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Asian Americans, Latinos/Hispanics or women have substantial control and ownership shows
that these businesses' capitalization has grown faster than many major foreign and domestic
investment benchmark indices.⁹ Another indication of the growth of minority-owned businesses
is that from 1986 to 1996, corporate purchasing from minority-owned businesses increased from
$9.4 billion to $33.4 billion, over a 350 percent increase. 10 These data suggest that larger
companies may increasingly be able to find qualified smaller business partners owned by
minorities and women.
Finally, despite lower average incomes, many inner cities' high population density may translate
into a local market with large buying power per square mile. 11 America's inner cities represent
approximately $85 billion in annual retail purchasing power, or approximately 7 percent of total
retail spending in the United States. This market alone is larger than the entire retail market of
Mexico. Some argue that major retailers are under-represented in our inner cities and that urban
markets represent an available and untapped consumer marketplace.¹²
Partnering with agile companies
Small businesses can also be useful to larger firms in finding and exploiting new strategic market
niches. Smaller businesses may possess a more cost-efficient structure to handle smaller orders,
unusual customer requests, or emerging technologies. These agile partners are more than
efficient subcontractors; many companies said that smaller suppliers had ultimately brought
additional business to them, occasionally subcontracting back to the larger firm.
For example, in 1995, Lucent Technologies partnered with TeleCommunication Systems, Inc.
(TCS), an African American-owned $25 million company located in a Maryland Enterprise Zone
in Annapolis, MD. Under their co-venture, TCS uses Lucent's proprietary software to write
software for digital wireless communication, and the companies will share revenue earned by the
new product. Lucent chose to partner with TCS in order to get a new product to market more
quickly.
9 The Chapman Company "Domestic Emerging Market" (DEM) Index comprises a sample of publicly traded
companies in which a woman or minority occupies one of the top three positions and owns at least 10 percent of
outstanding shares. Index companies reflect the industry mix and market capitalization of the DEM universe of
companies that meet these criteria. The index companies are adjusted as the universe changes or as companies
cease to meet the index criteria.
10 Figures supplied by The National Minority Supplier Development Council.
11 Boston Consulting Group / Initiative for a Competitive Inner City, "The Business Case for Pursuing Retail
Opportunities in the Inner City," June 1998. This report contends that in many inner cities, more than 25 percent
of retail demand is unmet locally.
12 Ibid.
Cultivating a world-class supplier base
Long-term strategic alliances between large and small companies can be a marketplace
advantage. As Richard Stouffer, a Vice President at Texas Instruments has said, "Often the
value to or the impetus for the mentor's participation is to attain a cadre of competent, first-class
suppliers." For most companies, developing a reliable supplier base is central to quality control,
cost containment, and on-time deliveries. Small businesses can provide larger companies faster
response to rapidly changing shifts in supply and demand, and more targeted service to specialty
markets.
Thriving in industries that call for inter-firm collaboration
Some industries' structures inherently require expertise in managing firm-to-firm collaboration.
For example, in the construction industry, general contractors rely on and work closely with their
subcontractors. The general contractor supervises the project and performs some of the work,
while subcontracting with more specialized firms for certain tasks.
In 1996, the Port of Portland, Oregon developed a "mentor-protégé" model that seeks to
strengthen emerging minority-owned subcontractors in the building and building-related trades.
This mentoring program cultivates a select group of smaller minority suppliers that show the
promise to become Port suppliers. After a one- to three-year mentorship with a volunteer senior
executive from a private firm and outside technical assistance, the Port graduates the companies
that are financially stable and can perform Port contracts. The program broadens the Port's
supplier base at competitive prices and performance.
Creating stronger communities and a stronger business environment
Business-to-business linkages can be a key ingredient in creating a local growth environment
with broad benefits. Expansion of neighborhood business activity can result in increased tax
revenues, improved property values as well as more job opportunities for disadvantaged
individuals. Equally important, such business expansion can increase the civic capacity and the
quality of life for residents of distressed communities.
As an example, Cleveland's business community has provided leadership for many organiza-
tions, from the large corporate members of Cleveland Tomorrow, to neighborhood business
councils such as WIRE-NET. These business organizations help firms organize around regional
business concerns, such as attracting investment capital, workforce development, and improving
manufacturing technology. The organizations also recruited business participation for
public-private partnerships that helped to create civic institutions such as the Rock-and-Roll Hall
of Fame and Jacobs Field. 13
Benefits to Smaller Companies
Many small businesses, 14 as well as large and small firms in economically distressed areas,
cannot access the networks of information and resources that larger businesses operating outside
distressed areas utilize. Smaller companies cite many benefits from business-to-business
networks, a few of which are reviewed below.
Obtaining technical advice
Many small business owners, at one time or another, seek basic technical advice on the
operational aspects of managing a small business. Business-to-business linkages offer a way for
small business owners to acquire the specific technical advice they need in order to strengthen
their businesses. Technical advice can include most aspects of running a small business, such as
marketing, merchandising, pricing, production, inventory control, accounting, long range
financial planning, or basic legal advice.
For example, Larry Barraza, owner of Symvionics engineering company, received extensive
technical assistance on human resources, business documentation, legal issues, and
subcontracting management from Northrup-Grumman beginning in 1994. 15 At that time,
Symvionics' sales were around $1 million with under 40 employees. Northrup-Grumman
assigned four people to assist Symvionics. By 1996, sales were approaching $8 million, and
Symvionics' improved technical staff collaborated with Northrup-Grumman in submitting
technical bidding proposals that won new contracts for both companies. In 1998, Symvionics
revenues will top $20 million while the number of contracts with Northrup-Grumman has
decreased, demonstrating the diversification of Symvionics' customer base.
13 The role of Cleveland's business community is presented the Harvard Business School case study, "The Cleveland
Turnaround," 9-796-151, published in 1996.
14 The Small Business Administration defines "small business" for different sectors, which may be as large as
manufacturers with 500 employees.
15 This relationship was initially facilitated by a DoD "mentor-protégé" agreement between Northrup-Grumman
and Symvionics. With this agreement in place, Northrup's bids receive additional points in the evaluation of its
subcontracting plan; in its most recent bids, Northrup received reimbursement for its direct mentoring costs.
Federal agencies' mentor-protege programs are discussed more fully in Chapter III under Supplier Development
Strategies.
Enhancing management development
Business-to-business relationships provide a means for small business owners to develop
relationships with business executives who can become both teachers and role models. Often,
these executives can share similar personal experiences in leading a small firm and can provide
some perspective on the day-to-day pressures an owner faces. Interaction with larger companies
may inspire an owner to believe that he or she can attain greater success than previously thought
possible. By developing a vision of what their companies can become, small business owners
may begin to see increased opportunities for their own companies.
For example, Lynier Richardson, founder of LakeShore Development Company, which builds
and sells housing in low- and moderate-income Chicago neighborhoods, received regular
informal advice and found an early role model in Inland Real Estate Company President Dan
Goodwin. Richardson then joined the Runners' Club, an entrepreneurship program developed by
Shorebank, which helped him assemble a formal advisory board. The advisory board includes a
former real estate lender, the president of a large construction firm, a management consultant and
a marketing expert. Richardson draws on these advisors to help him evaluate strategic decisions
and formulate a clear vision for LakeShore's expansion. At the time he first met Goodwin in
1994, LakeShore Development was a $600,000 operation and has since grown to $4 million in
annual sales.
