Small Cities & Great GovTech: An Overlooked Opportunity

June is the National League of Cities' Small Cities Month, an event that reminds me of the key role our smaller communities play in the vibrancy of our nation. This year, it's more than a celebration—it's a wake-up call. Here's the scoop: the GovTech industry is colossal, with U.S. government tech spending eclipsing $200 billion a year (dive into the details here). That's triple the size of the video game industry and nearly five times the market size for wearables. Yet, amid this gigantic investment, small cities often find themselves in the tech shadow.

Putting Cities Tech Spending In Context

Sans the Department of Defense (DoD), Federal IT Spending ($53.2B) is actually lower than states ($60.6B) or local ($58.1B).

And the state and local IT market is growing.

The Innovation Gap

There's an overlooked, massive element of the government marketplace, however: smaller cities. With more than 18,000 small cities in the U.S.—are these institutions undergird the day-to-day of much of civic life, ranging from trash collection to policing. And many Americans live in small cities, and most do not live in the big cities that often garner attention. (Note: I viscerally understand the hypocrisy of the former CDO of America's second-largest city, Los Angeles, calling this out, but it is long overdue.)

But in the quest for rapid revenue and large deals, these communities often get bypassed. The outcome? A technological divide. To quote Gibson, "The future may be here, but it's not evenly distributed."

Most GovTech companies' business model doesn't favor the little guys. Smaller cities mean smaller contracts, and even though they make up the count, the market size can be seemingly limited on a strictly SaaS basis. Indeed, entrepreneurs are often counseled to sidestep these 18,000 smaller cities—the scale and speed of returns don't meet traditional investor benchmarks. But there's more to the story.

In fact, I have given that advice many, many times—not just because of the financial questions. Beyond affordability, small cities often grapple with staffing issues when implementing new tech solutions. This human resource conundrum only compounds the tech adoption challenge.?

Potential Solutions: The Dawn of Change

The challenge is steep, but not insurmountable. I've identified three potential opportunities already taking shape:

Demanding Interoperability

Legacy software lock-in plagues cities of all sizes. By implementing interoperability standards, cities can transition between vendors with ease, reclaiming their tech autonomy. As the demand side of the market, cities can encourage old and new vendors to embrace interoperable architectures, data sharing, and connected experiences.

Changing Contracting

Small cities pooling their resources to purchase tech collaboratively—it's a win-win. Pavillion and Marketplace.City are two organizations championing this approach. Further, larger agencies rely on "piggyback" contracting, where smaller, more innovative vendors (think startups) can leverage existing large contracts (think consultancies or service providers). Absent those "primaries" in smaller cities, startups will need to get creative by 1) offering professional services to transition onto new systems or 2) brokering value-creating partnerships with legacy (or existing) vendors to provide better experiences without the implementation overhead. And not only startups. Bigger companies may want to consider slimming down offerings as more point-solutions rather than platforms, and combining various solutions for key city users into targeted packages, marketing multiple tools as integrated solutions.

Indeed, the contracting strategy for small city GovTech may not be piggybacking, but instead pooling, partnering, and re-packaging.

Building *for* Small Cities

A fresh wave of small city-centric GovTech companies, like HeyGov, and organizations like Leading Cities, CivStart, and the National League of Cities (NLC), are stepping up. They're blazing a trail for small cities to harness industry-leading tech, and by leveraging the new contracting mechanisms and focusing on these overlooked municipalities, these civic innovation institutions can lower the perception barrier of the small city market.

Takeaway: GovTech is Seeing the Trees, But Missing the Forest

These ideas are only the tip of the iceberg. The GovTech industry has seen profound growth over the last decade. The concepts of user-centered design, software-as-a-service, and 24/7 accessibility and security are becoming standard place in the federal government, many states, and many large cities. Understandably so: they seem like beachheads in a vast, unchartered territory.

It's time to expand. Not only to expand organizations' scale or companies' profits, but to confront the emerging, new, and troubling digital divide between bigger and smaller cities. Good digital government should not have a population requirement.

And so as we honor Small Cities Month, let's stay mindful of the opportunities and challenges our smaller communities face. We're on the precipice of more tech innovation, and we can—and must—do better.