The Business of GovTech: Switching Costs

The biggest barrier for govtech is not procurement, it’s the cost associated with adopting new products. Switching costs include both monetary value and time associated with adopting new software. Vendors and agencies tend to focus strictly on the monetary costs of a new product and almost always under-appreciate and under-estimate the cost of time. Time includes migrating off the old product. Integrating with other products. Learning the nuance of the new product. Building and teaching new processes and workflows. All of these take time, typically, lots of time.

Humans have an incredible ability to imagine a world as it might be, an improved version of today. In a sales process, we allow ourselves to live in this improved, imagined state. We mostly consider the upside and if we’re really fired up, we ignore the potential downside. This is basic human psychology.

As an agency, you need to fight this urge and account for the true costs of a new product. Full consideration and inclusion of switching products is a fundamental part of the accounting process. If you want success working with government, you must have a complete understanding of this:

True Cost of a Product = Product Price + Time Spent

As a company, you need to thoroughly appreciate the switching costs your customers will endure. It’s one of the biggest contributors, often times implicitly, in why people choose to buy or pass on your product. Remember, the entire govtech industry is better off when new products are successfully implemented — agencies gain confidence in upgrading to new software, they believe startups can actually serve their needs, and companies grow through increased demand.

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