The U.S. Small Business Administration recently initiated a pilot program of "Business
Coaches," which pairs new small business owners with experienced small business owners in a
mentor/protégé relationship. Such pairings provide the new owner with the benefit of the
experiences of an owner who has personally faced and successfully dealt with issues common to
small businesses, regardless of industry, location or market niche.
Leveraging core strengths
In addition to technical advice, small businesses also benefit from access to new sales channels
and a better understanding of their own core strengths. Mentors are able to assist small
businesses by giving advice on trade shows and advertising, by providing assistance in selecting
sales representatives, by making introductions to buyers at larger companies, and by sharing
knowledge of market trends.
Robert L. Johnson, Founder and Chairman of Black Entertainment Television (B.E.T. Holdings),
points to his early relationship with John Malone of TCI cable as formative in building
confidence in his business's distinctive niche and setting the tone for future partnerships with
other companies. 16 "By partnering up and building the relationship of respect and cooperation,
16 From an interview with Robert L. Johnson, Chairman, B.E.T. Holdings, on "The Charlie Rose Show," August 5,
1998, Transcript #2219.
[Malone] set the pattern for future relationships," said Johnson. "I'm marrying my marketing
clout, my brand, and my management team with people like Microsoft or Disney in our Disney-
B.E.T. Soundstage Club down in Orlando, or with Bell Atlantic in our telecommunications
business." Since Johnson founded B.E.T., Malone has been an informal advisor, and he now sits
on the B.E.T. Board of Directors.
Accessing sources of financing
Increasing financial access does not always mean providing direct funding or taking an equity
position in the protégé company, but it can mean assisting the protégé company to gain access to
existing sources of financial capital. Often, a large company's support or endorsement of a
smaller company may help persuade lenders to provide financing. In some cases, mentors may
even co-sign loans. Managing short term cash flow and bonding can present obstacles in
business expansion especially for smaller businesses, and larger companies can help overcome
these barriers.
Increasing marketplace credibility
Another benefit of business-to-business linkages is the value to small business of the
endorsement from a large, established business. This added credibility may help the small
business gain new customers who are uncertain of the smaller company's ability to deliver
product or services. In the BusinessLINC Atlanta meeting in September, Halina Jankowski,
President of Allied Machining Company in Newington, CT, said that since forming a mentor
relationship with Lockheed Martin Energy Systems, many larger companies will now allow her
to bid on contracts and consider Allied as a supplier.
Entering subcontracts and joint ventures
Not surprisingly, most small businesses look to large companies as a potential source of
business. Small businesses, especially in distressed communities, want the opportunity to bid
on contracts but report that they must often prove themselves more thoroughly than larger
companies or companies in the suburbs. As discussed in Chapter IV, a commercial relationship
can be a powerful motivator to assure that both large and small businesses are focused on
strengthening their companies' capacity to grow.
II. Choosing Potential BusinessLINC
Partners
Based on the meetings, interviews and research of the BusinessLINC initiative, this chapter
describes four types of organizations that can take steps to form or broker these business-to-
business relationships: private corporations; financial institutions; specialized nonprofits; and
business-led membership organizations. Of course, many relationships not described here can
also serve as the basis of solid BusinessLINC relationships.
Secondly, the chapter describes the different industry sectors of smaller firms and how
BusinessLINC strategies can be customized to their context.
Potential Large Business and Intermediary Organization Participants in
BusinessLINC Strategies
Private corporations with suppliers and sales channels
Firms reported that BusinessLINC relationships can increase businesses' competitiveness,
beginning with existing suppliers and sales channels, and even more importantly, extending to
new ones. To maximize the benefit to the firm, BusinessLINC strategies call for careful analysis
of a firm's supplier base and its market opportunities. On the supply side, firms look for the
strategic value that a smaller company can provide, for example, freight savings from location
advantages, smaller production runs, faster time from R&D to market, and greater ability to
integrate staff into product design. In terms of market opportunities, firms may look for smaller
firms to provide a value-added role through their ability to service small markets with lower
overhead, make introductions to new customers, provide more detailed customer knowledge
about niche customer segments, and reach newly expanding customer segments.
Financial institutions with small business borrowers
Financial institutions use BusinessLINC strategies to strengthen their small business loan port-
folios, to create a new segment of sound borrowers and to sell products to customers that value
the financial institutions' services to these business customers. Financial institutions noted that
they found benefits accrued from all aspects of the full customer relationship, including deposits
and other cross-sold products. Regarding their suppliers, financial institutions have an important
potential BusinessLINC role, similar to other private corporations, as customers to smaller
suppliers. Where applicable, financial institutions may be able to combine skills and lessons
learned from both the lending operations and procurement operations.¹⁷
17 Financial institutions may also offer particularly valuable skills to microlending intermediaries, including
technical assistance, systems help, recordkeeping, or the offering of retail financial services.
The combination of credit and technical advice is a powerful fuel for accelerating company
progress. Financial institutions possess deep reservoirs of financial skills and experience useful
in guiding the progress of borrowers. Although additional capital sources have opened to small
businesses in recent years, improved capital availability has not been matched by additional
technical assistance to borrowers, which is often the difference between small business success
and failure. Often, the most helpful information includes sales and marketing expertise, which
may require referrals to outside experts. Management of the credit relationship and advisory
relationship should be aware of each others' actions, but generally work independently to
maximize the efficiency of both functions.
Innovative financial institutions found when lending in economically distressed areas that the
loans themselves were profitable. Chase Manhattan Bank, for example, reports losses on the
loan portfolio from its Business Resource Centers are comparable to losses its conventional
portfolio. However, it is the extra costs of outreach, technical assistance and post-loan
counseling that may require some subsidy.
Specialized nonprofits
Businesses increasingly reach out to the specialized nonprofits that have expertise in
entrepreneurial development, small business growth, and a commitment to broader community
benefits. These organizations focus on reaching distressed communities by expanding
commercial activity. These specialized nonprofits seek to overcome information gaps that
otherwise isolate economically distressed communities from the flow of market opportunities
and information.
These specialized nonprofits can complement the business-to-business relationship by
identifying and evaluating small firms, providing direct consulting services and helping with the
"matchmaking" to larger firms. The intermediaries may also target a specific sector, such as
manufacturing or information technology firms. These specialized nonprofits find viable smaller
firms and connect them with the resources in the mainstream to help them prosper. The
emerging best practices among BusinessLINC nonprofits suggest that finding market
opportunities for businesses to expand may be the role in greatest demand, such as through
procurement offices, brokers, buyers, sales representatives, and trade shows.
Businesses and intermediaries said that successful BusinessLINC nonprofits recruit a core of
business leaders to champion the BusinessLINC activity, and then hire staff with the business
skills relevant to the chosen mission. At the same time, they also take advantage of business-to-
business relationships and outside experts, rather than trying to provide all services in-house.
They provide a framework or structure for the business relationship, so that the firms and
individual professionals can understand the economic benefits and how each player's role can
maximize the value created.
Business-led membership organizations
Membership organizations reported that they can frame BusinessLINC strategies around
membership's shared concerns, for example developing construction suppliers, developing
minority suppliers or strengthening a regional economy. Membership organizations can help
overcome "collective action" obstacles by organizing BusinessLINC strategies that benefit the
membership when no single firm could take on the organizational effort individually. These
organizations carry enormous potential to provide BusinessLINC services to their members if
well-managed and focused. Membership organization are most successful when they articulate
the members' common interest and then solidify support for addressing it through the
organization.
