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Richter & Company Announces New Additions to Competitive Intelligence & Price-to-Win Team

We’re excited to announce two new additions to our team!

Adam Stormer has joined Richter’s Competitive Intelligence team as a Research Analyst. Mr. Stormer began his career in Cyber Forensics and Information Security before earning a Master of Science degree in Applied Intelligence from Mercyhurst University. At Mercyhurst, Mr. Stormer was a team lead for the Beehive Project, a technical collective designed to provide support to emerging businesses and entrepreneurs. In this role, he interacted with clients, program directors, and a team of analysts to create actionable intelligence products to assist in the creation of products and services.

Joining the Richter Price-to-Win team as an Executive Consultant is Fernanda Demas. According to Richter & Company’s PTW Director Gene Metcalf, prior to joining, Ms. Demas provided capture support to federal contractors including cost estimation, training in the development of Basis of Estimates, the facilitation of pricing strategies, and solution development to the firm’s clients. In several previous positions as a project accountant, Ms. Demas developed a comprehensive knowledge of financial management, planning, reporting, and compiling competitive, compliant final submission packages.

Both Mr. Stormer and Ms. Demas say they were drawn to Richter & Company because of its solid reputation in the industry, best-in-class methodology, comprehensive proprietary tools, and the team-oriented work environment the firm’s leadership has created.

“Both Adam and Fernanda bring an excellent combination of industry knowledge, communication skills, and leadership ability to our team,” said Chris Richter “We have every confidence that both Adam and Fernanda have what it takes to provide top-notch support to our customers and increase their win probability in the federal marketplace.”

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When It’s Time to Rebid a Contract: Avoiding Incumbentitis

avoiding contract rebid incumbentitis graphic

Where and when is a little knowledge a dangerous thing?

Sometimes, when it’s time to rebid a government contract in the federal marketplace, knowing more than your competitors do can be the beginning of the end.

In other words, when you are the incumbent—that is, the company that currently owns the contract and who has been working on it for years, it’s critical that you realize that the historical knowledge you have accumulated in that time is a double-edged sword. 

There’s a good chance that the price you come up with will be among the higher bids submitted unless you keep some important considerations in mind. Here are three symptoms of incumbentitis that can be your undoing if you’re not careful:

Not Pricing Precisely to the Requirements

When the company posts an RFP, incumbents often have difficulty pricing to the exact requirements, especially when their experience indicates that these requirements don’t reflect what the potential client will actually need. If an RFP specifies 80 units, and the incumbent has been producing 100+ units for the past five years, it’s hard to resist the temptation to reflect that in their pricing. Instead of showing the incumbent’s superior insight and experience, including the pricing for what they think they know versus what the RFP actually calls for, only results in a higher bottom line that frequently costs them the contract.

Giving Staff Jobs’ Protection Top Priority

The incumbent also needs to stay focused on the goal of winning the job again. That means they need to emphasize the creation of a PTW strategy instead of focusing on protecting the jobs of the people who are currently working the job being re-bid. For better or worse, the workforce that has been on the contract from the beginning is more experienced and likely more expensive now than an entry-level staff is going to be. Despite the intuitive benefits of keeping a more experienced workforce on the contract, the incumbent’s estimators must still keep the final cost of the proposal in mind as it will likely compare to their competitors’ pricing when rebidding a job.

Overestimating History and Experience

Another just as insidious miscalculation that an incumbent can make is jumping to the conclusion that their history with the company issuing the RFP will count for more than it actually does. “What have you done for me lately?” is still the mindset at the majority of agencies, making securing services at the lowest cost the priority.

If you’re an incumbent who wants to win a rebid, you need to be both literal and humble. Pay careful attention to what the RFP is actually calling for, and resist the temptation to fill in what you think you know. Focus on PTW instead of job protection, and be humble enough to understand that your previous relationship with the company or agency that has filed the RFP is not necessary a big plus—in fact, if you’re not careful, it can actually prove to be a hindrance to you actually getting the contract again on rebid.

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PTW (Price to Win) G&A vs. Overhead in Developing Aggressive Costs

business skyline

Developing Aggressive Pricing: Overhead vs. G&A

The government contracting arena is filled with words, phrases, and acronyms that can be difficult for the less experienced to define, let alone distinguish subtle differences between. G&A (General and Administrative) costs and OH (Overhead) costs are two good examples. What do they mean and, more importantly, what are the differences between the two?

