Gaining the Competitive Edge.

DEBORAH SAWYER HAS FOUND A BRASS TACKS WAY TO POSITION her $6 million engineering firm as a major player in its industry. As president and CEO of Chicago-based Environmental Design International Inc. (EDI), Sawyer heads a company that provides environmental, industrial hygiene, engineering, and information technology services.

Sawyer recently received a second SBA-guaranteed loan, for $250,000, from South Shore Bank. "We purchased several computers, a server, a photoionization detector, and got an upgraded software license," she says. "It [the loan] helped us get a lot of the equipment we needed to do our job effectively and competitively."

As a member of several business organizations, including the Women's Business Development Center (WBDC), she has been able to use her contacts to build her company with financial assistance, increase her client base, and build her profit margin.

Each year, Sawyer attends the WBDC's business opportunity fair for women-owned businesses.

Prior to the fair, she obtains a list of the corporations scheduled to attend, decides on the top 10 business representatives she wants to meet with, then does research on each company. "Almost every year I leave with an opportunity," she confides. To date, Sawyer has secured an environmental services agreement with Commonwealth Edison, and has done asbestos testing for United Airlines and People's Energy. Sales contracts total $200,000.

As a result of her involvement with the Small Business Administration's 8(a) Business Development Program, which assists small (and economically) disadvantaged businesses in securing federal contracts, she has secured contracts with the Department of Veterans Affairs and the Environmental Protection Agency.

Sawyer's engineering firm, which she started in 1991, is just one of the 800,000 small businesses that start up every year. According to a report by the SBA's Office of Advocacy, some of the fastest growing and most competitive industries for small businesses are in the service sector--mostly businesses that provide services for other companies.

Thriving industries for minority businesses also include retail trade, mining, insurance, real estate, and finance. "The plus side is that there are all of these new businesses being started every year," says Monika Edwards Harrison, associate deputy administrator at the Washington Bureau of the Small Business Administration. "The downside is that there are many more businesses competing."

According to industry experts, the economy is slowing down, but African American businesses will need to pick up the pace when it comes to positioning themselves as the "vendor of choice." Egos aside, black business owners will need to form alliances in order to survive in today's market. The days of "I'm bigger or better than you" are long gone because of merger mania among large corporations.

MERGERS, ALLIANCES, AND PARTNERSHIPS

Small businesses that provide services and products to corporations are currently facing a new roadblock. Corporate mergers have enabled conglomerates to rely on each other for services they had previously purchased from small companies. As a result, this trend has reduced the number of small-firm contracts.

The benefit of mergers for the corporate and government sectors is a reduction in the cost of productivity and a more efficient way of producing and providing a product. According to Heyward Davenport, regional director of the Minority Business Development Agency (MBDA) in New York, "Minority-owned companies have to think along the same lines in order to compete for business. They are going to have to follow some of the same practices as the big corporations. Minority-owned companies have been very slow to follow that example." To assist small businesses in doing this, the MBDA, on its Website (www.mbda.gov), is setting up an electronic format that will allow companies that are looking to partner with other firms (either in the form of a merger or as a temporary partnership), to be matched. The agency's business center will also provide consulting to assist these firms in structuring a business development deal.

One unique business partnership that defies a specific category is that of Joy Pacheco, president of 1-year-old inSource Inc., a $25,000 payment processing company, and Bidenia Simmonds, president of the $1.5 million Bougainvillea Inc., a 4-year-old enterprise that sells juices and sauces made from hibiscus flowers. Both companies are based in Rochester, New York.

Using each other's skills and strengths, Pacheco and Simmonds have been able to work toward and achieve their professional goals. Pacheco previously worked in corporate banking and advertising, and studied commercial art and graphic design. Capitalizing on her marketing skills and business contacts, she has designed the packaging for Simmonds' hibiscus products, has written the press releases, and is currently assisting her in raising $1 million from equity investors. "It's been a valuable learning process," Simmonds says of searching for capital. "These are things that I would never have learned in a classroom. I've learned about buybacks, how to put together a slide presentation to enhance the presentation of my product, how to look for venture capital companies over the Internet, and how to find individual investors," she says.

Aside from their present search for capital, their alliance has increased Bougainvillea's gross revenues from $10,000 to $3.2 million for fiscal year 2000.

