The government spends billions of dollars each year on goods and services, and by tapping into this vast marketplace, small businesses can secure lucrative deals, gain steady income and heightened visibility. In this episode of The Agent of Wealth Podcast, host Marc Bautis and guest Richard C. Howard dive deep into the world of government contracts.
As a career military acquisitions officer, Howard oversaw $82B+ in DoD contracts, and has advised and trained over 400 companies as a consultant. He’s the CEO of DoD Contract – which guides, trains, and mentors small business owners and sales executives through the government sales process – and the host of DoD Contract Academy Podcast.
In this episode, you will learn:
- The benefits of selling to the US government as a small business.
- How small businesses can find opportunities to sell their products or services to the government.
- How small businesses can stand out in the government procurement process.
- How small businesses and startups can utilize the Small Business Innovation Research Program.
- And more!
www.dodcontract.com | DoD Contract Academy (Podcast) | Usaspending.gov | Sam.gov | Small Business Innovative Research Program | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth. This is your host, Marc Bautis. I’m joined by a guest for today’s episode, Richard C. Howard. Richard is a leading authority on US federal government contracts. As a career military acquisitions officer, he oversaw $82B+ in DoD contracts, and has advised and trained over 400 companies as a consultant. Richard is the CEO of DoD Contract, which guides, trains, and mentors small business owners and sales executives through the government sales process.
Richard is the host of the DoD Contract Academy Podcast, and speaks extensively on the nuance of federal contracting strategy. Richard, welcome to the show.
Thanks for having me on, Marc.
I don’t think people even realize that government contracts are out there. Can you start off by explaining this market size, and some of the benefits of selling to the government as a small business?
The Benefits of Selling to The US Government as a Small Business
The US government is the single biggest purchaser of goods and services in the world. When people think about government spending, most immediately think of big defense contractors. But in reality, the government buys just about anything you could think of – from defense and weapon-related spending, to tai chi instruction, to commodities, to food. Think about it like this: Every military base is basically a small town, or city in some cases. All of the infrastructure that goes into that town or city is paid for by the government. And they have a mandate to buy from small businesses.
So whether you’re in – cybersecurity, accounting, legal, you’re selling food, you have a franchise, you have a training business – the government is most likely buying in your area. It is very rare that I find an area where the government isn’t spending money, so the spending is vast.
The government has to buy from small businesses, yet less than half of 1% of US small businesses are actually participating in the government contracting process, despite the high spending levels.
Alright, so there’s a lot of opportunity here. How does a small business find the contracts?
How Small Businesses Can Find Opportunities to Sell to The Government
Because we’re talking about the government, there is a lot of regulation that exists to ensure there’s fairness and that the public can see what the government’s doing. So everything the government spends money on – with the exception of a couple classified contracting avenues – is public knowledge.
So, as a small business owner, you should ask, “Does the government buy what I sell?” To find your answer, go to a website like usaspending.gov and begin searching public records to find out what the government spends on.
Whatever you sell, it probably falls under something called a North American Industry Classification Code, or NAICS code. When you go into usaspending.gov, type in what you sell under NAICS – for example, accounting. The website will suggest different codes that you would fall under. You can click on that, and sort it by small business spending.
You can quickly see how much the government spends on small business contracts in your industry and area of focus.
Are these contracts location specific? Does it help if a business is located near a military base, for example, or does it not matter?
It depends on what you’re selling. By the way, government contracts certainly extend past the Department of Defense and military bases. There’s lots of different federal agencies that spend money.
Okay so once a business owner discovers how much the government is spending in their niche, what’s the next step?
Once you know that the government buys what you sell – if it’s local, they buy it in your state, or if not, you can work anywhere – the next step is to register your company. You can do that at sam.gov. That’s where all registering and most of the solicitations take place.
So when you go to sam.gov, you’ll find instructions on the screen for registering. Of course, you need to have a legal business in the United States, and come ready to register with your EIN number.
All in all, the process takes a couple weeks sometimes, but at the end of it you’ll get what they call a CAGE code and UEI number – these are federal identification numbers for your business. Once you have those, you can start bidding on contracts.
By bidding, do you mean writing proposals?
How Small Businesses Can Stand Out in the Government Procurement Process
What can a small business do to separate themselves from the others trying to do the same thing?
Good question. This is really where most companies fail in selling to the government…
Once your business is registered through sam.gov, you will begin to see what’s called a request for proposal, or RFP. At that point, a business can begin writing a proposal. But, the government is very regulated in how they buy products and services.