In considering BusinessLINC activities, the organization would consider whether it is positioned
to provide these types of services to members, such as the ones described immediately above for
BusinessLINC specialized nonprofits. Like specialized nonprofits, effective BusinessLINC
membership organizations recruit business leaders to champion BusinessLINC strategies and
determine the organization's role. The most effective BusinessLINC membership organizations
find ways to make BusinessLINC activities beneficial to the membership and easy to access.
Potential Small Business Partner Firms
In the Regional Meetings and interviews, businesses and BusinessLINC organizations
emphasized the important differences among industries and the ways that BusinessLINC
strategies can benefit them. The New York City Regional BusinessLINC Meeting in particular
included lively discussion about the need not to oversimplify or stereotype the range of
industries, firms' stage of growth and their distinct needs.
Practitioners generally group companies into four growth stages, regardless of their size,
recognizing that they may face different challenges at these different stages: (1) concept stage;
(2) early growth; (3) expansion; and (4) stabilization and maturity.¹⁸ Sam Carradine of the
National Association of Minority Contractors pointed out in the Los Angeles BusinessLINC
meeting that too often small businesses get "stuck" between $2 - $10 million in sales. To re-start
the growth process, he notes that firms need help building their "capacity in addition to their
capabilities" by identifying and pursuing growth opportunities.
At the concept stage, an entrepreneur may have only a preliminary business plan. The
entrepreneur needs some basic "feel" for the market to determine whether there is a
demand for the product or service, at what price it can be sold, and if it can be delivered
at a profit.
18 Sce, e.g, Inc. Business Resources "Growth Strategy Analysis", Goldhirsch Group, Inc., 1998.
In the early growth stage, companies are often flexible, agile and creative, but lack strong
infrastructure or longer-term business planning.
A company in the expansion stage, like a company in early growth, may experience
strong growth in revenues, but the sales growth is typically actively planned.
A company in the stabilization and maturation phase continues to fine-tune operations
and production techniques, but may also be seeking opportunities to re-start growth.
Small Manufacturing Firms
In the BusinessLINC Regional Meetings, some small manufacturing firms described their
strengths in good production skills, a stable revenue stream, and adequate fixed asset financing.
These firms said BusinessLINC strategies could benefit them by expanding their customer base
and helping them evaluate new product offerings. They could also benefit from assistance in
optimizing production methods and plant layouts, and conducting payback calculations on new
P.N.I. Distributors and FINA, Inc.
Pettis Norman founded P.N.I. Distributors in Dallas
relationship." says Haddock, "their commitment
as a wholesale fuel supplier almost ten years ago.
would decline over time." The PNI relationship
Today, PNI revenues are $16 million with over 75
meets this standard, both through increased
employees. PNI's relationship with FINA, Inc., a $4
product sales and by helping FINA earn the respect
billion petroleum company, demonstrates how
of all members of the community.
firms of different sizes in the same industry can
benefit from sharing business expertise. Ron
FINA assisted PNI in accessing new markets and
Haddock, President and CEO of FINA, Inc. says,
diversifying into the retail convenience market
"The relationship is based on a strong mentor
business. PNI supplies FINA fuel to retail outlets
commitment: through our relationship, FINA
and, with the support of FINA, bought 25 retail
assisted and guided PNI almost as though it was a
outlets (some of which had been owned by FINA).
division of the FINA company."
FINA offered PNI assistance with marketing,
preparing financing requests, administrative
FINA management asked PNI to develop 3- and 5-
support, technology and business strategy
year business plans and expected a level of
guidance. After an extensive evaluation and
financial accountability. Haddock had to be
assessment of PNI's capabilities and limitations,
convinced that mentoring a firm is ultimately in
FINA and PNI signed an agreement focusing on
FINA shareholders' interest for two reasons: first,
three areas to help PNI double its revenues:
because the relationship draws on company
increasing the number of PNI-owned gasoline
resources; and second, because the shareholders'
stores; linking PNI with new customers in the fuel
interest is also "critical to long-term, broad-based
hauling business; and suggesting how PNI could
employee commitment to the relationship."
diversify into other business areas.
"Without our employees seeing the logic of this
equipment purchases and plant expansions. Finally, some companies may also need
management assistance, appropriate to their business stage of development, in areas such as
human resource practices and performing competitive analysis.
Distributorship / Dealership / Multi-site Retail
Larger distributorships reported that BusinessLINC strategies focused on finding new sales and
product offerings. These businesses also found assistance in improving control systems for
tracking inventory and sales, efficient delivery and hauling, inventory management, determining
optimum product mix, and in make-versus-buy decisions.
Single-site Retail or Service Business
Single-site retail or service firms saw benefits from BusinessLINC strategies that could help
them assess product mix and pricing, and distinguish their product or service from competitors.
These firms are evaluating different advertising options, calculating controllable variable costs
and breakeven sales, evaluating location decisions, and formalizing key contracts and leases. To
continue growing, these owners perceived human resource management as an important issue.
Self-Employment / Microenterprise
Microenterprises are small firms, often operating as a home-based business. BusinessLINC
strategies such as group training, peer groups and boards of advisors have helped link the
microentrepreneur both to other small businesses and to larger firms. According to the Aspen
Institute's Self-Employment Learning Project, microentrepreneurs' ultimate growth depends on
the owners' access to markets, production and distribution capacity, and personal goals. 19 The
Aspen Institute notes that a significant portion of microentrepreneurs start businesses as an
alternative to limited opportunities in the low-wage job market. The Institute reports that
successful microentrepreneurs have patched together income from various sources during start-
up and accessed technical assistance from intermediary organizations.
For some entrepreneurs, the purpose of the business is to provide self-employment and possibly
jobs for family members. This type of business owner will often look to stabilize the business at
a sales level that can be comfortably managed without loss of control, and which can provide a
relatively small but stable cash flow. Other self-employed business owners may be looking to
continue to expand their businesses, and the link to larger scale mainstream businesses is critical.
Marketing assistance is perhaps the most frequently requested by these owners seeking to build a
viable and stable source of income.
19 Edgcomb, Elaine and Joyce Klein and Peggy Clark, The Practice of Microenterprise in the U.S.: Strategies, Costs
and Effectiveness, The Self-Employment Learning Project, The Aspen Institute, July 1996.
For example, the Women's Venture Fund, Inc. (an SBA-funded women's business center)
targets low-income women in New York City, makes microloans to women, and supports their
success through ongoing mentoring and training. By addressing both their credit and training
needs, the fund enhances the ability of women to grow their businesses.
WSEP Food Industry Group and Monsanto and Hyde Park Co-op
The Women's Self Employment Project (WSEP)
conversion, SO that microentrepreneurs' small-
offers small loans and technical assistance to
batch recipes could be scaled up to much larger
microenterprises in Chicago. WSEP established
quantities; second, with engineering evaluations of
the Food Industry Group (FIG) to target mature,
possible commercial kitchen "incubator" sites, and
stable food industry microenterprises that are now
in business advice in assembling the incubator
encountering obstacles to growth and expansion.
business plan; finally, Monsanto has helped with
The group consists of 17 food business owners
sophisticated product consumer testing to
who meet twice monthly, once to discuss technical
determine marketability of different products.
business matters and once to discuss group
Once products are finalized, the Hyde Park Co-op
activities. WSEP contacted Monsanto and the Hyde
has offered to sell the microentrepreneurs'
Park Coop supermarket for expertise. WSEP was
products. Hyde Park has encouraged WSEP to
also seeking an industry advisor to help WSEP
consider the viability of establishing a larger food
serve these microentrepreneurs. Monsanto has
brokerage service for other microentrepreneurs.
helped FIG in several ways: first, with recipe
III. BusinessLINC Strategies
From the Regional Meetings and interviews with businesses and organizations participating in
relationships that promote learning, information, networking and collaboration, five
BusinessLINC strategies emerged. Some of these strategies have different twists that are also
described under the basic strategic heading:
One-on-one technical assistance and consulting;
Classroom and group training;
Peer groups and boards of advisors;
Subcontracting and supplier development programs; and,
Sales channel development programs.
