Falling in Gov

What industry is turning the most heads now that dotcom doesn't equal success? It's e-government.
Magazine Contributor
12 min read

This story appears in the March 2002 issue of Entrepreneur. Subscribe »

Meet the early days of e-government. "This is the beginning of a great thing," Kaleil Isaza Tuzman says in Startup.com, a 2001 film documentary. Tuzman, along with buddy Tom Herman, founded GovWorks.com, one of the pioneering and highest-profile players in the e-government space. Startup.com chronicled the company's heady rise through 1999 and 2000, from clever concept tospectacular crash.

Despite the unfortunate end to GovWorks.com's story, e-government is still very much a technology and business frontier. It might be more civilized than the Old West, but it's just as wide open and untamed. GovWorks.com hatched as an Internet portal and epitomized the early, wide-eyed view of the multibillion-dollar government horizon.

Looking for the online exclusive list of e-gov Web sites? Click here.

"You go to GovWorks.com to do basically anything you do with local government," says Tuzman in the film. "It's a pretty tremendous market space." With no positive revenue model, GovWorks.com didn't survive the dotcom downfall. But Tuzman was right about one thing: E-government is a fertile, immense market space. Go west, young entrepreneur, go west.

It's impossible to tie this market up into a neat package because it sprawls out like a growing city. And you don't have to be in the technology business to take advantange of these new opportunities, because there are angles for every entrepreneur. E-government is businesses that provide tech services to state agencies. It's Web sites that let citizens pay fines online. It's office-supply stores bidding for local contracts online. It's entrepreneurs building Web sites for municipalities.

See it for yourself: Buy Start-Up.com now on DVD or Vhs.

Forrester Research estimates that 15 percent of federal, state and local fees and taxes will be collected online by 2006. The technology research and consulting firm also predicts that nearly 14,000 online service applications will roll out across the nation by 2006, the majority coming from cities and towns. Some governments plan to tackle technology issues on their own with proprietary systems, but many will turn to private businesses that offer to get them there.

Clear and Present Opportunity

You may already be familiar with traditional, time-consuming government procurement processes. E-procurement, however, which is also known by the buzz-acronym B2G, involves governments using the Internet for notification, bidding and buying processes for goods and services. Jupiter Media Metrix forecasts public agencies will spend a whopping $286.1 billion by 2005, with 17 percent of total purchasing done online. E-government is looking to become a boom town.

Two distinct angles exist for entrepreneurs. One is providing the technology services to make e-procurement possible. The other is taking advantage of governments' new online offerings to expand the way you do business. Small suppliers are gaining unprecendented access to all types of government bidding and contract processes nationwide, and it will open up even more over the next few years.

$286.1 billion:
The estimated amount of public agency spending by 2005; 17 percent of that will be done online

Source: Jupiter Media Metrix

The city of Evanston, Illinois, just outside Chicago, has an annual budget of $180 million-$70 million to $90 million is spent each year on goods and services. That includes everything from medical services for inmates to vehicles and pencils. Chad Walton, the purchasing manager for Evanston, recently supervised the transition of the city's procurement process online using service from MunicipalNet Inc., a growing e-procurement business in Boston.

Walton echoes the sentiments of many municipalities when he discusses reasons for heading into e-government. "It lessens the cost of responding to solicitations from the city for businesses, which in turn should translate to lower costs for us as well," he explains. Both sides save time by cutting out much of the red tape from the process.

In addition to expanding potential markets for American entrepreneurs, e-procurement is a wide-open door for tech-minded start-ups. David Nute, 32, founder and CEO of MunicipalNet Inc., isn't planning on getting filthy rich, but he does expect his company to thrive while focusing on services to small states, local governments and the businesses that supply them. His company's revenue model is based on selling advanced options and extra services to suppliers. Basic access is free for businesses, an approach that sets them apart from most competitors.

The get-rich-quick glow of early e-government plays like GovWorks.com has faded, leaving entrepreneurs to forge ahead with sensible business models and back-to-basics marketing. "It's very grass-roots," says Nute. "There is no substitute for calling up a procurement director, going in, sitting down, looking at [him] face to face, earning [his] trust. It may be old-fashioned, but it works."

Proceed With Caution

But before you jump into the e-gov ocean, take some time to survey the waters. The growth of the market can be attributed to some age-old image reasons and to some practical business reasons as well. Jeremy Sharrard, associate analyst with Forrester's Internet Policy and Regulation Group, observed political motivations from the evolutionary outset of e-government. "Governors and mayors wanted to be able to stand up and say 'We're offering services online so you don't have to wait in line.' There was some political capital to be gained there," says Sharrard, who points to a shift over the past few years to a strong emphasis on cost savings.

Gartner Group predicts that combined U.S. federal, state and local e-government spending will most likely exceed $6.2 billion by 2005. Hotbeds of activity are in Web site building, online citizen services, ASPs and systems integration.

The amount of federal, state and local fee and taxes Forrester Research estimates will be collected online by 2006

EzGov.com was, at one point, a contemporary of GovWorks.com, but its Web site building service offerings proved much more resilient. The site took over as the market leader and as a good example of a company that survived on the strength of a well-considered business plan.

In a recessive economy, government money still stands as a beacon of reliable income. However, a report issued by the House Small Business Committee Democrats showed that federal buying from small businesses in 2000 was at its lowest since 1994. The small-business share of prime federal contract dollars has also declined to 22.3 percent from a high of 25.5 percent in 1996. The federal government may be the most visible playing field, but most opportunities for entrepreneurs are at the local and state levels.

