations. The first step to successfully expanding into any new market, then, is knowing that your business can survive the demands of the new market. To ensure this, you will want to assess the full impact of expansion on all aspects of your business.
Ask your team the following questions:
2. Choose Your Route to Expansion
The move from government contracting to the commercial sector is easier the closer you stay to your current strengths. One common area where we see a lot of movement between the two markets is in the area of cybersecurity. Many security firms move easily between supporting government agencies and supporting IT departments in large corporations. This makes sense since cyber security pain points are basically the same regardless of what type of work you’re trying to protect.
There are opportunities in small and mid-size companies too. For example, one of our clients, Nathan Associates, Inc., has successfully expanded, with our help, from working with the federal government to working with commercial clients. Nathan Associates is a leader in providing diversity training, among other offerings. Working together to successfully adapt their diversity training program from a focus on government agencies, such as USAID, instead for commercial clients, including Capital One Bank and Leadership Greater Washington, was fairly straightforward and has been very successful.
Which brings us to the next point:
3. Align Your Current Business Model with the New One
It helps to think of expanding into the commercial market as if you’re developing a new business, not simply launching into a new market. Many government sector businesses choose to create an independent subsidiary or LLC to build out commercial offerings, for instance. This also can help you surmount pricing issues that may arise if you want to vary your prices based on your client focus.
However, while it may help you to think of the commercial side as separate from the public sector side of the business, if expansion requires an overhaul of the core of your business, it’s probably time to pump the brakes. Playing up the overlap between your current business and the newly expanded business will always result in a more seamless transition.
4. Do Your Research
So far so good. Are you ready to pull the trigger? Not quite. Expanding to serve the commercial market takes time, energy, a diversified sales plan and staff, new collateral and branding, and financial resources. You have to look at the data and make sure it confirms your instinct that this is the right next step for your company.
Step #1: Clearly define the commercial market for your product or service you’re entering.
Think hard about what the new market looks like. Hire a market research team if you aren’t 100% sure you can do this work yourself.
State in definite terms:
Step #2: Validate the new market
Validate that there is a place for your offering in the new market. There are four factors to consider:
5. Decide How to Position Yourself in the New Market
The last step is to figure out how to position yourself. There are likely competitors in your space that will be entrenched within an existing customer base. So the best edge you have is to differentiate yourself in a way that helps you capture their attention. The good news is that since you’ve been selling to the public sector, you already know a lot about how to pitch a successful value proposition to customers. Ask yourself what specific value you can add to a commercial customer and how to adapt your pitch to resonate with them.
When we worked with Calibre Systems, an employee-owned consulting and information technology solutions company supporting the federal government, we helped them continue to diversify their customer base into the commercial sector. They had been successfully leveraging their network of veterans with automotive mechanic skills with commercial auto companies and have been highly successful working with Ford and Range Rover, among other companies. Having a focused approach to the market with a target market for your offerings, like they have, is also essential for success.
At the end of the day, if the benefits of expanding to support commercial clients are enough to entice you to enter this new market, following the above actionable steps will help you position properly for success.
And of course, it always helps to have the experience of a team who has guided other government contractors down this path. The experts at growth[period] are ready to deliver smart growth for you. If you’re ready to talk about diversifying your business growth into the commercial sector, connect with us today!