Federal Sales and Government Contracting (Neil McDonnell)
How to Diversity Your Government Contracting Revenue to Avoid Risk
There are 3 streams of money flowing from the federal budget each year. When you chose the path that fits best with your experience, you will triple your access to opportunities. Most importantly, you want to diversify your streams of revenue to increase success and minimize risk.
✅ In this training, GovCon Chamber president Neil McDonnell explains
- How and where Federal Agencies award contracts
- How to subcontract under a fellow small business
- When to chase prime contracts directly
- Why large prime contractors need subcontractors like you
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HOST | Neil McDonnell
• president GovCon Chamber of Commerce and co-founder of GovCon in a Box
https://www.linkedin.com/in/neil-mcdonnell/
- Small business owners trust Neil to show them HOW to earn federal government contracts and subcontracts.
- A passionate 'evangelist' for business development in the federal marketplace, Neil has helped 1000s of small business contractors collectively win over $3B (federal contract value)
- Neil's daily LinkedIn Live and YouTube training have been viewed over 1 Million x.
As technology business owner for 25+ years, Neil successfully won contracts worth hundreds of millions for the Department of Defense and civilian agencies, including ...
- US Army • US Navy • US Air Force • HHS • VA • White House
- Departments of Education, Transportation, Interior and Energy
- plus numerous large prime contractors
✅ SPONSORED BY GOVCON IN A BOX | www.GOVCONinaBox.com
GovCon in a Box is a FREE AI Community Resource for small business government contractors (launched July 2024)
- Maximize your visibility to federal buyers by getting a '100 Visibliity Score'
- Find teammates who want to work with you
- Gettting daily updates of RFIs in your sweet spot
- Respond to opportunities that you can win
- See consolidated data from USA Spending, FDPS, and DSBS
- Broadcast on:
- 21 Sep 2024
- Audio Format:
- other
In today's training, I wanna talk about the three, what I call revenue streams to diversity, excuse me, to federal revenue. You might think about it the same way as three paths, the federal revenue, but the whole idea of why I teach this is diversity of access to the revenue, diversity of the revenue types. And I'll talk a lot more about that in the training, but just from a higher level, when you think about this from a tip perspective, you really wanna diversify your risk. You think about this if you're investing for retirement, things like that, you wanna diversify your investments so you don't lose it all in an Apple stock crash or something. So you diversify and make sure you're reducing the risk. And you're also, when it comes to going after revenue, you're increasing your opportunities. So you're diversifying or reducing your risk and increasing your opportunities. I had this problem back, my last company, when I started it, for the first few years, we were just doing really, really well, with Booz Allen being our prime contractor where we had a ton of business. I mean, we're just kinda rolling in the dough, we were feeling so proud of ourselves, but we didn't really pay attention to the fact that we were not diversified at all. And there was this sequestration, if you haven't seen this with the government, where they just did all sorts of spending cuts, I mean, massive spending cuts instantly. And that hit Booz Allen, who turned to us and said, "Sorry, fellas." So they cut our contracts with them and they didn't have anything special. We were basically three month contracts and they're like, "Yeah, when this contract's done, we're done." And so we lost 80% of our revenue in there. Now, it was a really good lesson for us because if your company doesn't die from that, you grow stronger, but we really learned, and I learned way back 10 plus years ago, the massive value in federal government about diversifying. And that's why I wanna talk about the three past federal revenue because often I hear all sorts of people talk about prime contracting when you come into the government. And I don't just be consultants who are out there, doing videos and training just like I am or things like that, they're advocating priming. But I mean, the PTACs, the Small Business Administrator, others who talk about prime contracting to people who are brand new. It's like, "No, no, no, no. Take your time. There's a couple other paths you can do." And we're gonna talk about that because prime contracting is great, but it is not necessary right away. And it is not the only path. When you're a large multi-billion dollar business, you're gonna swim in all three of these revenue streams. And so I wanna make sure you smalls are doing the same thing. And we'll talk about that, right? The three revenue streams that these federal dollars are coming down through, and I wanna make sure you know them because if you know them, then you'll be able to pursue them. And that's literally what we're gonna talk about today, how and where federal agencies award contracts. There's three revenue streams or revenue paths that I talk about. The first one is subcontracting under small. Second one is prime contracting with federal agencies. And the third one is subcontracting under a large business. And so I wanna talk to you about how to pursue it, give you some tips on how to succeed. But the most important thing from today's training that I want you to take away is that the federal dollars