Working with government requires understanding the ins and outs of the literally thousands of pages of regulations: intellectual property rules that are unique to government, the Truth in Negotiations Act, commercial items, colors of money, Section 889, Buy America rules and streamlined acquisitions. These regulations include price controls, contracting audit requirements and artificial timelines that await new entrants.
Then the real headaches begins with obtaining “authority to operate” software solutions on a government site, complying with the new Cybersecurity Maturity Model Certification standards, and ensuring your software-as-a-service solution does not become a service-as-a-software business model that capsizes a lofty venture-backed valuation.
In other words, it is suspiciously easy to slip from being a product company to a services company chasing revenue in the government sector. To prevent this, companies must assess the specific contract encumbrances that come with the federal acquisition regulations, many of which government officials may not even be aware of themselves.
That was from the excellent Stephen Rodriguez, “How do you bridge the valley of death? Bring a ladder.” This is a real problem for defense firms. It is difficult to focus on the product when the most important thing is to walk the walk in terms of compliance, and compliance depends on selling labor hours and materials at cost plus a profit rate based on weighted guidelines. The company is not deciding on product features and a pricing strategy. A lot of that is internalized in DoD processes.
With this in mind, I guess my question is that if DoD compliance is so involved, don’t new entrants have to consider compliance strategy to be their number one product? Palantir has focused on the selling a product, and has taken big financial losses for it. SpaceX has focused on the product, and is struggling with the Air Force but has made good in-roads. I think a major reason SpaceX had an easier time is that it’s selling a standard product (space launch) and can do it much cheaper. Palantir, however, is selling a differentiated product (analytics) that the DoD has a hard time articulating the value of (and thus, putting a dollar on it).
(FYI, I think FAR Part 13 and 16 provide good avenues to commercialish contracting in addition to Part 8.)
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