Kim Koster, vice president of GovCon Strategy at Unanet, co-author of the company’’s 2021 GovCon Success Guide and GovCon Expert, published her latest article on Tuesday as a member of Executive Mosaic’s GovCon Expert program.
After exploring the challenges facing supply chain and GovCon executives as the compliance requirements, such as CMMC, have drastically changed the landscape in her previous GovCon Expert feature, Kim Koster is now using her latest feature to explore and explain how GovCon executives can parlay a formal capture process and strong overall CRM skills into elite performance.
“A firm’s profitability depends on its ability to focus its pursuits on projects with the potential to be profitable. All the moldy old business development jokes notwithstanding, “making it up on volume” is not a viable strategy for sustained profitability.”
You can read Kim Koster’s latest GovCon Expert article below:
To Fulfill Big Growth and Profitability Aspirations, Focus on Capture
By Kim Koster
Some government contracting firms grow steadily and strongly without focusing too heavily on profitability. Others are laser-focused on making a profit on every contract and less concerned with overall growth. While either approach can be successful, it’s the companies that manage to excel at both that ultimately stand out in our little corner of the world. They’re the ones that get acquired, making their principals wildly wealthy, or that do the acquiring themselves to become giants in the industry.
Firms reach these heights by finding and maintaining a delicate balance between growth and profitability. Striking that balance, and building an elite government contracting business, requires a strong command of the business pipeline.
Through decades of experience in the GovCon world, working with firms of virtually every profile, it’s clear that the biggest winners in the government contracting space, the ones with the eye-catching profitability and growth numbers, tend to have at least one thing in common: a structured business capture process that enables them to not only identify and mobilize on opportunities sooner than their competitors do, but also produces more winning pursuits and profitable projects. Their win rates are high, as are the profit margins on the projects they execute.
High-profit margins are proving elusive for many government contractors. In preliminary results from the upcoming 2021 GAUGE Report from Unanet and CohnReznick (slated for release later this summer), more than half (56%) of GovCon respondents report operating with a net margin of less than 10%, even before accounting for unallowable costs like interest and income taxes.
Some of that is a function of a firm’s handle on project scope. More than two-thirds of firms say they are challenged to fully understand project scope when preparing a proposal. That lack of understanding can lead to cost and schedule surprises during execution, compromising profitability.
A firm’s profitability depends on its ability to focus pursuits on projects with the potential to be profitable. All the moldy old business development jokes notwithstanding, “making it up on volume” is not a viable strategy for sustained profitability.
Firms must be adept at assessing the profitability potential of a project, which entails that they have a clear understanding of project scope before costing starts, as well as the win/loss threshold — the price to win.
Growth can be as difficult for firms to realize as high-profit margins. In preliminary 2021 GAUGE Report results, more than half of GovCon execs name organic growth (winning as opposed to acquisition) as among their firm’s top three financial challenges: close to 50% list “increasing competition for contracts” among their top three business concerns.
Not surprisingly, three-quarters of respondents report winning half or less of the opportunities they pursue, and almost two-thirds say there’s been no improvement in their win rates from last year.
How, then, to create a capture process that puts your firm in a position to join the elite company of GovCons that excels in terms of both profitability and growth? Really, it comes down to your Business Development/Capture practices, and more specifically, to a structured capture process with capabilities that enable your firm to:
- Identify opportunities when they’re still early in the procurement process, so the capture team doesn’t have to play catch-up when they should be focused on crafting a winning proposal. Time crunch is a real issue for GovCon firms, three-quarters of which report having inadequate time from opportunity identification to proposal submission.
- Identify opportunities that fall squarely into the firm’s wheelhouse from a capabilities and expertise standpoint.
- Highlight opportunities where someone in your firm (or a well-qualified potential teaming partner) has a strong personal relationship with the contracting entity.
- Conduct a SWOT (strengths/weaknesses/opportunities/threats) analysis as a key factor in the opportunity evaluation.
