The year is 2012 and it feels strange and a little uncomfortable to be considering minority-owned businesses. Twelve years into the 21st century, it seems there should no longer be a designation for minority-owned business – business should be business and everyone should be working together through the slowly recovering economy.
Which is pretty much the case once a business is launched and operating – on a day-to-day basis, business is business. It’s getting there that causes challenges and, once there, perceived and actual discrimination can create further challenges.
There’s still a disparity between opportunities for minority-owned and majority-owned businesses, maintains Ernest Fountain, CEO, Nevada Minority Business Enterprise Center. “Most minority owned businesses still don’t have access to capital they need in order to compete and operate their businesses, and they don’t have access to the capital they need for the proper management team in order for the business to compete for contracts,” said Fountain. Nevada Minority Business Enterprise Center works as a lender for the Nevada branch of the U.S. Small Business Administration (SBA) and fosters the growth of minority-owned businesses.
“I believe it’s important to still have the designation, because there are certain situations in which certain businesses may not get an opportunity without that designation, so it is helpful,” said Berna Rhodes-Ford, an employment, healthcare and corporate attorney who has been in practice 16 years but just went out on her own a year ago. “I haven’t benefitted from it but I can’t say I’ve strategically availed myself of it, either.”
“The average net worth of a black person in America is only $5,446 and so we have always networked in the U.S. We’re the last in every economic indicator in the country, we’ve got the highest unemployment rate from 1970 through 2012. As a matter of fact, unemployment in the black community has doubled every year except for six years out of the last 40 years,” Fountain adds. “There’s a need to try and provide opportunities to the black business sector and address a lot of the economic woes the black community suffers from.”
“I will honestly say I have been very fortunate in that I’m just doing business,” said Rhodes-Ford. “I don’t feel any negative repercussions as a result of being a minority. I feel like my client base is very diverse and my referral base is very diverse. So far I think I’m on an even playing field.”
Designations and Definitions
Not all designations of minority-owned business refer to ethnicity. Women-owned businesses are considered minority-owned businesses, despite the numbers of women in the business world.
“It was funny when I was asked to be part of an article on minority-owned business and I’m thinking, what? And then, Oh, woman,” said Nicholle Alumbaugh, owner, Homage Bakery in Reno. The restaurant business is a very masculine dominated industry, Alumbaugh says, and when she worked in other kitchens she was frequently the only woman. But now she’s a business owner, “I feel more of a minority as an independent business owner than a woman in this economy striving to make something work because you don’t have all the money in the world. You look down the street and there’s the casinos and they have all the money and can hire and fire at will. Their next employee is right down the road, just another person on payroll. We’re a family here and work together as part of that family.”
“It’s sad that we have to [have a designation for woman-owned business]. I think we need it and I don’t want to say it’s not necessary,” said Rhodes-Ford. “There are some circumstances where it’s necessary. I’m in a male dominated profession and I can certainly see situations in which the certifications are needed and some of the smaller companies – there are also certifications for small business and disadvantaged businesses without respect to gender or ethnicity, so I think there’s a place for all those certifications.”
Small, disadvantaged businesses fall into some of the same categories and can utilize the same programs, and some businesses are considered disadvantaged simply because they are small and can’t necessarily compete on an even playing field with the big boys. An independently owned S-corporation with one shareholder/employee is probably not playing on the same field as a multi-national corporation with shareholders around the world. Capital is often one of the deciding factors of what makes a small business disadvantaged and allows it to fall into the same category as a minority-owned business and capital is one of the areas where federal guidelines and many non-profit organizations work to level the playing field.
The definition of a minority-owned business is a business owned 51 percent or better by a woman or a member of an ethnic minority. SBA requirements for utilizing the programs offered include ownership of the business by an individual who qualifies (or in some instances, is certified) as someone who has experienced social disadvantage (being subject to racial or ethnic prejudice because of being identified as a member of a group rather than by individual qualities) or economically disadvantage (a socially disadvantaged individual whose ability to compete on a level business playing field is compromised by access to capital and/or credit).
The designation is in place to help these businesses compete and win federal contracts set aside through specific programs. Larger companies and those not part of the program cannot compete for those set asides. In addition, Dave Everhart, deputy director Nevada district SBA, notes large contracts like the huge Department of Defense contracts for building airplanes, all have a portion set aide that must be filled by small businesses.
The set asides help small businesses and minority-owned businesses that can’t compete against the resources large businesses can bring to bear. One instance where the designation helps is with set asides for state government contracts where a percentage of the contract must go to a small disadvantaged or veteran-, woman- or minority- owned business. After going through the process to be designated as a vendor, it doesn’t necessarily mean the business will automatically get a contract, but that it’s on the list to compete like everybody else.
“It’s odd to still have the [minority business] designation in this day and age but there are still barriers to entry,” said Bob Daniels, owner/manager, PrideStaff Las Vegas, a minority- and veteran-owned national staffing company with a local focus. “One of my peers has a woman-owned business in Florida and obviously she’s a minority business because she’s a woman and she was able to get into a utility company because of her status. It opened the door. That’s the secret.”
Without capital, businesses can’t compete, and for minority-owned businesses, that means capital accessible at reasonable rates. There is still discrimination and minority businesses are still sometimes charged a higher rate than a majority-owned business. “My pricing is based on material costs, labor costs, overhead and my profits, so if my material costs and overhead is higher than my competitor’s, then I can’t compete,” said Fountain.
The move to making capital available to minority-business owners isn’t new. Bank of America originally formed as Bank of Italy because Italian immigrants couldn’t get loans in the early 20th century.
