Small minority-owned firms are winning as many federal contracts as their mainstream counterparts, but are doing so at higher costs. According to a recent study by American Express OPEN, Women and Minority Small Business Contractors: Divergent Paths to Equal Success, 38% of some 740 active small-business contractors surveyed received $1 million or more in federal contracts since entering into the federal procurement marketplace, compared to 37% for minority-owned firms. About 17% of all small business contractors garnered $10 million or more in federal contracts compared to 20% for small minority contractors.
But such growth comes at a cost, particularly for minority-owned firms. The average small firm spent $103,827 in 2010 on costs associated with securing federal contracts, such as cash outlays for staff, networking events, and training. Comparably, minority-owned firms spent an average of $139,709—35% more—in 2010.
It also takes minority-owned firms longer to get their first big win. The average small business contractor reported 16 months and 4.4 unsuccessful bids before getting their first contract, while minority contractors reported on average 20 months and 6.1 unsuccessful bids. Industry insiders suggest that part of the reason it takes so long is because there is a huge learning curve in federal contracting.
The U.S. government is the world’s largest single purchaser of goods and services, spending more than $535 billion on contracts last year. The federal government has a target of spending 23% of its procurement budget with small firms, including 5% with minority-owned businesses.
There are many benefits to selling to the government. Federal contractors typically grow larger than other types of small businesses. A wealth of procurement opportunities is what spurred Hester Taylor Clark, president of strategic communications and program management firm Hester Group, to begin exploring federal contracting in 2008. By 2011, Hester Group had scored its first big wins: a $4 million contract with the U.S. Food and Drug Administration and a $2.5 million contract with the U.S. Navy, both for more than three-year periods. After securing a contract, growth can happen very quickly, says Clark. “You are servicing the country so the demands can be intense.”
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