In most successful programs, these strategies are combined or sequenced to provide the right mix
of timely, relevant services, geared to the business needs and opportunities of particular
businesses in their unique stage of growth, sector and location. This section describes the key
elements and limitations of each strategy.
One-on-One Technical Advice and Consulting
One-on-one technical assistance is the most common way business professionals can assist small
businesses. When done well, one-on-one technical advice is customized and immediately useful
to the business owner. Accountability between the advisor and the small company is a key factor
in the success of a technical assistance or consulting program. Many practitioners suggest that
clients pay at least a nominal amount for advisory services to assure commitment by both parties.
To assure the relationship is productive, both consultant and business owner should agree to
specific steps to be taken between meetings.
Chase Manhattan Bank's Business Resource Centers
The Chase Manhattan Bank's two Business
Approximately 72 percent of the customers served
Resource Centers in Manhattan and Brooklyn
by the centers are either from low-and moderate
provide free financial technical assistance to
income areas, or women or minority-owned
existing and aspiring small business owners.
businesses. The centers provide one-on-one
Combined, the centers have counseled over 5,000
counseling sessions with a Chase business
business owners and Chase has made $38 million
consultant, who is an experienced small business
in loans to 580 entrepreneurs who received this
lending officer. Counseling sessions are free of
technical assistance. Chase's loss rate on loans
charge, and are available to any small business
originated in the centers is on par with their
owner whether or not they are a Chase customer. 20
conventional portfolio.
20 Refer to Appendix B for a thorough discussion of this BusinessLINC strategy.
The U.S. Small Business Administration administers several programs that offer one-on-one
technical assistance to aspiring or existing small business owners. These include the SCORE
program for senior retired executives, the Small Business Development Center Program,
Business Information Centers and the Women's Business Center program. The Small Business
Development Centers program is a cooperative effort among SBA, the private sector, the
educational community, and state and local governments. There are nearly 1000 SBDCs with
professional counselors (CPAs, attorneys, business owners, professors, etc.) who provide free,
confidential, one-on-one counseling in all aspects of small business management.
ON-TARGET Supplies & Logistics and Texas Instruments and EDS
ON-TARGET Supplies & Logistics is a $15 million,
A few years later, ON-TARGET began supplying
15-year old computer supplies distributor in the
Texas Instruments: Black developed a protégé
Dallas area that has benefitted from success
relationship with TI procurement staff, including
partnerships" with two local corporations, EDS and
Richard Stouffer, Vice President. Stouffer focused
Texas Instruments. President Albert Black's
on ON-TARGET's immediate operational needs to
informal mentorship with EDS Vice President for
service TI's requirements. The relationship began
Corporate Relations and Human Resources John
with an assessment of ON TARGET that
Castle began in 1994 when ON-TARGET began
demonstrated how important growth would be for
supplying EDS. Black and Castle's relationship
ON-TARGET to remain price competitive. To help
evolved from a vendor relationship into a genuine
meet Black's expansion goals, Stouffer worked
friendship, and Castle began to share his advice on
with Black to identify and meet new potential
how to do business with corporate customers.
customers, including sales opportunities inside TI.
Castle prompted Black to think, as specifically as
ON-TARGET's relationship with TI included formal
possible, about the kind of company he wanted ON
evaluations, assignments between monthly
TARGET to become. Eventually, Castle served as
meetings, and joint brainstorming on the
chairman of ON-TARGET's advisory board, and
company's next business steps.
recruited other advisors to ON-TARGET.
Classroom and Group Training
Classes can be a cost-efficient format for teaching groups of business owners. Some businesses
open their in-house classroom training to outside businesses, or they may specifically offer
training targeted to outside companies (e.g., a manufacturer offering quality management classes
for all their suppliers, or franchisors offering training for all potential franchisee owners). Often
the most difficult part of using the classroom training strategies is identifying the best classes for
a given business's needs and finding time and resources so the owner can attend. Effective
classes will often help owners "self-diagnose" their development needs and identify the best
follow-up resources.
Turner Construction's James Walker Construction Management Training Program
In 1968, Turner Construction began offering a
small business banking, and taxes. The program
construction management training program for
meets twice a week in the evenings, with about 30
minority contractors to diversify its contracting
participants per class. Turner draws instructors
base and be a responsible corporate citizen. The
from partner organizations such as local
program, now called the James H. Walker
institutions, banks and the City of Cleveland.
Construction Management Training Program is
Turner does not charge for this program. The
offered in all of the company's 38 regional offices
relationships the company develops with high
To date, Turner has provided training to more than
quality, well trained subcontractors benefits Turner
7,000 contractors nationwide. The Cleveland
with lower prices and higher levels of quality and
program consists of 20 classes ranging from
service. Turner also finds that the program helps
marketing, procurement, contracts, and safety to
win contracts, especially where the customer cares
financial management, Total Quality Management,
about supplier diversity.21
Given the time constraints on business owners, they must weigh the opportunity cost of such
training. For example, some business owners might be unable to attend a one-week intensive
course and instead favor a class that meets once a week for several weeks. Classroom education
or group training alone may not be sufficient to increase the business capacity of small
businesses, especially those in economically disadvantaged areas. Often, classroom programs
are coupled with other locally-based resources, commercial relationships or networks for small
businesses.
For example, in 1994, BankBoston's First Community Bank (FCB), which targets underserved
urban communities, created its Community Development (CD) Unit to support the Bank's
outreach and education efforts. FCB partnered to run several 20-week classroom education
programs with organizations that also provide direct one-on-one assistance or referrals to outside
experts. 22 Collectively, these programs have served 169 business owners, with 147 completing
the program. This strategy of blending available resources is also the motivation for FCB's
Community Development 2000 Project which helps small businesses manage and evaluate the
services offered by various technical assistance providers. First, an FCB officer helps the
business owner assess his or her needs and develop an appropriate action plan. Second, the FCB
officer stays in touch with the client, monitoring the progress of the outside experts and the
owner. Based on the first six months' pilot, the CD Unit projects that 300-500 businesses per
year will be assisted through CD 2000.
21 Refer to Appendix B for a thorough discussion of this BusinessLINC strategy.
22 FCB's partners in Boston are the Boston Empowerment Center and the University of Massachusetts Small
Business Assistance Center; in New Haven the partners are Gateway Community Technical College, the New
Haven Office of Business Development and four local groups.
Bringing several small business owners together creates networks and synergies that extend
beyond the classroom. Classes can be a forum for interaction among owners, providing them
with new contacts and information, as well as, in some cases, an increased ambition to grow.
These programs can offer smaller businesses the same education and training that executives at
larger corporations receive and can provide a common basis for communication and
understanding between small and large companies.
SBA's Small Business Development Centers provide group training to current and prospective
small business owners at little or no charge. The classes are tailored to the needs of the local
community, but may include international trade assistance, technical assistance, procurement
assistance, venture-capital formation and rural development.
