December 8, 2017
Selling to local, state, or federal governments can be a long, arduous process. Municipal and statewide statutes mean there is strict regulation on public sector funds. State and local agencies each have their distinct purchasing guidelines and practices, making a pre-planned, one-size-fits-all strategy challenging to pull off.
But while challenging, B2G sales can be advantageous. Governments are slow to change and are very sticky clients if they come to depend on your product. There is more inertia with government decision-making, making it less likely they will dump your product for a competitor. Here are some of our tips for selling to cities.
Get in the Trenches with Your Customer
If you are selling to the government, it’s hard to find a QA environment that can adequately simulate the situation where your startup would prove useful. Consequently, founders must work harder to gain the trust of government stakeholders and to find the data to verify that the proposed solution works.
Founders must also work hard to address the regulatory concerns of officials. One way to do this is through a thought experiment. Put yourself in the shoes of the regulator you are working with and write down all their potential concerns. For instance, if you’re a company like Lyft, you would have to address the numerous issues related to how drivers and passengers are insured. To head off this question from the start, Lyft developed an entirely new class of ridesharing insurance so that regulators could not use this thorny issue as a roadblock in approving Lyft’s expansion plans.
Matt Polega, one of the founders of Mark43, discusses how his team developed their product and worked with their early customers:
From there we went out to Torrance, CA, and we were working with the Torrance Police Department. We would sit with the gang unit in their trailer in the back of the department and watch and observe everything. Then we would go back to our apartment, build a bunch of things, and come back and get feedback and then continue building out the application. This cycle went on for about five months.
Be Creative with Contracts and Partnership Agreements
In the beginning, you should not expect to build your startup by winning RFP after RFP. Being creative with how you structure deals with cities is essential. Early-stage startups can prove their products work with term contracts for specific government agencies. State and local governments have discretionary spending budgets and can be more nimble with small-scale contracts than large roll-outs. If your startup can prove itself with a term contract, you can later expand the relationship and have data (and relationships) to win an RFP process.
If you’re proposing new tech, pilots are a real option.
“We’d much rather date before we get married,” states Patrick Sinnott of Las Vegas. “We’re good customers. We’re sticky once you get in the door, but we’re slow on the front end to make sure you’re solving something that makes us a better city.”
Pilots may be paid or unpaid. If you’re proposing a $20k-$50k level project, it is much more possible under discretionary spending to get a paid pilot. Once you get above those numbers, you’re pushing up against regulatory or procedural limits on spending. In smaller cities, the upper limit on discretionary spending might be more like $10k and could be spread out over a couple of years.
Often, purchasing decisions come down to two major factor: size of acquisition and timeliness. If you’re pitching a tech upgrade to a vital city system, that could be a very long, drawn-out process. For this type of situation, you need to think of Peter Thiel’s 10x improvement rule. Your tech should provide a 10x performance improvement over the closest substitute.
For example, Amazon could offer at least ten times more books than a traditional bookstore, and PayPal made buying and selling on eBay ten times easier. There needs to be a high value-add for a government to switch systems because city officials are highly risk-averse.
Founders should also be aware of “sheltered market programs” that they can utilize to expedite contracts with the city where they are based. Depending on how the program is structured, it may give local startups a leg up in winning contracts.
Do Not Discount Your Customers’ True Switching Costs
If you’re trying to convince a city to change its behavior or switch from a legacy system, you should plan to address the true switching costs associated with your product. Your startup may save them money in the long run, but have you adequately address the customers’ concerns about migrating off the old product, building a new process, disrupting the existing integrations of the old system? Switching costs are one of the most significant barriers to tech adoption. If you do not address these concerns upfront, you might come across as either untrustworthy or naive.
Show the Efficacy of Your Product
Like any other field, governments look for startups that can show real results. But it’s important first to figure out the priorities of a city and then to demonstrate how your product gets the city toward that goal. David Graham of San Diego has this advice: “Serve. Don’t sell.”
One way to do this is to build relationships and partnerships with leaders in the community who are working towards a goal you can help solve. You are both gaining the trust of influential members of the community who can serve as references when you are competing for the RFP, and you can prove the efficacy of your product and collect relevant data. Even if you do not win the RFP for City A, you can utilize the data for City B.
As an example of what one of these groups might look like, Graham pointed to Cleantech San Diego, a nonprofit in the San Diego area that fosters collaborations across the private-public-academic landscape. If you’re a cleantech startup, your product is likely in line with this organization’s goals. What’s more important, you are potentially providing outcomes that are sought by the city. Proving your efficacy with a constituent-led structure will be valuable when pitching to sometimes elected officials who are voted into office to advance these same values. Social proof like this can shrink the sales cycle, increase renewal rates, and provide differentiated datasets for scaling.