The United States is brimming with localities-35,000 of them. Sheer number says there's an opportunity to take advantage of those either looking into or actually launching e-government initiatives. He also estimates that big companies like KPMG Consulting and EDS are only interested in the largest localities. That leaves thousands of underserved municipalities open for growing businesses to pursue. And that's why Nute's business is "MunicipalNet Inc.," not "FederalNet Inc."

Citizen Gain

Would you rather wait 10 seconds for a Web page to download, or sit on a plastic chair at the DMV for an hour? Citizen services is an area that's just getting out of the starting blocks. This segment covers everything from paying fines and fees online to renewing automobile tags and registering to vote. Net-connected citizens are asking for the convenience, and attentive politicians are beginning to hear and address their requests. Businesses can get a foot in the door by providing outsourced solutions and generating profits through a percentage of revenue. The State of California is currently a prominent leader in Web-based citizen services. Visit http://my.ca.gov to get a feel for where governments across the United States will want to go.

By the People, For the People

E-government is also good news for those established entrepreneurs who are interested in selling to governments or expanding their customer bases. "We have programs designed to target minority, women and small business as well as local businesses, so we wanted to open up the purchasing process to be more accessible to everyone," says Walton. Since joining MunicipalNet Inc., Evanston has worked with suppliers as distant as Connecticut and Florida. You could be one of those companies.

Start by checking around locally. Walton has received a lot of positive feedback from the vendors he's done business with. Evanston has been diligent in getting the word out about its new e-procurement system to businesses in the area: The city has notified businesses through letters, press promotion, business associations and the chamber of commerce.

But, according to Sharrard, not every city is as thorough as Evanston. If you haven't heard about an online bidding system in your area, contact your local government to determine whether one exists and is in operation.

Sharrard still sees businesses' lack of Internet access as a hurdle in the rollout of e-procurement: "The governments are a little bit ahead of the private sector in moving online and, as a result, have to drag suppliers online. In the near term, suppliers who are online and willing to work through some of these channels probably have a slight advantage."

MunicipalNet Inc. deals with this problem by offering fax notifications to businesses that don't use the Web site. In the meantime, get a jump on the competition by exploring online offerings. Your city's official Web site is a natural starting point.

Take Action Now!

If you're interested, don't get caught twiddling your thumbs. Now is the time when entrepreneurs eyeing the e-government space should jump in. Here's why: There is a central tension developing in the industry between the large companies like KPMG Consulting that provide e-procurement services and smaller companies like MunicipalNet Inc.

Some big firms are pushing for a top-down approach to e-procurement on a state level, hoping to profit by requiring local city and county governments to use the state system for a price. If the plan succeeds, growing businesses may get pushed out of contention.

Nute sees a window of opportunity over the next year and a half for small businesses to win municipalities over before large companies move in. "It really has to do with who can serve the needs of the government best," says Nute. "Those large consulting firms are probably doing a great job of serving the needs of those large governments, but I think it's a little presumptuous of them to think they understand local government well enough to be able to offer solutions."

Rules of Engagement

The rules of conducting business with other companies and with consumers don't always apply when it comes to dealing with governments.

Nute emphasizes that you need to appeal to the service- and rules-oriented government mind-set. "They all share a belief that government spending and government activity can be used to better a community," he says.

Nute takes on the persona of a government employee. "If you're going to come in and try to convert us to online purchasing, online voting or any of these other things, you have to understand that what was free yesterday needs to stay free tomorrow," he says.

Maintaining that status quo requires creative thinking when developing a solid business plan. You can't make your profits by charging fees to citizens or suppliers.

Longer sales cycles also come with the territory. "You probably have to go through a lot of different departments and agencies within governments to make a sale," says Sharrard. "Governments aren't really looking for the return on investment that the private sector is." Technology start-ups in this area need to bring people onboard who are familiar with and can navigate the various levels of government.

At a time when many technology companies are on an economic roller-coaster, the stability of the government marketplace is appealing. But, as Sharrard points out, that same stability may also level the chances for the sky-high profits early B2G businesses were expecting.

Learning from the mistakes of predecessors like GovWorks.com is a must. Startup.com should be required viewing for anybody who is thinking about stepping into the e-gov ring. It's the well-grounded, savvy entrepreneurs seeking a consistent, reliable business opportunity who will be greatly rewarded.

The future of e-government will be determined with the melding of government initiatives, citizen demand, entrepreneurial offerings, and large companies' products. Entrepreneurs who can appeal to governments while still maintaining a strong profit base will find plenty of room to build start-ups.

Small technology businesses can tailor their services to the government market. In years down the line, Sharrad sees online government burrowing deeper into the private sector, which should create "seamless e-government" in a consumer-friendly environment.

The call for a few good entrepreneurs rings loud and clear. This is your mission, should you choose to accept it. And there's no better time than now to take it.

Dot Gov: Where It's At

We've got you excited about e-gov. Now it's time to hit the Web and visit e-government right where it lives. These Internet resources will help get you started on your odyssey:

  • EGovLinks: It's big. It's kind of messy. But this clearinghouse for e-gov-related information is a great stopover for news and, of course, hyperlinks covering every imaginable topic.
  • Center for Digital Government: This national research institute conducts relevant surveys and reports and offers premium services for industry.
  • FirstGov: Official U.S. government portal includes connects to e-business and e-government information as well as links to state and local governments.
  • NIGP: NIGP stands for the National Institute of Government Purchasing, a membership organization focused on education, research, technical assistance and networking in the procurement area.

Contact Source

DLT Solutions Inc.
(800) 262-4358;

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