Staying alive; to survive 1994 and beyond, small businesses are using unconventional methods to turn current trends into future profits.
No wonder The Creighton Group (TCG), a Los Angeles-based environmental consulting firm, is one small business making a big bundle during a period of environmental consciousness-raising. TCG expects to rake in at least $1 million this year by helping larger firms figure out and implement the ever-changing avalanche of federal, state and local recycling laws.
As a multitude of federal regulations filter down to state and municipal levels, the demand for consultants who can interpret and carry out these laws constantly increases, explains TCG principal Teresa Jones.
Following in the footsteps of a number of companies looking for that first break, TCG secured 8(a) certification from the U.S. Small Business Administration (SBA). It took them 18 months to complete the process. "The SBA's 8(a) program helped us get into the game, but we don't want to be reliant on set-asides," says Jones. "We have a five-year plan to get out of the program." Today, less than a third of the firm's projects come via 8(a).
To survive 1994 and beyond, numerous small black-owned companies, like TCG, are cashing in on the opportunities in such growth areas as environmental management, high-tech and international trade. They are using strategic business savvy while taking advantage of new government and corporate minority procurement programs, SBA loan programs and growing outsourcing opportunities at Fortune 500 companies.
During the past recession, corporate America learned it could make big demands on small business, says Harriet Michel, president of the National Minority Supplier Development Council (MSDC). Black entrepreneurs are now increasingly going where the big bucks are. For instance, black vendors are supplying such nontraditional products as medical equipment, rather than such standbys as drinking cups.
While industries dominated by large businesses are projected to grow by 10.5%, the small-business fields are estimated to expand by 25% in the next 15 years. Small business is expected to create 13.5 million jobs by 2005.
There is a multitude of opportunities along with a sea of problems, notes Anthony Robinson, president of the Minority Business Enterprise Legal Defense and Education Fund. "We need a real commitment and sensitivity from government and private enterprise. We are losing more and more ground to white women in corporate procurement.
A HELPING HAND FROM UNCLE
SAM AND FRIENDS
Over the last seven months, several government agencies have vowed to help minority-owned companies thrive. More specifically, the SBA, the Minority Business Development Agency (MBDA) and NationsBank recently joined forces to create the Small Business Resource Center. The center is designed to increase the success rate of small and minority-owned businesses via education and technical assistance.
"The agreement between the SBA, MBDA and NationsBank will enhance the ability of minority-owned businesses to compete effectively in today's global economy," says Commerce Secretary Ronald H. Brown. The agreement includes a commitment to open one of these resource centers in each state where there is a NationsBank retail office. "We want to change a sad reality of the U.S. economy, that a majority of small businesses fail within the first five years," says Kenneth D. Lewis, president of NationsBank Corp. Lack of management knowledge, business experience and undercapitalization are the usual culprits, he says.
To facilitate its loan process, the SBA has initiated the LowDoc program. With LowDoc, the size of the application for funds under $100,000 is no more than two pages, while the response time is no more than three days. LowDoc, which stands for low documentation loans, is the SBA's response to complaints about its 7(a) General Business Loan Guarantee Program. Overwhelmed by the paperwork, many women- and minority-owned businesses were discouraged from applying for the loans.
Over the last 10 months, the SBA has reduced its backlog of loan applications, installed new management procedures, and developed a comprehensive training program for development specialists working directly with 8(a) firms.
"While working to improve our existing 8(a) program, we were also developing a program to change the way we provide support to our customers," says Deputy Administrator Cassandra M. Pulley. The SBA has revamped 8(a) to broaden the base of minorities served by the program.
While black-owned firms are looking closely at how Uncle Sam addresses their needs, they also have their eyes on the MBDA. Commerce Secretary Brown took a lot of heat during the period when the MBDA was left "headless." But he reassures cynics that minority business development remains his No. 1 priority. The future of minority business depends on how well the MBDA can convince Uncle Sam that minority business development is crucial to the nation's bottom line. Of the Commerce Department's $3.6 billion dollar 1994 budget, $42.1 million goes to the MBDA. Next year the MBDA will receive $44.7 million.
PROCUREMENT. A SAFE HAVEN?
Big business continues to look to small business to service its needs. According to the NMSDC, nearly 75% of Fortune 500 companies have minority vendor programs. The auto industry has also proven to be fertile ground: Last year, Chrysler, Ford and General Motors purchased in total more than $2.5 billion in goods and services from minority suppliers.
Minority vendors should consider nontraditional sectors, says Jim Roath, president of Kansas City, Mo.-based Perfection Industrial Distributors Inc. Traditionally, black companies have sought a certain comfort level by providing basic goods, says Roath. "They were the bread man or the cup man." Initially, Roath peddled batteries. After doing lengthy research and a comprehensive proposal, Roath went to such major firms as Union Carbide to convince them that he could save them money by buying their AA or DD batteries in bulk. "Well, $200,000 worth of batteries was not a big deal to them. To me it was good business," says Roath.
