2020 was simply an unforgettable year.
A global pandemic put much of the world on pause, a contentious U.S. election heightened marketplace uncertainty, and movements calling for social change dominated the attention of the media and the world. As a result of all this turbulence, most Government Contracting (GovCon) firms took a financial hit to their business (53%). Despite the mayhem, a surprising number of firms were able to persevere and grow, some substantially.
Among these survivors were a group of High Growth GovCon firms—firms who maintained a compound annual growth rate of 20% or greater over a three-year assessment period. Somehow, in the midst of a tumultuous year like no other, nearly 38% of GovCon firms attained High Growth status in 2020. What are they doing differently?
The Hinge Research Institute’s newly published 2021 High Growth Study: Government Contracting Edition studies the marketing and business practices of these High Growth GovCon firms and provides expert analysis on what they are doing and how their practices have adapted to marketplace changes. In this article, we’ll share a few highlights from the full research study.
About the Study
The 2021 High Growth Study showcases industry trends within the larger context of other professional service industries including: Accounting & Financial Services; Architecture, Engineering & Construction; Consulting; Software & Technology; and Law Firms & Legal Services. In the GovCon industry breakout report, 85 government contractors with a combined revenue of over $90 billion and more than 150 thousand employees are analyzed. As shown in Figure 1, these firms represent industries across the professional services.
Figure 1: Government Contracting Industry Breakdown
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Government contractors of all sizes were represented in the study with most of the representation coming from the small and mid-size firms (See Figure 2).
Figure 2: Government Contractor Firm Size Based on 2020 Revenue
The Top Challenges Facing Government Contractors
In the midst of a pandemic, when asked to identify their top upcoming challenges, most industries in the larger High Growth study departed from their historical concerns and pivoted to the crisis at their doorstep. GovCon was different. We see more continuity in their answers from 2019 to 2020.
As shown in Figure 3, a shortage of top talent continues to be a leading business challenge for GovCon firms—one potentially exacerbated by heightened concern over compensation costs and a strong demand for specialized skills by governments at the federal, state, and local levels. Other workforce-related challenges like generational changes and managing remote employees also crept into the top business challenges.
Figure 3: Anticipated Business Challenges Over the Next 3-5 Years
Insights From the High Growth Firms
Insight 1: Research Isn’t Just “Nice to Have” Anymore
Across the spectrum of professional services industries, High Growth firms are more likely to do research on their target audiences—and this trend has continued for many years now. In Figure 4, we see that in 2020 there was a remarkable 40% increase in the number of GovCon firms using research to understand their target audiences.
Figure 4: Research on Target Clients
With nearly half of all government contractors conducting research on their target audiences, it’s important to recognize that this trend is here to stay. And for good reason. Research helps firms reduce risk and better understand their multiple audiences, giving these firms an advantage over competitors who have yet to embrace audience research.
Insight 2: High Growth GovCon Firms See Impact on Digital Marketing Channels
In Figure 5, we see how High Growth GovCon firms also see more marketing impact from their digital marketing techniques—with a massive advantage over their No Growth peers in search engine optimization (SEO) and client nurturing techniques.
Purchase the 2021 High Growth Study: Government Contracting Edition
Even nurturing prospects through phone calls, which we consider to be a more traditional marketing approach, today requires some level of marketing automation and online lead generation strategy. High Growth firms are putting a holistic marketing system together—one that emphasizes digital visibility and nurtures prospects through towards the sale.
The rapidly changing marketplace has forever changed marketing and the High Growth firms are reaping rewards from their digital marketing investment.
Figure 5: Most Impactful High Growth Marketing Techniques for Government Contractors
Insight 3: High Growth GovCon Firms Generate More Leads from Digital Sources
Does digital marketing really work? Figure 6 shows that High Growth firms get almost half of their leads from digital sources.
Figure 6: Proportion of Leads from Digital Sources for Government Contractors
In 2020, Government Contractors took a huge step forward in digital lead generation. In our 2019 study of GovCon firms, High Growth firms reported that 30% of their leads were generated through digital channels. By 2020, it had surged a staggering 61%!
Now is the time for GovCon firms to press the accelerator on their digital marketing and to make sure they have the infrastructure to do so. Does your website meet the standards of today’s marketplace? Are your CRM and marketing automation tools working for your whole team? Are your firm’s thought leaders and experts increasing their online visibility? As the marketplace continues to move online, it is of utmost importance that firms take these questions seriously.
Insight 4: High Growth Government Contracting Firms are More Likely to Downsize Their Office Space
Another major difference between High Growth firms and their No Growth peers was their perspective on the future of office space. When asked what impact the COVID-19 would have on the future of their firm’s office space, High Growth firms were far more likely to consider downsizing while No Growth firms were more likely to keep everything the same as before (see Figure 7).
Figure 7: How Government Contractors Will Adapt Their Office Space
Some government contractors working on sensitive projects that require security clearances, while many have to work on-site for other reasons. Their situations are unlikely to change much in the near future. But at the end of the pandemic, many traditional office employees are going to want part-time and full-time remote working options. Firms that offer flexible work arrangements are likely to have a competitive advantage on the recruiting and employee retention front.
Insight 5: Successful Mergers and Acquisitions Is a Path Many High Growth Firms Follow
About the same proportion of High Growth firms as No Growth firms engage in M&A activity (roughly 60%). But when you look at the segment of firms that attributes more than 50% of their revenue to M&A, High Growth firms were 260% more likely to fall into this category (see Figure 8).
Figure 8: Government Contractors and Mergers & Acquisitions
M&A activity alone doesn’t guarantee growth. There are a number of financial and branding related risks that come with mergers and acquisitions. GovCon firms engaging in M&A need to do their due diligence and carefully assess the potential downside of each opportunity.
Purchase the 2021 High Growth Study: Government Contracting Edition
Final Thoughts
Times are changing. High Growth firms are showing the GovCon industry the way forward to growth and prosperity. They conduct research to reduce their risk and identify exactly how they can be more relevant to their clients and prospects. Rather than rely on marketing strategies and techniques that used to work, they are adopting the digital-marketing and lead-generation tools of the future. They are equipping themselves with the people and tools that will make the most of their increased marketing investments. And finally, they are embracing flexible work options to position themselves for growth.
Additional Resources
Join the High Growth government contracting firms who use research to guide their marketing and business development efforts by purchasing this full research study here.