are up here, that great cloud. It's a really big pot of money. But the way that money comes out to industry is in three different paths. And if you're only pursuing one path, then you're only going after 30% of the federal dollars. Compared to if you have a strategy to do all three of these, then you really increase your likelihood. If you're brand new to government contract, let's say a year or less or a million dollars or less, then don't focus on the largest, right? We'll talk about that in a minute. Focus on the other ones. But at some point, you're gonna hit this stage where you're swimming in all three revenue streams. You should have a strategic plan for 2025. How am I gonna get revenue from each one of these revenue paths or streams? So that's what we're gonna talk about today. That's how I'm gonna talk about it. If you don't know who I am, my name is Neil McDonald. I am the president of the Gubcon Chamber and co-founder of Gubcon in a box tool I'll talk about in a minute. I wanna welcome you to my federal sales training where I provide tips for success in the federal market. I spent 20 years in the federal market as a small business owner. And since 2018, I've been helping people like you to understand that government contracting is not a secret, it's just a process. When we follow a process A to Z, we're gonna have repeatable, predictable results. And that's what I want for you. It's why I deliver this training about the how of federal sales every single day. If you haven't subscribed to our newsletter, subscribe. It's government contracting success newsletter here on LinkedIn, ton of great content out there. We also, that's where we let people know about the trainings. And so if you're coming to the trainings, you wanna hear about new ones, you'll hear about it through that. But join us over there and then join us in tomorrow's training. I've got a list of here, maybe somebody's got a link in the chat already, but it's seven step process for winning federal contracts. This is where I took the complex process that people sometimes describe in the federal government, what I call a billion dollar process. And I brought it down and created a small business process for federal success. And so it's just seven steps on how do you move forward, how do you achieve success? And in that training, you'll hear me also talk about how do you identify where you're having the challenges? When you have a process, you can see where the problem is in the process and address it. So today part of the process is talking about train, or dollars, and we're gonna get to that. I did wanna congratulate three new companies to the 100 Club. These companies, you can see them at the bottom, Barker and Barker Consulting with Vaughn, Up Doppler Consulting with Chris and Virtual Ops Services with Jessica. They just did what it takes in govconinabox.com to be able to increase their visibility with federal buyers. This is not something that is proprietary inside, the data is not proprietary. The data is all in the government tools. All I'm doing is encouraging to get out there and be visible to federal buyers. There are 360,000 small businesses in the federal market. When the federal wire comes looking for you, you want to be visible. And so we created the 100 Club to be able to demonstrate and give you guidance on what it takes to get to that stage. It's free, you can take a look at it at govconinabox.com. But congratulations to Vaughn, Chris and Jessica for doing that hard work to become visible. And then congratulations to the other 100 Clubs as well. It's super exciting to have you in here. I am gonna bring you together and you will be the foundation of a new community where you're helping each other and you're being able to support each other towards success as it makes sense. Okay, let's dive into pursuing the first revenue stream, right? Revenue is a subcontractor under small businesses. What I'm gonna talk about can be valued with the larger businesses, certainly even 100 million dollar companies. But I like to make sure we're bringing along people who just are coming into government contracting if they get here. And so if you don't know, subcontracting is when company A gets a contract with federal government to do something for a million dollars. And they say, hey, can you do something for 50 to 100,000 in support of it? So if there's seven tasks, they might give you one task. You are working for the prime contractor who got the contract from the government. It's actually commercial work for you even though you're supporting the federal government. But that's all subcontracting is, right? And so in this case, we're talking about subcontracting under small businesses. And the reason this is important is because the federal government awards contracts to prime contractors. And those prime contractors are one of two types. They are small businesses or they are large businesses. And there's a size standard, the SBA determines that says whether you're small and large, but for the most part, if you go to DSBS.SBA.gov, you can find all the small businesses in there and their size determination by the SBA. A quicker way is to go through GovCon in a box 'cause we have a great tool. But $176 billion went to small businesses. This is not magical contract or federal spending that went on battleships or paying for social security, all these things. This is literally, yeah, literally, contracts that were awarded to small businesses to support the federal government to the tune of $176 billion last year. So that was