Commentary | 8(a) grads face a daunting future
Success can lead to hard times as midsize companies face larger competitors
- By Rodney Hunt
- Sep 01, 2006
Rodney Hunt, president and CEO of RSIS Inc.
Over the past two decades, the Small Business Administration and its 8(a) program have been a godsend to small businesses owned by minorities, women and veterans. My company, RS Information Systems Inc., stands as a vivid example of what a minority-owned small business can mine from a government policy that seeks to develop a successful small-business community among its contractors.
I'm just one of an ever-growing group of entrepreneurs whose acceptance into the 8(a) program allowed them to achieve a degree of success that otherwise would not have been possible. It's encouraging to see that the government realizes it must do more to help small business get a larger share of the pie.
The federal government should not let up in its efforts to achieve its small-business objectives. But it shouldn't stop there.
The government needs to look carefully at the fate of these successful companies when they no longer are designated as small businesses. My company graduated from the 8(a) program more than three years ago. We did so as one of the largest
services companies, as measured by employees and revenue, ever to graduate from the program.
Still, I can tell you firsthand that the challenge faced by small companies that have grown into mid-sized businesses is a daunting one. After building a strong position among small businesses, a company that no longer meets small-business criteria is tossed into a marketplace filled with industry giants. These former small businesses, now mid-sized, struggle against tough odds to develop the resources to compete on a level playing field against the giants.
For many, the challenge is insurmountable. They run out the string of small-business contracts they had won and fold. Or they sell to a larger company. It's not surprising that a recent study found the share of federal contract dollars going to mid-sized companies shrinking dramatically ? down to 13 percent in 2004 from 29 percent in 1995. Large companies took those dollars, the study found, increasing their share to 59 percent in 2004 from 42 percent in 1995.
This pattern of activity undoes the hard work of so many in government and industry to cultivate small businesses and move them into the mainstream marketplace.
It also diminishes the benefits to government and taxpayers of a category of companies that have critical experience and past performance rarely found among small companies, as well as the flexibility and niche expertise often unavailable at large companies.
The way to resolve this is to build a bridge for mid-tier companies to the full-and-open market. Government can do this by re-evaluating the size standards for businesses competing for contracts. I appreciate the argument of businesses that have about 50 employees and a few million dollars in revenue, but that must compete with companies that may have 1,500 employees and as much as $200 million in revenue. After all, for several years after I founded it in 1993, my company was the little guy.
But I find it just as unfair for a company that has 1,500 employees to compete every day in the full-and-open market against companies that have 10,000 and more employees. The plights of both small and mid-sized companies beg for a re-evaluation of size standards. For example, the size limit for small-business designation is at 1,500 employees. Why not designate one category of set-asides for companies that have between 1,500 and 2,000 employees and another for companies that have between 2,000 and 2,500 employees?
To expand the market for small businesses, include a requirement for a small-business subcontractor plan in each of the two new categories of set-asides. These new categories could ensure a place for those companies that, by government standards, are no longer small but nowhere near large.
I would argue that by the time a technology services company reaches 2,500 employees, with annual revenue likely to be about $500 million, it should have the size and experience to compete effectively against large companies. All it needs is a bridge from small to full and open.
Rodney Hunt is the president and CEO of RS Information Systems Inc. of McLean, Va.