Like almost everything Steve writes, the story is great, but I would have preferred a different take-home message. As it stands, it seems to be: "You have no choice but to give up on your values and lower your standards to those of your competitors. Perhaps even lower if you want really want to win."
I guess I would have preferred something like: "You have to ask yourself if it's worth giving up your standards to compete for these contracts. This might be the right plan, but maybe you're better off lowering your projections and sticking to your core values --- it's worked for you so far!"
I would read it as, "You need to learn how the system works inside out and backwards, and only then will you be in a position to decide what to do with that information."
One path forward is to lower standards. Another is to decide to compete in a different way (which had been working pretty well for them). But this is a big decision, and the only people who can properly make that decision for the company are the founders. And they can't do it without knowing what they are up against.
At that level, especially when selling to the government the competition is lethal. But even on the web when you make a mildly profitable little business you're not immune from snipers looking to take your validation of the market and your research and to produce an outright clone of your offering.
So better be prepared, and remember that nice guys finish last, that doesn't mean that you have to go and be a mafioso, but at the same time it means that if someone lands you a punch you should not offer the other cheek.
I guess I would have preferred something like: "You have to ask yourself if it's worth giving up your standards to compete for these contracts. This might be the right plan, but maybe you're better off lowering your projections and sticking to your core values --- it's worked for you so far!"
Am I just being naive?