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Government Tech Start-Up Company Loses $31 Million – First Year Billings? $0.00

18F is a federal high-tech startup launched 2014. The digital services agency, built on the lean Silicon Valley startup model, aimed to streamline the government’s technology services. Like many of Obama’s green energy projects, 18F was doomed to fail from the start. 

18F was formed by the General Services Administration (GSA), and its unique name is a reference to the address of the main GSA headquarters in Washington, DC. 

“Since its launch in March 2014, 18F has struggled financially,” explains the agency’s Office of Inspector General, citing losses every year that now total more than 31 million.

The IG cites three primary reasons for 18F’s failure:

• Too many employees (staffing jumped from 33 to 201 in three years)

• Overestimating revenue projections

• Too much time spent on non-billable activities (like the 700+ hours staffers spent changing the 18F logo from blue to black)

For example, 18F’s projected annual revenue for FY 2014 was $4.7 million. They “ended the year with zero revenue billed or collected,” reports the IG. They did a little better in FY 2015, when annual revenue was $22.26 million compared to a projection of $32.58 million. 

FY 2016 doesn’t look to be much better, and even worse, “18F does not have a viable plan to achieve full cost recovery.” 

In an attempt to remain optimistic in the face of undeniable failure, acting commissioner David Shive responded to the IG report by pointing out 252 projects that had helped 37 agencies deliver services “at significant cost savings for the American taxpayer.” 

These projects included the creation of cloud.gov, which helps small federal IT agencies create cloud services, and “ghostwriting services” for an HHS child welfare data system. 

Despite his words, the IG office reports that it found “internal discussions by 18F senior management that raise doubts about their intent to break even.” Records show a discussion in February of 2016 in which 18F’s Director of Operations said, “To be frank, there are some of us that don’t give rip about the losses.” 

Editor’s note: This was a stupid idea from the beginning. Entrepreneurs start companies based on market opportunities, and then make a profit because they are better than the competition.  The analysis that goes into a business startup is critical and intense, and the willingness to take risk is a key component.  For a bunch of government bureaucrats to declare they can do it better than the competitive market is arrogance at its worst.

But this has been the hallmark of the Obama Administration, the belief that government can do it better, and socialism is the best policy. In the immortal words of Donald Trump, “Wrong.”

 

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