The Complex Case of Startups and Government Contracts


Guest post by James Burbank, editor in chief at BizzMarkBlog

Usually when we talk about startups and governments in the same conversation, it has to do with how the government can help startups and future startups get on their feet, or at least get a fair chance.

Today, however, our topic will be something completely different – government contracts and how startups come into picture. Moreover, we will be discussing the advantages and disadvantages of such contracts; as well as the suitability of an average startup to handle them.

The Good and the Bad of Government Contracts

It is not difficult to see why landing a government contract of some kind would be a good thing for a startup. For one, it would bring a steady stream of revenue to it, and a stream that will be reduced to a trickle for any of the innumerable reasons this happens with commercial partners.

This will also provide a startup with a framework within it can grow without the fear of something going catastrophically wrong just when they hire a few more employees.

Finally, there is no better reference for future jobs and contracts than having the government as one of your past customers (hopefully a satisfied one).

On the other side, government contracts usually come with relatively low profit margins and even though the government will almost invariably pay on time, it can take a while before the startup sees the money. These contracts can also tie up the startup and limit its ability to pursue any other interests or come up with new innovations once they get locked up.

Additional Obstacles for Startups

When it comes to government contracts, startups often realize that there are other obstacles which can prevent them from landing such contracts. Perhaps the most interesting thing about these is that they happen all over the world (something the author of the article has witnessed himself) despite the fact that the governments are set up completely differently and that they couldn't resemble each other less.

For instance, the most common problem for startups worldwide is politics. American startups, for example, complain that the decision-makers within government bodies are easily swayed by lobbyists working for huge corporations and they often give government contracts to their country club buddies, taking advantage of innumerable legal and regulatory loops.

Australian tech startups are more concerned about the fact that the government bureaucrats do not wish to take risks or accept that the tech ecosystem is changing. They are unwilling to learn more about the new solutions and innovators that are springing up all over the country. Instead, they give contracts to dinosaurs that may be light on the risk, but that will also be light on innovation in most cases.

There are also parts of the world where it is all but impossible for startup owners to even get their foot in the door because of the level of corruption that reaches from the lowest ranks of government to the highest (from author's own experience).

The Dreaded Paperwork

Of course, there is also the matter of paperwork and jumping through hoops that can be extra difficult for startups whose owners often have no experience with such Kafkaesque-level bureaucracy. In the United States, there are innumerable agencies and interested parties involved in every decision. American startups also have to take out surety bonds, all kinds of insurance, spending sizeable amount of money (for a startup) just to be considered, even as sub-contractors.

Unfortunately, the situation has traditionally been the same in Australia as well, or at least it used to be. Government Procurement practices were almost openly unfriendly towards startups.

 The good news is that this has started to change and the process began in 2015 with the now-famous Policy Hack. Furthermore, in October this year, the Australian Department of the Prime Minister and Cabinet has established an ICT Procurement Taskforce whose job it would be to help small innovators such as startups land government-funded IT contracts.

One of the ways in which they plan to make government IT contracts more accessible to startups is through segmenting a large portion of them so that they can be handled by smaller companies. This is definitely an idea that might work and an initiative to be lauded.

Instead of a Closing Word

Australian (and not only Australian) startups need to gain better access to government contracts, that is for sure. Every government can benefit from a bit of innovation and excitement.

Startups can bring that to the table.

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