Small businesses face the need to get bigger

Swift action: Small and minority businesses are being told that they must act promptly to meet the challenges of 2001.

January 21, 2001|By TaNoah Morgan | TaNoah Morgan,SUN STAFF

Small and minority businesses need to grow quickly this year if they are to avoid difficulties.

That is the projection from federal agencies dealing with small businesses that are predicting several challenges next year for those companies.

Government downsizing and contract bundling are among the changes that will force smaller companies to work together in joint ventures or swallow each other up in mergers and buyouts in order to win contracts to keep them afloat.

"In the coming months, it's going to be critical for small and minority businesses to look at ways to grow themselves immediately through mergers, acquisitions and partnerships - ways they can increase their scale," said Paul Webber, associate director of the Commerce Department's Minority Business Development Agency. "You really have to be on the lookout for who you can buy, merge with or joint venture with."

Small and minority businesses have thrived with the robust national economy.

According to the U.S. Census Bureau, minorities account for about 26 percent of the U.S. population and own 11.6 percent of the nation's businesses. The Minority Business Development Agency projects minority population growth to account for nearly 90 percent of the total growth in the U.S. population between 1995 to 2050.

Nationwide, according to the U.S. Census Bureau, there were 2 million minority firms in the United States as of 1992 (the latest figures available), with more than $205 billion in sales. In Maryland, according to that same data, there were an estimated 57,000 minority-owned firms. The Census Bureau surveys minority businesses every five years. The agency is expected to begin releasing statistics from a 1997 survey on the number of minority firms nationwide and in Maryland at the end of this month.

Another factor affecting these companies is government downsizing. Agencies have simplified their contract process by bundling their outsourced work into large, multimillion-dollar contracts - deals that are far too large for most small businesses to bid on. The result often is that large enterprises are awarded the contracts and the small businessman loses out on of the kinds of jobs that have traditionally been his bread and butter.

"We've got to have more joint ventures," said Allan A. Stephenson, director of the Baltimore district office of the U.S. Small Business Association. "We have to make sure there are good sub-contracts and that the [bundled] contracts don't affect our businesses that heretofore had those contracts."

That is an issue that Rufus Davis, CEO of Main Street Technologies, Inc. on Light Street in Baltimore, faced as he grew his network integration and software development firm. For him, bundled contracts have been a stumbling block. "It's definitely makes it difficult to get in there," Davis said.

But he said he has found a way to deal with it - by keeping in touch with the decision makers in other companies that could use his services, and by working on projects with other companies that offer specialized services that he can't provide. "We've teamed and we've been talking about joint venturing" with other companies on certain projects, he said. "It gives us the capability to take on these large jobs and compete."

Main Street Technologies has grown in three years from a one-man show to a 20-person enterprise with offices in Baltimore and Detroit and about $1 million in government and private contracts. In handling its largest client, General Motors, the company has a partnership with Datalinks Inc., a Michigan-based hardware company, to support GM's demanding needs.

And Davis said the idea of buying out another company is not too far-fetched for him and his partner and brother, Ken Davis, if the price is right.

"The minority business community itself is very dynamic right now," said the Commerce Department's Webber. "The question is, what is going to be the survival rate of these companies if they don't find a way to grow rapidly?"

One of the problems for small businesses in mergers and joint ventures is that, unlike in large corporations, company leaders have a vested interest in the group, and are less interested in working with others.

"I don't want to give up my control, and I'm sure the other person doesn't want to give up control," said Marty Hays, vice president of Inter-Connect Electronics Inc., an Elkridge-based company that makes connector wires.

While Hays said he has grown his business by purchasing another company and by working with others on certain projects, he is hesitant about more intimate arrangements, such as joint ventures and mergers, because he's been burned before by companies that do not pay. "I always try to act real slow because I've seen the guys who work real fast go out of business," he said.

But Webber warns that in today's business climate, small business owners have to put their personal agendas on the back seat for the sake of growing their companies. "They don't want to do that because they would have to share ownership and management with someone else," Webber said. "The question becomes, do you want to be a Bill Gates, who owns 5 percent of a company and that 5 percent is worth billions, or do you want to own 100 percent of a small business?" Gates owns 13 percent of Microsoft, according to a 2000 proxy statement.

Access to capital is another constant challenge for small business, according to SBA's Stephenson, but he is encouraging any small business that can to tap into the export market and work with developing nations.

"Exporting is the wave of the future," he said. "You've got countries all over the world that need products and services."

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