Helping small businesses reach for the stars

A common business strategy in the federal market is tostart as a small business, taking advantage of the socioeconomicpolicy that requires large businesses to subcontractto small, disadvantaged businesses andagencies to award 23 percent of their prime contracts to them. Bytaking advantage of subcontracting and prime contracting opportunities,start-ups get a toehold in both segments of the marketand build their qualifications and past performance in hopes ofselling to a large business as they approach the size-standardthresholds for small business.But small businesses too often feelcompelled to take work that pays the rentbecause they don't have investment partnersto keep them alive while they focuson developing business that fully usestheir technical skills, domain expertiseand passion. As a result, we've seen smallbusinesses grow by offering to do almostanything for anyone.This kind of generalist activity hadvalue before June 2007. Until then, thecontracts held by those small businessesretained their small-business status evenafter the companies were purchased bylarge businesses. But all that has changed.It is now more challenging to create asmall business that retains significantvalue as it approaches the size-standardthresholds.It's interesting that the government'smove to require recertification was championedby small businesses, whichbelieved large businesses were beinggiven unfair advantages by allowing companiesto retain their size status for thelife of the award regardless of the size ofthe contractor. Now many of those samesmall businesses are seeing decreasedcompany valuations because the small-businesscontracts they once prized losethat standing on acquisition by a largebusiness.To increase company valuations now,entrepreneurs need to build businessesthat have value above and beyond theirsmall-business contracts. An informationtechnology services company approachingthe $23 million gross receipts thresholdwill want a book of business that preciselyreflects circumscribed practice areas.At the highest level, there are twodimensions in which small businessesbuild this kind of value: One is technicaland professional capability, and the otheris customer domain knowledge.Most small-business owners want tobuild an organization with the depth ofcapability and infrastructure to be a forcein their chosen discipline or market segment.They know intuitively that beinga small-business generalist is not sustainable.However, far too many ofthem succumb to the short-term temptationof using their small-businessdesignation as a way to grow. They failto recognize the pitfalls of agreeing towork on anything that is less than thehighest and best use of their time andresources. Such diversions carry anopportunity cost that dilutes capabilityand blurs branding.Those rare individuals with technicalskills, domain expertise andthe passion to build a businessshould seriously consider includingbusiness partners ? for example, ina mentor/protégé relationship.Those partners can provide the businessinfrastructure resources necessaryto build a business from DayOne that will generate the valueenvisioned by government's socioeconomicpolicies and ? in the long run ? providethe desired return on investment forthe founder.