- Develop and deploy a formalized gate process to evaluate each pursuit at specific points in the opportunity development process. Firms must have the ability to ruthlessly cull “losers” early in the capture process before they become time and money sinks.
Structured the right way, a firm’s capture process should reliably narrow down a large universe of opportunities to a small, highly select set of solicitations deemed worthwhile to formally pursue with a proposal because they check all the necessary profit-potential boxes. This is a numbers game and an automated capability to filter and identify candidate opportunities for review is essential.
The idea is to keep that universe of potential contracts broad early, then begin to “down-select” as you learn more about the opportunity, the competition, the customer, potential teaming partners and the procurement environment.
Through each stage of the process, as opportunities mature and develop, you continue to narrow the possibilities to those you have identified (hopefully with the help of modeling and analytics tools) as having the greatest probability of win (PWin), and that best fit the firm’s capabilities, expertise and performance history. Ultimately, you want to arrive at a place where you’re only expending resources to generate proposals for opportunities with the very best PWin and profit potential.
Once those opportunities are identified and a bid decision is made, a tool to manage the proposal process including content management for the proposal artifacts and documentation of proposal reviews is essential. And, of course, when the award is made and time is of the essence, an automated transfer of the essential project details to the ERP will take a time-consuming step off the task list for finance and accounting.
A couple of best practices for getting your capture processes where you want them to be:
1) Embed specific go/no-go decision points or gates in the process
Give each phase of the capture process at least one or two gates, or more if the process warrants. Some companies have just a few gates early in the process, but many will have multiple gates (dozens for some firms) in later phases when it is important not to waste productivity cycles on low PWin or low profitability opportunities. This is where a tool to manage the decision process and give the firm visibility into proposal pipeline status can be invaluable.
During the solicitation/proposal-generation phase, some firms have multiple, iterative in-process reviews, each with its own go/no-go decision point or gate (sometimes referred to as “color team reviews”). Documentation and management of those reviews, including the lessons learned, is a place that proposal management automation can be worth its weight in gold.
It can seem like a waste of resources to pull the plug on an opportunity in process, particularly in the latter stages, but it can be even more wasteful to continue to pursue something with a low PWin or potential profitability.
In fact, this is an area where many firms say the “right” CRM and proposal management tool can help them bid less and win more. Opportunity identification may be a numbers game, but proposal writing definitely is not. It’s all about focus. The companies that do that well are the ones that show consistent and sustained growth and profitability.
The final proposal review can be intense, and it is rare that a proposal is culled at that point given the resources already invested, but it does happen.
2) Make the effort to gain a deep understanding of your competition for an opportunity
Well over one-third of GovCon execs classify their organization’s assessment of competition during the capture process as either “fair” or “poor.” Elite organizations, on the other hand, give themselves a big edge by understanding up-front who the competition is, what competitors’ costs are relative to theirs, as well as their competitors’ SWOT.
3) Understand your total pipeline picture
To do that, you’ll want to be able to forecast phantom opportunities (those you have not yet identified to a customer), proposals in process and, of course, active projects and resources so that you can model, or “what if,” rate changes and resource utilization, predict cash requirements, and understand your growth picture.
Findings from the 2021 GAUGE Report show that barely more than half of GovCons have a formal capture process in place, which tells me that many firms aren’t giving capture the strategic priority it deserves.
It also tells me that firms that excel at CRM, proposal and pipeline management and structured capture processes have the means to fulfill their winning aspirations, separate themselves from the crowd in terms of profitability and growth, and one day maybe even land in the government contractor M&A headlines.
Ready to learn more? Unanet’s 2021 GovCon Success Guide explains why building a robust, strategic business and technology foundation is the key to unlocking your firm’s full potential and will give you practical steps to improve your competitive posture in 2021 and beyond.
About GovCon Expert Kim Koster
Kim Koster is Vice President of GovCon Strategy for Unanet, a leader in ERP and CRM software purpose-built for government contractors. She supports GovCons in their effort to streamline project management, accounting and other business processes.