3 Reasons Some Local Governments are Eschewing Big Tech Vendors for Startups

What used to be multi-million-dollar work is now getting broken down at the local level.

by / October 27, 2016
The first-ever State of GovTech event was held at the Nasdaq Entrepreneurial Center in San Francisco. Noelle Knell/Government Technology

SAN FRANCISCO — The public sector moves more slowly than the business world. Government information technology contracts are huge, long-term beasts. Public agencies prefer establishment over risk.

All of that used to be true — but it’s changing. According to a group of businesspeople and public officials who gathered Thursday in San Francisco to talk about the future of the government technology market, there is a growing number of startups working quickly to solve problems in the space, and a growing appetite for those solutions to go along with it.

“Government sectors in the past … have always looked for the biggest, most prominent, secure player in the house and then procured a multi-hundred-million-dollar solution with them,” said Peter Pirnejad, director of development services for the city of Palo Alto, Calif., at the first-ever State of GovTech event, held at the Nasdaq Entrepreneurial Center in San Francisco. “That’s all changed. Now we’re looking for the more agile, the more niche solution that’s able to come and solve a specific problem.”

And that’s exactly what Palo Alto did when its mayor decided to emphasize transparency in the local government — it found a niche solution in a company that was looking to test out its product. It partnered with OpenGov to engage its citizens better in the budgeting process, and four years after launching, the company has since scaled to more than 1,000 customers.

There are three big reasons governments like Palo Alto are starting to look at startups to do some of the work they used to pay larger companies to do.

1. They can be cheaper — or free

In the case of OpenGov, Palo Alto got the service for free. That was because OpenGov was looking to test its product and prove that it worked. Such is often the case for early-stage startups — also at the event, one government official talked about testing out water flow sensors with companies that weren’t sure whether their products worked yet.

But even if it isn’t free, niche services can just be cheaper than larger, broader solutions. And that’s helpful for a local government that doesn’t want to take on very much risk.


In the opening government panel, key government stakeholders discussed how changes in technology and public-sector needs are driving change in the GovTech market. Left to right: Peter Pirnejad, director of development services for Palo Alto, Calif.; John Miri, CAO for the Lower Colorado River Authority; Rebecca Woodbury, senior management analyst for San Rafael, Calif.; and Jay Nath, chief innovation officer for San Francisco. Photo by Dustin Haisler.

“We’re not trying to solve the most wicked problem through a small startup that, if they end up going under, people get fired,” Pirnejad said. “It’s really more along the lines of trying to find something that is able to make a big impact, but doesn’t make a big impact if it fails. So like partnering with a small startup to develop a Wi-Fi hot spot in a local park — great, it’ll make headlines if it’s successful. But if it doesn’t [succeed], well we can always fix it. We’ll take over the project and get across the finish line. That was a few years ago. Now we’re starting to see it [the market] mature a bit more. We’re seeing the propensity and the willingness to partner with small startups on larger solutions — permitting, licensing, things that really matter. But there’s still room for growth, so I’m really energized by the prospect that the startup space is starting to take bigger bites of the apple.”

2. They can be more nimble

Large, established companies often have large, established products in place. That means they come pre-tested — but it can also mean they’re not necessarily focused on whatever specific problem a government is trying to solve.

“Some of the larger companies … come to the table thinking they already have your solution in mind. ‘Oh, we’re so-and-so, we’ve already figured it out. All you have to do is put all these massive sensors on every light bulb and you’ll have all the data you need to make all the analytic decisions,’” Pirnejad said.

But even government at the most local level is a collection of varied activities. Pirnejad likened a city manager to a CEO of 10 different companies: One that handles transportation, one that deals in business, and so on. From department to department, and from city to city, the problems in need of solving will vary.

That’s where a startup can be handy, he said. They tend to have a narrower focus, and if that focus aligns with a government’s need then it can mean a very pointed, effective solution.

The agility of startups is evident in the way they’ve grown too. Ron Bouganim, managing partner of the venture capital GovTech Fund, said during the event that the companies in his portfolio have an average sales cycle of three days. Other investors at the event noted that some government-focused companies are attracting more follow-on investment and scaling up faster than their more corporate-focused peers.

“The size of government lets you impact a lot of people’s lives quickly,” said Nate Levine, co-founder of OpenGov. “You think about how many companies out there are directly impacting tens, hundreds of millions, billions of people — very few. Maybe Apple, Microsoft. But we have an opportunity now working with over 1,000 cities to impact literally millions, tens of millions of Americans every day. And we were able to do that pretty quickly.”

3. They can be more attentive

Startups also tend to be more eager to work closely with customers, according to Rebecca Woodbury, senior management analyst for the city of San Rafael, Calif.

“The startups I’m working with right now, I mean they’re just constantly hungry for more information,” Woodbury said. “Constantly — ‘Can I sit down with you for another 30 minutes to talk about this, let’s talk about email.’ I think what‘s great is finding vendors that are really willing to have that conversation with you. Because we’ll talk your ear off about pain points, but it’s just whether or not they’re willing to listen and then also whether they’re willing to … turn around a week later and say, ‘What if we did this?’ And having that responsiveness, being able to have that conversation and then see it turn into product improvements right away is really amazing.”

For new companies looking to prove themselves to prospective clients, appeasing their government customers is a business proposition — improving the product or service is a path to scalability.

Of course, the large technology companies that governments have traditionally worked with were once small too. So as the government technology market grows, and as governments latch onto startups providing nimble solutions, Pirnejad said he’s not sure whether some might start to lose their agility.

“We’re gonna see how that plays out,” he said. “But the beauty about this new model is that government as a platform can change the different apps, if you will. The same way an iPhone works, governments are moving into that model. So when one app doesn’t work or serve the needs of their customers or constituents, they uninstall and install a new app. And I think the industry has to be prepared that the government will start making decisions quicker and changing vendors quicker.”

Ben Miller Staff Writer

Ben Miller is the business beat staff writer for Government Technology. His reporting experience includes breaking news, business, community features and technical subjects. He holds a Bachelor’s degree in journalism from the Reynolds School of Journalism at the University of Nevada, Reno, and lives in Sacramento, Calif.