Early Stage Companies - How to Determine if Federal is The Right Vertical to Focus On?
By Andy Miller and Dino Di Palma, Managing Partners at True North Advisory
At True North Advisory, many of our clients have brought to market innovative and differentiated solutions that have excelled in the commercial market. Typically, they have been birthed in a specific vertical such as financial services or retail, and have gained traction within that vertical.
The obvious question faced is at what point do they venture from that vertical to either expansion into another vertical and or geographic area such as EMEA or APAC.
In our previous blogs, we have discussed both vertical and channel expansion. But time over time, we are asked "How can we penetrate into the United States (US) federal marketplace, as the total addressable market (TAM) is so intriguing?"
"It is one of the first questions when we begin to discuss vertical segmentation, and of all the verticals, federal is one of the most misunderstood verticals in terms of the cost of entry, time to market, and product use case fit" said Andy Miller, Managing Partner at True North.
During a framework discussion about vertical segmentation, we take an educative approach to the federal market, and lay out the reality of what it will take to prepare for a federal vertical entry, so the client understands the risk/reward aspect of this vertical versus others that may have a lesser investment and shorter sales cycle approach.
The federal market is riddled with acronyms, processes, certifications and procurement vehicles that are specific to that market, and seem foreign to those early adopter companies that have been focused in the Enterprise market.
At True North, we have a checklist (see below) of the initial areas of discussion with our clients. You can consider the questions below as a “federal market 101” so that some of the higher level issues can be addressed prior to taking the next steps:
Is the solution offered as "as a service" or to be installed in the customer's environment? If it is “as a service”, that will determine the requirement for a FedRAMP certification, which can be lengthy and costly.
Can the use case that the current solution satisfies, be refined for the federal market and a particular agency, and does the go-to-market strategy align to that use case?
Can the messaging pitch be tailored to a specific agency use case, and can the product fit into a FedRAMP and ATO/Compliance strategy?
Can the solution fit into what is called an OTA (Congressional Authority) to enter into “other transactions” to support research and development? This “Authority” to operate is a final step in the ability to sell certification.
Can a SBIR (Small Business Innovation Research) be used as an alternative to a longer certification cycle? SBIR can be used for research and development projects that have an opportunity for commercialization, typically grants or contracts.
Is there a known sponsor in a specific agency, whether that’s FedRAMP or SOC 2, that is willing to sponsor your solution ?
While the above questions are more technical in nature, they are an important part of the education process for the Federal market novice, And of course once some of those hurdles are addressed, then the next steps to address are the investments around a Federal business case to involve dedicated headcount around product, sales, technical sales engineering and certification investments.
With all the challenges of an early adopter company to enter the federal market, there are unique and compelling upsides. The 2022 federal IT spend will exceed $5.9 trillion USD, in five categories:
Cyber security
Technologies special to the federal government such as military, space and environment
Government regulation imposed technology
Socially beneficial technology
Commerce advancing technology
With such an attractive TAM, and once aligned and accepted by a specific agency/agencies, the federal market can be a lucrative and long term positive for an early stage company, but one that needs to be entered carefully, with purpose and with eyes wide open.
At True North we would like to help guide you through this question: Is the US federal government the right vertical for us at this time, and if so, what is the right framework to approach it?
