The New Frontier

The government's practice of hiring private companies to provide goods and services is as old as the country itself--a little older actually. During the American Revolution, George Washington used private spies and detection services to help defeat the British.

More than 200 years later, everyone from the president of the United States to the mayor of Indianapolis is still following Washington's lead. The Department of Defense, already dependent on private companies, is planning to have outsourcing competitions involving about 150,000 positions over the next six years. Historically, about half the competitions are won by private companies. Big cities, meanwhile, boast big savings--$400 million since 1992 in Indianapolis, $42 million each year in Philadelphia, and $32 million since 1979 in Phoenix--from using private firms rather than in-house staff.

More important, governments are downsizing, and for America's entrepreneurs, opportunities are there for the taking. "It's a wide-open frontier," says Adrian Moore, director of economic studies for the Reason Public Policy Institute, a nonprofit public policy research foundation in Los Angeles.

Jeff Penney, one of five co-owners of DLC Resources Inc., can testify to the profits that exist on that frontier. The Phoenix commercial landscape maintenance company, which now does $5 million a year in sales, attributes one-third of its growth to municipal work. "Obtaining work from the local government is part of our strategic planning," says Penney. "Our experiences dealing with municipalities have been good. More cities are doing privatization than not, and the relationships are good for both parties."

And the overwhelming majority of research supports Penney's claim. Moore points to a National League of Cities survey released last year which found that of the 500 public officials surveyed who had experience with privatization, 74 percent said it was a success. Survey after survey and report after report indicate similar findings--though a few note that privatization, or "contracting out" in government lingo, is not always a panacea for governments. The same can be said for entrepreneurs.

Although increasing numbers of municipalities are contracting out more services, deciding to compete for such work isn't something every entrepreneur should rush into. The cons actually outnumber the pros.

Christopher D. Lancette, a journalist in Atlanta, writes for a number of national and local publications.

This article was originally published in the May 1998 print edition of Entrepreneur with the headline: The New Frontier.