Assess the Market

What we are looking for in the market analysis

  1. Size: You want to make sure that the government buys enough of your product or service to meet your financial goals.
    1. Even a very successful company is only going to capture 1-3% of any one market
    2. So the market has to be 30-100 times bigger than your financial goals to support your business
  2. New vendor on ramp: The government can buy through different mechanisms, some of which are basically impossible for new vendors to access. So you want to make sure that the market you are considering uses enough new-vendor friendly mechanisms that you can get your foot in the door.

Total market v. your market

  1. Total market size: The total market is the total value of federal contracts puts out each year for the product or service you are considering
  2. Scoping the market: Your market can mean a lot of different things, for example, if you are an electrical contractor does your market include:
    1. All of construction or just the electrical portion of construction contracts?
    2. All electrical contracts across the country or just the ones near you?
    3. All electrical contracts near you or just the ones small enough for you to win?
  3. Scope it tightly: We recommend scoping your market narrowly, so don’t include all construction contracts, just contracts specifically for electrical work in your area in your size range
  4. Precision v. accuracy: Right now we just need a rough market size, and a rough assessment of the portion of the market that you can reasonably bid on/win. This is not necessarily a precise analysis, but it should be accurate.

How to scope your market

  1. Data on your Total Market: Collect a broad set of data about spending in your market. To help you collect spending in your market search by:
    1. Keywords: We will help you find the keywords the government uses for your product or service
    2. Codes: The government codes contracts using two coding systems, we will help you find your codes related to each product or service you are considering
    3. Location: If your product or service is geographically constrained then you can specify filter by the States you can access.
    4. Size: While size is an important factor there is no size filter, and this is because smaller contracts are good opportunities to bid directly, while large contracts are good opportunities to sub, so both are important parts of your market
  2. Dashboard: Once you have define your market FedScout will generate a report on total spending, spending that is accessible to new vendors, and what revenue growth might look like for you

1. Find Your Keywords

  • Use the FedScout Keywords tool to find keywords for each product and service you are considering
  • If you have a free FedScout account the app will create a saved search using your keywords.
  • If you don’t have an account write them down

2. Find your codes

  • Use the FedScout NAICS and PSC codes tool to find the codes for each product and service
    • If you have a saved search FedScout will auto-populate the keywords
  • If you have a free FedScout account the app will update the saved search with your codes
  • If you don’t have an account write them down
  • If you have a saved search FedScout will auto-populate the keywords

3. Size your Market

  • Put your keywords and codes into the FedScout market sizing tool (or select a saved search)
  • If you can only provide your product or service in a specific area select the states you can reach
  • Put in the number of months you need to build relationships

4. Assess the Market

  • The Market Sizing tool will produce two charts
  • The first is a chart shows the total market broken out by contracts that are, and are not, new vendor friendly
  • The second is a chart that shows what a plausible growth rate might look like.over the next 5 years based on:
    • Total government spending
    • How much of that spending you can access
    • Typical win rates
  • While this analysis is imprecise it should be a reasonable revenue and growth estimate

5. Down select

  • Look at the revenue potential over the next few years for each of your options
  • Discard any options that:
    • Can not support your financial targets
    • Do not have an onramp for new vendors

Video Transcript(s):

I’ve seen a few people start businesses providing a product or service that they were truly passionate about, only to find out that the government just doesn’t buy enough of their products or services to sustain a business, or found that the government did buy it, but only as part of giant contracts that are hard for new businesses to win. 

So let’s analyze government spending data for the products and services you identified in the last exercise to get a sense for the total market, and the portion of the market that new vendors can realistically access. And the good news is that FedScout will do all the number crunching for you, you just have to tell it what to look for.

So step one is to figure out what keywords the government uses to describe the first product or service on your list, and for help click on the Keywords button and we’ll take you through an exercise to find the right ones.

Step two is to figure out which CODES identify that first product or service on your list and for help click on the codes button below.

Finally, we recommend thinking about where you can deliver your product or service. Some things, like construction are very local, you’re not going to move all your construction equipment across the country for a job, but other things can be done anywhere, like writing software. So think about where you could realistically provide that first product or service.

Next, click on the market assessment button and you’re going to enter your keywords, codes, and optionally your locations.

Then put in the months that you need to invest in customer and partner relationship building

And when you run the search you’re going to see a couple charts. The first is the total market for that option.

The second chart is the total market broken down by how accessible the spending is to new vendors, so spending on the left side is more accessible to new vendors and spending on the right is more difficult for new vendors. 

And the third chart is a projection of your company’s potential revenue over the next five year which is  based on:

  • The pace that companies typically mature, which dictates the types of contracts and awards you'll be able to access
  • Historical competition and win rates in your market
  • And how quickly you can get to your first win

So these are going to be very rough numbers, but they should give you a general idea of revenue growth over the next five years

And keep in mind that this timeline starts when you start working on your company in earnest, not when you leave your job, so for many of you revenue is going to be extremely low in the first year or two. Which is fine but does mean that you need to think about employment during that time. 

Now, repeat these exercises for each of the products and services you listed, and if you have a FedScout account the tool will keep track of the keywords and codes for you, and if you don’t write them down as you go along.

Now let's get rid of any bad options, so we recommend discarding options that have less than $5 million in revenue by year five, or that generate significantly less revenue that other options in the first two years, and keeping the rest.