A New Playbook for Small Businesses and Startups in Federal IT

From a startup consulting shop to a $1.4B IBM acquisition, Octo Consulting Group's story is one of the great growth journeys in government IT. Brian and Sean sit down with Jay Shah, Octo's former COO, who helped guide the company through every inflection point — the pivot to DevSecOps and agile, the move from sub to prime, the strategic (and intentional non-) use of the 8(a) program, the 2019 Arlington Capital investment, four acquisitions, the launch of OLabs, and the IBM exit in December 2022. Jay shares the unvarnished playbook for scaling in the federal market: why diversification matters more than the 8(a) badge, when to be bold with primes (and when to bluff), how to turn billable services into IP, why OLabs only worked because they had base hits first, and what most founders get wrong about working capital. Plus, Brian and Jay geek out on funk master flautist Karl Denson.
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RESOURCES MENTIONED IN THIS EPISODE

Featured Guest
- Jay Shah
- Octo
- OLabs

Capital, Mentorship & Workforce Development
- Mason Enterprise — APEX Accelerator
- Veterans Institute for Procurement (VIP)
- Andreessen Horowitz American Dynamism
- Pax Ventures

Books & Frameworks Referenced
- The Trusted Advisor by David Maister, Charles Green, and Robert Galford
- The Scaled Agile Framework (SAFe)
- Westrum Organizational Culture Typology
- Gene Kim & The Phoenix Project
- DORA (DevOps Research and Assessment)

Live Music Worth Checking Out
- Karl Denson's Tiny Universe
- The Greyboy Allstars
- Kenny Rogers 

Insane Knuckleballs

Jay's Nonprofit Work
- The Children's Inn at NIH
- Wolf Trap Foundation for the Performing Arts
- Loudoun Hunger Relief

The Hosts & Show
- Swish
- GIST360

CONNECT WITH US

Got an idea for a future episode? Want to be a guest? Let us know.

Brian Lake - blake@swishdata.com

Sean Applegate - sapplegate@swishdata.com

Subscribe wherever you get your podcasts: Apple Podcasts, Spotify, or gist360.com.

Transcript

Why Government IT Is Opening Up

Brian Lake 0:00

The government IT market has been an exclusive club for a long time. Big primes, long relationships, and a regulatory moat that keeps most innovative companies in the world on the outside looking in. That's been changing and fast. This administration is shaking the foundations of how government buys technology. AI is obliterating the gap between what a nimble startup can build and what a billion-dollar integrator can deliver. And serious, mission-focused capital is flooding into companies that wouldn't have looked twice at the federal government as a customer five years ago. But here's the rub. The government is still the government, and the rules aren't going away. And for every startup that thinks a great demo will get you a contract, there's a hard lesson waiting. So what's this new playbook for cracking this market and building something that lasts? To answer that question, you know what we have to do. Let's get down to the gist of it. Our guest

Karl Denson the Funk Flautist, Jay Shah And Octo’s Arc

Brian Lake 1:26

today is Jay Shah. Jay joined Octo Consulting Group just two years after its founding in 2000. And what followed was the front row seat to one of the great growth stories in government IT. He watched and helped shape Octo's entire evolution, from a scrappy startup leveraging the SBA's 8-A Small Business Program to a company that scaled, graduated, and ultimately had to compete full and open against the biggest players in the industry. Along the way, Jay rose from practice area leader to chief operating officer, working alongside CEO Mehul Sanghani to do something genuinely hard, thoughtfully transform a management consulting firm into a pioneer in agile software development and DevSecOps in the federal government. That's not a rebrand, that's a reinvention. In 2019, Octo received a significant investment from Arlington Capital Partners. The company then went on an acquisition spree, acquiring four companies in a single year with Jay at the helm of integrating different teams, brands, customer bases, back office systems, all under the Octo umbrella. And in December of 2022, IBM acquired Octo for $4 billion. He spent a year at IBM before setting out on his next chapter, advising early stage government technology companies that are navigating the same journey he has lived firsthand. Outside of work, Jay is the board president for the Friends of Patients of NIH, which is a public-private nonprofit organization that provides housing to the families of patients receiving treatment for cancer and other rare diseases at the National Institute of Health. He also sits on the associates board of the Wolf Trap Foundation. He is also on the board of the Loudon Hunger Relief, which is a local food pantry here in the Northern Virginia region. And also, he's a fellow Live Music Lover, just like me. That's actually how he and I grew from colleagues to good friends. So, Jay, welcome to the show, man. How are you?

Jay Shah 3:19

I'm doing great. Doing great. Thank you for having me.

Brian Lake 3:21

So glad to be here. And so uh, you know, Sean, just a slight tangent because Jay and I are big music fans, big music lovers, and we always give shout-outs to our favorite companies and partners and colleagues in the space here on this show. But I want to give a shout-out to Jay and I's boy, Karl Denson. We got to see Karl Denson's uh Grey Boy All-Stars uh last this week here at the Atlantis downtown.

Jay Shah 3:46

Just the day before yesterday.

Brian Lake 3:47

Yeah, it was awesome. So for those that don't know, look up Karl Denson. He's got a couple bands. He's a jazz funk saxophonist and flautist. He fronts uh his own band, Karl Denson Tiny Universe, Grey Boy All-Stars, and Sexual Chocolate. He is the current saxophonist for the Rolling Stones, and he was also in Lenny Kravitz's band in the 80s and 90s. But man, you got to tell you, man, Jay, you left the show early and uh you missed the Michael Jackson cover, and it was funky and awesome.

Jay Shah 4:13

I did. You know, living living out in Ashburn and commuting in in and out of DC, I can't say I I uh you know I didn't miss it, but I have to remind you, I made you aware of the show.

Brian Lake 4:24

That's true. I wasn't going until you told me it was happening. Yeah. So I appreciate that.

Jay Shah 4:28

I appreciate being your Sherpa to live music again, Brian.

Brian Lake 4:32

Thank you, sir. Well, anyway, they're not here to talk about music and Karl Denson.

Trusted Advisor Roots And Pivot

Brian Lake 4:36

We're here to talk about small business evolution. So really excited uh to talk to you about this today. I know Sean and I have a lot of questions, you know, so let's get to it, right?

Sean Applegate 4:48

Absolutely. So so Jay, I'm invious. I didn't get an invite to the uh the concert the other night, but maybe next time. Anytime.

Jay Shah 4:54

Anytime.

Sean Applegate 4:55

Anytime. Anytime. All right. I have to you know skip the cigar lounge one night, maybe. There you go. All right. But uh Brian, you know, everyone has a great highlight reel. What really matters here in this case, in Jay's situation, right? The best stories are always in the details. We'd love to dive into those details today. You know, take us back to the bidding, beginning of Octo. You know, it was spun out of some great consulting work that Gartner was doing with OSHA. You know, take us through the journey from spin out and the growth trajectory to a large management consulting contract and all the way to eventually an exit at $1.4 billion. IBM. It has to be an amazing story, but there are, I'm sure, are many challenges along the way.

