Federal agencies beat their small business contracting goal by over 5% in FY’23, awarding 28.4% of all eligible contracts to small businesses.  In addition to prime contracting dollars, small businesses also saw more subcontracting money than ever before.  While these numbers are impressive on the surface, contractors of any size should take a moment to understand what they mean for government business.  First, the federal government has met or exceeded the 23% small business prime contract goal for several years in a row.  It’s no wonder, then, that the House Small Business Committee recently passed a measure to increase that goal to 25%. It’s an established practice in government and industry that when existing goals are met, new ones are created.  Over time, this will make teaming with small businesses increasingly important for non-small business contractors.  Next, though, is to look at the types of small businesses that are successful.  Although the most recent goal report doesn’t offer much here, anyone watching the government market over the past several years knows that fewer businesses overall are participating in it.  This includes a net outflow of small business contractors.  While on one hand this means that both larger primes and government customers can rely on experienced small firms, it suggests a potential pipeline problem if more and more successful small businesses grow to the point where they are no longer small and are not subsequently replaced by newer market entries.  Unfortunately, the successful FY’23 goal report may create a false impression that loading up contractors with a succession of new rules doesn’t dampen business participation.  It clearly does.  Indeed, one takeaway from this good news story is that federal agencies may be buying more from small firms that specialize in government business, just as they buy more from experienced larger firms.  This is good news for such companies but does raise questions about how sustainable small business contracting may be in the future if steps aren’t quickly taken to lower barriers to federal market entry.