Taking a Leap

Despite the best of intentions, government contracting, particularly in the areas of defense and security, has traditionally remained a rather insular domain of “old buddy” networks consisting of large, established firms that know how to game the system. Not surprisingly, entrepreneurs, though given lots of accolades by government bureaucrats and politicians, often end up on the outside looking in.

“There’s always been a problem in communication between government agencies and small firms,” Al Martinez-Fonts told HSToday. Martinez-Fonts is the special assistant to the private sector for the Department of Homeland Security (DHS).

“Though we want and desperately need theinnovation young and small firms bring, we have to learn to get ourperceptions more in sync,” he said. “Too often, government managershave looked at their strategic needs from the vantage point of 50,000feet up. They see the big picture, but they’ve restricted the view ofsmall entrepreneurs to ground level, where they can’t see what themarket’s needs are and where and how they and their products andservices could fit in.”

Some CEOs look at DHS’s rhetoric with a jaundiced eye.

“We’ve heard before about closing theprocurement gap between the big primary contractors and smaller firms,but I’m still skeptical,” said Stephen Forte, CEO of AscendantTelecommunications, a San Jose, Calif.-based seller of serversintegrating mobile voice with wide local area network coverage. “Butthere’s so much inertia in the system and somehow change never reallyhappens.”

From its beginnings, DHS has been emphaticabout its intention to change this situation and truly open up thebidding, procurement and partnership process in a new way to smallbusinesses. While this promise has generated a lot of excitement inboth the public and private sector, change—as often happens—has provenmore complex and challenging in practice than theory.

“The rhetoric is definitely encouraging,”said Tom Goldman, CEO of Netbotz, an Austin, Texas-based firm that hascreated an Internet-based security solution integrating sensors todetect atmospheric threats in realtime. “DHS is conveying a positivemessage. However, when you’re dealing with a huge bureaucracy, it’sstill easy to be lost among the big fish. I know of quite a few veryinnovative firms who’ve literally spent many months trying to figureout how to get the attention of someone in DC.”

Matt Walton, CEO of e-Team, a Los Angeles,Calif., designer of collaboration software for crisis management,concurs. “The first two years after 9/11, it seemed to me and most ofthe small companies in homeland security-related software applicationsas if we were in a bad existentialist play called ‘Waiting for dadough,’” he recalled. “End users at the state and local levels had realproblems they were waiting to solve, and my own and other companieswere anxious to provide solutions. But neither of us had any visibilityabout where or when any money would materialize and how the processwould work.”

The DHS view

Homeland-security officials charged withreaching out to the small business community acknowledge that gettingsmall businesses more involved means devising new ways of cuttingthrough red tape.

“We’ve had to realize that the only wayentrepreneurs could become real participants in the product and servicedevelopment process was to give them tools to help navigate thelabyrinth of a big government agency,” said Kevin Borshears, directorof DHS’s Office of Small and Disadvantaged Business Utilization. “We’redealing with a huge gamut of possibilities and the challenge is to makethat more user-friendly.”

One key way to accomplish this, according toMartinez-Fonts, is through more effective information disseminationabout contract and funding opportunities. “By publishing regular BAAs(broad agency announcements), we’ve tried to give entrepreneurialcompanies a road map of where we hope to be going in terms oftechnology development,” he explained, “so they get a 30,000-footoverview of the agency and can figure out where they might fit in.”

Since May 2003, DHS and the TechnologySupport Working Group have solicited ideas, concepts and technology formore than 50 requirement areas. In September 2003, the HomelandSecurity Advanced Research Projects Agency (HSARPA), for instance,issued an announcement soliciting next-generation ideas for biologicaland chemical detectors and systems. More than 40 technologies wereselected for testing and 12 contracts were awarded by spring 2004. InNovember 2003, HSARPA issued its first call for Small BusinessInnovation Research proposals, inviting small businesses to submitproposals in a variety of high-priority areas. About one-third of the318 proposals submitted were selected. A second phase of solicitationswas launched in early 2004, with contracts due to be awarded during thesummer.