Simmonds, a CPA, is adept at several computer programs. She assisted Pacheco in switching to Peachtree, an accounting system that allowed Pacheco to run her business more effectively. "We use it to do our data entry for accounts payable and receivable," says Pacheco. "It generates our monthly reports and maintains our vendor list." Simmonds also trained inSource employees on the accounting system, helped set up inSource's database, and assists the company in setting up and maintaining its customers' databases.

The two business owners have also been able to keep costs down by creating their own logos and business cards. "With Bidenia's technical knowledge and my design knowledge," says Pacheco, "we've been able to do all of that in-house."

"A lot of times, if you don't have the extra cash," Simmonds adds, "it's helpful to have someone who can jump in and help with those things."

KNOW YOUR COMPETITION

In order to stay competitive, you must remain visible in the race for business opportunities: Take a trip to the nearest SBA or SCORE office and inquire about contract opportunities and networking events. The SBA's Pro-Net (www.pro-net.sba.gov) Website contains profiles of more than 195,000 small businesses in various industries. Lexis-Nexis (www.lexis-nexis.com), a news search site, provides business, legal, and high-tech information resources and articles. The site, which charges a $169 monthly subscription fee, is a good way to view public information about your industry and your competitors.

Joining a local chapter of the African American Chamber of Commerce or an organization such as the National Association of Women Business Owners "will help you keep abreast of what's happening in the small business community," Harrison says.

Another option is hiring a consultant. But if keeping expenses down is a priority, conduct your own research by surfing the Internet. The Netscape search engine, which offers a great deal of information, is a good way to start. By typing in the keywords "small business," the engine will provide sites on everything from businesses in your industry and financial information to business organizations. "There are also online databases like the one offered by Dun & Bradstreet," Harrison says. "It offers corporate profiles, their sales, number of offices, and nature of the business.

"Of course let's not forget the obvious things like physically checking out the competition and finding out who is offering the same product and where they are in proximity to your business' location," says Harrison. "You'll want to know how they [competitors] are faring. It may also be that the product or service you want to sell is a good product but the cost of producing it is too costly to be priced competitively."

Another way to gauge the competition is to read the local newspapers, which frequently list incorporations of new businesses. The SBA's general site, at www.sba.gov, is also helpful and contains tax information and links to other government sites such as the IRS'.

GROW YOUR BUSINESS

Growing a company financially and substantially increasing its client base is essential for the success of a small business. With assistance from small business organizations, a larger number of entrepreneurs are able to do just that.

Being an SBA 8(a) business has proven beneficial for Keith Davis, president of the Davis Group, a Camden, New Jersey, company that designs and installs security and safety systems. Davis' $2.5 million firm, which started operation in 1989, has been an 8(a) business for the past eight years. Commercial clients include Lockheed Martin, an aerospace defense contractor, a relationship which garnered the Davis Group nearly $500,000 in sales. The Camden School District and the New Jersey State Aquarium round out Davis' commercial client contract list.

Since becoming 8(a) certified, the Davis Group has done work for the Department of Defense and the Department of Justice to the tune of $4 million in combined sales.

"We have been able to leverage our relationship with the SBA into several meaningful projects," Davis says. He is currently negotiating a $5 million contract with the Bureau of Engraving & Printing.

"With some of the monies earned from SBA jobs," says Davis, "we were able to create a Website for greater brand exposure and design a color brochure that helped create the right image for the company, which is important in the development of our business and, quite frankly, any business that wants to experience and maintain growth."

In 1994, Davis received a $500,000 SBA-guaranteed loan with Commerce Bank N.A. of South Jersey. In a market where contract payments take two or three months to roll in, the money helped him fund the projects currently under way and permitted him the flexibility needed to go after larger contracts. "We used those funds as working capital," Davis says. "We purchased equipment and paid employees."

TECHNOLOGY TRENDS

According to reports published by the SBA's Office of Advocacy, small businesses are spending more money on information technology and are embracing e-commerce to expand their customer base and increase profits.

In 1999 alone, small businesses spent nearly $156 billion on IT products. But James G. Martin, CEO of NOAH Communications, a $200,000 telecommunications company in Washington, D.C., says that companies don't have to break the bank to get in on this new technology. "E-commerce allows a small business with limited capital to reach a wider audience by putting their business online," he says.