FY2023. And when I say small businesses, I mean, some contracts were set aside to total small business, which means we don't care if you're a veteran or a woman. This is set aside for a small business, any designation as long as you're small. And then contracts were set aside to 8A small businesses. That's different, right? There's sole source contracts and there's set aside contracts in particular for 8A. And so those companies got contracts, all part of the 176, hub zone firms, if you're not familiar with the historically underutilized business zones, think about Oklahoma where, you know, compared to San Francisco, it doesn't really have hub zones, but Oklahoma, most of Oklahoma is. And so hub zones got set aside. It's women owned small business and service disabled, veteran owned small businesses got set aside. And when you're thinking about that and you think about subcontracting, these are the type of companies you can be looking for. There is no other designation to pay attention to, right? Minority, for example, does not matter as it relates to the 176 billion because there's no set aside for that. It's done through other ways. And same thing with women owned small businesses, self designation doesn't matter. It's the SBA certification as you move forward. That's the only one that counts. All right. So 176 billion, you want a piece of that, whether you're a billion dollar firm or you just gotten started, that's a lot of money to want to get a piece of it and see how you can team up with one of those small business winners to support their needs while also generating revenue for you. So I put here in the middle that in red, I don't know if you're seeing it, but small business prime contractors, when they're thinking about working with you, they care most about whether you can help them win, whether you and they can win together. They're the most friendly to small businesses like you, in my opinion, because they remember what it was like to be your size or they remember what it was like to be trying to team up to get into an agency or to go after an opportunity. And so these folks just where they care most about, can we win together? If we come together, can we win together? And that's just the normal level of thinking. So one of the reasons I really like subcontracting under small businesses, is they've already established relationships and agencies. So if you're a little bit more mature company, five million plus, a hundred million or even a billion dollar company, billion dollar companies follow this process, right? They're trying to get into a particular agency, they see a small doing well, they'll come over and try to team up with them and get on an opportunity that either they have or they're going after. And you wanna do that same thing, right? If you're trying to get into the army, go find companies that have won in the army. I like to suggest that you wanna have eight strategic small business partners. These are people, teammates, right? If you can think about that, but these are eight companies that are committed to mutual growth. You are gonna help them in any way you can to drive towards their goals, and they're gonna do the same thing for you. In this particular conversation, you're hoping that they're gonna be the ones that help you get into the army or into HHS as you team together. But a strategic partner is different than just a networking partner or person you know, right? A strategic partner is one that comes together and says, let's meet every two weeks, 15 minutes and talk about a mutual pipeline driving forward. You don't talk about everything, you just talk about what you two can work together towards. When you find those eight strategic partners, truly do the work to find them, you will begin to have success. And subcontracting under small allows you to grow, especially if you're fairly new to government contracting. Okay, so that's one revenue stream. The next revenue stream is pursuing prime contracts as a government contractor, right? And just for refresher, for people who are new to government contracting, the federal government, when they award a contract to a company, that company is the prime contractor. Doesn't matter whether that company is a product company, a construction company or a services company, the company that signs the contract with the government is the prime contractor, right? And so that's what you want to pursue when you're ready. You want to pursue those type of contracts because the government spent $745 billion in total contract award out there in 2023. That means they're spending a lot of money. You need to take that $745 billion and really break it down and go, well, how much did they spend on what I do? And how much really is it? So if you think you're a cybersecurity company, come farther down on the cyber spend that the government awarded contracts on. Do you do risk management framework or RMF? Man, I'm kind of losing my thought on that, but you come down farther and you go, what are we doing? You know what, we just do pen testing, penetration testing from a cybersecurity perspective. Well, how much of that 745 was cyber and then was pen testing and it could be massive drop down. But by understanding that you see what potential contract value you have and what you can pursue. And so if you're trying to pursue large prime contracts, then you can go after that. The thing I want you to understand, and this is really, really important, the government doesn't care that you're a woman owned small business or a veteran owned, like