Borshears pointed out that in FY 2003 DHSawarded 40.6 percent of its prime contracts to small businesses, farexceeding the federal standard goal of 23 percent.

Still, some entrepreneurs remain skeptical.

“We’re encouraged by the commitment toincreasing targets for small-business contracts, but to work in thelong run they need to have teeth in enforcing compliance,” cautionedForte. “It’s still too easy for a prime contractor and big-systemintegrator to say, ‘We’ve tried to find small companies to partner withbut there weren’t any.’ But if a Titan, for example, knew they wouldn’tget paid unless they complied, you’d bet they’d findmore newcompanies, and there’d be far more innovation.”

Chip Hazard, managing partner of IDGVentures, a Boston, Mass., investment fund, believes the BAAs are acrucial tool for empowering smart entrepreneurial companies. “The bestDHS can do for small firms is to help avoid the chaos of havingeverybody knocking on the same door offering solutions that aren’tneeded,” he said. “From there, it’s really up to entrepreneurs tofigure out where they fit in.”

The DHS office of Small and DisadvantagedBusiness has also developed a website, Open For Business.com, designedto link small businesses to information on upcoming contracts, grants,research and events, as well as points of contact inside the governmentand in the private sector who are looking for new products and services.

In addition to clarifying funding andcontracting opportunities, the office’s other key initiative, Borshearsexplained, involves making it easier for small firms to get in the loopby fostering contacts and networking opportunities between largecontractors and small firms. They have also begun a program in whichprime contractors can act as partnering “mentors” for young companies.“Protégé-Mentor isn’t a phrase you’ve probably ever heard before in agovernment context,” Borshears said, “but we see it as fundamental toreally getting small businesses involved.”

Indeed, some observers see DHS’ role as acultural catalyst involving private capital in the public arena aspotentially more important than its role as a funder.

“We’re in the first inning of a nine-inninggame,” explained Mark Thaller, formerly director of the Patriot VentureFund of Boston, Mass. “The main thing DHS is already on the road toaccomplishing, and I find this highly encouraging, is to create a newkind of forum for bringing together groups no one’s ever really broughttogether before. Never before has a space existed where you’ll findstart-up firms, inventors, private investors, government managers andmilitary officers in a dialogue. A venture capitalist couldn’t bringthis kind of brainpower, money and talent together. On its own,corporate America couldn’t do it either, nor could traditionalgovernment agencies. But DHS is making this happen. Where even threeyears ago you were lucky if you could find maybe one gathering of thistype in a year, now there are literally five to 10 a day across thecountry, formal and informal, and DHS has been the catalyst. It’s inthese kinds of get-togethers that the magic occurs and deals get made.The days of the golf course schmooze are over.

“A few years ago,” Thaller continued, “therewas an assumption that DHS was going to be just another funding spigot,a place companies could go for handouts. That was always a dumb idea.The way to creatively respond to the threats of a new era is not tohave another soup kitchen for corporations hungry for government money.”

How to succeed in HS

Succeeding in this new market, according toChip Hazard, requires developing the right skill set and focus.“Homeland security is not an area for every entrepreneurial firm,” hepointed out. “Getting involved in this market requires a dedicated,focused effort on identifying critical problems and an intense hands-ondirect-sales effort. A company that views this as just a sidelinechannel to move existing product is not going to be successful.”

Hazard’s venture portfolio includes suchhomeland-security-focused firms as Reveal Imaging of Bedford, Mass.,which has developed a new technology designed to analyze not just anobject’s density but also its chemical makeup using both high- andlow-energy X-rays.

Michael Stead, director of homeland securityinvestments at Paladin Capital Group, a Washington DC, venture fund,agrees. “The intellectual shift a young company looking at thehomeland-security sector needs to make,” he said, “is to get out ofthinking, ‘This is my product,’ to, ‘We know your problem and here’show we can help you solve it.’ We’re in a cycle now where governmentagencies want not so much to buy new products as to get problemssolved, without having to junk tools they already have. So a serviceorientation is a must.” Paladin’s portfolio includes two Atlanta,Ga.-based companies: Nexidia, a developer of tools for data miningaudio and video materials, and VistaScape, which developsvideo-surveillance software for at-risk facilities such as harbors andairports.

