How Do We Bring Startup-Driven Innovation to Arizona?

April 18, 2019 by Jennifer Woods
In a perfect world, startups and government agencies could create innovative new ways to connect to constituents. The government could more rapidly adopt emerging technologies and business practices while improving its process efficiency and effectiveness. In return, startups could generate stable revenue to support long-term growth. But unfortunately, that’s not the relationship we most often see today.

The issue today that we’re digging into is all about how government can convince startups that the public sector is worth their time. Last week’s blog talked about all of the reasons that startups avoid government engagements, so this week’s blog focuses on what government can do to help resolve those challenges.

In a perfect world, startups and government agencies could create innovative new ways to connect to constituents. The government could more rapidly adopt emerging technologies and business practices while improving its process efficiency and effectiveness. In return, startups could generate stable revenue to support long-term growth. But unfortunately, that’s not the relationship we most often see today.

So, what can Arizona do to be a startup friendly state? In today’s blog, we explore six areas in which government could modify its approach.

 1. Communicate more effectively

Right now, the government expects companies to come its way to find opportunities. As we discussed last week, there are systems like the Arizona Procurement Portal that are the primary way to advertise bids. But what if government went to where the startups were? There are innovation challenges like the Medicaid Innovation Challenge, sponsored by the Arizona Health Care Cost Containment System (AHCCCS) with Adaptation Health. There are also organizations like the non-profit AZ Institute for Digital Progress creating dynamic forums for government and startups to work together to solve problems. 

Good places to connect with startups are pitch competitions, hackathons, trade shows or even accelerators like Galvanize. There are also connections with the Arizona Commerce Authority and venture capital firms. Another possibility is to host a government industry day to talk about the issues facing government. If the government were to target the venues that are oriented to startups, it could significantly increase its engagement with these valuable companies.

 2. Expand “Public Private Partnerships.

“Public Private Partnerships” (P3s) are often used in the large infrastructure projects like building toll roads and bridges. For this reason, the Arizona Department of Transportation hosts a P3 program and defines the relationship as “a form of contracting that shares risk and occupies the space between the two extremes of outsourcing and privatization.” However, outside of a construction company with resources to build the South Mountain Freeway, there really isn’t an avenue for an IT startup to meaningfully engage with government on a proposed P3 project. The Arizona Procurement Code requires a government agency to issue a solicitation and award a contract to “an automated systems vendor” and then mandates a series of outside agency approvals. This isn’t friendly to a startup.

By modifying the P3 provisions to allow for demonstration projects or pilots, and expediting timeframes for approvals, the government could have a better chance of engaging the startup community. This would require a legislative fix, but with so many other progressive technology proposals, one would think that Arizona could get this done.

3. Redefine business and IT requirements.

In the current procurement process, state government tends to be overly prescriptive, specifying not only what it needs but also how the supplier will provide it. For a startup with a creative new idea to solve the problem, this approach is a deterrent. Moreover, what if the startup has a technology that is able to redefine the government need?

To encourage startups to interact, governments should focus on the results it wants to achieve. For example, since 2013 the City of Phoenix has put in place some ambitious waste reduction goals. In 2017, Phoenix entered into key partnerships with Cisco Systems, the Institute for Digital Progress, US Ignite and Cox Communications to host a "hackathon" to generate new "zero waste" approaches that aligned with the city’s goals. The challenge winner, Hathority LLC, was allowed to pilot their trash diversion solution with Phoenix’s Public Works Department. “In my opinion, the best thing we can do is to give them an opportunity to prove the product with a customer,” Dominic Papa, executive director and co-founder for the AZ Institute for Digital Progress, told the Phoenix Business Journal.

By getting out of the requirements-driven procurement and into an outcome-focused mentality, government can begin to attract startups with creative visions.

4. Increase the use of RFIs, RFQs & pilot projects.

The government could try to counteract the rigidity of responding to a formal solicitation by leaning on Requests for Information, Requests for Qualifications and pilot contracts. With startups unlikely to engage in the formal procurement process, given the long timelines and stringent terms, a pilot offers startups a means to get a foot in the door and show how their technology works. And, if a procurement officer feels like a pilot offers too much risk, then an RFI provides a safe avenue to hear what the community is doing. RFQ contracts are available for purchases of less than $100,000 and can also be completed quickly. Although this is a tiny contract in the public sector, it is well within the range that is of interest to most startups. If properly advertised, an RFQ could be an extremely effective way to engage startups.

5. Streamline contracting terms.

Given the limited qualifications, with experience and finances, startups need more flexible contracting terms to induce engagement. Some ideas would be to include off-ramp clauses so that government could assess a startup’s progress by examining the functionality of its prototype. The off-ramp clause would give the government the option to exit the contract in the event the startup is not making adequate progress. Reducing insurance coverage, reworking intellectual property ownership and de-emphasizing previous experience requirements would also be helpful.

6. Help match subcontractors.

Another idea to increase startup participation is to facilitate relationships with experienced government contractors. Setting aside the need to work through a legal teaming agreement and various other business formalities, perhaps state government could encourage established suppliers to provide startups with access to projects. Large contractors could help advertise bids by seeking out startups for ideas, enhance their overall bid, and even seed startups with cash when awards or payments are delayed.

What’s Next

If the government can lower the barriers to entry at all stages of the procurement process, we can begin to work toward more startup participation. The ideas mentioned above fundamentally shift the government’s historical risk-averse mindset to one of an investor looking to build a pipeline of startups to get access to new technologies.

Please pass this along to any startups interested in working with government. We would love to hear from them. Traversant Group continues to speak with policymakers on technology issues.

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