Does a new customer with annual revenue of $328 billion, a procurement budget of $42 billion and a policy of making prompt payments interest you?
We thought it might.
While government presents SMEs with a potentially long-term and lucrative client, getting a foot in the door can seem to be a daunting prospect.
“Attending trade shows can be an effective way to become recognised as a leading service provider to government,” says Kim Coverdale, Convenor of the Public Sector Business Solutions Show , to be held in Melbourne in March 2012.
“These events provide the opportunity to interact with key decision makers from local, state and federal government and the wider public sector. What sets this Show apart is its focus on winning business with government and public sector clients, making it an ideal platform for SMEs to gain targeted brand exposure for their business.”
Now for the good news: a client with that revenue is out there and wants to do business with you. In fact, it is out there looking for small businesses just like yours to do business with it right now.
Who is this mystery customer?
You’ll find it at Capital Circle, Canberra, seat of the Government of Australia and its $328 billion expected tax take for the 2011/2012 financial year. Australia’s States and Territories also have mountains of cash to spend – NSW alone expects to receive $59 billion in revenue in 2011-12. Local governments around Australia have an additional $20 billion to spend.
All levels of government make fine customers because they buy a lot of stuff, outsource all sorts of jobs and recognise that part of their role is to foster economic development by making sure that more than a few crumbs fall off the table and into the bank accounts of smaller businesses.
“In 2009-10 Australian Government agencies entered into approximately 81,000 contracts valued at $42.6 billion with some 16,000 suppliers,” says John Grant, First Assistant Secretary of the Procurement Division at the Department of Finance and Deregulation. “The SME share of those contracts awarded was 56 per cent by volume and 32 per cent by value.”
Grant says Government is not a soft touch for small business. “The Commonwealth Procurement Guidelines … require agencies not to discriminate against SMEs and to consider the benefits of doing business with competitive SMEs when specifying requirements and in evaluating value for money.”
Other jurisdictions have made bolder statements about their enthusiasm for doing business with small business.
NSW, for example, operates a ‘Jobs First Plan’, which states: “The NSW Government’s Procurement Policy recognises that value for money is about broader economic benefit and not just the lowest price. The NSW Government acknowledges that economic benefits flow from procuring Australian or New Zealand goods and services and maximising opportunities for service providers to compete for Government business on the basis of value for money. Consistent with NSW’s international obligations … the Local Jobs First Plan is applied to benefit small and medium enterprises.”
Local governments are also keen to work with small business. Each state’s local governments operate a central procurement organisation to help councils to find suppliers (see ‘Online resources’ below), which means registering with those bodies becomes a gateway to potentially winning work from all of that jurisdiction’s local governments. If the requirements to win accreditation seem onerous, don’t fret. As the Municpal Association of Victoria’s ‘Doing business with local government’ guide points out: “Councils don’t expect everyone to have International Standard or best practice systems in place, especially small local businesses. So think about how your company or business is doing even the smallest things to address areas like corporate responsibility or risk management, or environmental factors. You gotta be in it to win it!”
Another sign that Governments are keen to do business with small business can be seen in the appointment, at a federal level, of Supplier Advocates, senior executives charged with ensuring that Australian businesses have easier access to government work (and become more competitive when pitching for private sector business). Advocates operate in the rail, steel, IT, water, built environment, clean technologies and textiles, clothing and footwear industries.
One of the Supplier Advocates is Don Easter, who fills the IT Supplier Advocate’s role. In a piece he wrote for My Business’s sibling publication Government Technology Review, Easter explained his role, saying he feels it is “ … important to draw attention to the defining traits of the SME sector — its flexible solutions; its first-mover innovation; and its tailored service” and added that “I hope Government customers will diligently and strategically identify those all-important cherries that the SME sector does best.”
The Supplier Advocate program does more than point out the virtues of SMEs. An example of the program in action saw the IT Supplier Advocate program help several companies in the IT industry to exhibit at the CeBit trade show, where Easter said they were offered assistance to “showcase the IT capabilities they supply to government” from the Australian Government’s stand at the event.
If that kind of assistance sounds attractive, here’s the cherry on top if you are thinking about government work: some jurisdictions promise to pay in 30 days!
The Federal Department of Finance’s guidelines for paying small business state, in part, that: “ … written contracts for procurements by an agency from a small business must provide that, for payments valued up to and including A$5 million (GST inclusive), the agency will make payment to the small business not later than 30 days after the date of receipt by the agency of a correctly rendered invoice.” (Federal government agencies take this very seriously. When I did some work for the government last year, procurement officers started to gently hassle me for details the day I started in order to meet the payment deadline – Ed.)
What’s it like to work with government?
While government wants to work with small business, there are still some hurdles to overcome before you can list them among your clients.
The most formidable of those barriers is the fact that a great many government purchases are made by tender, a process whereby a government agency emits a detailed document explaining what it wants and outlining the equally detailed response it needs before it can consider you asa supplier.
Tenders can be intimidating and confusing – My Business once tracked a tender for writing services which attracted more than 200 questions because of its opaque language and arcane requirements.
For Dawn Piebenga, Managing Director of Sydney company Injury Management & Rehabiliation, a complex tender did not deter her company’s first bid for government work.
“In our industry, we have to be accredited by WorkCover NSW. That meant tendering was not a stretch for us, because we already had to have accreditations that government was looking for.”
“We thought we would go for it, because government has really robust probity around working with small, medium and large business from cities and regions,” she told My Business. “The way the tender was worded meant we felt we had as good a chance as any to win some work. We thought they would look favourably on us as a small business.”
As the tender process unfolded, Piebenga felt it offered greater certainty and fairness than tenders from the private sector.