Currently, SBA has a consortium of four schools participating in the Executive Education
Program sponsored by the 8(a) Business Development Program, including Dartmouth College,
Howard University, Loyola College in Maryland and Clark Atlanta University. At Dartmouth,
SBA has provided scholarships for approximately 500 small firms over the past five years. The
expanding portfolio and increasing demand for executive training has prompted SBA to establish
four new executive training programs at the University of Puerto Rico at Rio Piedras, the
University of Alaska at Anchorage, Lincoln University in Missouri and the University of Texas
at El Paso within the last two years.
Dartmouth College's Amos Tuck School of Business Administration runs the Minority Business
Executive Program (MBEP)²³ and the Advanced Minority Business Executive Program
(AMBEP). Each five-day program focuses on Tuck's "basic building blocks:" strategic
planning; marketing; accounting and finance; human resource management; communications;
and operations and production. The AMBEP primary purpose is to focus on growth strategies
and add to the basics learned in the MBEP. Additional subjects include corporate partnerships,
market-focused strategy, managing business relationships, improving company communication,
lease versus buy decision-making, and financial issues in ownership succession.
Other institutions, including Historically Black Colleges and Universities and Minority
Institutions (HBCU/MI), have mini-MBA programs similar to the Tuck School model. Many
corporations sponsor scholarships to the Tuck programs, including General Electric, Johnson
Controls, Exxon, and GTE. The classroom training supplements the interaction from the
supplier development programs with academic training, peer contacts and success strategies,
and opportunities to hear from other corporate leaders. These examples suggest that academic
institutions can be valuable contributors to strengthening business performance.
23 Currently, the MBEP's 1,400 program alumni employ over 36,500 full-time employees and represent over $10.9
billion in annual revenue.
Peer Groups and Boards of Advisors
Both peer groups and boards of advisors can help owners develop the skills to solve business
problems by drawing on networks of people outside the business. In this way, peer groups and
boards of advisors may provide the most important business improvement skill -- the power of
finding solutions by reaching out for advice and resources.
The most effective settings are participatory and forge connections between companies at various
levels, from executive level to senior staff to shop floor managers. Peer groups and boards of
advisors may be less effective for learning technical skills. Peer groups may be formed across
industries, within the same industry, or in complementary industries (e.g., manufacturers of
chairs paired with makers of tables, or metal fabricators grouped with software control systems
and instrumentation specialists). Effective peer groups typically consist of members at roughly
the same level of business competence.
The Runners' Club
The Runners Club is an advanced entrepreneurial
runners training for a marathon. Although the
training program targeting African American
group wants to see everyone succeed, no one
business people who are starting or expanding a
wants to be slowest."
business with fast-growth potential. Founded in
1996 by Shorebank Corporation and an advisory
The Program Manager also channels Runners
group of business experts, the Club selects 12
technical requests through a 'Brain Trust" of
members for a nine-month program that combines
volunteer corporate executives who agree to meet
both büsiness peer groups and boards of advisors
with individuals as needed. Each Runner is
encouraged to form an advisory board that
The members (the "Runners") are selected based
includes at least three skill sets: entrepreneurial
on applications and interviews, including detailed
experience; industry experience; and financial
business proposals. The inaugural class's Runners
expertise. At the nine-month conclusion of the
each paid $1,000 tuition. At monthly sessions
program, the top three Runners make an
hosted on site by successful African American
investment presentation to 50 bankers, venture
entrepreneurs, the Runners hear first hand
capitalists, and private investors Out of the first
accounts of how to complete business acquisitions,
class of members, three new start-up firms were
sell to major corporations, build quality staffs,
launched, six new business plans were completed,
manage and oversee business operations, and raise
$4.5 million in capital was raised by Runners, and
capital in private equity markets. According to
three Runners resigned their jobs to pursue
Program Manager Greg White, These meetings are
entrepreneurial ventures.
highly motivational and the entrepreneurs work like
Advisory boards are structured to benefit one company and often involve executives volunteer-
ing their time from companies at different stages of experience and growth. Advisory boards
are different from boards of directors in that they have no legal authority and therefore no legal
liability for the corporation's activities. Advisory boards are generally informal, though the best
ones are quite disciplined in their discussions. Advisory board members themselves learn
useful lessons by explaining their business practices to the small business owners and other
board members.
Coastal Enterprises Inc., which is an SBA-funded women's business center, operates in
economically distressed communities in rural Maine and sponsors the Women's Advisory Board
Program to provide management assistance to women business owners.²⁴ Coastal Enterprises
expects a strong commitment from its business owners, and it also asks that business owners
commit to become advisors once they complete the program. The application process for a
business owner includes a comprehensive needs assessment, a written description of the
business, a submission of financial statements, a description of her goals and expectations of the
program, and a statement of what she anticipates she will be able to provide as a future advisor.
Business owners report that their participation in the program increased their economic
performance, increased their knowledge of finance, and provided them with a realistic ambition
to think more broadly about their businesses.
SBA's Office of Women's Business Ownership (OWBO), in conjunction with counselors from
the Service Corps of Retired Executives (SCORE), SBA's 69 district offices, and almost 70
women's business centers across the country, have organized 120 roundtables consisting of
current and aspiring women business owners.²⁵
Supplier Development and Strategic Alliances
Supplier development and strategic alliance programs often combine some form of technical
advice, classroom training and peer groups or boards of advisors, with the commercial discipline
of supplying a quality product to the "mentor" company. The strongest programs seek to
diversify a company's supplier base to increase the corporation's economic competitiveness.
Reginald Williams from Procurement Resources, Inc. in Atlanta points out that companies are
motivated to develop new suppliers whenever they can find ways to improve the cost and
performance of the existing supplier base. This strategy may be particularly promising:
24 In this case, CEI requires that the business be 51 percent woman-owned, that the participant in the CEI program
be the main decision maker in the firm, that the business be in operation for at least five years, and that the
business owner/participant be willing to commit to the program for a minimum of two years. Unlike many other
programs that also require a minimum level of annual sales or revenue, CEI specifies no such level.
25 OWBO also produced and distributed an instructive manual on how to start a mentoring group to hundreds of
activist organizations. The manual is available by calling OWBO at (202) 205-6673, or writing the Office of
Women's Business Ownership, the U.S. Small Business Administration, 409 Third Street, S.W., Washington, DC
20416.
When there are few existing suppliers for a given product;
When the supplier's product or service is critical to the larger firm's success; and
When the smaller company already has a baseline of experience in the industry or similar
production processes.
In these situations, by developing the new supplier, the larger company is creating new
productive capacity in the marketplace on which both the smaller and larger company can
capitalize. "New capacity" could take many forms: greater technical skill, more varied
production runs, or, where freight costs are significant, closer geographic location.
Leading corporations employ variations on four basic strategies for developing suppliers:
Expanding access to contracting opportunities. Occasionally, companies' procurement
practices may simply be overlooking available qualified contractors or failing to reach out to
make opportunities available. An organized, deliberate effort can address this situation.
Public Service Electric and Gas Company (PSE&G)
In 1996 PSE&G, a $6 billion utility in Newark, NJ,
PSE&G solicited potential contractors from local
formed a Supplier Diversity Council composed of
advocacy groups. The company hired a consultant
local business owners, minority business
to conduct sensitivity training for procurement
advocates and PSE&G senior executives to advise
staff charged with implementing the strategy.
the company on diversifying its supplier base. This
PSE&G selected 30 contractors with experience in
initiative began with the recognition that the
related industries to receive counseling and
deregulating utility environment required PSE&G to
mentoring from PSE&G project managers on utility
compete for long-term customer loyalty. The
construction techniques and PSE&G administrative
council identified that the company was
procedures. To date, over $25 million in construc-
underutilizing available, qualified construction
tion projects have been awarded to the contractors,
contractors, and PSE&G executives earmarked $20
and eight are fully qualified for PSE&G's bid list
million of its 1997 capital construction budget to
address these issues.