I'm a vet, right? They don't care. They don't care about the goals they set. People care. So, you know, we might have David Walts on today. I don't know if he's on. I know he cares. He's here every single day, engaging industry. He cares about small businesses and how we can support the Navy. He cares about the goals that he's going for, but agencies and the government themselves, they really don't care about the goals. And the number one way I know they don't care about the goals, they don't hit them. If they cared about them, they'd hit them. But the number of times you can look out and see that they're out there and they haven't hit their goals makes it really obvious that they don't care. That's not a priority for them. And I'm not saying this to knock them. What I'm trying to say is it's important for you to understand, well, if they don't care about that, what do they care about? What they care about is mission support, success of the mission. If you come in, can you help us deliver on the mission we have? That's all it is. We have to serve veterans in the VA and make sure we're providing quality health care to take care of our veterans. We're protecting our borders. We're teaching our children. Whatever it is that the agency does and that's their mission and the customer inside that agency, what's their even tighter mission, that's what they care about. They don't care about hitting goals. They care about delivering on the mission and they understand your value, industry's value. And so when you come in, you wanna make sure you're talking about that as you go and have to prime contracts. But don't try to go after a prime contract saying, hey, we can help you hit your goal or we see you're not hitting your goal. You can watch all sorts of other training I've done in the past where I say, never go after an agency that's missing its goal. Go after an agency that's hitting it. The way we think sometimes is that, well, if they're hitting their goal, they don't need me there. But if they're missing their goal, they need me. And what I like to say is, if they're missing their goal, they don't care about you. But if they're hitting their goal, they're happy to exceed their goal. And so find an agency that is really buying from companies like yours if you're thinking about those small business tags that we might have, like services to say, well, better known or woman known, et cetera. One of the things I like to point out is here when I talk about what a person on the other side of the table looks for, it depends on who they are. And so if they're an agency, they look for one thing. If they're a large prime, they look for another. And I'll talk about that in a minute. But an agency, and this is my experience opinion, is that first and foremost, they're looking for your core competency. What do you do? Where do you fit? And past performances that show you're good at it, because again, they care most about the ability to deliver on the mission. They're not caring about some of these other secondary things. And they're only secondary because mission is primary, right? And so they wanna see that you've got a solid expertise around your core competency. And you've got past performance that demonstrates that you're good at that and you've been paid for that, right? And so you wanna build that experience out there. If you're newer to the federal space, if you're newer to the agency, then start with small business subcontracting, what I talked about before, and start with small prime contracts within an agency. They'll try to go for real big ones, but start building past performances around your core competency that allow you to go from $100,000 contracts to $1,000,000 contracts to $10,000,000 contracts, right? Don't start with a $10,000,000 one. That's not the normal path in progress, right? Crawl, walk, run. And then when you work with Smalls as well, you can build up past performance as a subcontractor. Some agencies, when you go out to prime contracts, will totally support a subcontract as a past performance. What they're looking for, again, is what are you an expert at and have you been paid for it? So just keep that in mind, as you think about prime contracts, they care most about mission support. So if you wanna get a piece of that $745 billion spend that happens each year, then make sure you understand how your company fits with their mission. So the third one, the third revenue stream here is subcontracting under large prime contractors. And in this particular case, right? A large prime contractor is similar to a small business contract, prime contractor, right? They won the contract with the federal government, so they're the prime and you will support them in any way they do that. Now the difference between a small business and a large business is a large business might have, you know, a billion dollar or tens of billions of dollars size contracts, where you're having a much bigger piece of the pie in there, but it's the same as a small. They've got the contract with the government and you're gonna support it in one way or another in this particular task area. And so when you just think about the size out there, $575 billion, 0.2, right, a little change, but $575 billion went to large prime contractors, what we call other than small. And that's a huge thing to pay attention to, 100, what was it, 150 or 175 in the smalls and 575 to largest. This is a big deal, a huge chunk of money. So if you're a small business, you wanna make sure you're looking at getting a piece of this 575, you're