Shielding Yourself from Sequestration

by Chris Wiedemann, Analyst

If you had a chance to view immixGroup’s Market Intelligence briefing on sequestration yesterday, you hopefully have a better understanding of what the proposed cuts mean to IT companies. Tim Larkins summarized the history of this situation – what sequestration is, when it became law, and just how those cuts (which weren’t really supposed to happen) actually arrived. He also covered some of the projected long-term impacts of sequestration on federal spending. This information is all vital – it will help you understand your customers’ pain and better equip you to discuss the cuts they’re experiencing.

Today, though, I want to take a minute to reemphasize some of the key components of Tim’s presentation: what does this mean for federal sales? The “snowquester” is actually a pretty good metaphor for the impact of these spending cuts on the federal IT market: some segments will stay pretty dry, while others may well get buried. So what should we be doing to shield ourselves from sequestration?

First and foremost, when you’re finalizing a deal with your customer, make sure the money is there. That means asking your customers two questions: what activity account is funding the purchase, and is the right amount of money in that account? Remember, while program people are creating demand, they have to request that money be transferred from Treasury into the right activity account before they can actually buy anything. This is the step where the sequestration cuts are actually taking place – think of them as a leak in the cash pipe. That leak could mean that money intended to purchase your products is actually getting lost before it ever lands in the right activity account. Don’t forget: unless you and your customer both know 1) which account is funding a purchase, and 2) whether that account contains the right amount of money, you’re subjecting yourself to potential delays and hang-ups down the road. You might even not get paid.

A few more points that I want to emphasize:

• Although the long-term impacts of these deficit cuts will probably be minimal, we are going to feel the pinch in the short term. Federal IT spending will decrease overall this year, particularly in DOD, where they have been spending as though the sequester would not be implemented.
• Most of the cuts to IT spending will probably be felt by systems integrators and services contractors, both large and small. All the language coming out of OMB and other government sources indicates that there are many duplicative or otherwise unnecessary IT services contracts that will probably be descoped (or cancelled outright). This is bad news for small business subs on large contracts, but is actually good news for the COTS community, since government will need to buy more tools to perform the tasks that they used to outsource.
• Keep your audience in mind. At the executive level, demonstrating cost savings and value is going to be more critical than ever – if you can’t demonstrate real ROI within two years of purchase, your customer likely won’t be interested.
• At the end of the day, there is still a mission that has to be met, and government customers won’t be able to use sequestration as an excuse not to do their jobs. If you or your clients can help them meet that mission, you will still find a willing audience.

As always, if you have more specific questions, I urge you to reach out to the Market Intelligence team. Good luck and happy hunting.