Tech Start-Up Envy: Why Does the Capital Region Come Up Short?

Driptech, Scribd, SolarCity, Zynga, Fitbit…they are all interesting technology start-ups recently included on BusinessWeek’s list of the “Most Intriguing New Businesses.”

There’s a problem with the list though: not a single company based in the Washington, DC region made the cut.

How can that be? Where I call home has all of the ingredients to nurture a world class community of entrepreneurial technology companies.

For starters, the largest buyer of information technology products and services has centered most of its decision-making here. That’s right, the US federal government spends billions of dollars each year on a broad set of products, services and capabilities.

In fact, the federal Chief Technology Officer (CTO) recently unveiled a Web-based IT dashboard that tracks a fair amount of this annual spend.

This strong government footprint has attracted a myriad of systems integrators that cater to the technical and innovation requirements of government agencies worldwide. Lockheed Martin is based in Bethesda, Maryland. SAIC recently relocated to McLean, Virginia. CSC moved last year to Falls Church, Virginia.

These government contractors – often referred to as “Beltway Bandits” – serve as a training ground for technical and management talent.

Moreover, they often develop interesting products and applications with potential to be spun out as distinct companies. Systems integrator Mantech did just that two years ago with the successful creation of information security vendor Netwitness.

The potential for robust technology transfer also resides in the Washington, DC region’s research institutions, including George Mason University, George Washington University and the University of Maryland, College Park. All have outstanding engineering and business programs.

And finally, there is a mile-high stack of smart, experienced money in this town. Venture capital firms like NEA, Novak Biddle and Valhalla Partners, as well as private equity shops like Carlyle Partners are all well versed in helping start-ups successfully grow and mature.

So, again…I ask…why is the Washington, DC region a tier two player when it comes to technology start-ups?

You can’t put us in the same sentence as Silicon Valley without snickering. And we fail to measure up to technology hot spots in Boston, Austin and New York City.

Perhaps it’s about ego and attitude.

Are we in the DC business community content with modest success rather than aspiring to create the next Apple or Google? Are we too comfortable and conservative because of the government presence?

Booz Allen's Story of Resilience

Booz Allen Hamilton’s Dr. Ralph Shrader has the CEO look.

Neatly coiffed silver hair. Check. Well tailored dark suit, pressed shirt and bold tie. Check…check…check. Cufflinks embossed with the corporate logo. You got it…check.

Dr. Shrader is no mere figure head though. As chairman and CEO of Booz Allen Hamilton, he leads a professional services firm with $4 billion in annual revenue, more than 100 partners and 20,000 employees. The company provides program management, technology, strategy and operations consulting services to Federal civilian, defense, intelligence and homeland security government agencies.

Times are good for Dr. Shrader and Booz Allen Hamilton. The company’s top-line revenue will grow organically 20 percent this year and the firm sports a contract backlog of $2B.

Yet, the past few years have been anything but easy. In fact, during his recent presentation to the National Capital Chapter of the Association for Corporate Growth (ACG) Dr. Shrader dropped the word “resilience” about a dozen times.

This story of perseverance dates back to 1940 when the Secretary of the Navy asked the Booz Allen Hamilton to help the service prepare for the coming war. The firm’s government business prodded along for the next 60 years as a nice complement to its commercial consulting work.

That is until the terrorist attacks of September 11th led to a flood of funding for homeland security and defense programs. Booz Allen Hamilton’s government business exploded and grew to nearly 75 percent of total firm revenue.

Government work wasn’t the only thing exploding at Booz Allen Hamilton. Everything was different in public sector consulting. The length of contracts…the margins…the number of employees required to deliver service.

Booz Allen Hamilton had effectively morphed into two firms (commercial and government), each with its own distinct business model. Partners and line employees began to clash.

Dr. Shrader championed a “One Firm Evolution” reorganization in 2006 to try to bring the warring factions together. No dice. It’s safe to say that Booz Allen Hamilton was akin to a dysfunctional marriage bound together only by institutional history.

It was agreed the best path was to break the firm into two, yet a financial partner was required to fund the transaction. In stepped global private equity powerhouse Carlyle Group and the transaction came together with more than 99 percent of shares voting in favor.

Today, Booz Allen Hamilton and Booz & Company exist as separate firms that collaborate when appropriate. Dr. Shrader is now free to plot corporate strategy and manage growth, while fondly telling the firm’s story of resilience.