Jay Shah 5:35

Yeah, no, it was uh, you know, I was privileged to be part of that story. Uh Meyhol Sanghani is a founder and CEO of the company. He and I worked together at Gartner for a few years before he set out to to start Octo. And, you know, I think as is the case with a lot of businesses, there's various inflection points as they think through their growth journeys. So, you know, when Mehul first started the company, as is the case for most entrepreneurs, it's usually driven by some customer intimacy or ability to take an opportunity and start their own venture. And so for him, that was his relationship and work at OSHA. And so early on when the company first started, and I joined about 18 months after he started the company, our focus was very much on uh on becoming a boutique professional services management consulting firm. And it was driven by the fact that our clients knew us in that capacity. And so, you know, I'd say our early, early innings, we were focused on really becoming the trusted advisor. Yeah. Uh, you know, and it's kind of a cliche term. Uh funny story, we actually used to require uh our new employees to read the trusted advisor. It's a great book.

Brian Lake 6:40

Yeah.

Jay Shah 6:41

Um and I think that actually developed a lot of the the um the skills and the discipline to be laser focused on becoming that advisor to your customers. And so when we looked beyond uh, you know, pivoting the company beyond uh a management consulting firm, it was largely driven by us being advisors to our customers who we were listening and observing on what their needs were, and we pivoted along with our initial early customers, and that sort of uh drove the evolution into the second iteration of Octo, which really then got more into more of the modern development techniques.

Brian Lake 7:18

Aaron Powell When you say boutique, what did that mean to you? Was that really just being ingrained and being that true trusted advisor versus being a peanut butter and spread across an agency lowest chase to the bottom on costs? I mean, what what did that mean to you guys?

Jay Shah 7:33

Aaron Powell Yeah, I think I think you know a key part of that was at the very heart of the consulting model we were building was relationship-based, right? It wasn't a matter of chasing deals that we thought would make sense for our growth. It was digging in and becoming sort of having that intimacy with our customers so that we were helping them with their journeys as they were helping us with ours. Right. So for us, I think that boutique term was initially something we thought was important because we wanted to be very different than the traditional sort of IT services contract-driven company. Now, eventually, as we matured and scaled, you know, we needed to embrace more of those techniques. But I really do think a very important part of our success was those early innings and having the discipline and those early hires focused on customer first, intimacy, making sure that we were listening, take care of your customers, they take care of you kind of mindset. Trevor Burrus, Jr.

Brian Lake 8:26

So you built it into your DNA, right? So how did you then then carry that into moving beyond a management consulting company?

Jay Shah 8:34

Yeah, I think the the key there is when we didn't force that. I'd say it was sort of a natural evolution. So, for example, you know, our customers that we were doing great enterprise architecture work for, that was my background from my Gartner days. You know, we went from talking about the things they should be doing, understanding their business to our customers asking us, well, you know our business, you know our mission, you know our domain, you have the vision. Can you actually then go the next step, which is help us implement this? You know, go beyond talking about how to solve the problem. And we noticed this pattern across all of our customers, our PMO customers, our architecture customers, anyone's that the customers we were doing this type of work with. So I feel like it was a very unforced natural evolution. We saw those openings, and then we had that decision to say, are we ready to pivot beyond what we built? Because that'll give us the scale. And so again, same technique, listening to our customers, being responsive. That then allowed us to start to do things like agile development before agile was really a thing, um, doing things like the scaled agile framework, um, things that eventually became a bit more routine for for customers.

Sean Applegate 9:42

Oh yeah. Scaled Agile.

Brian Lake 9:44

Yeah. I mean, talk I mean, talk about that. Like so then you you you pivot, and I'm sure Sean has would would love to dig into like those next I iterations as moving into a more of a tech a traditional technology company, a software development company, IT modernization. Um so maybe before we do we jump into the tech, let's talk about it. I've never heard you say let's wait to jump on the tech before. So let's let's note that.

Sean Applegate 10:10

Thank you. Thank you. It's it's tough to be patient, but I will. All right. Um maybe for the for the business owners that are out there that are small business owners, you know, you guys went, founded the company, did some great work. But how did how did you maybe those first couple expansion plays, growth plays, I mean you came in 18 months in, but you guys were an A-day, you know, not a large company at 18 months in. How did you thoughtfully grow the business so you had a strong foundation to then build upon? Because I think a lot of the peers we interface with who are still have their first maybe one or two customers trying to figure things out. What what are the motions for them you'd recommend?

Jay Shah 10:48

Yeah. So I think just one point to clarify, actually, we we didn't get our eight-day until uh a bit later in our journey. So I think we can come back to uh, you know, how useful that was and and I think, you know, how beneficial it was that we didn't actually have it from the very beginning. And so I think that's a point we, you know, certainly want to come back to. But to answer your question directly, I think the thing that we did at Octo, and again, all credit to Mehul as the CEO and founder and having this foresight is recognizing the force multiplier effect. Right. And, you know, when you're a small business, again, all businesses start because that founder or CEO has relationships or engagement or some sort of in, right? I mean, you're not starting your business without having some sort of contract or opportunity to drive revenue to pay people. And so for a lot of owners, they view their role as the one that should be driving that. And I think what Mayhole did, you know, with early hires like myself and others, you know, was recognizing that we can be forced multipliers by replicating that same model. So when I came in, it wasn't a matter of just supporting Mayhole's customers that he had the relationships with, but coming with my own set and almost replicating the same model of, okay, now Jay's a trusted advisor in the health space. How is he going to help drive that? So I think for all the small business owners out there, resist the urge to just focus on hiring people who can deliver the work you're selling. You know, early innings, you've got to focus on those individuals that are capable of bringing their own, I wouldn't go as far as saying bringing their own books of business, but they have to go beyond just being smart people that can deliver for your customers. Uh, you know, and I think in Mehul's case, a lot of that reinvestment was right into those individuals early in that could drive things like diversification of our business, which was an important goal early on.

Brian Lake 12:36

So you mentioned you didn't join the 8A program right away. You then joined the program, worked that to your advantage. Talk a little bit about that moving from the 8A to full and open competition and then the next phases of Octo's journey.

Diversify First Then Prime Work

Jay Shah 12:51

So I think uh again, going back to that concept of inflection points, you know, I think when Octo first started and we had that OSHA work, which was the trigger to start the company, we started to have other contracts, we still recognized that what are the risks of the business that we had to focus on. And at early innings, the risk of the business wasn't priming work, it wasn't A-day versus you know, full and open. It was we diversification of our portfolio. So early on, all of the leadership was laser focused on how can we make sure that one company, one contract rather, is not an unhealthy part of our business, because as you can see with Doge, snap of a finger, you know, work can disappear pretty quickly.

Brian Lake 13:29

Right.

Jay Shah 13:30

So, you know, once we got through the diversification, we felt like we had a good, healthy balance of work. Then the second inflection point and and mandate was how do we become sort of in charge of our destiny? Let's move from sub to prime. So again, it was less around small business A-day phone open. It was really around flipping our positions. Because early innings, as most small businesses, you're sub. Right. You don't have vehicles, you don't have that. So you were taking your customer intimacy and bringing it to a prime to help drive, you know, opportunities. So second inflection point was moving from from sub to prime. And then we started focusing, I'd say the third inflection point, and that was around the time we got our eight A, right? We had we got our eight a several years in and we realized it could be a catalyst, but we had already developed the discipline to focus on, you know, positioning ourselves, working with the market, convincing customers to give us opportunities, things like that. So by the time we had the eight A, it was additive, but it was not, you know, I would not say it was a key critical success factor to our growth. And so as a result, you know, we used it where we could, but we didn't sort of overly take advantage of it. And I think all of that discipline of focusing on diversification and being prime, that allowed us to really then take those bigger, full and open swings. It didn't feel as daunting, right? Because we had already had some of that discipline built into the company.

Brian Lake 14:50

Do you remember your first full and open coming out of the program as a big company? Did you win it?