For instance, if I saw an RFP come out that the government is looking to buy a $3 million landscaping contract for base X, I can’t just pick up the phone and talk to someone to get my questions about the contract answered. Now, if it’s a big contract, the government will answer most questions publicly through sam.gov. In those cases, you might get some answers that can inform your proposal.
But otherwise, you won’t be able to set up a meeting with a government worker. You won’t be able to develop a relationship…
So, before the RFP comes out, there’s something called the market research phase. Let’s say you’re a software developer, and the government is putting a command and control platform together, and you have a great user interface for that. Well, it’s during the market research phase that you can engage with the government if you really want to have a shot at landing the contract later on. Meaning, before the RFP comes out, we want to know who is doing the purchase, and we want to know the details of the opportunity ahead of time.
If you want to differentiate yourself from the rest of the herd, you want to look for things like a request for information or sources sought. When those come out, they’re squarely in the market research phase. At that point, you can set up a meeting with the government.
I recommend small businesses to respond to requests for information. They’ll answer questions like:
- How long have you been in business?
- Do you have past performance?
- What do you think of the approach the government wants to take?
And, you’ll be able to suggest things. For instance, when you register your business, there are different certifications. Examples include:
- Small business certification
- Woman-owned small business certification
- Disabled Veteran-owned small business certification
If you happen to have one of those certifications, you do have a leg up, because the government needs to set aside a specific percentage of contracts to those certified businesses.
But, back to the market research phase, you can actually recommend that the government lists the contract for a specific certified group. So, you’re helping the government write the solicitation, and you can give yourself a leg-up if you suggest a certification you have.
Okay, so you’re trying to influence the decision a little bit. Have you ever seen a case where a small business had a product or service that the government isn’t spending on, but they propose it to them?
Yeah, there are a couple of ways to do that. I would say if you take away one tip on selling to the government, it’s to get meetings and build relationships with the people that actually buy what you sell. There’s a lot of ways to do that, but mainly through research.
If your business sells a product or service that the government is not actively looking for, but you want to sell to the government, the government needs two things: A requirement, and funding.
The Small Business Innovation Research Program
If it’s an innovative solution of some kind, for example a patent, you can go after something called the Small Business Innovative Research Program, or SBIR. Any government agency that spends a certain amount of money in research and development has got to contribute to this program. So, the SBIR program spends about $4 billion a year on innovative research and development contracts with small businesses.
This is a way to basically propose your product or service to the government, because they have funding in the SBIR program. If the review panel thinks that what you have is innovative, and that it would achieve a government need, you can win one of those contracts.
Phase one of SBIR is kind of low dollar. Let’s say, for example, you’re creating a VR training system. In that case, phase one might just be a feasibility study. You might propose that the government uses a VR or augmented reality training system to help maintain or fix aircrafts, for instance. Well, that might resonate with the board. That first phase one event is probably going to be somewhere around $100,000-$150,000, which is small for government contracts.
But, what you’re really doing is:
- You’re establishing past performance with the government, because now you have a contract.
- They’re now going to help you find people in the government that would potentially sponsor you.
Now you can’t totally rely on the government SBIR office, you also need to put yourself out there to find a sponsor. If you find somebody willing to sponsor, but they don’t necessarily have to have money, they just sign a memorandum of understanding for you to go to phase two.
Phase two is to develop a prototype, or set up a demonstration. There could be a lot of different things that you’re recommending, but that’s the phase two piece.
The Small Business Innovative Research Program is really great for getting your feet wet. Even if you have a developed product but you’re modifying it for government use, that would also qualify for the program.
Going back to finding these opportunities, my father actually had a government contract through a larger corporation. He created a pellet that went into 50 caliber ammunition. He wouldn’t get the government contract himself, but General Dynamics or Olin would go through him to create this component of their contracts with the government. Are there opportunities like that out there?
Yes. That’s a really good point. There is a variety of ways the government can buy things from a small or large business owner. For example:
- Sole source contracts.
As a business owner, you need to understand how the government is buying what you’re selling. That’s something that you can do pretty easily with the research tools the government offers.
Let’s say you own a company that is licensed to do HVAC. Over time, you’ve built a relationship with the government office that purchases contracts in construction. From that relationship, you learn that next year, Hanscom Air Force Base is going to be building an office building, and you have interest in installing the HVAC system. But, you aren’t able to take the full construction contract.