also pursuing prime contracts yourself and you're looking at that third stream of small businesses. The kicker about that 575 billion, and I'm gonna say this in very general terms, right? It's not a hard and fast number, but for the general purposes, large businesses have been delegated the responsibility to work with small businesses. And so you can think about 30% of their contracts, contract value needs to go to small businesses. So if they got a $100 million contract, 30 million of it, they need to figure out how they can subcontract it to teammates. Then they've got all sorts of great teammates they're already working with, so it's not like they're starving to find us smalls, but if you've got experience they want, et cetera, then you have a way to get in there. But it's really important to understand when you're setting up your plan for 2025 as an example, you wanna say, how are we going after some of that large prime contract dollars? Or if you're too new, then you still get started, but you look out at 20, 20, 60, you say, give myself some time, let me find out what they need. Let me start building the relationship for a year. You've got to have a marathon way of thinking about government contracting success, right? It's not a sprint, it's a marathon is what we say 'cause it's gonna take a long time. But the success will happen if you train, right? And you finish. But 30% is a huge amount of money, right? When you think about the 500 billion here, almost 600 billion, that's 180 billion, if I'm doing my math right, it's 30%. That's more than what went to small businesses as a prime. The reason the government put this in place is 'cause they recognize that they award those massive contracts to largest. And they're like, look, you got to stick with the small business act and make sure you're covering down. So anyways, that's a huge thing. The thing about largest though is they are the most risk averse. Smallers are most willing to work with you. Agencies are second most willing, and the largest don't want to work with you unless they have to because, first off, because they want to keep the money themselves. It's just normal for largest. They got to report to their stock hold. But most importantly, they're risk averse. They're very concerned about we have this contract to support the government's mission. We are scared of bringing in small businesses in particular who say they can do the work and then fall down. And the reason they're scared is a valid reason because smalls have come in and fall down on the job before. It's not me, it's not you. But that gives them the fear for it, which is fine. There's ways to overcome that fear or those objections to demonstrate you're a good company. And this is what I put in bullet four. When you're thinking about knocking on the door with large is building relationships with large businesses, it's not just this person you're talking to who might be a friendly person you met at a networking event. But there's other leaders and decision makers who take this relationship past the personal, hey, we had a beer, a coffee at a conference. They take it past the personal and they start measuring you. They care about your back office stability. So one way they measure you is your financial stability. Do you have the ability and the resources to pay your employees three, four months longer than you expected to have to pay them before you got paid from the large who's waiting on the government? Now, if the large was squared away, they'd pay you 30 days after you submitted an invoice whether the government paid them or not. But that's the second story. But they wanna know you're financially stable. So that way, you know, line of credits, things like that, that way, if there's situations, they don't have to worry about your people quitting 'cause they didn't get paid or you having to tell them, hey, I can only pay you a little longer and then they switch jobs. That impacts the large and that impacts the government's ability to support the mission. And so that's something they care about. I like to say when you go into a capability briefing and you're talking to the government, you wanna first talk about what you can do to support the mission. And when you go in and talk to a large, I like to recommend you start first with saying, here's how stable we are. Now let me tell you how we can help you. Because if you're telling them how you can help them, but they're not confident you're stable and you're just one of those other small businesses that are knocking at my door, then you haven't paid attention on what's most important to them. What's most important to them is that if they give you a subcontract, you will be able to deliver on that contract flawlessly. A couple of other things about back office stability is your retention, right? That goes a little bit with financial stability, but your retention and also your recruiting and your approach to staffing or staffing approach and recruiting approach, this ability to attract, recruit, and onboard the right people in your company that they need to support their contract. So when you think about the whole management side of a proposal, that's what larges are looking for because they're risk averse to anything going wrong with a contract. In some of the ways, the other ways you can sit there and really demonstrate that you're the right teammate for them and you can start pursuing some of those federal or large prime dollars is you want to just demonstrate proven past performance. And I tried to mention