SBA’s 8 (a) Program Draws Fire : Competition: A high failure rate is cited for minority entrepreneur graduates. But Santa Ana software designer Infotech Development is a local success story.
Florence Alexander started her management consultant firm in the basement of her home, equipped with a typewriter and a dream.
Success came quickly after she joined the Small Business Administration’s 8(a) program, the government’s flagship effort to develop minority entrepreneurs.
Her company’s first federal contract, for $1,000 in 1988, set it on a path that led to a $233-million contract to work on the Justice Department’s asset forfeiture program.
At its peak, Ebon Research employed 1,450 people at 350 sites nationwide, nearly all in minority neighborhoods. Alexander’s workers processed data, analyzed information, cared for laboratory animals and monitored safety at government work sites.
But the fall came swiftly.
The company graduated from the SBA program in 1990 and, without the edge given to minority contractors, lost the Justice Department business.
“It was such a devastating loss to me,” Alexander said. “I’m struggling to stay alive.”
Today, Ebon Research has laid off two-thirds of its workers and 90% of its management. Alexander is suing the Justice Department to get the contract back.
Her story is common, according to the SBA.
An agency study shows 46% of the companies that graduated from the 8(a) program from October, 1989, to September, 1992, went out of business or cut back their operations substantially.
Parren Mitchell, a former Maryland congressman who chaired the House Small Business Committee in the mid-1980s, said the program’s record reflects the high failure rate of small businesses generally.
“Once they were out of the 8(a) program and tried to compete in the private sector, they ran into difficulties--the old-boy network and all of that stuff,” he said.
About 70 Orange County businesses currently are involved in the SBA program. One of the program’s most successful local graduates is Infotech Development Inc., a software designer in Santa Ana. During its 10 years in the program, from 1980 through 1990, the company racked up more than $344 million in contracts.
Unlike Alexander’s firm, Infotech continued to thrive after leaving the program. Last year it brought in $136 million in revenue.
“The program helps you get projects under your belt so that when you go to a potential client who isn’t restricted (to program participants), you have something to show them,” said Jim Cradduck, senior vice president for corporate development at Infotech. “It allows you to hone your competitive skills.”
As graduation day neared, Infotech began focusing on diversifying its client base. “We looked into different federal agencies and started doing commercial work,” Cradduck said. “Every program has its problems, and not every company that graduates (from the 8(a) program) succeeds. But it really helped us.”
Alexander, on the other hand, feels that the SBA program failed to prepare her company for real-world business competition, “all of the things you’re sheltered from in the 8(a) program.”
Graduates who survive warn that relying solely on SBA business can harm a company’s prospects.
“We didn’t wait for SBA to knock on the door,” said Bob Tucker, owner of a Louisiana high-tech counseling firm that left the program last year and continues to prosper.
“We’ve gone through little doorways, big doorways and no doorways at all to effectively market ourselves. We have been able to effectively compete,” he said.
Faced with mounting criticism, the SBA is working to make changes, said Cassandra Pulley, the deputy administrator who is drafting the reforms.
“The program has over time become almost exclusively focused on government contracting,” Pulley said. “And we’re trying to provide additional assistance to program participants in terms of the technical and managerial skills that the company develops.”
The SBA is set to announce a joint effort with NationsBank this week to expand information centers that provide small businesses with specialized education and technical assistance.
The 8(a) program has come under increasing scrutiny in recent years.
Congressional investigators concluded recently that the SBA is failing to meet some program requirements set by law. The General Accounting Office reported last year that the SBA:
* On average takes 117 days to process an application to join the 8(a) program, nearly a month longer than the maximum set by Congress.
* Needs to do a better job reviewing each participant’s business plan to ensure it remains realistic, another legal requirement.
* Was five years behind in installing a new management information system that would allow the agency and Congress to better assess the program’s effectiveness.
The Associated Press reported Monday that its computerized study of six years worth of 8(a) contracts found the lion’s share of business from the minority set-aside program went to companies in white, well-to-do areas.
The AP also found that companies in the program that remain in minority neighborhoods get fewer contracts and dollars on average than those in white areas.
The U.S. Commission on Minority Business Development, in a 1992 report, concluded nothing could be done to fix the current system and urged that the program be transferred to a new agency within the Commerce Department.