What I recommend you do is look through a website like usaspending.gov to see which construction companies have done that type of work with the government – illustrating past performance – and reach out to them about this upcoming opportunity. The fact that you’re bringing them this opportunity sweetened the pot for them to work with you, involving you in the project.
If you reach out to three companies like that, you’ll get at least one or two bites to form an agreement and go after a large contract together. That’s very helpful for a small business, because the big company can handle the proposal writing, and so on.
Artificial intelligence is all the rage right now. Do you see AI being used to uncover some of these opportunities, or to help small businesses in this process?
It’s interesting that you bring that up. Two of my recent episodes on the DoD Contract Academy Podcast were about AI in the government space.
One of them is called Govly, which uses artificial intelligence and machine learning to enable government contractors, OEMs, and distributors to accurately plan for government purchases years in advance
The other is called Rogue, which is an AI tool specifically designed to help businesses write proposals for government contracts. It kind of works like ChatGPT.
Business Financing and Government Contracts
What happens if a business needs financing to fulfill an order from the government?
First, it depends on the contract. If it’s a SBIR contract, where the business is developing something for the first time, then you can win the contract before you have to start development. But those are research and development contracts.
So let’s say you win a small services contract that involves employing 20 people. The small business will have to pay those individual employees before the government pays the small business. That’s because there’s about a 90 day turnaround time on invoicing to the government.
Now, there are certain financing houses set up specifically for government contractors. One thing to know is once you win that government contract, it’s one of the most secure contracts you’re going to have. So a lot of banks know they can count on the government paying the business.
That’s also one of the reasons companies go after government contracts – because it increases the value of your company.
Are Government Contracts Recession-Proof?
In addition to AI, the other thing that we’re constantly hearing about is this looming recession. At a high level, how is government spending compared to other industries?
Government spending is more stable. I always recommend that business owners – small or large – have one stream of income from commercial sales and another stream of income from government sector sales. The government is spending year over year, whether there’s a recession or not.
But I would say that the government experiences difficulties in different ways, and typically at different times.
Usually, if you have a three-year government contract, for example, you’ll receive that funding month over month. Now, there are times when the government shuts down, or when there is sequestration. The government can terminate a contract for convenience. But if they do, there are regulations to protect the companies that held the government contract.
That’s good. Well, we’re just about out of time. Richard, thank you for joining me today. You did a great job explaining how businesses can leverage government contracts as well as how to navigate the government procurement process. What’s the best way for our listeners to contact you or learn more about your advisory coaching services?
Your listeners can go to dodcontract.com to schedule a consultation. On the website, we also have courses available. And of course your listeners can check out my podcast, DoD Contract Academy, on whatever platform they like to listen on.
Great, we’ll link to those resources in the show notes. Thanks again, Richard. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review on the show.
In this episode of The Agent of Wealth Podcast, the Bautis Financial team discusses the fourth book assignment in their monthly Book Club, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George Akerlof and Robert Shiller. In Animal Spirits, Nobel prize winner George Akerlof and Yale economics professor Robert Shiller assert that traditional economic theory places too much weight on quantifiable facts and not enough weight on emotion – “People have noneconomic motives. And they are not always rational in pursuit of their economic interests.”
In this episode, we discuss:
- The five different aspects of Animal Spirits: confidence, the desire for fairness, corruption, money illusion and the importance of stories.
- Whether or not we believe the concept of Animal Spirits should be incorporated into macroeconomic theory.
- What our team liked most about the book.
- What our team learned and took away from the book.
- And more!
This is the fourth episode in the Bautis Financial Book Club series. Listen to the other episodes:
- Episode 88 – Bautis Financial Book Club: Elon Musk – Tesla, SpaceX, and the Quest for a Fantastic Future by Ashlee Vance
- Episode 76 – Bautis Financial Book Club: The Infinite Game by Simon Sinek
- Episode 75 – Bautis Financial Book Club: Atomic Habits by James Clear
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. On today’s show, the Bautis Financial team is here to discuss the book, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George Akerlof and Robert Shiller. Kayla, you picked this book for the fourth installment of our Book Club. I’m going to turn the discussion over to you to lead. Can you start us off with a summary of the book and why you picked it.
Thanks, Marc. The authors of Animal Spirits are George Akerlof, a Nobel prize winner, and Robert Shiller, a Yale professor. In the book, they discuss how human psychology drives markets. The book came out right after the 2008-2009 financial crisis. The term “animal spirits” comes from John Keynes, who was an economist during the 1930s right after the great depression.
