The payoffs of a government contract for a small business are usually worth all the hard work that goes in to winning one, says Julie Weeks, a global expert on women’s enterprise development. “The government is a steady customer once you break in and understand the rules. They pay more steadily, they provide referrals, and the people you meet can lead to a lot of other business,” she says.
But federal procurement is a unique market with a big learning curve, which is often even bigger for minority-owned businesses, Weeks’s research shows. And a decline in the federal contracting budget—which is down $35 billion (6 percent) since fiscal year 2009, is making competition fierce.
Weeks is president and CEO of Womenable, a research, program, and policy development consultancy whose mission is to improve the environment for women-owned businesses worldwide. As an American Express OPEN research advisor, she produces annual reports for the American Express OPEN for Government Contracts Program tracking trends in government contract procurement among women- and minority-owned small businesses. A study released this month reports on the findings of her online survey of 684 small business and compares contracting trends for 2012 (the most recent year for which data are available) to previous years.
Weeks says the studies have found that small business owners invest significant time and money—an average of nearly $129,000 annually—on tracking and winning government contracts. “Small businesses spend money on staff time to go to meetings and learn more about the agency. They’re spending time going to conferences and meetings and traveling to Washington or wherever the federal agency might be. It’s a significant investment of time and money,” Weeks says.
Breaking out data for minority-owned small firms reveals that they invest even more. From minority business owners, the average response to the survey question, “How much money would you say that your business has invested, including both direct cash outlays and salaries for person-hours, seeking federal contracting opportunities in 2012?” was $143,000. The figure is 11 percent higher than the amount invested by all active small business contractors and 32 percent higher than the investment minority business owners made three years prior. Of the three most populous minority groups, Hispanic contractors claimed an average investment of nearly $155,000 on pursuing federal contracts in 2012; Asian-American contractors said they spent and average of $141,000; and African American contractors spent close to $111,000.
Minority-owned businesses need to spend more because they lack connections, Weeks says. “They have weaker links to peers and other business owners who have this experience. Not having an extensive support network means they have to go to more meetings, and invest more in learning and ramping up.”
Despite the added investment and increased number of bids, success rates—numbers contracts won—are not significantly different between the groups. On average, minority-owned businesses win 51 percent of bids made, and Caucasian small business owners win 56 percent, according to the American Express OPEN report. In 2012, the federal government awarded 8 percent of contracts to minority-owned businesses, exceeding its goal of 5 percent. Federal contract spending in fiscal year 2012 with “small disadvantaged businesses” (the majority of which are minority-owned firms), totaled $32.3 billion.
But minority-owned businesses are making progress: while 29 percent of non-minority business owners say they’re performing on more federal contracts today than they were five years ago, 39 percent of minority business owners say they are too.