"Adopt-a-supplier" to further enhance an existing company's capabilities. Companies often
provide customized technical assistance, financial support and even operational guidance to
smaller companies with which they would like to cultivate a relationship. Many of these
strategies were discussed in the earlier sections. In addition, larger companies may put one of
their executives "on loan" in a smaller corporation. Such a relationship can improve the
awareness of the company's performance standards, lead to more frequent communication, and
enhance the smaller company's credibility in attracting new customers and additional personnel.
General Motors Corporation and the other automakers have well-developed programs to
cultivate their existing supplier bases. At a time when the automakers are trying to reduce their
number of suppliers, Delphi Packard, a GM division, creatively subcontracted the management
of 14,000 commodity parts to Flex-Tech, a minority-owned company. The arrangement
expanded Flex-Tech's capacities while simultaneously reducing GM's supplier base.2
ITC Personnel Services and Exxon, EDS, and GTE
Diva Garza, founder of ITC Personnel Services in
Worth Minority Business Development Council
Houston, Texas, has benefitted from three different
EDS helped ITC learn about providing information
corporate mentoring relationships, each undertaken
technology staff. ITC sold directly to EDS without
with a specific goal for her company, and for the
prior experience in this specialized market.
mentoring company. ITC is a temporary and direct
hire staffing firm which was acquired by StaffMark,
GTE's business relationship with ITC began
a larger public company in August 1998. ITC had
through a subcontract, and GTE and ITC
34 employees with revenues of approximately $18
formalized a mentoring relationship in 1997
million at the time of the sale.
Under GTE's mentorship program, four GTE
employees assist the company: an 'executive
In 1994, Garza partnered with Exxon through a
partner" provides one-on-one counseling and
formal mentoring program offered by the Houston
introductions to buyers from other GTE divisions;
Minority Business Council. Exxon helped Garza
three "subject area experts" offer technical advice
develop strategic business plans that resulted in
At the start of the relationship, potential small
three different core units (Information Technology,
business partners list the top three areas where
Administrative, Bilingual and Training) within ITC.
they need assistance. GTE then surveys its
Exxon provided scholarships and quality training
personnel to find the in-house resources to
for key management personnel
address those needs. Garza notes that "GTE took
a small minority firm and, through the efforts of an
After establishing Dallas operations, in 1995 Garza
entire department devoted to minority business
participated in a mentoring program sponsored by
development, positioned ITC to prime contractor
the North Texas Commission and the Dallas/Fort
status.
Joint venture to create a new firm with specialized capabilities. Under this approach, the
larger corporation forms a joint venture with an existing minority or other supplier to form a new
company. The new entity often supplies a particular product that meets an emerging need for the
larger company.
With General Motors encouragement, Ronald E. Hall and William Pickard, a majority share-
holder in three companies, joined with Johnson Controls, Inc. (JCI) to form Bridgewater
Interiors, a minority controlled joint venture. Bridgewater Interiors will use its special expertise
in new seat manufacturing technology to build seats for the 2000 model year Cadillac DeVille
through a five-year, $900 million contract. Production begins next July 1999 in the Detroit
Empowerment Zone.²⁷
26 Refer to Appendix B for a thorough discussion of this BusinessLINC strategy.
27 In February 1998, GM, Ford and Chrysler signed a Memorandum of Understanding with SBA that calls for a $3
billion increase in the automakers' subcontracting with minority-owned smallbusinesses over the next three years.
The Memorandum also calls for targeted supplier outreach to 8(a) certified companies.
The joint venture works, according to the participants, because:
GM's business goal of creating new seat technology in the market while also
diversifying its supplier base to include minority suppliers is fulfilled;
JCI shares in a larger piece of the GM seating business than it would otherwise receive;
and
Bridgewater develops increased technical skills and sales to new customers while
remaining a minority company in a key niche area of manufacturing.
Executive grooming to support the start-up of a new supplier. Under this strategy, a larger
company cultivates an executive who aspires to be a small business owner by assisting him or
her in setting up a new company. In choosing an executive for this role, companies may select
an in-house executive or draw an individual from outside the company.
Ron Damper is owner of Damron Teas, a $3 million packager of hot and iced teas, located in the
heart of Chicago's West Side Empowerment Zone. In 1984, McDonald's was seeking a new
supplier of tea. McDonald's conducted an executive search to find capable entrepreneurs, and
Damper's prior corporate experience with a major bank made him an ideal candidate. Damper
served an "internship" at McDonald's coffee supplier, learning the McDonald's system, its
performance requirements, and the operational aspects of running the business. After 8 months,
he found a suitable location, selected equipment and arranged financing. As his company was
ramping up its capability, Damper subcontracted some of the business back to the coffee
company that had hosted him. As an anchor business in a distressed area, Damron hires local
residents and provides educational assistance.
Federal agencies' mentor-protégé programs. In addition to the three strategies noted above,
several Federal agencies operate mentor-protégé programs to encourage prime contractors to
work with small and minority businesses to diversify their procurement.²⁸ The goal of these
programs is to enhance small- and medium-sized firms' business and technical capabilities and
to increase their participation as subcontractors and suppliers. The first agency to introduce such
a program was the Department of Defense in 1990, and it is the only Federal program that can
offer reimbursement to the mentor company for its direct mentoring expenses. Similar
programs, without reimbursement, now exist at NASA, Department of Energy, the Federal
Aviation Administration, and the Small Business Administration, and will soon be introduced at
the Treasury Department (see Appendix D).
With each "protégé" company, the prime contractor submits a mentor-protégé agreement to the
Federal agency spelling out the terms of the companies' relationship, including each party's role
and the specific business objectives of the arrangement. Once these mentor-protégé agreements
are in place, the prime contractor receives special consideration in future bids submitted with that
28 The DoD program was established by Section 831 of Public Law 101-510, November 5, 1990. Other federal
agencies' programs were established by regulation, rather than by statute
protégé. The agencies clearly explain that there is no guarantee of subcontracts from the prime.
The agencies do track the number and value of subcontracts and other non-governmental
contracts won as a measure of success.
For example, Science Applications International Corporation (SAIC) currently has 23 federal
mentor-protégé agreements in place. On a more informal basis, SAIC uses teaming agreements
with businesses that enhance or complement SAIC's business goals and objectives. Lloyd
Lamont Design (LLD, Inc.), an African American-owned firm, has grown tremendously in part
through its relationship with SAIC. In the last five years, LLD has grown from 15 to 160
employees, and increased annual revenues from $800,000 to $14 million. The relationship has
been instrumental in LLD winning over $50 million in new contracts and in building information
technology and environmental management capability with many federal government customers.
In the early stages, SAIC acted as a guarantor for a line of credit for LLD, making it easier for
LLD to perform contracts. Other developmental assistance included implementing an
accounting system and various technical training programs. To assist the management of LLD, a
senior executive of SAIC serves on the board of directors of LLD.
The NCR Corporation currently works with three companies under the Department of Defense's
mentor-protégé program. These firms typically meet with NCR personnel and consultants
between 25-60 times a year. 29
SBA's 8(a) Mentor-Protégé Program is designed to enhance the capabilities of 8(a) firms and to
improve their ability to compete for Federal government contracts. Mentors may provide
protégés technical and management assistance, financial assistance in the form of equity
investments or loans, subcontract support, and assistance in performing prime contracts through
joint venture arrangements.