Martin's firm, which also provides companies with DSL connections, says he offers cost-effective IT packages that cost anywhere between $49 and $500. "One unique thing that distinguishes our storefront solution is that it allows small businesses to process payments instead of just taking orders," he says. Although having an Internet site offers an easily accessible presence, Martin says that for his business, good customer relations are just as important in staying one step ahead of his competitors. "We find that a lot of people aren't satisfied with the service they've gotten in the past," he says, "because of the poor job other firms have done with managing their expectations. You have to keep the customer happy. For us, it has been the satisfied customer that we installed a line or built a storefront for who told five or six of their friends about us."

Martin also keeps his eye on the constantly changing state of technology in order to continually position his company as a leader in its field. As Internet access goes through the evolution of DSL hook-ups and cable modems, Martin believes that the future will be in wireless and satellite connections. "I think that the companies that are positioned to provide that kind of access, are going to be the ones that will be successful over time," he says. "We're looking to build out our own network using wireless and satellite access and we're trying to position ourselves to do that.

NOAH's current arrangement with Verizon allows it to lease equipment and in turn provide Verizon with a fee from each customer NOAH assigns to Verizon's network. "This is an important alliance toward reaching our goals," Martin says.

Such an alliance, which is a rare partnership in the industry, puts NOAH one step ahead of the competition in having immediate access to new technology as it becomes available.

E-commerce, as it relates to business-to-business transactions, has been astounding. Websites such as www.blackenterprise.com, and www.blackvoices.com offer shopping and a multitude of B-to-B services. Internet trade is expected to double every year over the next five years from $43 billion in 1998 to $1.3 trillion in 2003. In an effort to assist small businesses (which provide b-to-b services) in becoming e-enabled and to have a stronger presence in this market, the MBDA has been working with Verizon, Lucent Technologies, and Nortel, among others, to host technology seminars across the country. These gatherings give small businesses the opportunity to hear what major corporations are looking for from minority businesses. "Discussions have included everything from how to develop portals to structuring computers to do invoicing," says Davenport. "Companies must understand what this technology is and why it's crucial to their survival."

In this new millennium, small businesses must deal with the reality that the classic mode of doing business has changed. In order to compete on a larger scale, small businesses must evaluate and reassess their current standing in technology, and examine how forging alliances with other small businesses can best help them compete in their individual industries.

African American Business Capital Outlook

The Milken Institute sounds a wake-up call to lenders and business owners when it comes to accessing capital

An investigative study by the Milken Institute in conjunction with the Minority Business Development Agency (MBDA) in September 2000 confirms that minority businesses are growing faster than majority firms in number and revenue, yet they still remain "severely constrained by lack of access to capital," note Glenn Yago and Aaron Pankratz, authors of the study.

The largest disparity occurs in the African American business community.

Although African Americans are 12.5% of the U.S. population, they own just 3.6% of the businesses. According to the most recent census data available, there were more than an estimated 880,000 black-owned enterprises operating in the U.S. in 1997.

The report should serve as a wake-up call to both lenders and investors.

In order to increase minority economic participation in business ownership, the study recommends:

(1) Increasing the total supply of capital accessible to the minority business sector.

(2) Shifting the emphasis to equity investment vehicles for early stage financing.

(3) Developing black-owned finance companies focused on black-owned firms.

When compared to nonminorities, black-owned firms are less likely than white-owned businesses to have commercial loans.

The conclusion of the study suggests that within the African American community, the importance of wealth creation and accumulation must be legitimized to develop a business infrastructure that will address the many issues of the black community.

The Milken Institute/MBDA study was the subject of the most recent BLACK ENTERPRISE Board of Economists meeting (see "Capital Ventures," June 2000). BE Economist Andrew Brimmer, president of Washington D.C.-based Brimmer & Co., asserts, "If the issue is lending, reflect on how it is done in bank lending. The banks don't sit and wait for potential borrowers to show up. The principle marketing approach in commercial banking and lending is a calling officer who actually goes out to recruit borrowers. They literally recruit borrowers. From the point of view of the bank lending to minorities, they need to have more calling officers who go out into these minority communities and look for opportunities to lend."