Keynes used the phrase to describe how people don’t always behave in the manner that’s predicted. I think that a quote from the book that sums up this concept is, “People have non-economic motives and they’re not always rational.”
In the book, Akerlof and Shiller argue that traditional economic theory places too much weight on the quantifiable facts – or numbers – and not enough on human emotion. They also emphasize the importance of governments intervening to control using economic policies.
The book is broken up into two different sections. In the first, the authors go over the five main animal spirits, which are confidence, the desire for fairness, corruption, money illusion – which has to do with inflation – and the importance of stories.
In the second half of the book, the authors discuss eight different questions about the economy. Some of the questions that they address are:
- Why do recessions happen?
- Why do we have central banks?
- What are the tradeoffs between unemployment and inflation?
- Why people don’t always consider the future rationally?
I picked this book for the Bautis Financial Book Club because I wanted to take a deeper dive into behavioral finance. As financial planners, I think it’s important for us to remember that everyone sees money and the world differently. I know Marc, John, and Kyra, we have conversations about that every week.
Yes, and I think it’s timely. We’re two years into a global pandemic where everyone’s emotions are running high. We’re also amid the first land war – basically since World War II – in Europe, and people’s emotions are obviously tied to that. So I think a lot of us get caught up in the quantitative analysis of what we do, but the emotions and psychology are just as important to understand. So where do you want to start?
I’ll start with my first question for Kyra. Did you have any prior knowledge about behavioral finance before reading the book?
So for those listening, just to give you context, I am the only person on the team that does not have a professional background in finance. I’m the Marketing Specialist at Bautis Financial, and my background is definitely geared towards marketing. I’ve never taken any educational courses in finance – economics, macroeconomics, etc. So on the surface, I would say, no, I don’t have any prior knowledge about behavioral finance.
That said, at Bautis Financial, we have a variety of different content we produce on our blog, YouTube channel, and otherwise. Both Marc and John have touched on behavioral finance in that content before.
So indulging in that content and sharing it out to our audience, I do have some basic knowledge of behavioral finance, but it’s pretty basic.
Reading this book without a finance background, did you have a hard time? Was it easier to understand as you got through it?
I would say the first two chapters weren’t so challenging… but eventually the book got to a point where the authors were referencing terminology or events that I didn’t have basic knowledge about. I’d have to look things up, or try to understand the references by the context. While it was challenging, I still understood the main takeaways of the book.
There were a lot of details in there. My next question is for Marc. The first half of the book is outlined into five different aspects: confidence, the desire for fairness, corruption, money illusion and then the importance of stories. Which one of those stood out to you the most?
I’m going to cheat here and give you two. The first that jumped out was fairness. The authors shared the story of a hardware store raising the price on snow shovels before a snowstorm. In some ways, you can equate that concept to things happening in the economy right now, such as the price of gas. But from the economics’ point of view, that’s the law of supply and demand. If there’s a demand for an item, you’re able to raise the price of it. But the authors discuss that most people believe in fairness, so they don’t like when things like this happen.
The topic I liked even more was money illusion. The authors give the example of a person who has a $50,000 bond portfolio. They look at that portfolio and believe they have $50,000, plus any interest that comes in. But they don’t take inflation into account… So it begs the question: What can $50,000 buy if inflation goes up? The reality is it gets you a lot less. That’s a concept we can apply to today’s times.
Yeah, definitely. Both of those stuck out to me, too. As I was reading, I was thinking of real-life examples. Things I’ve witnessed myself. For fairness, I was reminded of the time I was a DoorDash driver. In college, I’d deliver people food for some extra money. When it was raining, or there was bad weather, DoorDash and Uber Eats would hike up the prices. It’s on their website that they do this. But if consumers actually realized they do this, I wonder if they’d argue if it’s fair.
Yeah. You really have to think about it from a supply and demand perspective. If the weather is bad and you don’t want to go out to pick up your own food, there’s more demand for a delivery.
And It was good for the drivers, because the potential to earn more can get you out driving.
Exactly. I know that’s what Uber Eats and DoorDash have said about the policy – that they’re not trying to price gouge, they’re trying to bring more drivers out. Because the drivers are in the same boat as the consumers. When it’s raining or snowing, they don’t want to be driving either. It incentivizes them.
Yes. Marc, were there any quotes that you liked from Animal Spirits, and why?