Before long, he was putting out a catalog and his customers were asking what else he could get them. Today, the 26-year-old firm is a much sought-after warehouse that supplies industrial and medical materials. Some 200 clients can place their orders, and even pay them, via personal computer.
At least one untapped source of procurement dollars is the U.S. Postal Service. "It is probably no exaggeration to say: If you make it or service it, we probably buy it in one quantity or another," notes Richard J. Hernandez, manager of corporate supplier diversity for the Postal Service.
The Postal Service awards around 100,000 contracts every year, valued at about $4 billion, for various products from pencils to robotics.
Clean air, water and land is not just good for the country, it's also good for business. The environmental industry is growing faster than the economy as a whole. According to the U.S. Department of Commerce, the environmental goods and services market is roughly $120 billion in the United States and $250 billion worldwide. That number could hit the $425 billion mark by 1997. That's good news for black environmental consultants, contractors and manufacturers.
Over the next decade, the government plans to pump $2 trillion into environmental protection and cleanup, according to The Earth Action Network, an environmental watchdog. Many of these "green" contracts for the management of air, water and solid waste pollution will go to black companies.
For example, George R. Stinson is relishing the nation's shift to cleaner air. His $15 million firm, General Converters & Assemblers, manufactures and assembles eco-conscious products ranging from air fresheners to plastic wrap. Such major firms as S.C. Johnson and Alberto Culver are turning to Stinson when they want air fresheners assembled or shampoos and conditioners repackaged for a massive promotion.
The Racine, Wis., company also manufactures and repairs pallets, the wooden props used to ship cargo. Stinson is particularly serious about using scrap wisely. When it completes an order, GCA recycles all of the wood scraps in a bundler, a device costing a hefty $100,000. Further implementing a new recycling plan to ensure no wood pieces are dumped in landfills will take another $400,000 out of Stinson's pocket next year.
"I have to both preach and practice environmental concern in order to stay in business," says Stinson. But whatever GCA loses on the front end, it will make up for over the long haul. With the EPA hiring hundreds of criminal investigators to snoop around for violators, firms such as The Creighton Group and General Converters & Assemblers will have both corporate and small business America knocking on their eco-conscious doors.
BYPASSING THE SUPERHIGHWAY
Information technology is going to be the backbone of this ever-mobile nation's economy. To ensure that the information superhighway passes through the black community, black-owned companies need to find an "on" ramp to this estimated $300 billion communications network, connecting Americans together through a web of computer, television, radio, telephone and other wireless devices.
"The large firms are bumper-to-bumper right now, engaged in one of the largest traffic jams you have ever seen, putting out billions upon billions of dollars to ensure their own access," notes John Winston, director of Small Business Activities, the Federal Communications Commission.
"The fact that minority-owned businesses may be small does not preclude their ability to take advantage of or even take a leading role in the information revolution," adds Larry Irving, assistant secretary for communications and information at the Commerce Department. In fact, the Minority-Owned Business Technology Transfer Consortium, an assembly of minority technology business owners, is focused on leveraging federal support in developing, commercializing, and deploying government-driven technologies.
Black-owned businesses can also tap into The National Technology Transfer Center's (NTTC) 700 federal laboratories and research centers. The goal of NTTC is to allow for easy access to marketable technologies while helping federal laboratories locate private partners to develop commercial products.
Another entrance ramp: the Small Business Innovation Research Program. A group of 11 federal agencies, including the Departments of Commerce, Defense, Energy and NASA participate in this program, which enables them to award up to $750,000 to small firms that develop innovative commercial products.
But to compete on the technological front, black firms need to look beyond the megadeals. Yes, Hughes Aircraft has $3.2 billion to launch DirecTv, a satellite-to-dish system that could ultimately have 500 television channels. And Teledesic, a brainchild of MicroSoft and McCaw Cellular Communications, can put up $9 billion to build a network using 840 low-orbiting satellites.
But according to Dorothy Brunson, president and CEO of Brunson Communications, "[Black business] must look at how all of this is going to affect their ability to be competitive." For instance, 150 channels are expected to launch this year, providing opportunities to those who do the construction, the mechanical work, the maintenance, the installation, the marketing, and the sales, explains Brunson, the first black woman to own a U.S. radio station, and a recent invitee to a governmental panel discussing minority opportunities in technology.
