Federal requirements mandate that government agencies award nearly a quarter (23%) of all contracts annually to small businesses. But fulfilling set-aside provisions should not be the primary reason for engaging small businesses.

We’ve all heard the statistics about how vital small business is to the U.S. economy. According to the Small Business Administration, 1.5 million jobs are created by small companies each year and account for 64% of new jobs in the US. It’s also interesting to note the innovation that originated in a small business and was soon adopted (and in many cases, acquired by) large enterprises. Business schools are filled with case studies of innovation-driven acquisitions. Whether it’s Unilever acquiring Dollar Shave Club to deliver “razors as a service,” or pharmaceutical companies rushing to acquire private drug companies with artificial intelligence expertise to help speed drug discovery.

While large corporations or hot brands often dominate our imagination — think disruptors like Uber, Airbnb or Spotify — it’s the agile and dynamic nature of small businesses that fuels technology innovation.

But imagine if Uber tried to simply become another taxi service. They would be out of business by now.
What if Airbnb just started another hotel/motel chain? They would likely be in the back of the pack.
Would you recognize Spotify if they launched another record label?
And what if Netflix established a chain of video stores to compete with Blockbuster? They would have expired long ago with the store-based model.

They all stand out as disrupters because they innovated a whole new approach to their industries instead of incrementally improving on the conventional way.

But you don’t know what you don’t know.

I spend a large part of my week meeting with federal agency technology teams. Often, what I’m asked to provide is based on what is already available in the market — conventional wisdom, so to speak.

I recently had the privilege of meeting with the chief information officer of a federal agency. After we discussed the agency’s IT communications needs, our chat shifted to the topic of government requirements for military aircraft. For years, the mandate was to make planes that flew higher and faster. Then, stealth technology was developed, and the requirement went from not only fly higher and faster, but to make planes invisible to radar detection. This is a fitting example about innovation — we often don’t know what innovation is or what it can do until it challenges conventional wisdom.

The CIO asked me if I thought if the requirement follows the technology, or if the technology follows the requirement? My response: the requirement always follows the innovation! As innovative technologies emerge, they can open new possibilities and capabilities previously unimagined, inspiring government agencies to redefine their requirements. And innovation nearly always comes from small businesses.

There are several reasons for this:

Necessity breeds innovation. More than a “nice to have,” small businesses often operate in highly competitive environments where they must continually innovate to differentiate themselves from larger competitors and find novel technology solutions. This drive to innovate by small business often leads to groundbreaking ideas that can be leveraged by government agencies.
Agility and flexibility. Unencumbered by bureaucratic hurdles and, for public companies, the need to show quarterly growth, small businesses possess agility and flexibility, can often have the structure for quick decision-making and iterative development. Government agencies can tap into this to explore innovative ideas, respond quickly to emerging needs and adapt to changing tech requirements.
Niche expertise. Many small businesses have one focus area. In the small business I work for, it’s IT communications. It’s our sole focus, and we are constantly innovating across the category. Our engineers are willing to take calculated risks and push the boundaries of what is possible. As a result, they’ve developed focused proficiency in their field. Government agencies can tap into this specialized knowledge by fostering relationships that can drive transformative solutions and propel the government’s tech agenda forward.
Cost-efficiency: Often more cost-effective than large corporations with large overheads or capital investments they have to recover (think all the hype around the build out of 5G infrastructure by the large carriers), small businesses are often able to work within tightening budgets and offer innovative solutions that deliver value. Government agencies, often faced with budgetary constraints, can leverage small business relationships to access innovative technology and services without excessive financial burden.

In the IT communications industry, we’ve seen breakthroughs over the last decade that were created by small business and then adopted, and often acquired by large enterprises. These technologies eventually made their way into federal agencies: SD-WAN was a small business advancement over MPLS, but the big carriers, and a result, federal agencies, were slow to adopt although businesses embraced the concept. SD-WAN is gaining momentum, and in can even in some cases be delivered over SpaceX’s Starlink satellite service, an example of one innovation leading to another innovation. In another case, as telco carriers began withdrawing support for copper lines that provided vital services like fax machines, alarm systems and elevator communications (Plain Old Telephone Service), it was small business that created a solution to bridge the gap with a POTS replacement solution that transformed those copper connections digitally, making them more resilient and more cost-effective. Once again, the for-profit world jumped onboard first.

Government technology innovation is often the result of partnership with small business, especially when those innovations were proven in the commercial sector first. By recognizing the innovation small business can bring to the table, agencies can benefit from the disruption, instead of being disrupted by it.

So if you want to be a more innovative agency, take the first step and invite small business in and listen to what they have to say. It will give you a glimpse into the future.

Don Parente is vice president of MetTel Federal.