A couple of quotes that stuck out. One of them wasn’t a quote by the authors, but on the subject of confidence, they share one of Jack Welch’s quotes. He basically said he has little use for rational, analytical business plans and projections. He said he made his major business decisions “straight from the gut.” I know Welch’s leadership style can be polarizing to some, but it goes to show that everything isn’t quantitative.
Then the subsequent example they give is about the 2008-2009 financial crisis. The authors say it was really a crisis of confidence. Banks didn’t think loans were ever going to be repaid, so they stopped making them. This basically brought the economy, or the financial sector, to a halt.
So confidence is really important. With the people we work with, we see both sides: overconfidence and lack of confidence. Both have an impact on how people react.
I remember one of the biggest takeaways in the beginning of the book is that understanding confidence leads to understanding the economy.
My next question is for John. Do you think that incorporating animal spirits into the study of macroeconomic theory would be a more realistic depiction of how the world works?
Well, my answer is yes and no. I think there’s certainly a place for quantifiable facts, as you guys have already mentioned. In studying macroeconomics, there’s certainly a place for that. But it’s hard to argue that there isn’t a place for animal spirits in that conversation as well.
The problem is that animal spirits are hard to quantify. For instance, if you have a graph of supply and demand, how do you add this factor of animal spirits to that conversation? I don’t think we’ll ever be able to quantify it. And not just quantify, but because we’re so complex as humans, it’s almost like predicting the weather.
A lot of it has to do with all of the layers that exist in the economy, but we’re also just so complex as humans. We have emotion and rationality.
For instance, if there is a time where there’s high confidence, maybe there should be a measure of what the confidence is. I do think we need to take some of what we’ve learned about human behavior and give it serious consideration when we’re looking at the numbers.
Definitely. That’s a good point because throughout the book, the authors mainly explain why animal spirits are important, but there was no real solution.
Yes, I have this written down: “The economy doesn’t always function rationally, and if we had factored turbulent emotions into economic theory, we might not have boom-bust cycles.”
But how would we factor that in? Because that’s why animal spirits have that animalistic aspect. It’s something I was wondering as well.
That brings me to my next question for you, Kyra. Were there any parts of the book that you disliked or disagreed with?
There wasn’t anything I disagreed with, but that’s because I don’t have a knowledge base of the subject to inform a disagreement. This was more of a knowledgeable experience for me, and I enjoyed learning through reading the book.
Makes sense. John, did anything in the book surprise you?
What surprised me is related to the last question you had for me. It surprised me that some economists take the numbers so literally. I think some get caught up in the numbers and don’t consider that there’s so many complexities about us as human beings.
For instance, there’s social differences between people in different areas across the country. I live in Florida, and during the pandemic, it was amazing to me how different things were in the Northeast than they were here. The mentality was very, very different.
When you take a macro approach, it’s foolish to not consider that. Looking at the numbers only takes you halfway.
The second part of this is how the same numbers can have different political interpretations. It’s no mystery that we are drawn to the things that we want to believe. Throughout the book, there’s this push and pull between Freeman and Keynesian – or other competing economists in the conversation. And there’s almost a political drive between the two of them.
Oftentimes, it feels like a conclusion is drawn, and then they are left looking for the numbers that’ll support that conclusion. Throughout the book, it was apparent to me that there’s these two teams playing against each other and constantly disagreeing.
But, at the end of the day, numbers are numbers, and the numbers don’t lie. I think that solidifies my first point.
I think you hit on a lot of my thoughts, John. There was a political element to the book, as it went on. These politicians have their own animal spirits, but I don’t really think the authors mentioned that.
No. And it’s a shame, really, because we should be pulling both sides together. Because I do think that there is truth to both Freedman and Keynes’ ideas.
All right. Those were all the questions that I had for you guys. I’ll let you wrap it up, Marc.
Before I wrap it up, I’ll ask you a question. Was there anything that surprised you about the book?
Not to steal John’s answer, but I was surprised by the political aspect that came through at the end. The book was really divided into two sections, and I enjoyed the first half much more. I was surprised that my interest fell off by the second half.
I think the book is 10 years old now. Do you think the principles still hold true to what you see in today’s economy?
Some of it does, but I think we need to continue to consider animal spirits moving forward. The book was written during The Great Depression, then rewritten during The Financial Crisis. These were times when human emotion was at an all-time high. I think it’s important to consider that. But I do think that there is truth to both sides, like John was mentioning.
So Kayla, thank you for hosting today’s episode. If any of our listeners have a suggestion for the next book in our Book Club, please send it in. Otherwise, I will select the next read.
Thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.