CRACKING THE GOVERNMENT MARKET

The U.S. public sector spends more than $100 billion on IT every year. Software vendors must have C-level commitment in order to gain leadership in this lucrative sector government market.

By Patrick Arnone, Leadership Group Executive Search (LGES)

December 4, 2006

Why is it that software companies have so much trouble gaining leadership in the single largest vertical market in the U.S.?

The U.S. government market encompasses IT budgets for software, hardware, telecommunications and services that will exceed $100 billion this fiscal year. The figure roughly breaks down into $60 billion in federal spending and $40 million spent by state and local governments. And technology spending in the public sector markets is growing at a rate of more than five percent per year.

Unlocking the secrets of government market success takes homework – and seasoned, top-level leadership. But software vendors who devise the right corporate and field strategies, and execute them properly over time can expect to generate 15 to 20 percent of their North American revenue from government business.

Challenges Faced by Tech Marketers
After 32 years of leadership experience in sales, sales management and executive management in the government market at companies such as Oracle and Sybase and an additional seven years in retained search, I’ve seen a variety of strategies for attracting public sector business – some successful, many not. Whether pre-revenue, emerging-growth or billion-dollar vendors, I have found a consistent set of rules for success in driving substantial revenue and profit from the government market. I have also seen many less than successful efforts in the market as well as many that guaranteed failure.

Most, if not all IT firms, want to be a player in this market and enjoy great success but few experience the full potential of what is possible. The reasons for failing to realize the full potential in this lucrative market are usually the same.

Many of the challenges faced by all firms considering the Government market are unique to this market but some are common challenges regardless of the vertical market(s) a technology firm decides to pursue. It always starts at the top of the IT firm with its CEO, President, COO and/or VP NA Sales and many times it ends with the team they recruit for their government market. Following are the classic challenges and issues faced:

Recognize the Differences. The senior executives assume that mere transference of commercial/enterprise market success guarantees success in the government market. They don’t take the time to understand the government market and the kind of plan and investment it takes to be successful. Thus they lack the patience and staying power prior to achievable results materializing.
Rally Full C-Level Commitment. The C-level executives only make a partial commitment to understanding all of what it takes to penetrate and become a leader or THE market leader in the government market. The absence of a full commitment to government success is perceived as a lack of support by technologists that serve the government market as a career, and hinders both the recruitment and retention of leading talent.
Forget What You Think You Know. Executives typically view the government market as different, confusing, legalistic, bureaucratic, with a different set of acronyms and long sales cycles. Some of this is true but the fact is that selling to the government market today is much more similar to selling to the commercial market than it was 10 or 20 years ago. It is the acquisition process, not the sales process, that is steeped with differences.
Hire a Veteran. Like the undertaking of any other vertical market focus for an IT firm, the government market requires leaders who know the market cold and how the sales and business development process works. The vertical industry field general (VP or GM) must have the domain expertise and successful track record to put together the winning strategy, recruit the strongest team and execute with precision to gain maximum market share over time.
Know the Needs. While knowing the buzz words and acronyms may seem to be a big part of it, it is more important to understand how the government plans, budgets and executes when bringing new solutions to the departments responsible for delivering the mission. Not unlike selling to the CIO of Federal Express, you must understand what the operations, marketing and billing departments – just to name a few – require to create a competitive edge.
Restructure for Success. Companies who decide to focus and pursue certain vertical markets, especially the government market, need to realign the group’s reporting structure. Government decisions heads must report to President, NA Operations, or the company CEO or President. The field leader (VP/GM) of the government market who reports to a VP of North America or Worldwide Sales will either fail or never achieve the full market potential by delivering the market share, revenue and profit potential.
Wait to Customize. Vendors may require some degree of product or services modification to their commercial off-the-shelf offering to maximize opportunity in the government market. But in most cases, the normal product/service offering for commercial clients are perfectly suited for the government market.
Move Away from the Map. The CEO and/or VP of North American Sales decide on a sales coverage strategy where a sales person(s) is given a geographic territory and is responsible for all accounts, markets and vertical industries within that geographic. While this may be the best and only sales strategy for a small/emerging growth company, it is not one that will maximize market share, revenue and profit in the government market. Government markets need dedicated reps, regardless of geography.
Start with an “A” Player. It should be key to any company starting a government organization to find the A player that has a successful track record in sales, customer service, marketing, management, etc., in the government market. That person, in turn, will attract A players in all the other functional areas. Too many companies desirous of success in the government market tend to hire a B player as their field leader and in turn they tend to hire B or C players for their sales, marketing, business development and support teams. (Of course, no one admits to recruiting B or C players, but it happens regularly.)
Hire the Connections. The government market team must have deep knowledge and experience in the overall market with all the federal and state/local government agencies, have an extensive network of decision makers, influencers, system integrators and partners.
Know Your Commitment. The government agency decision makers will ask two basic questions of any new company to their market: Will your company survive? What is your commitment to the government market? Potential vendors must have a good story to tell with regard to product roadmap, company longevity, finances, funding, history, market penetration, commerciality, referenceable clients (government and commercial), where and how many, and so on.

