Helping small businesses reach for the stars

Buylines | Policies, strategies and trends to watch

A common business strategy in the federal market is to
start as a small business, taking advantage of the socioeconomic
policy that requires large businesses to subcontract
to small, disadvantaged businesses and
agencies to award 23 percent of their prime contracts to them. By
taking advantage of subcontracting and prime contracting opportunities,
start-ups get a toehold in both segments of the market
and build their qualifications and past performance in hopes of
selling to a large business as they approach the size-standard
thresholds for small business.

But small businesses too often feel
compelled to take work that pays the rent
because they don't have investment partners
to keep them alive while they focus
on developing business that fully uses
their technical skills, domain expertise
and passion. As a result, we've seen small
businesses grow by offering to do almost
anything for anyone.

This kind of generalist activity had
value before June 2007. Until then, the
contracts held by those small businesses
retained their small-business status even
after the companies were purchased by
large businesses. But all that has changed.
It is now more challenging to create a
small business that retains significant
value as it approaches the size-standard
thresholds.

It's interesting that the government's
move to require recertification was championed
by small businesses, which
believed large businesses were being
given unfair advantages by allowing companies
to retain their size status for the
life of the award regardless of the size of
the contractor. Now many of those same
small businesses are seeing decreased
company valuations because the small-business
contracts they once prized lose
that standing on acquisition by a large
business.

To increase company valuations now,
entrepreneurs need to build businesses
that have value above and beyond their
small-business contracts. An information
technology services company approaching
the $23 million gross receipts threshold
will want a book of business that precisely
reflects circumscribed practice areas.

At the highest level, there are two
dimensions in which small businesses
build this kind of value: One is technical
and professional capability, and the other
is customer domain knowledge.

Most small-business owners want to
build an organization with the depth of
capability and infrastructure to be a force
in their chosen discipline or market segment.
They know intuitively that being
a small-business generalist is not sustainable.

However, far too many of
them succumb to the short-term temptation
of using their small-business
designation as a way to grow. They fail
to recognize the pitfalls of agreeing to
work on anything that is less than the
highest and best use of their time and
resources. Such diversions carry an
opportunity cost that dilutes capability
and blurs branding.

Those rare individuals with technical
skills, domain expertise and
the passion to build a business
should seriously consider including
business partners ? for example, in
a mentor/protégé relationship.

Those partners can provide the business
infrastructure resources necessary
to build a business from Day
One that will generate the value
envisioned by government's socioeconomic
policies and ? in the long run ? provide
the desired return on investment for
the founder.

Steve Charles (steve_charles@immixgroup.com) is
co-founder of immixGroup Inc., a consulting firm.

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