Set-asides are a double-edged sword

Guest commentary

Small government contractors are frequently afforded the
opportunity to bid on set-aside contracts. This allows for a
faster growth curve and in some cases may be the only
way to enter a market dominated by larger, entrenched
competitors.

But limiting opportunities only to those
in the set-aside contract arena can curtail a
company's long-term potential. Firms that
rely on their disadvantaged status as their
key differentiator and don't develop other
competitive advantages will limit their
growth and, possibly, set themselves up for
failure when their eligibility for such contracts
expires.

Some government agencies and other
companies view set-aside programs as an
affirmative action program for companies
that do not have the business acumen to
compete on an even playing field with
other nondisadvantaged firms. This makes
it even harder for the good small businesses
to be recognized for their skills if their
public image showcases their disadvantaged
status.

Companies graduate from the
8(a) set-aside program after
nine years, and both 8(a) and
service-disabled, veteran-owned
small businesses will no longer qualify for
bidding on set-aside work if they exceed
specified size standards. There are numerous
cases of disadvantaged companies that
won enough set-aside contracts to outgrow
the size limits, then couldn't win enough
business without the set-asides to maintain
the growth and had to cut back.

By their nature, smaller firms have
unique and competitive characteristics that
can be used more effectively than by simply
promoting their disadvantaged status.
More often than not, such companies can
identify customer opportunities and issues
quickly and respond faster to them than
larger contractors can respond.

Bigger firms usually require that decisions
be made in a more bureaucratic
fashion with longer response times and
greater aversion to business risks. Smaller
technology and research and development
companies can bring an innovative technology
or unique research to bear that a
larger firm might ignore because of conflicts
with the strategic direction of its
product line or perceived inability to generate
sufficient profits.

Smaller companies can also often compete
favorably with larger ones on price,
but they must be careful. If a small firm
continually seeks to be the low bidder by
not pricing for sufficient overhead, it will
eventually come to a point where it does
not have the infrastructure to support any
additional growth. It will not have the profits
to build that needed infrastructure.

In the same vein, smaller companies
must look for what they can offer beyond
a competitive wage. These organizations
will make great strides to attract top talent
by trying to find out what people
want in life. For some, it's gaining public
recognition, but for others, it might be
taking time off for family, having the
opportunity to work with cutting-edge
technology. A smaller firm can often be
more flexible than a larger firm with
regards to working hours, telework and
benefits.

A company should plan for long-term
revenue growth without relying on setaside
contracts from the beginning, not
after it has graduated from that status.
Developing specific expertise, a talented
team, market niches, technologies, intellectual
property and products are critical to
any successful business.

A disadvantaged firm that focuses on the
business basics and actively seeks revenues
from non-set-aside contracts will be well
positioned for growth after the loss of its
disadvantaged status.

Eric Basu (ebasu@sentekconsulting.com) is the
founder and president of Sentek Consulting Inc.,
a 40-person defense contractor in San Diego.

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