Is SBA an Impediment to Entrepreneurship & Growth?

As the new President was sworn in a year ago in January, 2021, everybody was waiting with bated breath about the types of changes we'd see in federal procurement strategies for small businesses. After all, small businesses are the engines of economic growth, innovation, and job creation and they have taken a big hit during the Pandemic over the last two years.

As a small business owner who also mentors other govcon start-ups, I hoped, for starters, the Small Business Administration (SBA) will reexamine its mission, review how it defines, categorizes, certifies, funds, promotes and supports small businesses. With all due respect, it's a bureaucracy that moves at a glacial pace and is never really tuned in to the prevailing business conditions, rapidly changing technology, addresses or resolves issues for years. On the contrary, it is an impediment to growth and entrepreneurship. It is mired in industrial-age rules, regulations, industrial codes, and bureaucracy thus creating too many barriers to entry that discourage start-ups and innovative companies to do business with the federal government and established small businesses to stay in business.

While we are appreciative of the Biden-Harris administration's efforts to increase the number of new entrants to the federal marketplace to reverse the decline in the small business supplier base (60% drop over the last decade); it is insufficient to simply increase the percentage of set-asides without a plan to reform SBA's role, change procurement strategies and processes and help the companies grow and successfully transition to the next level once they graduate from small business programs.

As simple a task as registering a company in SAM.Gov (a requirement to do business with the government) is cumbersome requiring many documents, and information from multiple sources including federal, state and local governments, and banks, that are difficult to gather. But of course, you can't blame SBA, as GSA manages the portal and DLA approves. Now you get the drift? There is no centralized body or accountability in the federal government.

For the SBA to become customer-centric, (a key President's Management Agenda item) an engine that ignites growth, is nimble and responsive to the needs of small business owners, it needs to reexamine its mission, define it's role in promoting and supporting small businesses, examine how it categorizes businesses, certifies, and fosters entrepreneurship.

The key to growing and supporting small businesses is to remove all barriers to entry to the government. Doing business with the government should be easy and intuitive and devoid of red tape and bureaucracy. Here are some ways in which the SBA can streamline entry to the government marketplace.

1. Establish fee for service centers (online and in-person) across the country, similar to Banks and serve the needs of small businesses just-in-time and at the point of need. Small business owners can use the drive-through services or talk to service center personnel and have their needs met - whether they are registrations, certifications, mentor-protege/JV approvals, security clearances, training, small business loans, disaster loans, or other needs.
2. Review and revise the rigid and outdated NAICS developed in the 1930's to?classify businesses by the type of economic activity they primarily engage in. As economic activities, industries, technologies change rapidly, the classifications, revenue and employee size standards need to keep pace with the changes, so that they can map to the types of services being procured by the federal government from industry now and in the future.
3. Review and revise NAICS and size standards annually in light of the changing industries, IT transformation, modernization, supply chains, and business conditions such as caused by the Pandemic, and to keep up with inflation which is running at 6.7% currently.
4. Close loopholes in the NAICS such as those with exceptions that have revenue and employee size in the same NAICS. For example, 541519 Other Computer Related Services $30.0, Except, Information Technology Value Added Resellers (VARs) - 150 employees should be separated, as it is mis-used by some companies that have exceeded the $30 million revenue size, but sneak in under the 150 employee size. They manage the employee size by outsourcing to stay within the size and become perpetual small businesses. But of course if you protest, GAO does not enforce the size standards, SBA does, so you need to protest to SBA. There is no monitoring and enforcement of the laws.
5. Reclassify small business size once they graduate from the NAICS, to make room for the new vendors
6. Streamline access to capital to support growth. Invite bankers and investors to support entrepreneurial ventures.
7. Devise a streamlined method to buy innovative products from start ups and small businesses. There is no way to market products and services without a formal process such as a RFP, SBIR or OTA. Organize vendor showcases once a quarter and categorize the vendors to share their innovative products and services to the government.
8. Set aside contracts that can be reasonably performed by the small businesses, so they don't need to team with large businesses. To meet the small business goals, agencies simply sole source multi-billion dollar contracts to Alaskan Natives (ANCs) who are perpetual small businesses. Awarding to ANCs may help the agencies meet their goals, but it does not promote equity and small business success.
9. Train and provide clear guidelines to the procurement workforce across the government to select the correct NAICS, write clear statements of work, and state realistic requirements so that small businesses are given a chance to compete successfully. By definition, for $100+ million contracts that are set-aside for small businesses under $15 million, government requires strong infrastructure, large lines of credit, DCAA approved accounting systems, forward pricing, EVM, certifications including CMMC, FEDRAMP, ATOs, security clearances, past performance, domain expertise and more. These approvals and certifications, come at a high price and can only be provided by government entities and they are backlogged.
10. Ensure small business success once they graduate from the size standards so they don't become victims of their own success. For example, some of the NAICS like the Flight Training is capped at $30 million, but the size of the contracts exceed $30 million in some cases. By this measure, if a small business is successful in winning four or five $30 million contracts, it is thrown out of the size standard and can no longer compete in its primary NAICS. At that point, the small business has no choice but to either downsize or sell only if they are able to novate their contracts (which is now prohibited). Similary, when 8A companies graduate, they are no longer able to compete and have a high failure rate.

In essence, the SBA set-asides are a failed program, as they result in the demise of successful small businesses. The White House must focus on promoting and supporting small business success rather than increasing the set asides and setting unrealistic goals.

Simply giving a fish to small businesses will not promote entrepreneurial success or increase entry into government.

If SBA can get out of it's way, reform its operations, draconian rules and regulations, and partner with small businesses, it can ignite exponential growth, innovation and attract innovative small businesses. I invite you to comment and actively participate in bringing change to serve the small business community.