Jay Shah 14:57

No. I mean, our well, so I'd say there's full and open work that we were able to position for that was non-competitive. Sure. Right, which is, you know, that is the ultimate goal for every BD person is to do that. Yeah, yeah. Well, no, no, of course not. I would I don't know what you're talking about. But just, you know, being being able to navigate, you know, the world you need to to to maybe get something that you're uniquely positioned to bid, right? Sure. I remember that was our NIH contract. You know, we won a $3 million BPA, you know, with the ceiling. That was an amazing, you know, accomplishment to get that work. I remember we won a piece of work at Army early on. That was our first, I'd say, prime work. Uh but then when you get into competitive, you know, when you're hunting big fish, right? Then it's obviously a different dynamic. And yeah, we we had our fear of losses. Like you're not gonna you can't be afraid to lose, right, if you're gonna try to win.

Brian Lake 15:51

Yeah. So I know we're gonna get into the playbook in a little bit here, but keep taking us on the journey from what you know that you you you you kind of full and open. You know, now all of a sudden you're starting to think about growth. Um, talk to us about how you hooked up with our um, I know you brought in someone, you Bob McCord, I believe, brought in to kind of take you into the next journey as president.

Bringing In Leaders To Scale

Brian Lake 16:14

Yes. Talk to us about that that that phase and that led you to Octo, and then Sean and I are gonna dig into like how do you kind of build the playbook for small businesses.

Jay Shah 16:22

No, I think I think if I think of those mini inflection points, diversification, prime, you know, sub-to-prime, uh, you know, starting to chase full and open work, competitive work. You know, right around that time we got to a size and scale that we felt like we had, you know, a lot of great things happening for us. But, you know, and again, credit to Mehul, and I do not see this very often with founders, was a recognition that, you know, having somebody who has navigated this that we can essentially empower to drive the maturity we need, which means a founder CEO is relinquishing control, which again, a lot a lot of guys don't like doing that. Uh so Bob McCord was brought in very, very instrumental in sort of this next iteration of what Octo was and was a great mentor to me. Uh, he was a health guy, you know, and and when he came on board, he implemented a lot of scale that we needed. You know, how do we build a more competitive proposal shop? How do we actually build a PL model, like a business unit construct? So when he came on board, I shifted into running our health business, for example. So early innings of Octo, as is the case with all small businesses, everyone's raising their hand to do whatever they can. Bob brought in a level of maturity and discipline for us to stay focused. And we learned later when we had our process, which is sort of the third evolution of the business, we learned that companies started paying more attention when they saw that decision. Even we didn't have to win any more work, just the fact that you were doubling down on bringing in an outside executive who could help you scale. So from 2014 to 2019, that sort of roughly four or five year period, we were in that next evolution and we were making bigger investments, investing in our capabilities, hiring a CTO, for example, to really turbocharge some of the tech things we were doing. And then, you know, we eventually got to the next inflection point, which was the exit and the partnership with Arlington Capital Partners in 2019.

Private Equity And Acquisition Growth

Jay Shah 18:15

And, you know, that represented the next version of Octo, which is now as a platform. And I shifted into the COO role. Bob provided a lot of great mentorship and coaching to help me transition into that. And that's when we, you know, recognized the other world of growth, which is inorganic growth, right? Everything we had done was organic, you know, on our backs, driving it, uh, winning work. And then there's like, you know, the Wizard of Oz. You look behind the curtain and you're like, holy cow, there's this whole other world uh of growth that can happen. And uh, you know, we got our uh, you know, we we we were able to to do those four acquisitions. It wasn't in the one year, but over over the whole period. Sorry. Yeah. No, good. Uh um, but it was uh, you know, that really then became the the the other inflection point for us, which is how do we then thoughtfully acquire businesses, integrate them. Two of them were over COVID, you know, which is you know a pretty big challenge to build community, uh, but you were able to successfully do it. And then yeah, the great exit with IBM.

OLabs And Demonstrating Innovation

Brian Lake 19:17

Yeah, and I and I also want to highlight, you know, I think at this point in time you also created OLabs. Yes. So and I know Sean will be really excited to hear about this. Explain to people what OLabs was and why you decided to build essentially a sandbox innovation center within your own office.

Jay Shah 19:34

Yeah, yeah. I think um so interesting, there that there was an earlier version of OLabs, even prior to our Arlington partnership that was really around creating a culture within our company to not think of ourselves as just a services business. Right. So, you know, that was that was some discipline we had early on, um, and I think was an important shift in our culture to view kind of IP tech discrimination as an incredibly important part of the fabric of the company and how we grow. So OLabs at that early version was a virtual lab, right? We we provided development space for developers. We did hackathons and internal hackathons within the company, you know, which was a great way to engage like the really sharp talent that may be buried on a contract somewhere, but has this great idea. Um, so we were doing some of those things within a virtual lab. Obviously, with the Arlington Capital Partnership, that was the ability for us to translate this virtual vision into an actual physical infrastructure. And this was again early innings of AI, you know, coming in. Um, we brought in uh an incredible individual uh under Sujay, who was our CTO, uh a gentleman by the name of Rob Albriton, who then drove this AI vision and built out the space with product partnerships, you know, having the NVIDIA compute, educating all of us at Octo on all the ways of AI. And then that became a huge sales tool for us to be able to bring customers in and and and be able to work with them on their hardest problems.

Sean Applegate 21:04

Aaron Powell Of all the things I remember of Octo, it was the physical demo environment you had. I remember seeing amazingly beautiful photos of it in being extremely envious of of the demo environment. I'm not naive even sure I was at Swish at the time, but I think I was. I might have been at Riverbed at that time, but it was extremely impressive, Jay.

Jay Shah 21:23

Yeah. You know, I I it was funny when we, you know, you have this kind of question of, you know, build it, they will come mindset, right? Slight slightly off tangent. You know, I get this question a lot from a lot of entrepreneurs, small business, medium-sized, large, who want to build a lab, right? That they they look at you know what is important and they say, well, you know, if we have this big physical space, that'll be the difference. And I'd say, you know, it's uh approach with caution, right? In our case, we had we had base hits of success that a lab allowed us to get home runs. But if you don't have base hits, right. You haven't had the traction with your customers to even get them excited about the innovation you're doing. I think that's that's a big investment to be making. So I'd say, you know, advice to all those out owners out there that are anxiously wanting to tear down buildings and build their lab. Focus your energy on getting the base hits. That'll build the business case you need to justify the investment because it is not not cheap.

Sean Applegate 22:22

It's interesting you talk about getting base hits and telling the story. One of the most important things I think we we do with our Center of Excellence team, our lead architects, is try to teach them to tell stories. And this is always a challenge with really geeky engineers. Some of them are gifted storytellers just naturally, especially if they're they're parents and have experience telling stories, but some are it's really tricky to get the juicy things out of them in a way that connects with a customer.

Jay Shah 22:47

I mean, one of the things that we recognized that was so important and we learned, and again, this was with Rob's leadership, is the partnering of mission people with technical people, right? And we would fall into the habit of bringing like our smart technical people to a meeting at the Marine Corps or pick pick a DOD service, and they just did not speak the language, you know. And then, you know, we're going in and talking to SOCOM. We had special operators who lived in the world partnering with our tech people who might have been like a 23 or 24-year-old kid who didn't know anything about the mission. But man, when we put them together and then they would be able to, you know, riff off each other. I mean, that was where the magic happened.

