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

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.

"It was a difficult adjustment. Once you're out of 8(a), those contracts are no longer available, and it's tough to adapt [to no longer having access to 8(a) contracts]," says Handy. "We lost a third of our staff, and that was substantial because we couldn't continue to compete for contracts we'd had for eight years or more."

To compensate, Handy did exactly what SBA officials say is critical--she relied heavily on the business connections she established while in the 8 (a) program. "We knew those relationships would be key in these years, and we've taken advantage of them. Now we have connections with major corporations," she says. "We're just beginning to see the light of day again where it's starting to look promising." Today, Tresp's major client base includes Lockheed Martin and NationsBank. They're also automating the electric utility company in Dakar, Senegal. Handy estimates her company's revenues at $16-$17 million for 1997.

Step 2--Understand the marketplace.

Long before certification, entrepreneurs must take the time to thoroughly understand the federal marketplace, says Darryl Dennis, SBA's counselor to the administrator. He recommends that CEOs begin this process by attending the numerous SBA-sponsored workshops held at business information centers throughout the country. He also suggests entrepreneurs personally visit the federal agencies to which they're considering marketing their companies, products and services. This is critic al because while every agency must follow federal acquisition guidelines, buying trends and cycles vary within each agency. "Selling to the federal government is a very detailed process", Dennis cautions. "The more time you spend learning how it buys goods and services, the better served your firm will be."

Step 3--Market your company.

Based in North Miami Beach, Florida, Solo Construction Corp. (No. 66 on the BE INDUSTRIAL/SERVICE 100 list) has been an 8(a) firm for two years although CEO Randy Pierson has yet to receive a single contract as a result of his certification. The concern, which has been in business for 20 years, had revenues of $32.6 million in 1996. "We've had a problem here in that there's not enough 8(a) work available," says Pierson. "We're in the process of being considered for some, but none of that has become real yet."

Pierson believes the problem is twofold. First, Solo is extremely specialized in that it primarily does heavy construction work such as roads, highways, bridges and underground utilities. Since fewer opportunities for such projects are available, it means fewer of those contracts are available to 8(a) participants. Second, and perhaps most important, Pierson believes he dropped the ball by not fully marketing his company to potential clients.

"A lot of people expect once you're certified the work will come pouring in, but it doesn't work like that," he says. "You've got to go out to the agencies and really market your company. Find out what their budgets are and what they're looking for. If you find out what they're going to be building in the next fiscal year, you can earmark a project you think will be of interest to you." And what does this have to do with graduating from the program? Success breeds success. This will also endear your smaller concern to larger enterprises that you can collaborate with after graduation.

Step 4--Never put all your eggs in the 8(a) basket.

One misconception is that 8(a) companies can bid only for 8 (a) contracts while in the program. Wrong. The agency strongly encourages businesses to establish non-8(a) contracts while still in the program. The only requirement is that at least 51% of the business must be owned by a U.S. citizen who has been determined to be socially and economically disadvantaged.

"Many companies go into the program believing that set-asides are the only way they can do business," says Handy. "While the program was very supportive in that it helped us survive and grow, it can be damaging if you depend on it too much."

With that in mind, the SBA recently initiated steps to ensure 8(a) doesn't become a crutch for small businesses that would be more of a hindrance than a help. One of the new rules states 8(a) firms must start identifying non-8(a) commercial opportunities by the fifth year of the program. By the end of year five, 15%-20% of revenues should come from non-8(a) accounts. And by the final year, that percentage should have increased to 55%-75%. If not, the SBA will begin removing these contracts from their portfolio. Another new rule will cap the amount of 8(a) sole-source awards firms can win while in the program. "This is one way to ensure that firms put forth more than just a good-faith effort to achieve the goals in their business plans," says Dennis.

After eight years, Barry Baszile, owner of Baszile Metal Service in Los Angeles, is preparing to graduate. While in the program, he consciously avoided doing more than 20% in government-related work because he didn't believe it was a reliable source of income. Instead, Baszile focused heavily on bidding on general contracts and currently has a client base that includes corporations such as Reynolds, Boeing and Lockheed Martin. He says entrepreneurs will win more competitive contracts if they are also on an agency's open bid list. "Don't make your 8(a) status the primary reason for approaching an agency. If you've got a product that can meet industry standards, get on the bidders list," Baszile suggests. "And if, for whatever reason, the agency doesn't provide any set-asides, you still have opportunities to bid."

Not all black business owners who've gone through 8(a) have had negative experiences. When Bill Davis, president and CEO of Lanham, Maryland-based Pulsar Data Systems, entered the program nine years ago, his firm, which does computer systems integration and network design, was struggling. But Davis says he used the program to develop a base that would allow him to participate in open competition for non-8(a) business. Today, Pulsar is No. 4 on the BE INDUSTRIAL/SERVICE 100 list with $166 million in revenues. "Entrepreneurs have to see their 8(a) certification as one tool they have in their marketing bag of tricks when they go to an agency," says Davis. "They're looking for you to bring them a value that they can't get anywhere else."

Step 5--Track down contracts.

Entrepreneurs can track procurement activity through an agency's program office to find out which opportunities large and small businesses are pursuing. Dennis advises entrepreneurs to "find out who the potential bidders are and evaluate their likelihood of success." This can be done by filing a Freedom of Information Act request to learn who the incumbents are and to receive copies of their proposals and contracts. According to the SBA, an FOIA request sent to any federal agency must be acknowledged within 10 working days. Knowing what projects are on the horizon and what a company is looking for in terms of contracts will likely bolster your chances for becoming part of a prime contractor's bid team. "This is critical information that anyone interested in doing business in the federal marketplace should spend time gathering," he says.

Step 6--Find a mentor.

The Department of Defense has a mentor-protege program that teams small businesses with large companies. It's a program Handy regrets not learning about earlier. "When we first heard about it, we didn't participate and that was a big mistake because it can really be an asset," says Handy, whose company was mentored for one year by Lockheed Martin. "It's been very helpful to us with support services, contracting and even legal services." Handy says the program is one of the easiest routes to developing relationships with large companies. In addition, the SBA proposed new rules last year that would enable 8(a) graduates and companies further along in the program to mentor newer entrants.

To graduate from the 8(a) program, entrepreneurs must look at the big picture and reevaluate their operations. "Once they get a big contract, a lot of companies sit back and exhale, instead of using it as an incentive to go after more," says Handy. "Keep your eye on the prize and always let the prize be that next contract."

To apply for participation in the SBA 8(a) program, obtain an application at the SBA Washington District Office at 1110 Vermont Ave., NW, Suite 900 (P.O. Box 34500), Washington, D.C. 20043-4500. Or call 202-606-4000, ext. 452.