What is Overhead?  

Overhead costs support the revenue-generating projects of the company. If a company had no projects, it would have no overhead expenses.   

What is G&A?  

General & Administrative support the overall management and operation of the business. Even if a company had no billable projects, it would still have G&A expenses. Think executive staff and leadership team.

Does My Company Need Separate Cost Centers for G&A and OH?

Early in a company’s evolution, it may not make sense to differentiate between OH and G&A expenses into a single cost pool. As the business grows, and you have more costs than base labor, breaking out OH from G&A may allow you to recoup some of the costs associated with processing those direct costs to which G&A can be applied.

Just to clarify, if an employee works on direct labor projects, any indirect labor or expenses that the employee incurs would be charged to an Overhead account. Similarly, if an employee does not work on direct labor projects, their time would be considered G&A and should be charged, along with any expenses incurred, accordingly.

How Flexible are the Classifications?

Many people believe they know which items go into each cost center, but every company is different. The process of classifying costs as G&A or OH is not as static as may first appear.  

When a new RFP comes in, you can define how your company is structured so you can spread the cost of the people involved in servicing the contract across a wider swath of employees, thus containing costs and keeping your pricing aggressive. 

Too many people in OH drives costs up, possibly making your bid non-competitive. Keep OH basic and contract-specific; classify company-specific costs under G&A. This isn’t always possible, but there is flexibility and in many cases, you can use both OH and G&A to arrive at pricing that is most aggressive and competitive. 

A lot of factors must combine to win a government contract, but learning how to get the most benefit out of OH vs. G&A costing is an important component in developing an effective Price to Win strategy.

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SWOT—So What?

SWOT analyses have been around a long time, and continue to be popular in the business development community. Unfortunately, the vast majority of SWOT analyses are essentially useless—not because the tool is broken, but because its not being used properly. The ultimate goal of a SWOT analysis is to produce actionable intelligence—and yet that is precisely the step that is most often neglected.

For the uninitiated, a SWOT analysis is a simple four-quadrant assessment of a competitors Strengths, Weaknesses, Opportunities, and Threats (SWOT) in the context of a specific opportunity. It is a simple, easy-to-understand tool that helps identify the internal and external factors that either help or hinder a companys probability of winning.

Despite popular belief and practice, a SWOT analysis is not complete when the quadrants are filled.  When the strengths, weaknesses, opportunities, and threats have been identified, and documented in the four quadrants, this is merely the first step. The final step requires moving from observation to analysis. Observation provides the what,” while analysis provides the so what.” This requires developing key strategic implications from the SWOT factors. To put it another way, the next step” is to use the completed SWOT chart to predict likely actions the competitor will take.

Competitive analysis of any company must include a predictive element, which attempts to answer the question What is the company most likely to do next?” The four elements of a SWOT chart, if accurate, can be extremely useful in developing these predictions—but they do not explicitly provide the answers in and of themselves.

So how does one take this next step? There are several ways of deriving implications from a traditional SWOT chart—one of the more effective methods involves examining the intersections of the various factors two by two, in an attempt to discern the most likely action on the part of the company. For example: if the company has [Strength #1] and [Opportunity #1], therefore they would most likely do [Implication #1]; if the company has [Weakness #1] and [Opportunity #1], therefore they would most likely do [Implication #2], etc.

This may seem daunting, but the payoff is great! The result of this step is a list of likely competitor actions that are both rational and defensible. Can you see the value of providing such a list to decision-makers? It enables informed decision-making in a way that a SWOT chart simply cannot do. Yes, its more time-consuming, and prediction is inherently risky, but taking this step is the only way to get true value out of a SWOT analysis.

For more information on Competitive Intelligence or Price to Win Analysis, please contact Richter & Company.

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Barriers to New Market Entry: Sunk v. Relevant Costs

inside of warehouse with a tractor trailer

The way you handle sunk costs when attempting to break into a new market in the federal contracting arena can be the difference between success and failure. Deciding how best to treat these costs depends on how well you understand the difference between a “sunk cost” and a “relevant (or future)” cost, so let’s start there.

A sunk cost is a cost that has already been incurred and cannot be recovered. On the other hand, a relevant cost, sometimes called a future or prospective cost, is a cost that may be avoided if certain actions are taken. 

