Falling in Gov What industry is turning the most heads now that dotcom doesn't equal success? It's e-government.

Meet the early days of e-government. "This is the beginningof a great thing," Kaleil Isaza Tuzman says inStartup.com, a 2001 film documentary. Tuzman, along withbuddy Tom Herman, founded GovWorks.com, one of the pioneering andhighest-profile players in the e-government space.Startup.com chronicled the company's heady rise through1999 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 aswide open and untamed. GovWorks.com hatched as an Internet portaland epitomized the early, wide-eyed view of the multibillion-dollargovernment horizon.

"You go to GovWorks.com to do basically anything you dowith local government," says Tuzman in the film."It's a pretty tremendous market space." With nopositive revenue model, GovWorks.com didn't survive the dotcomdownfall. But Tuzman was right about one thing: E-government is afertile, immense market space. Go west, young entrepreneur, gowest.

It's impossible to tie this market up into a neat packagebecause it sprawls out like a growing city. And you don't haveto be in the technology business to take advantange of these newopportunities, because there are angles for every entrepreneur.E-government is businesses that provide tech services to stateagencies. 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.

Forrester Research estimates that 15 percent of federal, stateand local fees and taxes will be collected online by 2006. Thetechnology research and consulting firm also predicts that nearly14,000 online service applications will roll out across the nationby 2006, the majority coming from cities and towns. Somegovernments plan to tackle technology issues on their own withproprietary systems, but many will turn to private businesses thatoffer to get them there.

Clear and Present Opportunity

You may already be familiar with traditional, time-consuminggovernment procurement processes. E-procurement, however, which isalso known by the buzz-acronym B2G, involves governments using theInternet for notification, bidding and buying processes for goodsand services. Jupiter Media Metrix forecasts public agencies willspend a whopping $286.1 billion by 2005, with 17 percent of totalpurchasing done online. E-government is looking to become a boomtown.

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

The city of Evanston, Illinois, just outside Chicago, has anannual budget of $180 million-$70 million to $90 million is spenteach year on goods and services. That includes everything frommedical services for inmates to vehicles and pencils. Chad Walton,the purchasing manager for Evanston, recently supervised thetransition of the city's procurement process online usingservice from MunicipalNet Inc., a growing e-procurement business inBoston.

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

In addition to expanding potential markets for Americanentrepreneurs, e-procurement is a wide-open door for tech-mindedstart-ups. David Nute, 32, founder and CEO of MunicipalNet Inc.,isn't planning on getting filthy rich, but he does expect hiscompany to thrive while focusing on services to small states, localgovernments and the businesses that supply them. His company'srevenue model is based on selling advanced options and extraservices to suppliers. Basic access is free for businesses, anapproach that sets them apart from most competitors.

The get-rich-quick glow of early e-government plays likeGovWorks.com has faded, leaving entrepreneurs to forge ahead withsensible business models and back-to-basics marketing."It's very grass-roots," says Nute. "There is nosubstitute for calling up a procurement director, going in, sittingdown, looking at [him] face to face, earning [his] trust. It may beold-fashioned, but it works."

Proceed With Caution

But before you jump into the e-gov ocean, take some time tosurvey the waters. The growth of the market can be attributed tosome age-old image reasons and to some practical business reasonsas well. Jeremy Sharrard, associate analyst with Forrester'sInternet Policy and Regulation Group, observed politicalmotivations 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 towait in line.' There was some political capital to be gainedthere," says Sharrard, who points to a shift over the past fewyears to a strong emphasis on cost savings.

Gartner Group predicts that combined U.S. federal, state andlocal e-government spending will most likely exceed $6.2 billion by2005. Hotbeds of activity are in Web site building, online citizenservices, ASPs and systems integration.

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

In a recessive economy, government money still stands as abeacon of reliable income. However, a report issued by the HouseSmall Business Committee Democrats showed that federal buying fromsmall businesses in 2000 was at its lowest since 1994. Thesmall-business share of prime federal contract dollars has alsodeclined to 22.3 percent from a high of 25.5 percent in 1996. Thefederal government may be the most visible playing field, but mostopportunities for entrepreneurs are at the local and statelevels.

The United States is brimming with localities-35,000 ofthem. Sheer number says there's an opportunity to takeadvantage of those either looking into or actually launchinge-government initiatives. He also estimates that big companies likeKPMG Consulting and EDS are only interested in the largestlocalities. That leaves thousands of underserved municipalitiesopen for growing businesses to pursue. And that's whyNute's business is "MunicipalNet Inc.," not"FederalNet Inc."

By the People, For the People

E-government is also good news for those establishedentrepreneurs who are interested in selling to governments orexpanding their customer bases. "We have programs designed totarget minority, women and small business as well as localbusinesses, so we wanted to open up the purchasing process to bemore accessible to everyone," says Walton. Since joiningMunicipalNet Inc., Evanston has worked with suppliers as distant asConnecticut and Florida. You could be one of those companies.

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

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

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

MunicipalNet Inc. deals with this problem by offering faxnotifications to businesses that don't use the Web site. In themeantime, get a jump on the competition by exploring onlineofferings. Your city's official Web site is a natural startingpoint.

Take Action Now!

If you're interested, don't get caught twiddling yourthumbs. Now is the time when entrepreneurs eyeing the e-governmentspace should jump in. Here's why: There is a central tensiondeveloping in the industry between the large companies like KPMGConsulting that provide e-procurement services and smallercompanies like MunicipalNet Inc.

Some big firms are pushing for a top-down approach toe-procurement on a state level, hoping to profit by requiring localcity and county governments to use the state system for a price. Ifthe plan succeeds, growing businesses may get pushed out ofcontention.

Nute sees a window of opportunity over the next year and a halffor small businesses to win municipalities over before largecompanies move in. "It really has to do with who can serve theneeds of the government best," says Nute. "Those largeconsulting firms are probably doing a great job of serving theneeds of those large governments, but I think it's a littlepresumptuous of them to think they understand local government wellenough to be able to offer solutions."

Rules of Engagement

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

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

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

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

Longer sales cycles also come with the territory. "Youprobably have to go through a lot of different departments andagencies within governments to make a sale," says Sharrard."Governments aren't really looking for the return oninvestment that the private sector is." Technology start-upsin this area need to bring people onboard who are familiar with andcan navigate the various levels of government.

At a time when many technology companies are on an economicroller-coaster, the stability of the government marketplace isappealing. But, as Sharrard points out, that same stability mayalso level the chances for the sky-high profits early B2Gbusinesses were expecting.

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

The future of e-government will be determined with the meldingof government initiatives, citizen demand, entrepreneurialofferings, and large companies' products. Entrepreneurs who canappeal to governments while still maintaining a strong profit basewill find plenty of room to build start-ups.

Small technology businesses can tailor their services to thegovernment market. In years down the line, Sharrad sees onlinegovernment burrowing deeper into the private sector, which shouldcreate "seamless e-government" in a consumer-friendlyenvironment.

The call for a few good entrepreneurs rings loud and clear. Thisis your mission, should you choose to accept it. And there's nobetter time than now to take it.

Contact Source

DLT Solutions Inc.
(800) 262-4358; www.dlt.com