Contractors Take a Financial Hit in 2013 – 2 Ways to Move Forward

85% of government contractors saw either flat or declining budgets in 2013. That staggering statistic is from a new study from Lohfeld Consulting.

Sequestration, budget cuts and uncertainty were all contributors to the decline. Lohfeld Consulting’s CEO told Chris Dorobek on the DorobekINSIDER program that 2013 was a rough year, but one where if you make the right strategic moves could set you up for a successful 2014.

“We hope that companies will use this survey as a force function to say in 2014 we must operate differently. 2014 will be a better year but it is not going to be a banner year. It is going to be a tough fight out there. The strategies that delivered for 85% of the companies produced flat or losing revenue so they need to go back to the drawing board and rethink that. We have some good indicators from the survey what companies are going to be doing in 2014,” said Lohfeld.

There are two strategies that emerged from the survey:

1. Shifting market in government. Some companies will be broadening their markets and moving to international business opportunities. This is particularly true for large companies. Some of the smaller firms are moving to state and local markets and even to non-profits and associations to garner new markets.

2. Improving the competitiveness of the firms. Even as they are seeking out new markets they will have to fight it out in the markets they are in. Everyone is looking at this and saying we need to be more competitive.

Can contractors grow in 2014?

“It is an effort to preserve margins because squeezing margins to the point where they are negative is not a sustainable strategy. But companies are looking at how they can improve their internal processes. We are seeing a lot of interest in capture and proposal process improvement. We are seeing companies take functions where they had normally staffed for in the past, like proposal management, market research and recruiting and then looking to outsource those services. That way they get rid of this standing resource base within companies that is charging to their indirect cost structure. They are doing this in areas particularly where their workflow ebbs and flows. So they are looking at ways to reduce their operational costs. They are consolidating organizations. Some are going back to the drawing board and doing training as they bring in new processes and new strategies. Lots of dynamics going on,” said Lohfeld.

How much of an impact does the budget deal have on contractors?

“It is absolutely essential. The thing that hurts us most in the private sector and in the government market is this uncertainty. When we find the government doesn’t know what their budgets are going to be, don’t know what programs they can move forward, everything comes to a stop. We talked to government executives who are planning their budgeting and they didn’t know what numbers to put in. When that happens they stop. RFP’s stop. And then industry comes to a stop. So removing this uncertainty is a huge uptick for all of us. When the Congress agreed on a budget I wanted to go running down the halls screaming game on. To me that was the greatest thing the Congress could give us at the close of 2013,” said Lohfeld.

How to be successful in 2014:

“What we advise clients to do is not just a checklist exercise but it is going back to the fundamentals of building a good market strategy. You need to look at where you are in the market, looking at the contractor’s capabilities, looking at where the market is going to be, looking at where your competition is going to be. Out of that you can map out a list of target agencies in the government sector where you can have success. Then build out a pipeline of opportunities and move all of that into a deal qualification and capture. So it is big exercise to do. Firms that do it correctly go back to the drawing board and spend days in the war room re-strategizing their go to market plans. I believe those will pay off well for firms willing to put in the effort,” said Lohfeld.

Surprising survey data?

1. Only 15% of the companies that we surveyed said they had a positive sales experience.

2. With all the trauma within the federal market with all the budget cuts, sequestration, government shutdown, all the uncertainty the larger businesses fared significantly better than the small businesses. When we looked at the data 35% of large businesses had declines. 45% of the small businesses had declines. Small business really took it on the chin.

To see the full survey results, click here.