Because they have already been incurred and are unrecoverable, sunk costs are typically not considered when making future decisions.They are excluded because their cost will remain the same regardless of the outcome of a decision. The relevant costs, however, are contrasted with the potential revenue of one choice compared to another. In other words, in order to make an informed decision, an organization should only consider the costs and revenue that will change as a result of the decision at hand.

Think of it this way: a manufacturing firm has various sunk costs. These include their monthly lease of the factory and the cost of the equipment they have purchased. If the company pays $10,000 per month to lease its factory and has purchased equipment outright for $50,000, those sums are considered their “sunk costs.” 

When the manufacturing company expands into new markets, these sunk costs are typically not recouped. When bidding against another contractor who already has the infrastructure in place, trying to recover the cost of elements purchased is going to quickly drive your price into non-competitive territory. 

How do you know if the competitor has the infrastructure in place? This is where ethically sourced, accurate Competitive Intelligence (CI) can provide the information you need to create your bid in a way that has a good chance of success.

More often than not, it’s expensive to get into a new market. There are always barriers to entry that are cost-related. Although there can be acceptable ways to go about recouping sunk costs throughout the course of a contract, attempting to do so may create an insurmountable, cost-related barrier to successful entry into a new market. Sometimes, these costs just need to be absorbed as the “cost of doing business” that you will choose not to charge back.

Sometimes, the way into a new area within the federal market space is to invest in the infrastructure you will need to complete the deliverables, view those as sunk costs, and proceed accordingly.

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Gathering Competitive Intelligence Ethically

man researching on a computer

A common misperception is that “competitive intelligence” is synonymous with “corporate espionage.”  

Nothing could be further from the truth.  

Corporate espionage is an illegal activity where companies steal valuable information from their competitors in order to gain a competitive advantage.  It may involve tactics such as wiretapping or hacking into proprietary systems to gain unauthorized access to private information. In contrast, competitive intelligence is a legal and ethical activity that uses publicly available information to gain insight into a company’s capabilities, strengths and weaknesses, performance, and general approach, which can then be used to develop likely competitor strategies in a given competition. Competitive intelligence is a widely-used and valuable business practice that leads to developing customer-focused and competitor-countering strategies that improve a company’s probability of a win.  

With that said, it is important to understand the legal and ethical boundaries of competitive intelligence, so that your company will remain above reproach in all of its competitive intelligence efforts.  Following are a few best practices to keep in mind when gathering competitive intelligence:

Define Ethical for Yourself & Your Company

Ethical boundaries are ultimately determined by the customer. For example, in the federal contracting space, the customer is the US government. Because the US government is funded by the American taxpayer and is therefore accountable to them, federal agencies are obligated to ensure that the way they use their allocated dollars is completely fair and free of any fraud, waste, or abuse. This results in a very high standard for what is ethical. Other industries and other countries, however, may have different ethical standards. That’s why it’s so important for you to determine what your company’s definition of ethical is and direct everyone at all levels of the organization to follow those standards. 

Develop a Culture of Ethics and Integrity

Be careful to avoid any ethical gray areas so that you can avoid being removed from a competition because of a real or perceived breach of ethical boundaries. As you collect competitive data, make notes about where you found it. It could be important in the future in case you need to prove that it did not come from a protected source. Talk frequently and openly inside your company about the safe sources to tap for information-gathering and ways to steer clear of any ethical danger zones.

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Is An Incumbent “The Man Who Knew Too Much?”

Riddle me this. If knowledge is power, is it ever possible to know too much?

If you watch the 1956 blockbuster “The Man Who Knew Too Much,” you’ll find that Alfred Hitchcock apparently thought so, especially if that “man” was dabbling in the world of international espionage.

But what about the humble government contractor? Is it possible for them to know too much?

If you’re the incumbent who is rebidding in a government contracting scenario, you can absolutely find yourself in the position of knowing too much for your own good.

Let’s back up a bit…

Being an incumbent is a double-edged sword. On one hand, your experience with the customer has given you information that nobody else has. You know what they need, and what they really want whether those needs and desires are clearly spelled out in solicitation documents or not. As the incumbent, you have a level of understanding about what the customer really cares about in a way that your competition does not.