But "minorities, women, small business and nonprofit entities must not be left standing on the access road while the big dogs tool down the communications superhighway," says U.S. Representative Cardiss Collins. Rep. Collins (D-Ill.) has called on the FCC to address the barriers impeding minority and women ownership of communications businesses. Per the FCC, there are 490 minority-owned telecommunications firms - .05% of the industry. Last March, Collins convinced Congress' Energy and Commerce Committee to pass two amendments to help minorities receive a fair proportion of total purchases, contracts and subcontracts for supplies, property, commodities, and services offered by the telecommunications providers.
Last July, the FCC took historic and overdue action to ensure that minorities were able to compete exclusively for 1,000 of the 3,354 licenses to provide narrowband, personal communications service (PCS). PCS is geared to meet demands for on-the-go communications by creating the next generation of wireless services, which include pagers, fax machines and mobile phones.
Those firms bidding for PCS licenses were able to do so without competition from the major corporate firms. However, Commerce Secretary Brown initially had concerns about the PCS auction because minority businesses best suited to launch viable PCS ventures are not able to qualify since their revenues are too large (above $40 million) to be one of the "designated entities."
Minority auction winners are utilizing the commission's installment payment plan for small businesses. The plan permits paying just the interest for the first two years with the remaining interest and principal authorized over the rest of the 10-year license term. Over the next decade, analysts predict mobile telephones will be a $50 billion industry serving 100 million subscribers.
NO PASSPORT NEEDED
"Export is the area for growth for blacks," says Lloyd Pilgrim-Spooner, head of the Association For Minority Exporters & Importers (MEXIM Inc.) in New York. "It's the most positive area for us to be. We have to go abroad. It is probably easier to penetrate than domestic markets. There is less discrimination to encounter and less constricting legislation." Analysts predict 1994's exports to top $700 billion, more than 10% of the gross domestic product.
Thanks to the North American Free Trade Agreement, exports to the United States, Canada and Mexico increased to $590.5 billion, whereas regional imports increased to $701.2 billion. The latest statistics show the United States ranks as the world's largest exporter, up 6% to an all-time high of $425 billion, followed by Germany and Japan. Imports increased 8.5% to $525.1 billion.
"The government has already zeroed in on the markets it intends to gobble up," says Pilgrim-Spooner. "We should be involved in reaping some of the profits," he adds, noting that Latin America and the Caribbean are ripe for African-American business entry.
Indeed, Brian Brown, president of New York City's Promotion Marketing of America, claims that his company generated $3 million in sales last year. Promotion Marketing imports and exports anything as long as it is not too big and it's legal," he jokes.
The seven-year-old company handles consumer goods, including ceramics, electronics, and umbrellas. Nowadays, Brown's largest account, Bass Inc. in New Jersey, is purchasing personalized pens, clipboard sets and men's toiletry carrying cases.
Trade mavericks like Brown have already realized that America is paying special attention to its export economy. And many African-Americans are entering this field, even if it's on a shoestring (see "Black Business Courts The Japanese Market," June 1994).
But even as more black-owned companies emerge in new areas, and with improved performance, the overall outlook is still one of rugged opportunity. Perfection Industrial's Roath sums up the challenge: "The problem is not can you compete but can you learn how to compete."
RESOURCES FOR SMALL
Export/Import Association For Minority Exporters & Importers, MEXIM Inc., 67 Wall Street, Suite 2411, New York, NY 10005 212-673-3280. The association is a nonprofit entity offering export, import and investment advice by sponsoring seminars, publications, conferences and the development of international business plans.
U.S. Department of Commerce Trade Information Center, HCHB 7424, Washington, DC 20230 202-482-0543. The trade information center offers counseling on federal export programs. The department also tracks how much money countries are spending in trade.
National Minority Supplier Development Council, 15 W. 39th Street, 9th Floor, New York, NY 10018 212-944-2430. The group matches minority-owned firms with corporate procurement opportunities. The NMSDC's database includes 15,000 vendors and 3,500 corporate sponsors.
Small Business Resource Center, NationsBank, 3401 West End Avenue, Nashville, TN 37203 615-749-4000. The SBA, MBDA and NationsBank are collaborating to open one-stop shops for training, counseling and financing entrepreneurs.
U.S. Small Business Administration, 409 Third Street SW, Washington, DC 20416 202-606-4000. The SBA offers free information on business planning and development. Free pamphlets covering starting a business, applying for loans, entering the international export market and growing a business are available.
National Minority Business Council, 235 E 42nd Street, New York, NY 10017 212-573-2385. This organization offers help to minority-owned firms in the areas of procurement, training, education, international trade advocacy and communications.
National Telecommunications And Information Administration, 14th Street and Constitution Avenue NW, Room 4898, Washington, DC 20230 202-482-1551. NTIA is the government agency charged with developing telecommunications policies for the executive branch. NTIA researches the industry and tracks telecommunication trends.
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|Title Annotation:||includes related article on the Export/Import Association for Minority Exporters & Importers|
|Date:||Nov 1, 1994|
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