Right Place, Right Time
While this is not something a startup can easily discover, it’s important to strike while the iron’s hot, i.e. sell your product when the city is upgrading. With the rise of IoT and sensor technology, city officials are always striving to integrate technology that can work seamlessly across departments in their cities. In San Diego, for instance, the city needed to replace a large number of streetlights. In the past, this would have been a relatively simple process of weighing costs from a set of vendors. But this time, instead of just buying new lights, David Graham, deputy chief operating officer for San Diego, saw an opportunity to rethink what lights could do.
He and his team formed a partnership with GE to turn lights into connected, smart devices that can detect objects in the street, detect smoke and alert the fire department, provide data for environmental assessments, and more.
“We were already looking to upgrade street lights, and then we saw how we could go further,” stated Graham.
If you are selling to city governments and can provide cross-agency solutions with an improvement to an essential product, you will have a leg up in the competition for the contract.
Know Where the Power Lies in Cities
Are you pitching to cities with a “strong mayor” or “weak mayor?” For most larger cities, there is a strong mayor system, where the mayor is a chief executive figure elected by voters. With “strong council systems” there is usually a council member who is chief executive If you understand dynamics you can avoid lots of frustrations.
Chief Innovation Officers and CTOs are typically distributed among many people in cities now, but these innovation officers tend to be focused on specific domains, e.g. chief data officers or chief sustainability officers. In some cities, the city managers will have a staff of officers, each managing a specific set of problems. Do not make the mistake of discounting the influence of these city officials. One of the biggest mistakes city officials see is when startups go directly to elected officials and try to introduce their product with a top-down approach. This often backfires, causing lower-level officials to feel like the founder is somewhat out of line. As a founder, you should be working with the people who know what is going on in the operational environment of the city.
This does not mean that you should refrain from speaking to as many people as possible, but you should make sure that your internal champions are aware of your outreach. Sal Salinas, a partner at Accenture, advises startups to create a “safe harbor environment” where you have a conversation with as many people as possible, from mayors to council members to procurement officers. This is especially true if, like most B2G startups, your product is a tool for tying agencies more closely together.
“Technologies force you to be seamless, so you have to figure out how to do that from a government perspective,” states Salinas.
Here are two ways to get in touch with the right city officials for your startup:
- Look at press releases from cities or city councils to figure out who the players are. If they get airtime in a press release, they probably have some decision making authority.
- Google is your best friend. Look up [city name + “manager” or “chief executive” + area of expertise] to find the right person.
Target Tech-Friendly Cities
If you’re an early-stage startup, you should create a strategy based on which cities are tech-friendly. Look for cities where there are an innovation district and high profile tech implementations. If you do just a little research a city like Las Vegas, for example, you’ll find out that they recently set up an innovation district in partnership with Cisco, that they are testing out new transportation infrastructure, that they are installing fiber in certain areas for higher speed communications needed for industrial computing. The city is also entirely reliant on green energy sources for 100 percent of its municipal buildings. At the moment, city officials are putting together an incubator where staff can work with tech companies and integrate startups into city projects.
For later-stage startups, it’s crucial to hire consultants in markets where you don’t have experience. These professionals can open the door for founders to come in and convey the story. When Lyft was moving into new cities, the founders stood in front of city councils, departments of transportation, and mayors and answered basic questions like, “So you expect me to get in a car with a stranger?” Now, those questions seem silly, but at the time they were a major concern. After this is done, startup policy teams then negotiate details of laws, and a public affairs team builds messaging to educate the community.
Utilize BIDs at the Early Stage of Your Startup
Business Improvement Districts (BIDs) are non-profit-controlled areas within cities that operate somewhat like Homeowners’ Associations. Taxes in these districts fund initiatives that can range from sustainability solutions to social activities to security initiatives. Many cities have BIDs and other types of assessment districts; there are 74 BIDs in New York City alone.
While BIDs do not have the budget or capacity of a full city, they can be fertile grounds for pilot programs. When startups can show results in one area of the city, it can speed up the decision-making process for a city-wide rollout or an actual city contract. If you can impress local businesses with your product, you should find it that much easier to impress the decision-makers in city hall.
Read more advice from investors on TechCo
This article is courtesy of the Dreamit blog. A top-10 global startup accelerator with programs designed for HealthTech and UrbanTech founders. We drive traction and business velocity by providing startups with access to investors, customers and a robust network of resources.
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