Home > Cyber Security, Federal contracting, Innovation > Government overlooks diamonds in its own back yard

Government overlooks diamonds in its own back yard

Nearly a century ago, a speech called “Acres of Diamonds” ranked high on the entertainment charts. Russell Conwell, the founder of Temple University and the author of the essay on which it was based, delivered it 5,000 times between 1900 and 1925. Although part of the American canon of rhetoric, few nowadays know much about it. The main theme of the essay and speech is simple: Often people overlook their own back yards when seeking fortune and success. It’s an old-fashioned sounding piece, but it came to mind earlier this week during a panel discussion I moderated along with Jonathan Aberman of TandemNSI and Amplifier Ventures.

Our ostensible topic was how government program managers, R&D people and executives can more readily take advantage of the entrepreneurial and start-up technology community in the D.C. region, the federal government’s back yard. But a good deal of the discussion centered on the government’s seeming fascination with Silicon Valley. Homeland Security Secretary Jeh Johnson says he’ll establish a satellite office there. Defense Secretary Ash Carter also has the Silicon Valley bug. The Obama administration has recruited several appointees from the Valley, including Chief Technology Officer Megan Smith, lately of Google. The White House Digital Services team is headed by another ex-Googler, Mickey Dickerson. The rest of it is heavy with people from Twitter, Facebook, Amazon and the like.

With respect to DOD, maybe a little perspective is in order. Mike Daniels has been founder, executive, seller and acquirer of federal contractors for decades. He says Valley fever has swept the government before. He counts three times over the last 35 years or so. And every time federal leaders traipse out there looking for start-up diamonds, they find out how culturally different things are out there. Without judging which is superior, Daniels says he’s never heard a Valley venture capitalist or entrepreneurial say a primary reason for a new company was to help the government solve a problem. The systems integrators and technology product companies locally have often been started by former feds, including military officers. Daniels says their orientation is, of course to make money, but their frequently-stated mission is to help the government.

Tech veteran Anup Ghosh — he founded cybersecurity outfit Invincea — comes from DARPA and so has something of a federal orientation. He says federally-focused startups proceed from a different model than those in Silicon Valley. In the D.C. region, the typical model starts with government services. This lets them win some contracts, establish a revenue stream and make a profit fairly soon. It’s a bootstrap model that can lead to second-round financing. By contract, in the Valley startups tend to lead with groundbreaking products, little thought of revenue, and the agility to keep morphing until they hit on something someone wants to buy.

Ghosh argues, the services or body-shop model doesn’t scale easily because it requires a constant linear increase in the number of people to be able to do more professional services. By contrast, products, especially software, can scale exponentially without a matching overhead increase.

The bootstrap-contract model, according to former Naval R&D guy Bob Morgan, a founder of MorganFranklin Consulting, gives the D.C. startup community a boring reputation. But often, he and others note, the products they are working on are secret because they have a national security application. Or because the government is reticent, and doesn’t want contractors talking about what they are working on.

Ghosh, Morgan, Daniels all agree, the D.C. startup environment is smaller and more specialized than that of Silicon Valley, and it lacks a catchy and enduring moniker. Daniels noted the D.C. tech community tried to brand itself back in the 1990s, but whatever name it came up with quickly faded. Silicon Valley acquired its nickname around 1980, when silicon — semiconductor design and manufacturing, as opposed to software — powered the torrid growth of the place. Plus, its name came externally and spontaneously, not from an ad agency. Throughout the world, D.C. is inseparable from the federal government. Those of us who live and work in and around D.C. know it’s a real place with real people and culture, but no ad agency could alter the external view of it.

The D.C. region is rich in startups and entrepreneurialism in cybersecurity, biology and genetics, robotics, and data analytics. From the discussion I heard, the consensus is that the federal government’s requirements remain a valuable source of money to fuel this growth activity. TandemNSI founder Jonathan Aberman correctly points out that Silicon Valley itself was fueled early on by military and NASA requirements for products pioneered by Fairchild Semiconductor and its many offshoots. (The original company in San Jose, not the one in Portland, Maine is typically put at the top of Silicon Valley genealogy charts.)

Silicon Valley today isn’t inclined towards selling to the federal government as a business goal. And, as local venturist Mark Walsh points out, big bets on tiny companies without revenue and serial business failure are common in the Valley .In the D.C. region, business failure and loss of investors’ money is less forgivable. Plus people who bootstrapped a company, got government contracts and have some sort of cash flow aren’t accustomed to the idea of ceding control to a V.C. More evidence of the big cultural divide.

All new companies, regardless of origin, face the same hurdles in selling to the government, the panelists agree. Ghosh says there’s nothing in the Federal Acquisition Regulation to prevent a company from getting a contract within five days should an urgent need arise, but typically the bureaucracy plays it safe. Often for good reason. By the same token, the purportedly 18-month minimum sales cycle for a federal agency isn’t so far off what those same companies encounter when selling to the Fortune 500.

Not fully answered the other morning were these questions:

  • Does Silicon Valley really hold the scratch to the government’s technology itch? My take, yes and no. Of course there are companies originating in the Valley that could help solve federal mission challenges. It requires a great deal of research the selectiveness. Whether the Pentagon needs a mini-Pentagon off U.S. 101 is debatable.
  • Does the government overlook the acres of diamonds in its own back yard? I don’t think so. Invincea itself is a case in point. Lots of product and services companies got their start with federal requirements, and not just items unique to the military.

In Silicon Valley, people start companies with an idea, and expect the world to join in. No one realized there was a better way to hail a taxi cab. But Uber — we’ll stretch the Valley to include San Francisco — became a valuable company,  billion dollar unicorn, in Valley parlance, without owning a single car or employing a single driver. But a mobile app will never get a human to Mars, or destroy an cutthroat enemy, or analyze a half-trilliion-dollar federal program to ferret out waste, fraud and abuse. Given the size and diversity of its missions, the government needs to talk to entrepreneurs everywhere.

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