RIP RFP - Why Startups Should Never Complete A Request For Proposal – Especially One Issued By The Government

Gulliver“The emperor holds a stick in his hands, both ends parallel to the horizon, while the candidates advancing, one by one, sometimes leap over the stick, sometimes creep under it, backward and forward, several times, according as the stick is advanced or depressed. 

Whoever performs his part with most agility, and holds out the longest in leaping and creeping, is rewarded with the blue-coloured silk… and you see few great persons about this court who are not adorned with one of these girdles.”
Jonathan Swift – Gulliver’s Travels

Jonathan Swift was satirizing the manner in which court appointments were made in 18th-century England. However, his description could be aptly applied to the process by which some Big Dumb Companies (BDCs) and even Bigger Dumber Government agencies (BDGs) execute their procurement decisions.

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Bite The Hand That Is Not Feeding You

“Decision is a sharp knife that cuts…never to turn back or to stop until the thing intended was clean and straight; indecision, a dull one that hacks and tears and leaves ragged edges behind it.” Gordon Graham, Author and Philosopher

A BDC’s indecision often manifests itself in the form of a Request For Proposal (RFP). Such documents are generally a checklist of potential features and product characteristics which the BDC thinks it needs. In many instances, the document actually serves as an RFE or Request For Education, rather than a legitimate precursor to a purchase. Such education is understandable, especially with respect to an emerging technology. However, your startup should not play the role of BDC tutor, as you simply cannot afford the associated opportunity costs.

Speed of particle flow is a determinate of success for explosions, proton accelerators and sales teams. As noted in Personal Pitch, encourage your sales to team to “Go For The No,” rather than settling for an interminable “Maybe.”  It is better to extract a “Not now” response than to expend significant resources on a living-dead prospect who is not ready to buy.

Even if you are eventually able to close a slow-moving customer, the delayed “Yes” will prevent your team from prospecting other deals with shorter sales cycles. Sales is a numbers game. The more leads your team identifies, qualifies and prospects, the more revenue your adVenture will generate. For this reason, startups should never comply with an RFP, except as noted in the caveat below

By refusing to enter into an RFP, you clearly communicate that your technology is “in demand” and you are focusing your limited resources on fulfilling the needs of customers who do not require you to enter into a laborious proposal process. If a BDC perceives sufficient value in your solution, it will exclude your adVenture from the RFP process. If it does not consider your solution adequately differentiated, you are better served to focus your sales team on customers who more readily understand and appreciate your value proposition.

As described in Private Means Private, it is important to understand the reasons underlying a BDC’s request before you commit your startup’s limited resources to fulfilling it. An RFP is no exception. In some cases, the vendor of choice may already be selected and the proposal process is entirely perfunctory. In other instances, as noted above, the RFP is really an RFE.

While I was at Expertcity (now Citrix), several large call centers invited us to participate in comprehensive customer relationship management RFPs. One small aspect of these proposal requests addressed remote access technology, which was our core competency. In these instances, our technology was sufficiently unique and added enough value to the call centers’ efforts that they purchased our solution without requiring us to participate in Lilliputian RFP stick-jumping escapades.

The only RFPs which I complied with were those in which we helped the BDC write the specifications. In this way, we ensured that our solutions were entirely compatible with the BDC’s minimum requirements. It also allowed us to include product specifications that were incongruent with our competitors’ capabilities. In such cases, it is worthwhile to invest your time tutoring the BDC, as you can do so to your distinct advantage.

Customer Of Last Resort

BDGs are alluring to startups, for the same reason BDCs are attractive – both organizations have tremendous buying capacity. Unfortunately, the only organization more indecisive than a BDC is a governmental agency. BDGs rely heavily upon RFPs and similarly time-consuming procedures to ensure compliance with complex public-sector purchasing regulations and to cover their bureaucratic butts.

In addition to the laborious and resource-intense nature of the BDG sales process, additional reasons startups should avoid selling to BDGs include:

Price Emphasis – As described in Frugal Is As Frugal Does, an entrepreneur’s two most valuable assets are time and money. BDGs often acquire solutions solely based on the lowest bid. As a startup with unique, compelling solutions, you cannot afford to expend your precious time chasing marginally profitable revenue.

Transparency – In certain situations, the deal terms negotiated by BDGs become a matter of public record. As noted in Private Means Private, you may not want such confidential information to publicly accessible, especially if you are forced to grant the BDG aggressively low pricing.

Cash Flow – BDGs are generally credit-worthy, resulting in a very low bad debt default rate. Unfortunately, BDGs are also notoriously slow in paying their obligations, with 90- to 120-day payment terms being the norm. Many a small business has gone bankrupt selling to BDGs, due to the adverse impact government sales can have on a startup’s cash flows.

Overhead – In some instances, when a startup sells to a BDG, they lose their legal designation as a “small business” and become obligated to conform to certain arbitrary and costly regulations that they could otherwise avoid (e.g., certain OSHA and Department of Labor standards). The costs associated with such regulatory burdens often exceed the incremental revenue generated by low-margin BDG sales.

If your solution is ideally suited to the BDG market, consider utilizing a government sector reseller. In many cases, a reseller will shield your adVenture from regulatory and privacy concerns while allowing you to leverage its Government Service Administration contacts and certifications. A reseller will share in your already-compressed BDG margins, but its involvement will allow you to minimize the amount of time you must invest to access the BDG’s wallets.

“In a minute there is time for decisions and revisions which a minute will reverse.”
T. S. Eliot, Poet and Critic

Many BDCs and BDGs exemplify T. S. Eliot’s poetic description. Just as Lilliputian government officials are chosen based on their skill at stick-jumping, BDC and BDG vendors are often asked to invest unreasonable amounts of their scarce resources to close an RFP-mandated sale.

Startups simply cannot afford to enter stick-jumping competitions. Impressing a BDC or BDG “Emperor” with your startup’s ability to jump over arbitrarily positioned sticks will impair your adVenture’s ability to close near-term, higher-margin business.

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John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara's Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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