Tips for Success
It is possible to overcome the challenges which plague the government market. Oracle and Sybase both overcame obstacles to achieve government market success, but in different ways.

Oracle committed to the government market early in its history. While it struggled at first, it went on to dominate the market by the 1980s and is still regarded as “THE” market leader.

Sybase on the other hand did not start strong in the government market. Yet as the public sector became an important growth area, the company developed a strong strategy was implemented in the mid-1990s. After its success, however, it disbanded its government teams and absorbed them into their geographical regions, which eventually spelled disaster for the public sector business.

A closer look at what Oracle, Sybase and other technology vendors “did right” when targeting the government sector, yields this list of best practices for earning government business.

Find the Right Leader. Success is based on a number of key ingredients but the most important is a government market field leader (VP or GM) who has proven and consistent track record of success in building and leading highly successful government market operations. This leader must posses a strong drive, passion, high energy and a burning desire to be “THE” market leader regardless of the obstacles. In turn, they must identify and recruit other A players throughout the entire team with attributes equal to or greater than their own.
Create Tailored Market Plans. Large or small, the right market coverage plan must be tailored to achieve the goal a company sets to penetrate the market to the extent necessary to justify the investment. The government business unit executive knows how to evaluate his/her competitors success, the plans the government has announced for spending additional dollars in this product area, and then create the right mix of direct/indirect sales, business development, partnerships with integrators or consulting firms necessary to exploit this market in the shortest period of time.
Reinvest to Move Ahead. As the government market team delivers the required revenue and begins to overachieve the excess profit should stay in the business unit in order to fund critical areas and functions relative to their vertical. This would include marketing and marketing communications, business development, contracts and other areas specific to this vertical compared to the generic commercial market. This is exactly the model Oracle embraced and by ’89 Oracle Federal was a totally integrated line of business except for product development.
Leverage the Fed-Local Connection. The government market leader and their business development, sales and marketing and technical support teams must understand and exploit the synergy between the federal and state/local government markets. The federal market does not dictate buying decisions to the state/local government but federal policies do impact state/local government decisions. Most importantly, there are massive amounts of money that flow from the feds to the states for various programs and opportunities.
Create Verticals within the Vertical. To the above point, create vertical segments within your government organization. For example, billions of dollars of federal money flows to the states and local governments for areas such as law enforcement, finance/administration, social services, transportation, and so on.
Get the Basics. Develop knowledge of the government acquisition and budgeting process by agency. Depending on the programs, it can be a three-year funding cycle and can drive systems lifecycles of multiple decades. The establishment of a GSA Schedule and other required external contract vehicles are critical from the onset and on an ongoing basis.

Success in any market and at the corporate level is achieved by many factors, most of which are within the control or influence of the senior executive team and the teams they recruit to build the company. Two success factors can also be market timing and luck – there is nothing wrong with being fortunate and blessed.

Based on my operational and leadership experience with software, hardware and services firms desiring to play big in the government markets, the above challenges and best practices must be dealt with in a positive manner if you hope to be as successful.

There is a longer version of this article that goes into greater detail and is available from LGES. Contact parnone@lges.com if you desire a copy.

Patrick Arnone – is a Partner with Leadership Group Executive Search (LGES – www.lges.com). Patrick is an accomplished executive with 39 years experience in all facets of the high technology industry. Before joining LGES, Patrick was the founder and principal of Arnone & Associates, Inc., a senior level executive retained search firm. Prior to the formation of his firm in 1997, Patrick enjoyed a successful 30+ year career in the high technology industry. He is a senior executive with diverse management experience in companies ranging from startups and emerging growth organizations to large established technology companies.