Now in some ways, this knowledge translates to a monstrous leg-up on those who are bidding against you. So what’s the bad news? If you don’t remember that the evaluation process is based on what the RFP actually says, you’re not going to win.

The winning bid will present a basic, reasonable, compliant, threshold solution that’s responsive to the requirements called out in the RFP. As the incumbent, you will need to confine your responses to those and resist submitting a gold-plated solution with a price to match. In this case, using your extra knowledge to provide a more complex solution, even when you are confident that what you’re offering is actually what the customer needs or wants, is a recipe for failure.

This is also time for a reality check. A lot of people believe that the incumbent always has an advantage over the rest of the field. Not surprisingly, incumbents tend to think the same thing. In reality, however, it’s just about 50/50 whether the incumbent wins or not.

It’s easy for an incumbent to fall into the trap of thinking, “My customer loves me. They won’t replace me” when the truth is your federal customer probably couldn’t care less about you. The agency needs a compliant threshold solution at the lowest possible price. It’s really that simple.

I’m reminded of an example from years ago. A special operations command put out a contract in search of a vendor who could customize and modify equipment on a really fast track. The winning contractor did an incredible job on the engineering and fabrication, but they dropped the ball completely on the administration of the contract. Although the contract specified that work would not commence without a task order, the contractor ignored those terms and conditions, causing a processing and billing nightmare for the higher-ups. The boots-on-the-ground folks were happy because they were getting their hands on the product fast, but the agency’s overall satisfaction with the vendor wasn’t great.

As the solicitation documents for this work were being prepared, another company learned about these issues through some savvy competitive analysis. They put together a proposal that promised not only timely, on-budget products but an administrative process that would keep the entire agency’s billing process on the rails. The winning contractor gave the government agency real-time access to their management system, allowing them to generate and authorize task orders immediately. This was innovative, responsive, and ultimately successful. The incumbent was unseated.

If you’re the incumbent, keep in mind the things you’ve learned about the agency’s “corporate personality” but forget value definitions. Answer the requirements. Nothing more. Providing a compliant threshold solution is far more likely to get you the win.

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OutsideIn™ Analysis: Seeing Yourself As Others See You

man examining analyses on wall

Capture teams in the government contracting world spend a lot of time trying to determine the right balance of solutions and strategies that will differentiate them from their competitors and make them more attractive to their customers. Deciding how best to position your company, understanding what your competitors know about you, and analyzing how that is likely to impact any potential decisions means challenging all your assumptions about your business. Our experience is that the best way to do that is through an unbiased view of your capabilities that is free from internal influence.

Traditionally, businesses have evaluated their strengths, weaknesses, opportunities, and threats from an internal vantage point. Known as an “inside out” strategy, this approach looks at what the company can accomplish using existing resources, typically by streamlining operations and reducing spending. While the “inside out” strategy may create short-term shareholder gains, this focus ultimately limits the company’s ability to note emerging trends and adapt to changing markets. 

A landmark book entitled Strategy from the Outside In: Profiting from Customer Value upended conventional wisdom about how to analyze a company and make improvements. This is the first reference in print to the concept of “outside in” thinking, an approach that uses customer trends as benchmarks for product and service development. Its premise is built on the idea that studying customer trends from an external perspective is the most effective way to design their strategy. 

At Richter & Company, we have adapted these strategies into a service called OutsideIn™ Analysis. By turning our proven competitive intelligence-gathering process onto you instead of your colleagues in the marketplace, we can leverage open-source research to identify how you, your team, your capabilities, and your solutions are being perceived. 

Our OutsideIn™ Analysis provides you with a third-party, objective assessment based on our independent research, interpreted using our sophisticated tools in light of our extensive experience. Only open-source material is collected and analyzed; no proprietary information is gathered. The earlier an OutsideIn™ Analysis can be performed in the capture process, the more effective it can be. 

Businesses can be slow to adopt an outside-in analysis because it goes against the grain of traditional systems planning. Whereas “inside out” thinking leverages software to smooth processes and increase efficiency for back-end systems, an “outside in” approach embraces forward-compatibility with an emphasis on designing systems based on emerging data to create value for the end user and solve evolving customer issues. 

