Graduation day from 8: here are the steps you need to follow to survive the SBA program

Black Enterprise, Feb, 1998 by Joyce Jones

THE HORROR STORIES ARE COMMONplace. A wide-eyed black small-business owner enters the Small Business Administration's 8(a) program with high hopes and the best of intentions. He or she makes vital contacts and locks down the necessary contracts to nurture and grow the small firm while seeking out lucrative government business. And after a few years of doing fairly good business under the 8(a) umbrella, the CEO leaves the 8(a) nest with expectations of going on to bigger and better ventures. But the next time the business owner makes news is a year or two later under the bankruptcy listings in your daily newspaper.

This could have been Lillian Handy's story. After eight years as an exemplary participant in the SBA program, Handy was confident her Alexandria, Virginia-based technology firm, Tresp Associates Inc., was ready to soar. By all accounts she had reason to be optimistic. When her 1994 graduation date rolled around, her firm, which provides full-service systems integration and computer hardware, had secured valuable contacts and multimillion dollar contracts with Fortune 500 concerns such as IBM and Lockheed Martin. Revenues for her business had risen past the $15 million mark.

Yet almost immediately after leaving 8(a), Handy's once-thriving operation began to downsize. She lost a lucrative $26 million contract with the Department of Energy to provide full-service facilities management for the DOE's complex in Oak Ridge, Tennessee. Tresp initially locked down a five-year contract with DOE to provide the work. Handy says the contract was extended an additional three years because DOE was pleased with her service. Then the time came to re-compete for the contract. Handy's company was scheduled to graduate the day after the proposal was due; therefore, the company was eligible. But the DOE insisted that the contract go to another 8(a) company. Handy's revenues dipped to about $7 million, and she was forced to lay off a significant number of her employees. Simply put, "We took a dive," she says.

She's hardly alone. The U.S. Small Business Administration conducted a survey of the 1,242 firms that exited the 8(a) program between October 1, 1992 and September 30, 1995: only 646 were still independently operational; 19 had substantially curtailed operations; 19 others had been acquired by other firms owned and controlled by nonminority individuals; and almost one-half, or 558, ceased to exist altogether.

So if your company were a graduate of 8 (a) between 1992 and 1995, there would be a pretty good chance you'd be in another line of work today--not a very inviting observation if your firm is considering entering the program or is soon to graduate from it.

Yet, Handy and many others do find a way to survive the difficult transitional phase from a youthful 8(a) firm to a fully independent enterprise. What's the difference between survival and extinction? Preparation. What happens to your business after leaving 8(a) depends entirely on how well you work the program during your time there.

More than 6,000 small firms across the U.S. are currently 8(a) companies. In 1996, 8(a) firms employed more than 158,000 workers and received $5.3 billion in federal procurement awards. So, for many black-owned firms, it's a wild ride worth taking. By following some commonsense approaches, such as doing your homework and developing strategic relationships with large companies, you can greatly increase the odds of your company's future success. But you have to start mapping our your winning game plan. And the game starts well before your company becomes an 8 (a) enterprise.

Step 1--Know the rules of engagement.

The SBA 8(a) program is a business development program designed to assist small firms to reach a point of "self-sufficiency and competitive viability" by obtaining federal government contracts, according to the fact sheet issued by the SBA. Under the program, the SBA acts as a prime contractor and enters into various types of government contracts, including supply, services, construction, and research and development, with other government agencies. It then negotiates subcontracts for performance with small companies in the 8(a) program. To be an eligible participant, the company must be owned by an individual termed to be "socially disadvantaged." This designation includes African Americans, Hispanics and Native Americans, among others. Every program participant is admitted for a nine-year term. That term consists of a four-year developmental stage and a five-year transitional stage.

For many, the move away from 8(a) is a difficult transition to make. Handy says her company struggled greatly to stay afloat after leaving the program. Her transition was turbulent despite being savvy enough to make sure only half of the business she did while in the program was 8(a)-related. The other business Tresp acquired was via open-bid or commercial contracts. Despite some forethought, Handy says she still rode through choppy waters for some time.