Brian Lake 23:28

Yeah. Then I, in my humble opinion, also a layer on and a really good marketing function on top of that can also help in a lot of ways. So, okay, let's um let's talk about the playbook, Jay and Sean. I

A Playbook For Base Hits

Brian Lake 23:43

really want to hear about, you know, the opportunities that you that small businesses need to kind of, you know, think about, implement so that they can, you know, either I don't think anyone you and I have talked about this, Jay. Like people ask you, like, how do you replicate the secret sauce of Octo or your trajectory, and it's really difficult to do. But you know, maybe like you and Sean and I can talk a little bit about how to build at least a framework of a playbook. That's great.

Sean Applegate 24:10

Yeah. So you know, most small businesses that enter the federal market don't fail because they built the wrong product or hired the wrong people or things like that, but they fail often because they didn't understand the game they were playing. And this is where you have to shift from small business delivery person winning a contract to having a strategy, right? It's a difference of combining tactics and strategy. The federal market has its own physics, right? So knowing how to navigate that, play the rules or navigate the game is important. We talked about hitting base hits, and uh, you know, everybody needs a little bit of batting practice once in a while. And so, you know, let's talk about you know, how do we how do we go hit that first base hit? And then how do we maybe hone our skills and and and find those, maybe those right coaches to take us to the next level. So we go from you know, playing, I'd say, T-ball to eventually making it to the pros, just to stay with the the sports analogy. So, you know, Jay, take us through a little bit of of how did you go from or how does a maybe a business owner these days go from building that business foundation to really developing the team and let's get a little bit more on the weeds and then a bit more on the you know, how do we, I guess, maybe develop that intellectual properties. And in a lot of cases, when we think of of billable time on contracts as traditional services firms, you know, it's all about utilization rate and some of the numbers sometimes. And maybe it really should be about other things.

Jay Shah 25:28

Sure. So um a lot to impact there.

Sean Applegate 25:30

It's a big question. It's probably not one question. It's it's a bunch. Let's just explore. We'll peel it back like an onion. Yeah.

Jay Shah 25:36

So I think, you know, I think building off that sports metaphor, right? I think when you think of the reps you put in uh, you know, if you want to be a great sports player, right? You know, you you understand I'm gonna go to the batting cage and sort of like I'm just gonna keep swinging at the same, same exact thing. Um the problem, you know, translating that into the government world is the ball is never the same. So you have some discipline there, but there has to be a recognition that, you know, there is the markets you want to chase. So, you know, there's some companies that say, I'm gonna become laser focused on DOD or NIH or FDA, whatever. And so there then the question is, what are the reps you're getting in that market alone? There's companies that are capability focused, right, where they're gonna say, I'm a great cloud person. I don't care what agency I'm doing. And so their reps are gonna be very focused on cloud. I do think there's a third discipline or third area, which is really domains, which I don't think a lot of companies focus on, which is, you know, you're doing really great grants work for a client. And then how can you look at grants opportunities, which you know, I think is just a third way. So I think I think it's important for small businesses and businesses that start to recognize that they have to have different discipline if they're focusing on a market play versus a capability play versus a domain play. And so then the people you need really need to naturally match that, right? If you are focused on, you know, a market or domain, then you know, obviously those hires and the investments you want to make are going to be leaning towards that. But you need the flexibility to say, well, I have to evolve to be whatever this client needs. I want to be an HHS player. So my capability may be second. And there's pros and cons of that. And then there's companies that are saying, I'm cloud only, take me where I want to be. And those investments will have to be different. So I'd say, you know, for a lot of those small business entrepreneurs, they're chasing the next win, which is a natural, natural thing to do. And I would certainly not discourage that. But at some point, they're gonna have to look at a focus, right? And I think the ones that are successful and are able to translate those early hits into bigger hits, it's because they are disciplined enough to be an expert in something, right? You need to have partnerships, right, when you're building your business. And if you're a small business and you want to work with the large, the card you can play is only one of two things, right? Or one of three things. One, I'm an eight A and you need eight A credit or small business credit. So you can go in with that. Candily companies that lean in with that as their brand often don't know how to get out of that. That's kind of the danger of the program. So if I'm working with Deloitte and I'm my only value to them is they can get small business subcontracting credit for me, then that's not really that's that's got a half-life. Or it's because I know the client better than them. Right. And that's the best position to be in, right? I have something you don't have. Or it's because I have a capability that you don't have, right? And to me, second and third is where you want to be as a business owner. You do not want to be sort of solely relying on being the small business sub that they need, because that again, that has a half-life. So I think those are some of the discipline topics that you know business owners need to think about to go from base hits to home runs.

Brian Lake 28:46

I mean, I feel there's a lot of knuckleballs being thrown in the government these days that are really difficult to hit, right? I'm glad you talked about these partnerships and subcontractors. And Sean, I know that we talk a lot about it's it's it's 3D chess, right? You know, trying to figure out who you can bring into your team and how you can move things forward. What's your thoughts around, and this is to both of you, really about building the bench, creating the past performances, having that expertise. But if you're in a subcontractor type of relationship, how do you really articulate that we're the ones that are actually delivering that value? You may not see us on the we're the subcontractor, but it's this is our IP, this is our capabilities, this is our expertise. Like just some of your thoughts on that front.

Sean Applegate 29:32

Yeah, first I'll say it's not, it's not easy as a small business. I think uh for anybody that's been there before, large businesses that are in prime positions have a a lot of leverage. Let's put it that way, or control, depending on how you look at it. But I think it really does come down to relationships. And Jay mentioned this. If if your team is known to the customer, that individual on your team, or the technical project manager or that lead architect to be the top performers and they're great quality, you know, your your prime probably knows that. They probably have heard it, right? They're brought up on calls, they're mentioned. That's about being a visible expert, right? In many cases, some really smart engineers might be invisible behind the scenes, but you really do need to think about if you're a if if you're not a business owner, but you're a professional engineer, you're a developer, you're an architect, you're a cloud engineer, you're a firewall engineer, how do you build your personal brand? And that personal brand you should should take pride in, you should polish that. You need to work on it just like, you know, how do I go from T-ball to farm, farm team or little league? You know, you want to be a great engineer. And engineers take pride in their in their technical skills in many cases, and they think it's gonna just shine on its own, but it doesn't always do that. So I'd say, you know, focusing on those soft skills as an engineer, building relationships, which don't always come easy to certain individuals, are really important skills to be to build. We we did this at Swish uh maybe a year and a half, two years ago. We had a uh, I'd say some challenges around communications and in one specific project with a team that didn't maybe understand the customer and how they spoke. So we did social skills training for that team, turned it into work aids, and uh also educated them on some tools we've used in our pre-sales team, our center of excellence a lot. So what's called a Western's topology of culture score. We measure for things like how gender, bureaucratic, or pathologic the organization is, or how strong or weak their their cohesion as a team is versus working with external teams so you can understand the dynamics socially in the organization. This is used pretty extensively in a DevOps community, but you'll be surprised in the government how many teams outside of the development team have never heard of Gene Kim or Dora or other things that are common sense to a lot of DevOps or Agile teams. But you can apply those same little social cues, learning the customer, getting to know their culture lots of different ways. Um it's been interesting. We we did some studies, Brian. I remember the the Riverbed CX study we did a few years ago together, and we looked at and bifurcated the Western topology culture, and we compared civilian agencies to Department of Defense at the time agencies. And we had about a 15% statistical difference between more generative cultures and civilian agencies, which I think have only gotten more generative since then for a large part, and then Department of Defense being much more bureaucratic, rules-based, anti-change, you know, compliance focused. And that was when a lot of the uh we'll call it the software factories and platform are just starting to come come on board and kind of ramp. And so it was exciting to kind of see the little like starting points, like embers in DOE DOD, where they were like, we love this lean startup culture, we're figuring it out. And I I could see that I lived that on the OEM side for years, working for Northern California companies. And as an old Marine, I was like, oh, this is going to be amazing for the Department of War. Like I wrote code back in the day as a Unix sysadmin on a middle of the sh ocean on a Navy ship to build like classified websites that didn't exist back in the mid-90s. So that was cool back then. So it's not like uh you know guys in the military haven't written code previously, but now they can do it at scale. But they're building the cultural behaviors around that so they learn and develop those skills in a way that's very structured and focused on speed of innovation and teamwork and collaboration, and also that it's safe to fail. And that's probably the biggest thing in Western's topology of culture most organizations overlook is as a government leader, you have to be comfortable with being transparent, collaborative, and being accepting of things will break, they will fail, that's okay. That's part of the job. Not a bureaucratic or pathological culture where if things fail, you shoot the messenger and you fire them to make an example of them. And we've seen that too. So those are those things to be aware of, I'd say, from that perspective.

