Four decades ago the significant challenge for minority business development was diversifying from mom-and-pop enterprises, creating market access in nontraditional industries, and generating more business startups. Then in the 1980s the focus shift to gaining access to capital, public sector markets, and corporate supply chains. Significant progress has occurred. Today, minority businesses make up 30% of the nation’s small businesses and 19% of firms that create jobs. While past challenges were access to markets and capital, the new era of minority business development must focus on capacity building.
In casual conversations with corporate sourcing and government purchasing officers, one of the most often repeated concerns is identifying minority suppliers with sufficient capacity. This matter has grown as supply chains, and government contracts have become more demanding and complex.
Building scale is a matter of becoming a larger firm. However, growing capacity relates to a company’s ability to execute more massive contracts efficiently and effectively. Achieving this requires companies to focus on becoming professionally managed enterprises (PMEs).
A PME has efficient systems of management and control including the following: financial controls, human resource policies, inventory controls, IT platforms, data analytics for customer relations management and market intelligence, cost controls, risk management assessments, etc. EuQuant has estimated that only about 14% of nonminority enterprises successfully achieve PME status. Among minority firms, the percentage is even smaller, between 7 to 10%.
Eric Flamholtz and Yvonne Randle’s book entitled Growing Pains: Transitioning from an Entrepreneurship to a Professionally Managed Firms is an excellent reference in this regard. The EuQuant staff, which powers the Gazelleindex, strongly recommends it.
In September 2017, EuQuant conducted a survey of 100 minority and women business contractors in the City of New York. One objective was to identify the main obstacles they encountered to building greater capacity. The most prominent internal challenges they identified, ranked in order of importance, are as follows:
- Attracting and retaining high-quality workers
- Controlling operating costs
- Improving internal controls such as financial systems, inventory and human resource management platforms.
- Cost estimating and proposal preparation
- Improving project management Skills
- Managing project risks
- Complying with industry regulations
Addressing these factors is the essence of becoming a professionally managed enterprise. It is no surprise that these are the problems most frequently encountered. In fact, they are the same problems that plagued not only minority businesses but all small businesses nationwide. However, if we seek to close the capacity gap between minority and nonminority firms, focusing on these factors is indispensable.