Small Business Transition Blog

07/20/2014:

Small Business Mentoring (Part 3)

Government Mentoring

The Federal Small Business Administration (SBA) is the primary source of Federal assistance and outreach to the small
business community. Each of the 50 States, the District of Columbia, and all US territories has small business support to one
extent or another.  The SBA defines a small business as an entity that is independently owned and operated, organized for
profit, and which is not dominant in its field. Depending on the industry size standard eligibility criteria, SBA bases its decision
whether a business qualifies as a small business upon either the average number of employees for the preceding twelve months,
or on sales volume averaged over the past three-year period.

The SBA general size standards are:

•  Small firms; fewer than 20 employees
•  Medium-sized; firms 20 to 499 employees
•  Large firms; 500 to 999 employees
•  Enterprises; 1000 or more employees
•  Some examples of SBA sales volume standards are:
•  Services: Annual receipts may not exceed $2.5 to $21.5 million, depending on the particular service being provided;
•  Retailing: Annual receipts may not exceed $5.0 to $21.0 million, depending on the particular product being provided;
•  General and Heavy Construction: General construction annual receipts may not exceed $13.5 to $17 million, depending on the
   type of construction;
•  Special Trade Construction: Annual receipts may not exceed $7 million; and
•  Agriculture: Annual receipts may not exceed $0.5 to $9.0 million, depending on the agricultural product.

The history of the SBA is somewhat convoluted.  In 1932, President Herbert Hoover created the Reconstruction Finance
Corporation (RFC), a Federal lending program for all businesses hurt by the Depression, large and small. President Franklin D.
Roosevelt, upon ascending to the Presidency the following year, took personal interest in the RFC, and continued Hoover
Administration’s effort.

With the advent of World War II, as the largest manufacturers were courted by the Federal Government for lucrative wartime
defense contracts, it quickly became clear that smaller businesses were unable to realistically compete for a share of this
financial bonanza. In response, Congress created the Smaller War Plants Corporation (SWPC) in 1942 to help small business
participate in the U.S. War Production, as well as to help them gain financial viability.  The SWPC provided direct loans to
private entrepreneurs, it incentivized large financial institutions to make credit available to small businesses, and it advocated
small business interests to federal procurement agencies and big businesses.

Upon the close of the war, the SWPC was dissolved, and its lending and contract powers were transferred to the RFC. In the
interim, the Office of Small Business (OSB) had been created within the Department of Commerce to provide brochures and
conducted management counseling aimed at providing individual small business owners with information and expertise, to
counter a knowledge gap that was perceived to be a primary cause of small business failure.

Another Federal agency, the Small Defense Plants Administration (SDPA) was established by the Defense Production Act
Amendments of 1951, whose functions was to certified small businesses.  The RFC retained the authority to determine whether
the businesses were competent to perform the work of government contracts.

In 1952, President Dwight Eisenhower proposed creation of an agency dedicated to small business concerns and needs. The
Small Business Act of 1953, Congress created the Small Business Administration (SBA), whose specific function was to "aid,
counsel, assist and protect, insofar as is possible, the interests of small business concerns."  Also stipulated within its charter
was that the SBA would ensure small businesses a "fair proportion"; of government contracts and sales of surplus property.

By 1954, the SBA had begun making direct business loans, as well as guaranteeing bank loans to small businesses, in addition
to the goals of working to get government procurement contracts for small businesses and to help business owners with
management and technical assistance and business training.

And this brings us to one of SBAs most enduring vehicles for small business outreach: the Service Core of Retired Executives
(SCORE):

Founded in 1964, SCORE is not a government program but rather a 501(c)(3) nonprofit organization who provides services as a resource
partner with the SBA.  SCORE provides a variety of “for-fee” services, but also provides free business mentoring services to small
business owners in the United States. Volunteer mentors come from the ranks of both active and retired business executives and
entrepreneurs, who donate their time and expertise.  If there are small business owners serving as SCORE mentors, I am not aware of it.

The distinction is important for the small business owner seeking useful advice and feedback. 

The necessary psychological attributes of the successful corporate executive or manager, and the successful small business owner to
survive are very different.  The difference appears to be in two respects: the willingness to take calculated personal, virtually “all-in”,
financial risks, and the willingness to shoulder ultimate responsibility for business mistakes, miscalculations, and failures. In the case of the
corporate executive or manager, rarely do you find this attribute. Managers play with their employer’s money. And while they certainly
have fiduciary responsibility; it is still someone else’s cash.  They have, by necessity, strong political survival skills. All too often
corporate employees and civil servants rise to the top by avoiding taking responsibility or blame, yet at the same time maximizing the impact
of their perceived successes. Unless the corporate executive or bureaucrat has some personal experience from the small business world, it
is unlikely that they truly understand the needs of small business.

SBA, too, has a Mentor-Protégé Program restricted to small businesses designated 8a. It also launched the Entrepreneurial Mentor Corps
program in 2011 for “early stage” energy businesses. Virtually, every Federal agency has a small business outreach program 1 , mirrored by
State and Municipal efforts.

Again, the problem here is that SBA and all the other Federal, State and Municipal agencies designed to “help” small business are
populated by government employees of whom the vast majority have never attempted to run a small business.  Moreover, the government
employees have no real “skin-in-the-game”.  They collect a paycheck; if the decisions they make are wrong or hurtful to the small business
owner, they pay no equivalent price for failure or incompetence.  Unlike the private sector, firing a Federal executive (Senior Executive
Service), mid-level managers and line supervisors, or functional worker for incompetence is virtually impossible. And it will remain so, until
such time as the United States’ Congress sees fit to wrench 5 U.S. Code § 2101 from the nineteenth century to better reflect the realities of
the twenty-first century.

While much of the information provided by the SBA on their web site is interesting and not wrong, they have never gotten it right.  For the
tax paying small business owner it is hard to see how the agency’s $810 million annual budget for 2014 translates into mentoring and
knowledge transfer that leads to business viability. Except for the purpose of certifying a small business to be eligible for Federal contracts
as an “8a”company and SBA loans, the SBA seems to provide a lot of wasted motion that non-8a eligible small business owners can ill-
afford to spend.

1. See, the Federal Office of Small and Disadvantaged Business Utilization  (OSDBU) web site at:
http://www.osdbu.gov

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