Why Startups Should Try to Win City and School District Contracts
I’ve noticed an intriguing — and profitable — trend in startup positioning.
Lately, I’ve been seeing on a company’s proposed timeline that they plan on providing their services to local governmental agencies and schools at some point in the mid- to distant future. Schools and cities are huge potential customers and, for a lot of startups, a single big city or school district contract could completely change the trajectory of the company.
Unfortunately, however, procuring a school district or city as a client is often a long process with a lot of uncertainty. It is not unreasonable to think that a startup could take a lot of time pitching 10 of these entities and win none of them. With that in mind, here are some of the insights I’ve learned during my career as a VC and legal advisor that might make it easier to earn these customers.
School districts are incredibly compelling customers, because once you are in, it’s easy to stay entrenched. On top of that, some school districts — like those in Chicago, New York City or Houston — are absolutely enormous and have the potential to award big contracts. Even smaller school districts can award contracts that are as big as those you would find in an enterprise sale.
The first step to making a school district sale is to become an approved vendor. The overwhelming majority of schools require that you complete this step before they move forward and speak with you. Most big districts, including Chicago and Houston, have online resources to help you become an approved vendor. Others might require a more paper-heavy process.
You have two choices when selling to school districts. You can start by selling at the district level or by selling at the school level. The Tech Advocate, notes that Accelerated Reader, a company that sold for $1.1 billion, started off selling school by school. Selling at the school level should be the preferred method for startups since the sale will be a lot less bureaucratic and much faster. However, you will still need to be an approved vendor to sell to a school.
If you can afford it, one tip for selling into schools that may help your success rate is to start with a free trial — which should hopefully build your case. It makes it easy for schools or districts to start using your product since a free option requires fewer approval barriers than something the district must decide to allocate money to.
Another thing to note with school districts is that, outside of the bigger districts, sales may get a bit political. A startup I am close with attempted to sell a benefits package into school districts in South Texas. The package they were selling cost far less than what the district was paying at the moment, but getting the product into school districts in a certain area was incredibly hard to do. This is because there was a local player who provided these benefits to the school districts in that area, and that local player was politically connected. If you find yourself in this situation, it will be crucial to get the support of school board members before moving forward. However, if you start at the school level, things are much less likely to get political.
The first thing to know about cities is that there are some that are much more open to working with startups than others. For example, Texas cities like Austin, Houston, Dallas and San Antonio are very open to working with startups — and even more so if you are based in their city. There are, of course, others like Portland and Miami that have been increasingly open to trying out tech-forward approaches. These are the kinds of cities that you will want to target.
The process here will be as long, if not longer, than working with a school district. But once you are in, you’re likely to be entrenched. To better your odds, you will want to find a champion for your product within the city administration that will help push your product. For example, San Antonio has a chief innovation officer that is responsible for this kind of work. And Francis Suarez, Miami’s pro-entrepreneurship mayor, is a great example of someone who would champion an innovative startup that is attempting to make the city more efficient.
One great way to start working with a city is to comb through their website and discover if they have an innovation office. If they do, starting the process will be as easy as finding the email or LinkedIn of a person in that office and shooting them a message about working with them. If they do not have an innovation office, then look to the person who you’d expect to be working with directly if your startup was used by the city. For example, if you are selling a way to optimize data storage, you would want the director of information services — or someone who sits in a comparable role. Some smaller cities will not have very delineated roles, and for those organizations, you may need to start with the city manager or even the mayor if the township is small enough.
The information you should have ready by the time you reach out includes: pricing, potential cost savings for the city, the immediate benefits of your service and whether or not you offer a pilot for them to try (and what that would look like). These are the things that your contact will have to answer immediately for their stakeholders and decision-makers when they’re presenting your product or service — so it will be in your interest to think ahead and make it as easy as possible for them by proactively solving these issues.
One Thing to Consider
Some VCs may be cautious about getting involved with a startup that is relying on governmental clients like cities and school districts to grow and scale, because these deals can take a long time to close. That is one reason many startups opt to place this strategy on the backend of their roadmap toward potential customers.
However, if you think you have a shot to land one, they can be extremely valuable customers that could conceivably never churn. Further, if you are a govtech startup focused on selling to cities, relationships with relevant officials and finding someone on the inside to champion your company will be crucial. And if you are selling to school districts, being an approved vendor and being prepared to get political will position you well to make the sale.
Selling to these types of local entities might be exhausting and drawn out, but the payoff can be huge, as some of these contracts are big enough to push a company to their next round of funding. In an ideal scenario, the money will be coming from customers who will reliably pay — and very likely re-up your contract when it’s up for renewal.