Contractors reshape growth strategies for 2014

Before this past year fades from memory, I thought it would be instructive to take a look back at 2013 and examine how well, or not well, government contractors did in terms of revenue growth and see what companies are doing to reshape their growth strategies for 2014.

To get a handle on the details, Lohfeld Consulting Group joined with Market Connections to jointly poll 220 government contractors to learn how their sales turned out in calendar year 2013 and what changes they were making going forward. Here’s what we found out.

15 percent see positive growth

If your firm’s revenue grew at all in 2013, you should feel pretty good because you were an exception in the market. What really surprised us was that only 15 percent of all companies surveyed reported positive sales growth in 2013. Sixteen percent said revenues were flat, and a whopping 61 percent reported a downturn in revenues. Eight percent of respondents did not comment on their companies’ sales.

Large businesses were more resilient to sales declines than small businesses. Twenty-one percent of the large businesses reported that their revenue declined 10 percent or more. Thirty-nine percent of small businesses without socioeconomic preferences such as 8(a) firms, service disabled veteran owned small businesses (SDVOSB), woman owned small businesses (WOSB), and historically underutilized businesses (HUB) Zone reported similar declines. Forty-five percent of small businesses with socioeconomic preferences reported declines of 10 percent or more. Flat sales were reported by 23 percent of the large businesses, whereas only 8 percent of small businesses were able to hold their own with sales flat.

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In effect, the budget delays, budget cuts, sequestration, government shutdown, and non-stop uncertainty in the government market absolutely hammered small businesses.

Searching for new markets

Expanding into new markets is the government contractor’s battle cry for 2014. Forty-five percent of companies surveyed reported that they are expanding sales into new markets, and 40 percent are expanding into new government agencies.

More than half (57 percent) of large businesses surveyed are moving into international markets, whereas only 19 percent of small businesses are adopting an international growth strategy.

The figures are reversed when it comes to expanding into state and local government markets. Fifty-eight percent of small businesses are moving into state, local, and municipal markets, whereas only 36 percent of large businesses are moving in this direction. Similarly, 23 percent of small businesses are moving to sell to associations and non-profits, whereas only 7 percent of large businesses are targeting this market sector as a growth strategy.

Forty percent of companies are expanding sales into new federal agencies. The most popular expansion markets are energy, health services, veteran affairs, public safety, law enforcement, transportation, and finance.

This focus on new government markets is not unexpected since a well-established growth strategy is to expand sales with current customers and move into adjacent markets.

Improving competitiveness

While searching for new markets is important, we also found that contractors are working to improve their acquisition of new business, including reworking processes, adding tools, and moving to agile staffing strategies in order to better match resources to workloads. On the operations side, companies are restructuring organizations to better align with their revised market strategies and moving to reduce internal costs to gain competitive pricing advantages.  Some of these initiatives are highlighted below.

Improving capture and proposal processes

This was one of the strongest trends we saw in the survey. Forty-five percent of large companies said they are working on improving their capture and proposal processes, and 34 percent of small businesses were doing the same thing.

This trend is reinforced by survey data that showed 30 percent of large businesses and 25 percent of small businesses are making investments in capture and proposal tools and enterprise infrastructure.

Clearly, the competitive game has moved to the left on the business acquisition timeline, and companies are working to improve business acquisition processes, investing in tools, and building infrastructure to support these new processes.

Outsourcing more services

There is a strong trend toward outsourcing services rather than staffing up internally to provide this capability. Companies are reshaping organizations and resources to better match market dynamics. This is particularly true in capture, proposal development, market research, and recruiting.

Only 12 percent of companies said they are hiring personnel to write proposals, and just 7 percent said they are hiring market researchers. We believe these low numbers indicate that most companies are using an agile staffing strategy where they contract for these skills on an as-needed basis rather than staff up internally to provide these services.

Adding business development resources

Thirty-nine percent of the companies surveyed said they were adding business development personnel. This was especially true for the larger businesses. Forty-three percent of large firms reported that they were adding these skills in contrast to 32 percent of small businesses.

Most likely, companies are adding these skills to address new or adjacent markets as part of their quest to seek out new revenue sources.

Realigning organizations

Several companies reported consolidating business units as they strive to better align resources with new market strategies. For some companies, their organizational realignment included adding solution developers or support staff to business groups.
Training

Companies are also stepping up their training in business development, capture, and proposal development. We find this a solid strategy since well-trained business acquisition teams will always return dividends to the company.

Reducing costs

We also saw cost-cutting as a major initiative. Reducing indirect costs throughout the organization seems to be a consistent objective in large and small businesses. Operations are being reviewed to reduce fixed and variable costs wherever practical.

Other companies indicated they are outsourcing services as part of their cost-cutting strategy, especially when workloads—such as proposal management and proposal writing—tend to fluctuate significantly.

Moving forward in 2014

Now is a good time to assess your company’s overall strategy for 2014, particularly if your firm was one of the many contractors who had flat or negative sales in 2013. If you choose to continue to do the same things you did in 2013 and expect results to improve in 2014, you will likely be disappointed. 

Companies are changing the way they compete, and updating your growth strategy and improving your competitiveness should be among your major initiatives for 2014.