Jay Shah 33:47

Yeah, I think I I think I have a very different uh answer to your question in terms of um if I think of partnerships, right?

Partnerships Require Bold Negotiation

Jay Shah 33:56

And I think that is such a uh, you know, unfortunately overloaded term. Um if you're a small business, and and going back to your question, Brian, around, you know, how you're approaching and navigating the world of of primes, I'd say, you know, the first advice I'd give you is you gotta be bold. But you have to be bold and you have to know the person you're playing poker with, right?

Brian Lake 34:18

Like if you are the bluff if you're gotta be able to have the c hold the cards, right?

Jay Shah 34:24

And you have to know when you're gonna go all in or not. So I have this great story from our early Octo days, and I won't go into all the the the details of it, but it was early in, you know, I was with the company for two years, we were doing some work for a client, we had a large business partner that was uh, you know, we're getting up to another option period, and they wanted to have sharper elbows with, you know, the teaming terms. And I remember being in a conference with Mehul, and he said, Okay, I'm gonna call the client right now. I'm gonna put him on speaker and I'm gonna tell him we can't work with you guys anymore because we can't accept the terms you want. And he put it on speaker and he started dialing. And you had five people in suits from this large business look at us like, what is happening right now? And they they they made made it, you know, they hung up the call and they agreed to our terms. So my point is, you know, you got to know when you're gonna play the card and be bold. You can't do it all the time. You got to do it when you know you have customer backing, when you have a capability, be proud of what you have. And there's gonna be all the other times where you're bluffing.

Brian Lake 35:26

Right.

Jay Shah 35:27

Right. And you're like, I talked to this customer, I know this opportunity. And and and so you have to be smart and not say, I'm gonna go bold every time, but you have to know when you should.

Brian Lake 35:38

Right. I think it was the uh the great Kenny Rogers said once you gotta know. Got to know when to hold them and you gotta know when to fold them. Right.

Jay Shah 35:45

And and unfortunately, I think a lot of again, small business entrepreneurs are so anxious about rubbing that prime the wrong way. And like, I gotta accept these non-work share terms and you know, they're gonna water me down because they're so focused on, you know, they're hoping. Like, oh, once they get past this teaming agreement, everything will be great. It won't. Right. You have to, and again, I'm jaded, you have to assume that large business is going to figure out a way to navigate the workshare they've committed. Right. So I'd say be bold and don't be afraid to make asks early on. Don't wait for the subcontract and say, we'll figure it out. That's what that's what you're going to be told. We don't do it that way.

Brian Lake 36:26

Right. Be bold. I will tell you that Mehul is an individual who I've known for a long time, not as long as you, obviously, but never afraid to speak his mind in many ways. That's a story for another day about the Virginia Tech, uh, Virginia. Yeah. Yeah. And uh Jesse from Breaking Bad. Yes, from Breaking Bad.

Jay Shah 36:47

Yeah, that's a great story.

Brian Lake 36:48

But uh did did and I love I love this. That's what I've always loved about Octo is just this boldness, this commitment to this different thinking, this different type of government contractor. But Sean said something too about this need to have both a personal brand and carry the flag of the corporate brand. Did you guys encourage your team members at every stage to do both? Like make sure you have you are who you are, but make sure this is who we are and you make it known.

Jay Shah 37:18

Yes, absolutely. No, I think we were, you know, and you were you were certainly a a big part of our early brand evolution too. You know, Brian, that's how we got to know each other. You know, I think we always presented our brand bigger than what we are. We were. And again, that's I think an important part. I think a lot of small business owners don't they undervalue the importance of how you present yourself in the marketplace.

Brian Lake 37:38

Punch above your weight class. Punch above your weight class. We're just shifting analogies all over here.

Jay Shah 37:42

But yeah, I think I think part of that is the corporate brand that we chose to go all in on. And then but we recognize, you know, again, when we talk about agencies, you're really doing business with an individual, right? As much as you're doing business with the agency. When you're partnering with a company, you're partnering with an individual. So we recognize that there's equal value on the individual brand and the individual relationships. So so yeah, that was a big part of our ethos was trying to make sure that individuals were getting to events, promoting their individual brands, and and we were very supportive of that.

Brian Lake 38:16

I think when when you're forced to do that, it also kind of tells that there is some general misconceptions between the government and small businesses in the contracting community. For both of you, what do you see as like the largest disconnect that then tends to force organizations to punch above their weight class, to go bold, to truly try to differentiate yourself between the two, both the government and the contracting community? Yeah.

LPTA, Scope Fit, And 8(a) Scrutiny

Sean Applegate 38:43

Misconceptions, Brian. Let's see. I mean, I would say the biggest one that, and this is no big surprise to people, but but when things get bit out LPTA, that that is a difficult position for a lot of businesses to compete on and feel good about it in a lot of cases. Because you're really being told, hey, you need to come in at the leanest price possible, but you still have to meet all the contractual requirements. And in many cases, that that ends up being a race to the bottom of the barrel. I'd say, you know, for the the KOs that are out there, you know, be careful what you wish for. We we lived through that in a couple of cases at large clients in the last two or three years where that set them back from an innovation perspective years and and had massive brain drains because of it. So yeah, one of the misconceptions I think we have is hey, if you've got 15 or 20 years of trusted people that you almost treat like staff, but they are through the contracting community, and you think you can transition them to the the next lowest bidder, that isn't isn't always true. You know, we saw a huge amount of those folks leave one of our clients recently. And when we're talking about, you know, we've talked previously about change and opportunity, that when that happens, there's obviously opportunity as well. Um, but you have to deliver the results that we promise. I think that when you look back on the business side of it, if you make promises, and this is part of being an ethical, trustworthy provider that takes pride in their work, if you make a promise contractually and you commit to something on paper, be ready to deliver against all of your promises. I think the thing that makes makes some of the small businesses especially frustrated is when people make promises and then then they can't deliver on those and then they're like, well, we need to mod the contract and add more money. Oh, we didn't really understand what we're bidding, or maybe didn't understand the mission of the organization. So those are just things to be aware of. So especially in the age of AI being used to put proposals together, make sure you have a human factor and take ownership of what you you commit to. Whether you're a government cusser putting a proposal out and you you make sure it's accurate, it's well understood, it's somewhat intuitive as you read it and and and detailed enough for a respondent to understand it, and then answer the questions as you go through that. And if you're business responding back, again, take pride in your response and try to navigate it best possible. Again, I and and be careful what you ask for, because sometimes you'll win it. And maybe you're not quite ready for that. So, Jay, thoughts?

