Ensuring a smooth exit
Planning is the key to successfully graduating from the 8(a) program
- By Heather B. Hayes
- Sep 28, 2007
Hundreds of small and disadvantaged companies enter the Small Business Administration's 8(a) business development program each year, enjoying nine years of favored status. But when that time runs out and they graduate from the program, many are unable to succeed in the full-and-open government contracting market.
A strategic vision can make the difference between failure and success for former 8(a) companies, according to leaders of companies that have made the transition. For these successful companies, planning ahead for graduation was crucial.
"The day you go into the 8(a) program is the day you have to start thinking about putting things in place and supporting yourself once you get out," said Amos Otis, chief executive officer at SoBran Inc., an 8(a) alumnus that today has revenues of $48 million and 600 employees. "Starting after graduation ? or even just a few years before ? is basically a death sentence for an 8(a) company."
Companies that plan well for the 8(a) offramp find the transition to be a relatively gentle segue into the real-world contracting environment, said John Barrass, chief operating officer at STG Inc., a former 8(a) firm that in 2006 brought in $200 million in revenues. For the rest, he said, "it's a cliff."
That's especially true for companies that use the program as a crutch rather than a tool, said Rodney Hunt, CEO at RS Information Systems Inc. Less than five years after graduating from the 8(a) program, RSIS is a $350 million company specializing in, among other things, telecommunications, network engineering and information assurance/security.
"A lot of companies will rely almost exclusively on the 8(a) set-asides or the small-business vehicles that have limited competition or use their GSA schedules and GWACs to go after small-business opportunities," he said. "And then one day, they wake up and they're in the batter's box against Nolan Ryan. There's just no way they're going to have anywhere near what it takes to be successful."
Hunt's metaphor, invoking Hall of Fame pitcher Ryan, is an apt description of what emerging companies face. Nudged out of the 8(a) nest, the companies suddenly find themselves competing against much larger firms for business.Forward spin
Long-term thinking and laying the right groundwork enabled SoBran, STG and RSIS to leave the 8(a) cocoon. Like other successful 8(a) graduates, SoBran won as many contracts as it could without relying on its preferred status. By the time the company left the program, more than half of its contracts had come through full-and-open competition.
SoBran also spent its years in the program preparing and positioning its management team, infrastructure and workforce for the long term, Otis said. It had established strong industry partnerships and banking relationships and fostered a reputation for being the go-to company in a few core competencies. All of those preparatory steps contributed to a solid foundation for further growth after 8(a) graduation, he said.
STG had even taken the critical but costly step of investing heavily in its infrastructure, first obtaining ISO 9000 and Capability Maturity Model Integration (CMMI) Level 3 certifications while it was still in the program and then spending more than $1 million to implement the Cost-Point Enterprise Resource Planning tool ? despite the lack of any chance for immediate return on that investment. The firm also established long-term training programs for employees.
RSIS made it a point to never truly characterize itself as an 8(a) business.
"From Day One, we walked and talked and acted like a full-and-open company," Hunt said. "My objective was for an agency to pick us because of what we were capable of doing, and then if using the 8(a) vehicle was the quickest and easiest way to get to us, then so be it. But don't pick us because we're an 8(a) company."
8(a) companies should stick with their strengths, Hunt said. Although it's tempting to chase any opportunity that improves the bottom line, smart 8(a) firms select opportunities carefully. Companies that step outside of their core abilities have a greater risk of failing.
And, he warned, "if you fail at something, even if it's not your area of expertise, that will affect your past-performance rating."Into the abyss
Nine years turns out to be an extremely short period when companies have to establish infrastructure and operations, recruit managers and employees, learn how to identify opportunities and compete in the government contracting realm, foster client relationships and keep revenues coming in.
But planning and preparation for life beyond graduation needs to always remain at or near the top of the priority list, said Guy Timberlake, CEO and chief visionary at the American Small Business Coalition. Companies in the program can take advantage of the benefits, but the wisest course is to rely on the same proven business principles that any other young firm would, he said.
"Too many companies identify completely with the program," he said. They will make their 8(a) designation the first piece of information they want prospective customers to know, rather than their capabilities and qualifications.
"Right away, they're pretty much dismissed as not serious, because they're leading with their socioeconomic designation rather than their actual skill sets," he said.
Conceptualize success and believe that it's possible, Otis said. While making the transition to being a bona fide player in the government contracting arena is not an easy course, it can be done.
"You've just always got to know that your graduation date is out there," Otis said. "Don't let it get lost in the day-to-day activities. Think about it every day and prepare for it a little at a time."Heather B. Hayes is a freelance writer in Clifford, Va.