One of the greenfield markets in SaaS that I believe is beginning to open up as a massive opportunity is GovTech.
The prevailing wisdom in the startup and venture ecosystem is to stay away from GovTech. And that wisdom is based on the right historical reasons. But history can be a poor guide for founders and venture investors alike. Things are changing in the GovTech ecosystem. We’ve talked about some of the reasons before (here and here). There are several GovTech startups that have come up in the last few years that are beginning to scale nicely.
Accordingly, as an extension of the SaaS CEO interview series that I have done previously, I will be publishing a series of interviews with GovTech startup CEOs over the next month. These are CEOs who are building the future of government, and will talk about what it takes to launch a startup in this space and some of the lessons learnt. If there are other CEOs folks would like me to interview, please reach out to me on Twitter or email.
For the first interview, I sat down with Zac Bookman, founder and CEO of OpenGov. Zac and team are building a solution that allows government organizations to have a streamlined budgeting process, track their execution against the budget through the year and then share that progress with citizens to drive more transparency. The company has raised $75m+ in venture capital funding from some of the leading VCs in the valley and are growing fast. Zac is a much sought after advisor to founders in the GovTech space and I’m excited to launch this interview series with him. So here goes:
How did you get started on working in GovTech, and what inspired the specific idea around OpenGov?
We started OpenGov in 2012, while I was living in a shipping container in Kabul, Afghanistan. I was serving as an adviser to U.S. Army General H.R. McMaster on the Anti-Corruption Task Force at the International Security Assistance Forces Headquarters. The idea for the company stemmed from nonprofit work we were doing to figure out what was going to happen to the governments in California as their revenues dried up during the recession and the California budget crisis. The “we” was a group of technologists from Stanford, including our chairman and co-founder, Joe, who is also co-founder of Palantir and other companies.
We asked budget directors in California to share their budget data with us so we could visualize their data and help them analyze and share it. One budget director said, “Wow, that sounds really useful. How do we get you our budget data?” And we said, “What do you mean, how do you get us your budget data? You’re the budget director!”
We quickly realized the State of California was using an accounting system that ran on COBOL and one city had even paid $10 million for a financial management system that was delivered on 20 disks. It became clear that the people running these governments were working hard, but kept banging their heads against 30 year-old technology that made it impossible for them to track where money was spent, share data with elected officials who needed it to govern, and communicate with citizens who were losing trust and becoming disengaged.
The vision for OpenGov was and is a new technology category called Government Performance Management. Our Smart Government Cloud unlocks all kinds of data trapped in legacy systems and departmental siloes and uses that data to fuel a suite of applications for budgeting and planning, operational intelligence, and open data. All of this powers a more effective and accountable government.
The traditional thinking is that GovTech is one of the toughest spaces for startups. Clearly your traction has proven otherwise. What do you think is changing in GovTech to open up opportunities for startups?
SaaS is the first thing. As in the rest of B2B, it’s cheaper to build companies and you can develop and move at a faster pace. This is key for iterating with customers.
Second, more entrepreneurs and tech titans, including even Steve Ballmer and Michael Bloomberg (both spearheading related nonprofit endeavors), are flocking to the GovTech space as excitement has grown over the last half decade about using technology to improve the performance of government. The money coming in from funds like yours and the attention from public leaders stirs up the market and creates dynamism and opportunity.
Third, change is also driven by demand at the citizen level. People live on the Internet and use their phones for everything, so they have come to expect a user experience that’s fast and easy to understand, even from their government. And governments around the country are realizing that they need to keep up.
The market is big enough to accommodate this renewed focus — at least $25B by some accounts. Just two years ago we were working with 150 governments. Now, more than 1,500 governments on both sides of the aisle and in 48 states are using our Smart Government Cloud to streamline their budgeting process, achieve operational intelligence, and share open data with the public.
In addition to recent partnerships with Boston, Phoenix, and Birmingham, we just announced a deal with the State of West Virginia. As is the case with many other cities and states throughout the country, West Virginia is facing a $500m budget deficit. This is another trend — using technology, particularly software, to achieve productivity gains, particularly in times or in preparation for times of economic distress.
Theoretically, your market opportunity seems very large. Every government organization needs financial planning solutions. How do you guys segment the market and prioritize for your sales and marketing efforts?
We initially thought our budgeting product would appeal to small governments, of which there are many. We’ve been surprised to see that even most large governments live in Excel, which is a tool that is more than twenty years old itself and wasn’t built for massive budgeting exercises. When a function breaks or an equation is off, the entire process can shut down for days at a time.
Overall, 82% of governments build their budgets in Excel. OpenGov works with governments of all sizes on both the state and local level. We also work with a growing number of public school districts and even colleges across the country. Although every government is different, they all share three core elements that we are building our solution around: planning, operating, and communicating. As a result, the three pillars of our easy-to-use Smart Government Cloud are an end-to-end budgeting solution to streamline and improve the budget process, a complete operational intelligence solution to enable data-driven decision-making, and an open data solution to share information with the public in a clear and usable way.
We segment our sales team according to large, medium, and small governments. Excitingly, we are seeing growth in each segment. And we are seeing growing pipelines in each product pillar. But it’s all about execution — engaging deeply with customers to understand their problems, and then tying the solution, both with respect to product development and marketing, to their strategic priorities.
What were the one or two things you did early that, looking back, really laid the foundation for success for OpenGov?
Focus. I had to say no to so many bad (and good) ideas that our investors, advisers, friends, and customers wanted us to pursue. That was hard. Along the way, and on a go-forward basis, we had and have to take the time to speak directly to customers and prospects. We want the whole company engaging with the market and bringing the learning back into the building. In this vein, we actually hired former CFOs as in-house experts. They are a cross-functional and invaluable team. Finally, we raised money. This forced us to go all in, come what may.
What’s been the toughest challenge of building OpenGov?
People. It’s all about people. The market is plenty hard; in fact, it is unusually hard. But nothing is harder or more important than aligning a group of individuals with disparate interests on a shared mission. When noise levels are high in the company, everything moves slowly and you waste cash and time and opportunity. When everyone walks in lock-step, the path is laid down much more smoothly.
What advice would you give to other entrepreneurs targeting GovTech as an area?
This is enterprise software. Instead of B2B, I call it B2G. But it shares most of the same dynamics, plus about 20% more pain. Government has been intentionally structured to move slowly, so you have to find the revenue pockets among prospects and laser focus on how to produce enough value to earn business. You may have to find deep pockets in the investor community as well. Building a company in general is a holdout problem. Investors don’t want to invest until you have customers. Customers don’t want to buy until you have a good product. The best people won’t join to build the product until you have investors and customers. You’re at the center, and in some respects it’s all about hustle and fortitude.