Jay Shah 40:58

Yeah, I think look, I think that from the government's point of view, you know, what small businesses can offer from a from a cost perspective is they naturally have lower wrap rates, right? Right. Indirect rates, you know, to not use some jargon here. But and so, you know, if they're bidding, uh if you have deals that are going to wind up, you know, being a race to the bottom, you know, small businesses tend to be more equipped to do it because of just the natural investments and their ability to pay people to do that type of work. So I think, I think, you know, in some senses, this the smalls uh can navigate that. Unfortunately, a lot of the small businesses aren't necessarily as disciplined to protect themselves with the assumptions they need in a fixed price contract, for example, right? They just, next thing you know, it's they're run the government's running it as a time and material contract when it's in a firm fixed price. So I think there's certainly a place for for contracting officers to recognize what are the opportunities we have that are best equipped for small business, right? Narrower in scope. Small businesses generally aren't great general contractors. So you have an opportunity that requires you to have capability mix that's well beyond what you do. I mean, they'll put together a team, right? Anybody will put together a team. But I think this is where the frustration for the government can sometimes be, well, you don't you can't do all this work. Well, you know, the requirements you have make it pretty difficult for anyone too. So I think there's often a disconnect between the the applic the applicability of the scope and what it means for small. And that's where a lot of feds get frustrated with like, oh, it's in the eight-day program, it shouldn't be. And it's like, yeah, but you know, you're asking something that is pretty difficult for someone of that size to be able to do. So I think, you know, that that is a that is a challenge that I think kind of gets perpetuated. But I also think smalls and being biased because you know, I went from small to mid to large. I mean, we are always gonna be more nimble and ability to pivot, right? And and sometimes there are requirements and procurement needs that need that flexibility. Right. And you know, turning a ship is not easy for a large business to do. Right. You know, they're gonna have their contracts people and their pricing people and their risk people and all these things that are gonna be, hey, it's gonna take me six weeks to do this when a small could say, I have my contract guy now, CEO's on the call now, let's talk tonight. Right. Right. That's where the that's why the feds love, that's what they love about the small businesses, is like, I'm not exactly sure what I need, but you're gonna pivot for me. So I think it's, you know, the frustration can be on both sides, but I think that's at least to me, the pros and cons of what a small can do.

Brian Lake 43:29

What do you think? I mean, there's a lot of right now, a lot of focus on, you know, inspecting and changing the eight A program. Like you mentioned, like uh this conception is this it's the innate, you're an eight A contract, you should be able to do this. What's your general thoughts on what's happening right now with this administration saying, you know, we feel like it's been taken advantage of, it's been overused, it's been used as a crutch. You know, just talk to me a little bit about you know what either if you're in the eight a program, what do you need to make sure to do to protect yourself or B, you know, what What does the government need to really understand about the value that I mean, I think you've kind of articulated the value of small businesses to the government.

Jay Shah 44:08

Yeah, look, um shocker, fraud, waste, and abuse in the government. Like are we really surprised? Right. There's the headline, folks. It's certainly not surprising that there every one of the programs we have and and every aspect of the FAR, you know, there's going to be interpretation and opportunities to exploit how we're interpreting these rules, be it the eight-day program, women owned small, hubzone, you know, STB USB. There just happens to be a big microscope on one of the programs, which is the eight-A program. So you look, you know, uh compliance is king, right? Whatever you're doing as a government contractor, compliance always has to be something you you care about and worry about. Even if if you're not an 8A and you're on GSA schedule, you have to worry about the price reduction clause. Like that is another compliance nightmare for a company if they bid rates too low below their schedule 70, for example. So compliance has to be something that every business cares about. And then there's interpretation of the rules, which every lawyer will say there's going to be a gray area. Am I subbing out work over the life of a contract versus subbing it out by, you know, by Clint? Like there's all these like interpretation things. And so what's really scary about the A-day audit is there's obviously the program, the companies that have fully exploited it. And yeah, those companies need to be held accountable. And then there's going to be a lot of companies that are like in this area of like interpretation. It's unfortunate that there's like such a heavy emphasis, and you know, I think the desire to make examples of of the ones that are truly fraud, waste, and abuse. Right. But again, you could look at any of our programs, any of the programs that exist, there's going to be an SWSB where the guy or gal is not really a service disabled. Like that, that exists, right? And and they should be audits to to to really get rid of that. But I think it's throwing the baby out with the bathwater. I I think you've you've done a really you guys have done a really great job of laying the foundation for the playbook.

Turning Past Performance Into Wins

Brian Lake 46:09

Um, you know, there is some tension like thinking about organizations as they get to their first win, to their second, third, and beyond. Talk to me a little bit about survival strategies to scale. You know, I I think I'd love to know like how do you how does the how do agencies or uh uh small businesses engineer these next wins? You know, how do they leverage their past performance either within that agency to then go make a lateral move to another agency? Talk to us a little bit about like how you've how you did it and how what what small businesses should be thinking about.

Jay Shah 46:44

Yeah, I think um it's a great question. I I do think that there's often a very literal, literal interpretation of past performance, right? I've done X for this customer, and I can only see that I've done X for this customer. And this gets to some of the points that we we made earlier. Sometimes it needs a storyteller. You need to have somebody who is not embedded in the program to listen. And this is something we did at Octo, where we would have the program manager and the smart technical people describe what they're doing. And sometimes it took a third party to say, oh, so that actually translates to this. And while we're saying we're doing, you know, X on this contract, if I think of it very literally, but if I actually expand it, and often we find that your past performance is quite a bit more relevant than you give it credit for. So I'd say small businesses need to really push the envelope. I'm not saying, you know, if you're not doing X, say you've done X, I'm not suggesting that, but there's a lot that can be sort of storytold, right? And that's what agencies want to know. They want to know that you can translate your experience to their need. Um so I'd say that's a that's an important investment for smalls to do. You know, and if it means you need to bring in a third party with a marketing background, you know, for example, then do that, right? Because that'll help extract that.

Sean Applegate 48:00

I heard there's this thing called AI you could use to help write stuff even. So from a small business that's uh cast strapped, that's a great tool to use. Sure. And maybe learn a skill along the way. Yeah. Right.

Jay Shah 48:12

Yeah. I think I think the other part of it is is making sure that you are educating your workforce on your stories. Right. Right. And so AI can be a great tool to prompt the story, but then it's a matter of getting it into the heads and hands of the people who are deployed. Right. Because they're the ones that are with a customer, you know, grabbing a coffee and a customer throws out a comment that nine out of 10 people would probably ignore. But you want to have that one person that's like, oh, I remember we were doing that on the labor contract. And I don't remember the specifics, but can I can I connect you with our labor PM? Because I think they solved that problem for that. That is the magic that smalls are not investing enough in. And that's the storytelling and the connecting.

Brian Lake 48:56

Um Well, how do you go? I mean, if you think about smalls, how do you go from that idea that we have a stand-up, right? And we're talking about what we're working on or we're doing on, you having your all hands when you're growing, you know, what are the approaches to keep making sure that everyone is educated and talking about and learning and then thinking about what you're what you're accomplishing for your government.