The ability to adapt one’s technology tovaried contexts is also crucial, according to Mark Thaller. “The waysmart new companies should begin seeing opportunity is in terms of fourlegs: Technology, government, private capital and the military. Theyneed to be thinking not single-use or even dual-use anymore, butmultiple-use adaptability for their solutions.”

Kevin Borshears cited four recurring themeshe has continually heard from successful businesses in dealing withgovernment contracts: Take the time to study as much background aspossible on the needs of your end users; understand the differentopportunities for prime and subcontracting; participate in businessnetworking events in your area; and consider all types of contractavenues.

Sometimes newer firms will find that, rather than going first to Washington, a more grass-roots approach is suitable.

“The strategy that works for us is to scoutaround on the city and state level to find unmet needs and thencultivate relationships with decision-makers on that level,” explainedBryan Ware, CEO of Digital Sandbox, a Reston, Va., company developingsoftware to automate risk-management analysis for government agenciesand private enterprises. “Rather than just be one of the countlessstartups trying to get noticed in the Beltway where the noise level isso high, what a firm with a good niche solution needs to do is find oneor two places to show how its solution really works in the field.Nothing will attract further funding like a demonstrated success in apilot project.”

Based on early successes in a Port Authorityof New York and New Jersey pilot test of their automatedrisk-assessment and management tool, Digital Sandbox attracted expandedfunding for deployment of their services by the city of Tampa, Fla.,and the state of New Jersey, sponsored by DHS’ Office of DomesticPreparedness.

The e-Team company has also found successthrough cultivation of adaptability. “Our approach,” said Matt, “is towork actively on the periphery with end users, as well as on thefederal level. As a technology company, you naturally want to try tohave central sales channels, but with the homeland-security market, youhave to be willing to customize your sales and service to individualuser needs on the city and state level.”

This approach paid off recently when e-Team’scrisis management solution was chosen by Michigan State EmergencyManagement Division (EMD), in cooperation with the Department ofInformation Technology (DIT), for the first ever state-wide deploymentof a common emergency-response information-sharing network. Thecompany’s software will be part of a wider state network implemented bySan Diego, Calif.-based Science Applications International Corp.(SAIC), the state’s prime contractor.

Analysis

There’s a dawning realization that mobilizingeffectively to meet the challenges of 21st century threats will requirepublic security and defense institutions to develop new skills, perhapsforemost among them speed, flexibility and innovation. These have not,to say the least, been traditional strong points of either publicbureaucracies or large private government contractors, at which thebywords have been massive scale, top-down coordination and incrementalchange.

To truly foster innovation, national, stateand local homeland-security agencies need to find ways to creativelyshake up traditional processes to promote and encourage a moreentrepreneurial culture and more participation and contributions. Thisis easier said than done. Bridging the traditional gaps betweengovernment bureaucracies and smaller ventures is a challenge for whichno ready-made template exists.

While the brief experience of DHS so fardemonstrates that achieving a “best of both worlds” synthesis of thetwo cultures will likely involve a slow and painstaking process ofadjustment and learning on both sides, it also demonstrates thatprogress can be made in overcoming the confusion, miscommunication andmisunderstanding that has for decades prevented government from tappingthe crucial talent resource represented by the nation’s entrepreneurs. HST

Philip Leggiere is ajournalist and business analyst based in northern New Jersey, whospecializes in reporting on information technology and relatedindustries. His articles have appeared in a wide variety ofpublications including Wired, Upside, Agile Brain, Intelligent Enterprise, Edge and Paradox Fund market reports.

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The Government Technology & Services Coalition's Homeland Security Today (HSToday) is the premier news and information resource for the homeland security community, dedicated to elevating the discussions and insights that can support a safe and secure nation. A non-profit magazine and media platform, HSToday provides readers with the whole story, placing facts and comments in context to inform debate and drive realistic solutions to some of the nation’s most vexing security challenges.

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