Medium-Sized Contractors Feeling the Squeeze
September 7th, 2007 by Karen Mortensen
Isn’t it always a company’s goal to grow? Not necessarily, according to a Washington Post article published earlier this week. If it means the firm will have a hard time winning essential government contracts, staying small might be the best bet.
According to the Post’s analysis, medium-sized contractors have been getting squeezed out of the picture as more and more government dollars go to the largest firms. At the same time, these middle children don’t qualify for special small-company contracts. Stuck in the middle like Jan Brady, they’ve been left frustrated lately with fewer and fewer government dollars.
Mid-sized businesses used to dominate the contracting market. So why the sea change? The government has altered its method of awarding contracts. Whereas individual contracts used to be assigned by individual agencies, now we’re seeing more government-wide contracts. That means in order to compete for the job and handle the work, a company has to be quite large.
So, if you’re a mid-sized company and you want to stay in the game, what do you do? Mergers and acquisitions. It’s one option many firms have already undertaken or are seriously considering. In fact, the Post shared some interesting statistics from Richard Knop, head of the defense and government contractors group at BB&T Capital Markets, Windsor Group. According to Knop, defense companies “became aggressive buyers of services and technology companies” after the 9/11 attacks. He added that the sector has recently seen about 400 mergers and acquisitions every year.
What about companies that don’t want to merge or buy out other firms? They had better have a darn good niche so they can compete for appropriately-sized contracts rather than the huge ones that are out of reach. Either that, or they could look for opportunities to be part of a larger team in drafting a wider-ranging proposal.
The final option—one that some have chosen—is simply to stay small. With government dollars specifically set aside for small businesses, this could be the best way for some companies to remain secure and profitable—and for their executives to sleep at night. (Signs of too much stress include excessive hair loss, ingestion of 15 Excedrin or more per day, and uncontrollable toe-tapping.)
I now run my own business and have done for the last three years, but prior to that I was an executive at one of the companies that you talk about as being squeezed out of the opportunities for government contracts.
Your post rings very familiar bells for me!!