As fast as the market changes, it’s increasingly important to know and understand your customers. In a down market, it’s a temptation to overlook the long view, instead of focusing on short-term strategies that will increase revenue and decrease costs. It’s proving more effective, however, for companies to focus on external trends, customer behaviors, and new technologies that are changing the industry landscape going forward.

OutsideIn™ Analysis is one of the best ways to help you see what your competitors are seeing, and in many cases, deliver the eye you need to win.

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Price-to-Win: The Trade-off Between Capabilities & Price

Competitive analysts studying

A big part of winning a deal in the federal marketplace depends on how effective your PTW (Price-to-Win) strategy, or position, is. Keep in mind that a winning PTW position starts with a bottom-up analysis based on the requirements spelled out in the solicitation documents, but it doesn’t stop there. In order to arrive at an effective PTW strategy, you also need to consider open-source data and a set of defensible assumptions…

…which brings me to the most important thing about Price-to-Win. PTW isn’t a number. It’s not the amount you need to bid to win the deal. Think of PTW as a strategy or a position that represents the trade-off between the capabilities you offer within the context of your understanding of the customer’s requirements, and the cost, price, and strategy they will use to evaluate proposals. (Also keep in mind that what is used in government contracting is an artificial construct meant to create an “apple to apples” comparison.)

It’s important to keep in mind that we bid on work for different reasons, and the price we submit reflects those motivations. If our objective is to win the deal at all costs, we will offer to perform the contract’s requirements at a price that’s well below what we expect everyone else to offer. I’ve heard of federal contractors positioning themselves to win jobs at all costs to inflate the company’s value in light of a near term sale. Companies who are entering a new marketplace who want to take the field by storm may be willing to offer an extremely low price in order to make a splash, get their foot in the door, and earn a little brand recognition. And in those cases when we are asked to bid by a customer who is concerned about the level of competition, our courtesy bid is likely to be too high to win.

Depending on your motives, you can throw something over the transom that’s either artificially high or low to protect yourself against the win or to maximize your chances of being awarded the contract.

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Identifying Your Competitors: How Wide Should You Cast Your Net?

Winning government contracts requires a lot of preparation. Would-be contractors spend hundreds of hours developing capture strategies and crafting compelling proposals, as well as (hopefully) assessing the competition. A successful competitive intelligence effort will identify the overall approach, as well as the strengths and weaknesses of each credible competitor, but this requires early identification of who those competitors are likely to be. An overly narrow focus risks missing one or more key competitors (surprises are bad), but an overly wide focus drains resources (like trying to boil the ocean).

So how wide is too wide to cast your net?

A textbook capture effort begins very early, well in advance of the customer releasing a Request for Proposal (RFP) and preferably even before word of the opportunity has hit the streets. This requires strong customer intimacy and keen market insights, but that’s a topic for another day.

Regardless of how your organization learns of an opportunity, your competitive intelligence effort should begin immediately and continue in sync with the capture effort. At this early phase, competitive intelligence begins with the critical step of identifying who the companies are that will likely bid against you.

There’s an obvious trade-off in starting this process so early; the less you know, the more you must assume. Alternatively, if you wait to assess the competition until you know who they are, it may be too late to make any needed course corrections. Therefore, the competitive intelligence effort is charged with making early predictions about who the competitors will be. But how?

An early prediction of which companies are likely to bid against you is based almost entirely on capabilities. Who in the industry has the capabilities required to submit a credible bid on the opportunity in question? Answering this question will require some research, but not as deep a dive as you will need to do later as the field narrows. For now, look at the websites and other marketing literature of would-be competitors. Read their capabilities statements. Review their list of past contract awards and compare that against their claims to assess their credibility.

It’s important to note that the government’s procurement strategy nearly always changes and evolves, making its requirements clear. As they become more specific, some competitors will drop out. This is the time to dig deeper into the contenders. Look at their strategies, unique strengths and weaknesses, and present and past clients. After you’ve done that, you can narrow your assessment down even further by reaching out directly to those companies to discuss any interest they might have in the bid. Look into their key personnel and find out what kinds of things they have historically shown interest in pursuing.

Be prepared for the evolution of the bid to involve huge jumps. What starts as a full and open competition may morph into a small business set aside, completely changing everything about the process.

Keep in mind that securing a government contract is an iterative process. As the government’s requirements become clearer, you can re-focus your lens based on those things to get a better idea of who your competitors are and the strategy you need to employ to win the contract.