this earlier is proven past performance builds on itself. The more diverse your past performance, in my opinion, the weaker your company. And I say that term, weaker or softly. The more related your past performance, the stronger you are. We did it here, we did it here, we did it here, we did it from this variation, this variation, right? Compared to saying, I did construction, I did cyber and I did this. It's like, wait, what are you good at, right? I'm good at getting contracts. Well, that's not what we need. We need you to be good at the work. And so you want to make sure your past performance is relevant and related and that's what makes it proven. And then a niche, you can't go into a large and say, we do everything. They do everything and they barely do everything. They know that with tens of thousands of employees. And so if you're a company that has 20 or 30 employees or something or less, pick one thing. For my last company, what I said was we did SharePoint. We did all sorts of stuff. But I just said we did SharePoint, that's our world. And in their head, it made it really easy for them to go, oh, you can fit here or no, we don't have SharePoint work. But most importantly, the thing that was successful for me is we started getting called, oh, you're the SharePoint guys. You're the SharePoint guys. It's like, we sure are, give us more contracts, right? And you want to niche down when you talk to a large prime and you're trying to pursue some of that large prime revenue stream. The last thing I kind of said this already to a degree, right, is largest don't care about smalls. If they did, there would not have to be rules or regulations that say you must subcontract with smalls. People in largest, some people care. I get that, but the organization does not. The organization cares about profit. In this lower case, as it relates to contracts, the largest don't care about the small or the fact that you're small or that we're going to help them hit their numbers, they care about can we deliver? So make sure you understand that they care about delivery on the contract. The same way the government cares about executing their mission, right? And so it's important for us to understand that when we do, we can pursue all three revenue streams. Here's what I want you to remember from today's training. First off, it's really important to know if you're ready to prime contract. If you're not, then don't go after large prime contract either or subcontracting under a large. Know your place and your place, even if I was brand, if I started a brand new company, I got 20 years experience, I would still start a revenue stream one. I would build up a book of business like $3 million, subcontracting under smalls. If I can't do that and I'm going to priming and I'm going to large primes, that means I'm chasing other things. I'm doing constructive procrastination. I'm saying this is constructive trying to pursue a prime contract or talk to a large in all of it because it's too hard for me to find the smalls. But the smalls are winning $175 billion. There's got to be a small that would love to have me on their team. I just got to find them. Eight out of 10 won't want to work with me, but the two that do are out there. And if I do enough activity, I'll go after it. And so you want to keep that in mind with knowing when you're ready to prime, it usually comes with going after smalls. No matter what size you are, the second thing I want you to remember is that when you get to the right point, you should have a plan to go after all three revenue streams, including pursuing small business subcontracting. That's $175 billion. Every year, if you're a $100 million company, you should be saying to yourself, how are we getting $10 million from that company, or excuse me, from that revenue stream, $10 million from the $175 billion and we're a larger company and we have past performance that can help them? You can do that. So then you can really diversify your revenue streams. And the last thing again is just driving this forward, make sure you're building relationships with smalls, build eight strategic relationships. And if you truly find eight strategic relationships that are going after a good opportunity, and generally those people, you wanted to be five, 10 million and plus, right? As you're pursuing it, they need to have enough contract momentum that they're going after that you can participate. If they're smaller than 5 million, then it gets harder for there to be any room for you, right? So keep that in mind as you go forward and you'll be able to have success in all three revenue streams. I do have another training you can watch at the strategic wheel where I talk about how do you plan for all three revenue streams? And you can find that in the previous trainings. If you're interested in working with me and my team, taking you to the next level, especially when you think about these three revenue streams, if you're doing like 2 million plus, I need you to understand, you have to have traction already and you have to be willing to make an investment, then just put workshop in the chat and I'll follow up with you. Don't forget to come to tomorrow's training 'cause I'm gonna lay out the seven step process for success. And when you follow that process, it enables you to find out maybe where your week area is, how to strengthen it so that you can start having the success you want. For all of us, just remember, government contracting, it is not a secret. It's just a process. I will see you in the next training.