“Most of the tenders we have participated in have been for insurance companies. There is no probity – they say there is, but there isn’t. You can provide a good and detailed response, but you can miss out on relationships. In the private world, you can go into a tender meeting and there might be 25 companies there and you work your arse off to respond and then find out there was another meeting for the 10 providers they really wanted. They were humouring you. That would never happen in government.”
Piebenga says Government, by contrast, “really looks at the answers you provide.
Questions are much clearer and more carefully-worded to make comparison between those who tender easier.”
Government is also easy to work with once you win a contract.
“Once you are on the panel, the standards are so clear and they are transparent for measuring performance,” Piebanga said. “The NSW Government provides really robust systems explaining what they expect. It’s very structured and there is really good technology behind it for reports that you must do – there’s a portal you log into to send reports. In private enterprise, you have to generate those reports yourself.”
Piebenga says these systems mean it’s easy to understand if you are meeting the client’s requirements and therefore to plan for contract extensions.
“Performance standards are well articulated so you know if you are doing well really easily, compared to other experiences where it is not clear if you are doing a good job. It’s less relationship-based and more system and process-based.”
Injury Management & Rehabiliation also appreciates the swift payment it receives.
“They pay really quickly and efficiently,” Piebenga says. “Their technology is so sophisticated – you log in, enter your report and if you have ticked all the right boxes, it goes right off to an electronic payment.”
“We still get some cheques from private enterprise, but government is a dream to work with – we never have to follow up.”
The one fly in the ointment for Injury Management & Rehabilitation is that government doesn’t pay well, so profit margins are low.
“Nine per cent of our business is government and we would not want it to be much more because of the profit margins. We think of it as bread and butter, but don’t want to rely on it.”
Cameron Ball has a smilar approach to government work. The company he serves as Managing Director, Kiandra IT, has won a place on several state government panels, but also focuses on larger businesses and startups.
“We try to go for balance so the business is stable across whatever may be happening across the economy,” Ball says. Government work, he adds, becomes more important – and perhaps more plentiful, too – during slow times.
“At the height of the GFC, all these projects were released. I do not have proof, but it seemed like they were trying to stimulate industry. There seems to be no correlation to consumer confidence or things that affect the enterprise space in the way government decides to invest. It is more related to big issues or when the next election is on.”
Like Injury Management & Rehabilitation, Kiandra IT doesn’t rely on government for the majority of its work.
“The margins are not as good,” says the company’s Director of Software, Martin Cooperwaite. “You are leveraging volume of projects as opposed to margin.”
Kiandra IT can leverage volume, because it has now worked with governments for several years and Cooperwait says the longer you do it, the easier it becomes. The company’s first step was to win appointment to government panels.
“It takes a lot of time and effort to get onto a panel and you have to divulge a lot about your business. It requires a whopping tender response. You get grilled, because the purpose is doing pre-quality checking.”
Cooperwaite says Kiandra needed three or four staff, working non-stop for up to two weeks, to complete a panel response. That level of work was “a bit arduous” for the 55-person company, which now says it has been through sufficient panel submissions to have reduced the time it needs to complete a response.
“Once you have been through it, the process gets easier,” says Cooperwaite. “If you are planning to get on multiple panels, you can leverage it and do a bit of a cut-and-paste job.”
And once you are on panels, it pays off. “Once you do it, the opportunities are there,” he says. “It is worth the investment and once you are on the panel, it only takes a one or two-page response to bid for a $500,000 project.”
Government as core customer
Jon Doolan, CEO of KE Software, also believes an up-front investment is important when dealing with governments.
KE Software specialises in applications for two niche areas that are dominated by government: museums and registrars of births, deaths and marriages.
Doolan’s approach to winning these government customers is to demonstrate that KE Software knows as much or more about best practice operations than the organisations themselves.
“You have to evolve into an ‘expertise company’,” he says, as only by demonstrating that your product meets the government agency’s needs will sales be secured.
“We pride ourselves on providing the best software and knowledge in our two sectors,” Doolan says. “I don’t believe there are other sources of expertise that can rival us.”
This strategy means KE Software does not employ traditional salespeople to target the government agencies that make up the overwhelming majority of its clientele. Instead, it uses workers who developed its product and gained deep insight into clients’ problems to conduct long-term engagement with prospects as a way of demonstrating that KE Software knows their businesses inside out and will be an ideal supplier. Long engagement with potential clients means the company also tries to influence future tenders so that they refer to concepts and features only KE Software’s products deliver.
“We are not doing anything that would pervert the tender process,” Doolan says. “But there are a lot of subjective things that go into tender evaluations” and having a relationship in which you have demonstrated expertise does not hurt.
KE Software’s sales strategy includes rigorous assessment of which deals the company thinks it can expect win. “Working with government has a high cost per sale and a very long sales cycle,” Doolan says. “So you try to minimise outlays.”
Doolan therefore expects a success rate of 70 to 80 per cent when it competes for tenders. The upside is that when KE Software wins a government client, it feels it can retain and derive revenue from government agencies for decades. “The initial sale is reasonably substantial, but we earn 80 per cent of revenue from existing customers,” Doolan says. “In the longer haul, if you look at profitability, it is good, because selling costs are amortised over 10 or 20 years.”
Doolan also feels that specialising in government niches also makes his company less susceptible to competition.
“Big software companies consider the verticals we are in to be small,” and therefore not worthy of their attention. Even if outsiders targeted KE Software’s niches, Doolan feels the company could fight them off.
“Unless others are willing to develop a very sophisticated solution, they would fail,” he says. That head start means KE Software intends to continue working almost exclusively with governments for the foreseeable future.
“Government agencies are very difficult to win and move slowly. But when you get in, there is real lock-in. If you look after them, you can expect to have them as customers for decades."