Sales Channel Development
Like supplier development, business-to-business relationships that create a sales channel align
the incentives of both companies around economic outcomes. "Sales channels" refers to any
intermediary company between the brand name maker of the product or service and the ultimate
customer. Sales channels include, for example, dealerships, distributorships and franchisees.
The goal of sales channel development strategies is to increase both companies' sales.
Historically, companies devoted more energy to supplier development than sales channel
development. Suppliers and sales channels are typically managed through different parts of a
companies' organization: the purchasing department controls suppliers; and sales and marketing
administers sales channels. However, the three strategies used for supplier development
29 Refer to Appendix B for a thorough discussion of this BusinessLINC strategy.
"adopt-a-supplier," joint venturing, and executive grooming - also work for developing new
sales channels.
For example, franchisors have an interest in seeing their franchisees succeed. The more a
franchisee sells, the greater the royalty and advertising payments to the franchisor. Franchisors'
training of potential franchisees is key in preparing them for eventual store ownership.
Franchisors devote substantial resources to assuring their franchisees' quality and systems
compliance. Franchisees must adhere closely to the franchisor system, including product
offerings, pricing, use of approved suppliers, and restrictions on carrying other products.
Alliance Relocation Services and Allied Van Lines Inc.
In 1995, Allied Van Lines introduced its Minority
To ensure the success of the new minority agents,
Agent Development Program to increase minority
Allied partnered with entrepreneurs who already
ownership of moving agents in the moving and
had some knowledge of the moving business.
storage industry. The van line/agent relationship is
Allied identified Herb Stokes, a. 23-year employee
similar to the franchisor/franchisee relationship As
with the company, who had worked his way up to
with other business start-ups, the initial capital
become the highest ranking minority at the
requirements to buy an agency may deter many
company and a member of the executive staff
otherwise qualified minority entrepreneurs.
responsible for overall system quality. Stokes
established Alliance Relocation Services with a
Allied decided that increasing the number of
close mentor-protégé relationship with Allied.
minority agents made good business sense for
Alliance received financing assistance, legal
several reasons. In the mature moving and storage
assistance, accounting services, access to
industry, Allied needed to find new customers and
insurance, assistance in writing contracts and
create new markets to increase revenues. Allied
interpreting request for proposals, and one-on-one
believes that increasing the number of minority
technical training. On sales calls, an Allied
agents will attract new customers and create brand
executive would often accompany an Alliance
loyalty in the growing minority communities. Allied
representative.
also found that many Fortune 500 companies now
ask their prime contractors to increase minority
Initially, Alliance was located in suburban Chicago
vendor participation. Finally, Allied also recognized
near Allied. It has since moved its operational and
that by supporting strong entrepreneurs who
support staff to an Empowerment Zone on
approached problem situations from new
Chicago's West Side. By locating in an
perspectives, it could also learn new operating
economically underserved and predominately
ideas.
minority community, Alliance has been able to hire
local minority staff.
McDonald's Corporation has a mutually dependent relationship with its franchisees and its
suppliers. About 85 percent of the more than 12,000 MacDonald's restaurants in the U.S. are
owned and operated by independent franchisees. McDonald's training course typically requires
12-24 months of part- or full-time, hands-on training in a McDonald's restaurant, culminating
with the Advanced Operations Course at Hamburger University. Franchisee applicants must
master both the crew and management skills. Hamburger University is accredited by the
American Council on Education, and franchisees can earn up to thirty-two hours of college
credit. In addition to the initial training received by McDonald's franchisees, a business
consultant helps each franchisee write an annual business plan and develop appropriate strategies
to achieve those goals. 30
DaimlerChrysler Automotive Dealerships
DaimlerChrysler created the Minority Dealership
trained and ready to buy a dealership,
Development Program to cultivate dealership
DaimlerChrysler and the entrepreneur co-invest,
owners that better reflected their customer base
with DaimlerChrysler initially owning 100 percent
and the composition of the U.S. population
of the corporation's preferred stock. The owner
DaimlerChrysler also recognized that the initial
then gradually buys out DaimlerChrysler's stock
capital to buy a dealership may be beyond the
with the dealership's earnings
reach of many potential entrepreneurs, particularly
minorities.
Once an owner begins to run the dealership, he or
she receives the full range of DaimlerChrysler
Potential owner candidates participate in a training
dealership support, including assistance with
program that can last up to three years. This
allocation of the product, advertising. marketing
program includes hands-on experience in a
and personnel management. DaimlerChrysler will
dealership to understand the various business
assist a dealer with cash-flow management and
units, and mini-MBA-style workshops that apply
short- mid- and long-term planning Dealers may
business school concepts of finance, accounting
continue to attend any of the training seminars for
marketing, and inventory management to owning
free
and operating a dealership. Once the owner is
30 Refer to Appendix B for a thorough discussion of this BusinessLINC strategy.
IV. Key Factors in Successful BusinessLINC
Strategies
Across the five basic strategies, companies and practitioners consistently cited similar key
factors for successful BusinessLINC relationships.
The business-to-business relationship must be mutually beneficial -- a "win-
win" for both firms.
A hard-headed business attitude is important to a BusinessLINC relationship. Usually, the more
economic gain for both parties, the more successful the relationship. Sometimes (but not always)
such discipline is rooted in a contractual and financial relationship that motivates both companies
to focus on creating economic value. Subcontracting or lending/investing relationships align the
incentives of both companies. The hallmarks of a serious business relationship -- a focus on
business outcomes, commitment, efficient and effective interactions, and accountability -- can be
approximated without direct economic incentive. The same discipline can come from a clear
workplan and measurements of progress. To maximize mutual gains, some firms plan with their
BusinessLINC partner how best to invest company resources in the relationship.
Practitioners disagree on whether a firm should subcontract to the smaller firm as part of the
BusinessLINC strategy. The ultimate goal of BusinessLINC strategies is to strengthen both
firms, and many industry representatives reported that market access was one of the major
obstacles to smaller firms' growth. On the one hand, if the smaller firm enters the relationship
expecting to be handed a subcontract, there is little likelihood of long-term strengthening of the
firms' operations. On the other hand, denying a smaller firm the opportunity to earn a contract,
albeit from a firm that is otherwise helpful, also removes the possibility of the greatest long-term
gain for both companies.
The greatest benefits of BusinessLINC relationships come over a long term and
often in unanticipated ways.
Firms must have a long-term perspective on the relationship. BusinessLINC relationships rarely
generate large profits in the short-term. At the beginning of the relationship, firms are learning
each others' strengths and weaknesses and how to adapt and compensate for them. Some
BusinessLINC classroom strategies, such as Turner Construction's, allows the company to work
with many firms to determine whether there may be a longer-term "fit" in skills and corporate
culture. Over time, firms better define their strategic needs, and the corresponding businesses
that can meet that need. This allows the firm to fine-tune the mix of strategies to produce the
best business outcomes.
Because successful BusinessLINC strategies unfold over time, unforeseen opportunities often
result. Firms should enter BusinessLINC relationships with clear business goals, and yet
circumstances will create opportunities and benefits that cannot be planned for at the outset.
The best BusinessLINC relationships blend several approaches and sequence
them to provide the company multiple opportunities to learn.
Often the needs of a small business do not fit neatly into one of the strategies. By combining
different strategies to fit the needs of a particular company, business-to-business mentoring
programs are able to build on the strengths of those models and often provide benefits greater
than any one model by itself. For example, both the DaimlerChrysler Dealership Program and
the McDonald's franchisee training program combine one-on-one technical assistance, classes
and apprentice-style training.