Programs and Potentials
Helping small and minority-owned businesses compete is why government programs exist to provide training and access to set aside contracts. Most SBA programs deal with loans and financing, but the 8(a) program for small disadvantaged businesses offers more structured help.
The 8(a) program is an actual certified business development program for small disadvantaged businesses. There are other programs in place for veteran-owned and woman-owned businesses that are more informal, providing training opportunities and one-on-one business counseling. The 8(a) program actively works with small disadvantaged business owners to target and acquire federal contracts, whereas the more informal programs simply provide the opportunities.
“It is a program that Congress enacted to try to develop companies that are owned or individuals who own companies who historically have been discriminated against either economically or socially, to try and give them the opportunity to compete fairly with other larger companies or other small businesses,” said Everhart. But in day-to-day business, how is a minority owned business any different than any other business?
It’s not. The businesses perform the same functions at the same level of expertise and all things on the business side are basically equal. “The only difference is they may be owned or are owned by socially or economically disadvantaged person or persons,” said Everhart. “These programs just give them an opportunity to compete fairly and try to do away with any perceived or actual discrimination.”
On the surface, a minority-owned business starts out like any other, states Daniels. “But what happens with many minority-owned businesses is some don’t have a total understanding of what it really takes to be successful in business in terms of decisions that have to be made. For example, during a lean time, make the decision to operate as lean as possible in order to survive this downturn. But that’s no different than what a majority-owned business should do.”
Rhodes-Ford hasn’t availed herself of any of the small disadvantaged or minority-owned business opportunities, but some entities she’s worked with requested she attain certification as a minority-owned business because it aided the entity to show they were working with a minority-owned business. The entities she worked with realized she was a member of a minority group, but she didn’t get the business because of that status.
The Small Business Development Center (SBDC) operates through University of Nevada campuses, providing business counseling for people looking to start, grow or manage a business. Part of the assistance, especially to members of minority groups who are new to the country, is to explain the process and procedures of starting a new business so that the owners can get set up and running without running afoul of city, state and federal requirements.
For example, one client opened a tire shop on Wells Avenue in Reno. He’d already signed the lease and invested $90,000 in the business before he learned the City had never approved the tire repair shop. He didn’t know to check the City requirements, said Sandra Rentas, Hispanic management consultant SBDC, or that the City may choose not to approve a business because there are too many similar businesses in the same area.
SBDC also works with small and minority-owned businesses to help them figure out financing, understand corporate formalities and insurance needs for their businesses. Rentas works with Hispanic immigrants who may not understand the realities of business in the U.S.
“Sometimes when they’re in the U.S. they need to do more market research and find out is there a need for the product or service they want to provide,” said Rentas. “They rush into things instead of really looking for customers and asking questions. It’s important to do the market research to see if the business is viable or not because once you open and spend all that money, it’s too late.”
Rentas teaches a 15-week entrepreneurship class in Spanish, teaching the realities of being a small business owner. “It’s a great class. We have people in business 10 or 15 years who have told me ‘I wish I’d taken this before I made so many mistakes in the process.’”
How Big Is Small?
Federal regulations oversee the size and structure of businesses that fall into the 8(a) designation or into the small business category, where owners are able to ask for federal assistance through various programs. North American industry codes define every industry in the nation and recently federal regulations changed the size standards by industry code to determine whether a company can be designated small.
“Those size standards increased with the latest change to the standards, so a lot more companies are categorized now as small than were prior to these changes,” said Everhart.
Previously a company with a net worth of more than $7.5 million and company profits for the last two years more than $2.5 million weren’t eligible to work with SBA. The change in regulations means that now a company has to have a net worth of more than $15 million and profits of more than $5 million over the past two years.
And is that an advantage? Not necessarily for small and minority-owned businesses, Fountain said, though it allows the SBA to make loans to a much larger sector.
It depends on who you are, Everhart said. A $10 million company that previously couldn’t compete for small business contracts now can, but a $6 million company is now competing against the size and resources of a $14 million company. “Some love it and some hate it, obviously depending on where they were when the size standard changed,” said Everhart.
Federal regulations that redefine size benefit taxpayers – the more companies that can compete for small federal contract set asides, the more competition drives a lower price.
Not all small and minority-owned businesses are operating all alone. Teaming and partnering is part of the federal contracting process. Smaller companies, no matter what category they fall into, teaming up with larger companies to compete for federal contracts, since the larger company is required to have anywhere from 15 to 30 percent of that contract set aside and subcontracted to a smaller company.
Businesses that fall into the 8(a) program can form joint ventures, where two small 8(a) companies come together and bid for work, each using their own expertise to complete the project, such as an electrical engineering firm and a plumbing company working together to complete a building. Mentor/protegee programs assign mentor companies to help either attain contracts or train small businesses to help them move forward.
Minority Business Majority Benefit
It’s not just minority-owned businesses that benefit from federal regulations, nonprofit programs and federal contract set asides. Every community and economic sector benefits.
“If you help a business be more successful, you create more employment,” said Rentas. “With the Hispanic people right now there’s a purchasing power of $1.2 trillion and many businesses are looking to target the Hispanic market. In Nevada we are 26 percent of the population, so if we help them be successful it creates employment. If they’re successful and help create employment that helps the economy.”
“Anytime that any distinct group of citizens, minorities of any major group, if their lot in life improves then the community improves, obviously, the city improves, the county improves and the state improves. It’s a matter of bringing all the facets of our society and allowing them to have opportunities to grow and improve their areas in their communities,” said Everhart.
“I try to work with other minority-owned businesses, not because they’re minority owned, but because maybe have a service or product that I need,” said Daniels. “While I try to reach out to other minority-owned businesses and try to help them, I don’t steer business their way because they are minority-owned.”