Jay Shah 49:18

It can't be an accidental thing. It has to be a very deliberate investment you're making and having your project managers and your technical leaders talking, collaborating. And there's lots of mechanisms to facilitate that. But sometimes it's as simple as, you know, we're getting all of our contracts that have any type of cyber work in it. You're all going to a happy hour. And you guys are all hanging out, chatting, talking about your customer problems because you're all doing cyber work. And how can you then take that one snippet of cool stuff you're doing on client A and bring it to client B? This is where OLabs, the physical infrastructure, was a huge catalyst. We would have, you know, a GSA customer, a SOCOM customer, and a labor customer all there for various sessions. They, they're the ones that talked. We we just sat back and waited for them to say, oh, what are they doing for you? Oh, oh, we actually solved that problem last year. And then next thing you know, we're facilitating government-to-government discussions and we're just along for the ride. It's the same concept. You have to create the opportunity, and you can't just hope that accident, you know, I'm hoping my people are talking. They aren't. You got to create the investment and facilitate that however it's appropriate for you.

Sean Applegate 50:30

It's amazing. It's a great story of the OLabs type example. We had one with Swish, we put together a data town hall for one of our verticals last year. And I think it was the first time we ever did one of these ourselves. You know, it was a small business. You're always concerned, like, hey, can we deliver the goods? Will people show up? You know, is it worth the squeeze? And uh, it was with one of our strongest account executives. He had great relationships. We pulled off with without really a public affairs type thing, right? We pulled off a 60-person town hall around data, top hot topic, obviously. And we had, I think, five C-level executives in a data space together. And what we found out, and they were all within the same, I'll say the same vertical, but they hadn't been talking across to themselves a lot. They had a little bit. So I w I had the honor of chairing the fireside chat, and it was exciting to see these folks that often don't live in the same state but work within the same organ, you know, large department, for example, telling stories and figuring things out live on the state. And we had a large number of significant integrators in the audience that they brought that they that they trusted. And these were mostly large system integrators, not small. And the interaction in the room was really lively, but I think we get a lot of stuff done, you know, in maybe a three-hour period in the afternoon where we we we learned some strategic things, we connected some dots, built some relationships, and then we did a little bit of technical training in the afternoon around generative AI, again, about a year and a half ago. And they walked away going, wow, that was really cool. I want to do more of that stuff. And and they had some clear line of sight to what they want to do because they didn't just talk about it, they saw it.

Jay Shah 52:00

Yeah.

Brian Lake 52:01

Yeah. I think I mean having government stakeholders talk to each other is incredible. I think that's why we always try to do events that bring people into the same room to have conversations that are trying to solve similar problems. Can you talk to me a little bit about following your customer? Because there's there's a lot of movement in the government right now, and it's not surprising that people leave certain agencies and go to other agencies as they're m moving and progressing along their c their careers. I mean, is that just coming down to continuing to have that trust? Or do you just got to really stay on top of all the happenings and goings in the space?

Jay Shah 52:37

Yes to both. Earlier we talked about the importance of individual relationship. It's between not just Octo and, you know, pick agency, but who within the company has the relationship with the individual at that agency. You can't just assume it's a corporate relationship with an agency or a partnership as another example. It has to be down to that individual. So, yes, you know, we absolutely have had plenty of examples where, you know, a trusted relationship, you know, and we have awareness of it, is thinking about becoming a 15 or an SES somewhere else, right? Sure. That's, you know, knowledge that you would have through your your that relationship. Right. And so then yes, can you position, you know, a lot of c a lot of times those feds will move and said, Hey, I need a few, you know, need some time to get the lay of the land. If you can help them get the lay of the land because you're already doing work at that agency, all the better. Right. You know, um, but that's where the relationship game is key.

Brian Lake 53:35

You know, it's it's funny when we're talking about the ability for everyone to be on the same page and knowing what you're doing in a world where we are probably more spread out than ever before, but have more tools at our disposal to communicate, to engage, to collaborate, to learn.

Risk And Working Capital Reality

Brian Lake 53:51

It does feel it's it's always surprising to me that people still struggle in this area. So I have two questions, two more questions when we talk about this area here specifically about and that's come down to risk. Small businesses look at it, manage it, and then ultimately control it. Like what's your general opinion around that? Any specific type of risk or I mean you tell me. So if you're if you're again, if you're if you're trying to make if you're trying to scale to survive, um, you know, are w how do you even just like look at the risk landscape? Like what are the biggest risk factors that you want to have forefront of your mind?

Jay Shah 54:24

Yeah, again, I think I think it's it's um it's gonna be specific to the portfolio you have. Sure. So what do I mean by that? Right. Um if you are if you are a business that has kind of again early like Octo hat in our early innings, 80% of your business is coming from one contract, one customer, right? And recompetes or recompetes, right? As as well positioned as you are, there's always risk. To me, the business risk that you have in front of you is a lack of diversification. You know, and it's an interesting dynamic sort of pre-doge and post-doge, because one version of our world, it was being laser focused on one type of agency is a positive thing, right? Especially if you're thinking of selling, that could be enterprise value-facing to be that focus. But I think what we've learned is it can be with a snap of a finger that the administration's priorities change and you could go from having a world-class business with lots of work at USAID to a world-class business with no work at all. So I'd say risk from a diversification's importance, no different than your own investment portfolio. You wouldn't just pick one stock and cross your fingers. Um, and then I think the other risks um are things you observe are operational risks. So, you know, do you the team that got you from zero to fifty, is it the team that get you to 50 with 100? You know, to 100 to 200. That is a very, very hard thing for owners to reconcile. Right. Right. Because you have loyalty and you have the reality of who do you need to drive that type of growth. Again, kudos to Mehul to bring in someone like a Bob McCord who was an outsider, who was not part of like the old Octo, and recognized that we need to accept the change associated with scaling the business. Right. Right. So he looked at it from a risk perspective. Sure. Am I prepared? Is Jay prepared to actually go from A to B? We've never done this before. Let's bring somebody else in. That's a type of risk that a very few actually are willing to address.

Brian Lake 56:24

Right. So, and I think I'm very curious to know your thoughts too. When when you talk about people and processes, what role does, if you're talking about survival, let's talk about capital. Like what role does capital have? And I know Sean, you've got some really strong thoughts around this. And what do small businesses really need to be thinking about when managing their balance sheet and money in the bank?

Sean Applegate 56:45

You know, a couple of free resources to get started with. If you're a very early stage business, right? You're you're kind of one to a couple bodies, you know, use the Apex Center at George Mason. And if you're a veteran, use Veterans Institute for Procurement. I was a veteran, I went through VIP, Crow, and Advanced. And a lot of that will give you the business business operational knowledge relative to capital and access to individuals that can help you with the capital. Um, when you think of banking relationships, for example, so you're ready. Because one of the things a lot of small businesses that get started don't have is a lot of money just sitting around to pay payroll. The challenge for a lot of small businesses might be, hey, I've got myself and my buddy employed or my couple friends, and you were getting by, but payroll is kind of tight. But I got to make payroll, and you own that. You have that responsibility. And then you get that first big win and you're like, oh, I got a new win. It's like 15 people. And then all of a sudden you get a staff 15 people, and then you got to realize, hey, I got to pay them payroll before I get paid by the government. Again, one of the things the government doesn't always think about is a contracting officer, but that's the reality of running a small business. And so making sure that you are well funded, you're financially stable, you've access to revolving lines of credit or other resources, or you're talking about playing hardball with the large prime businesses. Make sure you go to your primes if you're a sub and they give you more bodies and go, hey, can I get better terms on the payments? Can I get a net 15 or payway? Yeah, pay on pay. We've done some stuff at Swish with some of the smalls. We've we we love teaming with smalls as another small, so we are very small friendly. And we've we've done some things like, hey, we'll we'll we're paying you net one in a couple cases where it's that important. We've known them that long, we've won good business with them. And and and look, you know, it's not always easy to commit to a something like that, and it's a bit crazy, but it's if you have that trust and relationship with the small and you're like, hey, we'll take care of you because you take care of us, right? We love your people, the customer loves your people, let's do it together. You you do those things for people that you have relationships with. Again, pretty rare. You probably can't get that from a large prime. You can get the pay on pay, probably, um, at best case. But you know, managing the capital for growth is important. And then I think the other thing you talked about with um with Mehul was things like, hey, I got to bring in my next next big leader that is probably even in some cases more capable than you. If you're a small business owner, you have to be comfortable bringing in somebody smarter than you, maybe has more experience than you. You may need to pay them pretty significant payroll or outlay some significant incentive in their compensation to deliver results that's performance-based so they come along for the ride because you know they're not gonna come work for you for free. So those are those are big risks. And I would say from a capital perspective, you know, be careful how much you guarantee to pay that next person in versus paying them based on performance results. You know, there's risk in in both sides of that, but you got to balance that a little bit long term as a owner.

Jay Shah 59:35

Yeah. I mean, not much more to add to that. I think, you know, certainly every company's working capital needs are different. You know, your CFO may have a different interpretation of risks, you know, from one company to the next, right? Do I need two months, three months, six months? Um, you know, you got to make sure that you have the discipline to understand the cash flow, to understand your payment terms. And I think for a lot of small businesses, you know, there's also this question of am I pulling cash out of the business as I earn it? Right. Now that gets into sort of this old lifestyle business, you know, continuum. Am I a lifestyle business or an enterprise value creating business? And so, you know, it's hard for companies who on one end say they want to build scale and invest and and and really, you know, build for build for scale uh enterprise value, and also say, well, I also need to, you know, pull cash out of the business as quickly as I can. You know, you can't reconcile those things. So, you know, I think there's working capital, operational risk, rainy day. There's then strategic investments one may want to make in the business and being smart about that, what's going to be driving growth and unlocking the potential you have. Within that, you have decisions on how much of it is base versus incentive and then equity, right? For businesses that may want to think about equity programs. You know, those are smart ways to make commitments without having to make commitments, right? Or at least until the end game. And then, and then being smart about investing back in. And again, I think a lot of companies have huge cash positions and they're uncertain. Now, the eight A program also creates limitations for companies. So they could have huge cash position cash positions, but can't take them out because of the eight-day limits. But if you're able to deploy that, you know, I'd say work, work that cash and have it help you grow the business versus, you know, just a minor return in a money market.

Brian Lake 1:01:22

Yeah,

Choosing The Right Capital Partner

Brian Lake 1:01:23

I mean, I think I'm also seeing more capital for mission-driven organizations than probably ever before. Um, and and it's not necessarily just coming here in the beltway, like Silicon Valley, you're seeing Andrees and Horowitz having their American dynamism program where they're investing in mission-centric organization, PAX ventures. You know, do you think that as you're advising companies, uh early stage companies, Che, you know, you know, is the access equal nowadays much here in the Beltway as it is for companies out in Silicon Valley?

Jay Shah 1:01:55

I mean, I think, you know, I think there's certainly uh, you know, the the pendulum swings and for companies that were investing in the the public sector markets that have always been around this area, like their Arlington Capitals or the Enlightenments, et cetera, you know, I think they've always known that there is diamonds in the rough year that can exist. Um, I do think that, you know, there seems to be a hunger to invest more. I think as a services business, you know, and this is again a question of identity. If you're a services business starting out because you have a contract and you have good people, you know, how do you translate that paradigm into something that somebody would want to invest when there's this appetite for product? Right. And so I think, you know, if you're a small business owner, I don't know a lot of small business product companies, right? You have a lot of small business service companies. And so, you know, the the question for them is how do you attract interest and investment by finding the marriage of IP and product and service. And that is of art. That is definitely an art form. Right. Um, so yes, there's an there's people ready to write checks. You know, I don't necessarily know if they're those early, those new entrants understand they also don't understand the federal space. Sure. So a little bit of caution to, you know, working with that, you know, private equity that's from Texas that decides they just want to start investing. You know, I mean, I've seen lots of stories of of you know misalignment there. So my advice for those that are interested in, you know, VC or PE money or whatever it is is like make sure that you're working with a partner that isn't just writing a check, because you can always just get a loan. Right. Right. If you're gonna take an investment and give up equity, make sure you're talking to someone who really understands the business, is prepared to make investments, is gonna weather the storms and fits the thesis that you have, right? If your thesis is inorganic, you want a partner that's gonna support that. If your thesis is I need this investment because I want to build the lab and you have conviction around that, find a partner that understands that. So the money's there, but buyer be, you know, seller beware.

If Jay Could Do It All Over Again

Brian Lake 1:04:03

So we gotta, I know we've this has been great conversation. I appreciate all of your insights. Obviously, it's a great success story. You know, we love telling it. Final question for you. You know, if you were launching Octo today, what would you do differently? What would what would fundamentally be the different approach than what you guys took?

Jay Shah 1:04:24

You know, it's hard, it's hard to say, you know, we certainly had our our ups and downs in terms of like the running of the business. But I fundamentally believe you need those battle scars to grow a business, right? So it's hard for me to look back and say there's something we do differently. Those things that we did wrong at the moment are things that I would have done again, even at this age, because I think the the battle scars that produce from that makes you a more competitive business. So I know it's a little bit of a non-answer. No, but it's um, you know, I mean, even just certainly a visual answer, that's for sure. I mean, I I I go back to even, you know, we think of AI and how much that now exists. Uh my caution is, you know, just going through the example we went through, there's a lot to be gained if I get 10 people in the room talking about their contracts and how to extract goodness out of what they've done versus just having an AI bot do that. Because I think there's just as much value in the work that goes in than the output and outcome that AI produces. So using AI to write a great proposal is one thing. Having the team working nights and whiteboarding and understanding each other's behaviors and motivations to be a better team.

Brian Lake 1:05:46

Yep.

Jay Shah 1:05:46

AI can't an AI proposal will will mask that. So it's hard for me to look back at replaying the Octo story and saying, well, now with the benefit of AI, we do all these things. I candidly would still want to be in the trenches. Rolling up sleeves and doing the hard work, because ultimately that's what you need to have a sustainable business.

Brian Lake 1:06:04

The

Go See Live Music This Summer and Closing

Brian Lake 1:06:05

the thesis that I'll connect from all of our conversations today is be the trusted advisor to your customer and then surround yourself with trusted advisors within your organization. That seems to be the secret to success here. So all right, guys. Well, listen, we're out of time. Jay, thank you so much. We appreciate you joining us. Listen, folks, if you're listening, lots of info and resources in the show notes. Let us know what we missed, other ideas and insights for future shows, other upcoming activities and events, go to gist360.com. Jay, I hope we have you back on the show. Yeah. Maybe at an upcoming event. Otherwise, you can catch Jay or I at a concert near you this hour. Right. Come check us out. Come listen to some music. Thanks, everybody. Have a great day.