From the beginning, both companies should have a clear definition of their
goals and expectations, with honest and frequent communication.
After the initial needs assessment is completed, both parties should be able to articulate their
goals and expectations for the partnership. Over time, this helps both parties to provide the
agreed-upon "deliverables" and maintain a strong relationship. The foundation of a business-to-
business partnership is trust. Often both the mentor and the protégé are required to share
sensitive financial and technical documents; in some cases they may sign agreements of
confidentiality. Lack of trust can weaken the potential business relationship by making both
partners less willing to discuss their operating structure, financial information, or product
development process.
The business must be committed to the relationship at both the top management
and staff levels, with appropriate incentives.
A sustained relationship demands the commitment of top-level executives at both companies, as
well as those in middle management who will implement the program at the larger company. As
Alex Jimenez of Texas Utilities points out, "Strong CEO commitment leads the internal
commitment in the personnel or human resource department to work to create a partnership with
the community."
An example of company commitment is the program implemented by the CEO of Science
Applications International Corporation (SAIC). The employee-owned company provides 40,000
stock options to those business units that exceed the minimum 5 percent government subcon-
tracting goal for women- and minority-owned businesses. SAIC also sets aside a pool of
$250,000 annually to assist in the development of new proposals with MBEs/WBEs. Each SAIC
business group has a small business representative whose responsibilities include building
relationships between his group and women- and minority-owned businesses.
A business needs assessment at the outset of the relationship improves the match
of skills and resources between the companies.
An initial comprehensive needs assessment also provides a baseline by which to measure
improvement, and assists the companies in designing an action plan to target those weaknesses.
Often the needs assessment occurs in stages or annually. The interview process should include
key members from both firms, such as CEO, president, senior management, or program manager.
For example, Fluor Daniel Corporation, a regular participant in business-to-business
relationships, starts each relationship by conducting a comprehensive needs assessment of
potential protégé companies. After selecting a small business to mentor, Fluor Daniel then
conducts a more comprehensive audit, examination of the protégé's business plan, and review of
its financial statements. Fluor Daniel incorporates its findings into the mentor-protégé
agreement, to articulate clearly both Fluor's and the protégé's expectations for the partnership.
The needs assessment process starts the open, honest dialogue and trust that help make such
partnerships work.
Effective business advisory strategies adapt to the company's size, industry and
stage of growth.
To facilitate meaningful business-to-business linkages, a smaller business's size, industry, and
stage of development must be factored into the strategic planning. Businesses face different
growth obstacles and possess different capacities depending on their stage of growth and
industry.
For example, Dr. Jalaiah Unnan, President and CEO of AS&M, a high-technology firm mentored
by Lockheed Martin and SAIC, as well as itself a mentor of smaller companies, has found that
the size of the companies can greatly affect the success of the mentor relationship. For instance,
large corporations may not grasp the difficulty of writing the first business plan. Start-up
businesses are not likely to understand the vast capacity needs of large businesses.
The industry of the businesses can also affect the design of the program. For example, Robert
Luster, Chairman and CEO of Luster National, Inc. says that, "A protégé must be able to identify
with the mentor; sharing an industry focus can and often does provide an identification or
connection between the mentor and protégé. Sharing common industry allows the two firms to
speak the same language."
Firms should be selective in assuring that their BusinessLINC partner is "ready,
willing, and able" to make the relationship work.
Not every business is a good candidate for business-to-business partnerships. For this reason,
many formal mentor-protégé programs require that potential protégé businesses have a minimum
level of operating experience and annual sales. DaimlerChrysler found that the best applicants
for its dealership development program had some prior industry experience and skills that
required "fine-tuning," rather than a full MBA degree. Boeing Company prefers to have a good
work history with a smaller company before considering it for a mentor-protégé relationship.
Programs that target microenterprises, however, typically do not require a minimum number of
years of operation, since many are start-up businesses. According to industry experts, the start-
up microentrepreneur typically receives training and technical assistance from an intermediary
organization until ready for the next stage of business development. When ready to expand,
BusinessLINC relationships with an established business in a similar industry becomes critical
for the survival of microbusinesses.
Intermediary organizations can be helpful in matching and supporting
companies in BusinessLINC relationships
As discussed more fully in Chapter V, intermediary organizations, such as local business or civic
organizations or economic development organizations, can be helpful in (1) getting a small
business to the "ready, willing and able" stage with technical assistance and training, (2)
absorbing some of the "matchmaking" costs of finding a suitable company to partner with, and
(3) reaching across cultural divides to recruit businesses in communities that the larger business
may not be able to reach on its own. In poor areas and for the smallest businesses, intermediary
organizations can play an especially important role in recruiting business participation.
Successful business-to-business relationships ultimately rely on successful
personal relationships.
It is human nature for people to do business with people they like and trust. BusinessLINC
strategies are a method for finding and developing common business goals and capacities. Once
identified, successful BusinessLINC relationships lead to trust and person-to-person ties. The
BusinessLINC strategies are a more concerted means of building these connections.
V. Focus: Intermediary Organizations as a
Factor in Successful BusinessLINC Strategies
Many firms reported that intermediary organizations played a critical role in facilitating and
structuring BusinessLINC relationships. Some also found that a skilled intermediary
organization can leverage a larger company's investment of time and resources. This report
discusses the role of intermediary organizations because such organizations may be less widely
known and can be an important part of a BusienssLINC strategy, especially in economically
distressed areas. This chapter discusses the advantages of an effective intermediary and two
general categories active in this area, business-led membership organizations and specialized
nonprofits.
Discussions with effective BusinessLINC organizations suggested that intermediaries reduce the
costs that firms would otherwise bear in:
reaching the local business community;
learning local business dynamics;
identifying organizational resources and local experts;
cultivating personal relationships;
screening and assessing potential partners;
forming a match with a company; and
supporting the companies after the relationship begins.
Advantages to Larger Firms in Using Intermediary Organizations
Businesses and intermediary organizations cited the following advantages to larger firms:
An effective intermediary organization provides valuable local knowledge for
reaching new markets, builds trust as companies work with established community
institutions, and offers broader community credibility in reaching a new market.
An effective intermediary can identify smaller companies that are viable and have the
potential to grow. The intermediary can provide first-level assurance that the relationship
has the potential to add value, whether direct or indirect, to the large firm.
An intermediary can provide a structure for firms to interact, and the discipline of
commercial interaction where there is not an economic relationship between the firms.
Some intermediary organizations form industry clusters so that corporate
resources can be delivered to a larger group of small firms.
These organizations are often able to fill the assessment gaps that are necessary to
ensure a correct match and to absorb some of the costs related to the assessments.
Advantages to Smaller Firms in Using Intermediary Organizations
An intermediary can help the company build credibility and provide wider market
knowledge to a firm moving outside its local market area. In some cases, an
intermediary can provide more personal connections within companies than those
made through more formal and institutionalized channels.
Small firms may need closer assistance and guidance in developing the business
relationship with a larger firm than the larger company is willing or able to
provide.
Broadly, intermediary organizations fall into the categories of specialized nonprofits and
business-led membership organizations.
Specialized nonprofits
A segment of nonprofit organizations specializes in small business assistance, and in recent
years, these organizations have become increasingly sophisticated in their services. Some
nonprofits serve particular business sectors (e.g., manufacturing, retail or microenterprise) and
offer different staff skills (e.g., supplier development, financing, consulting, peer group
facilitation). Some of these organizations focus specifically on microenterprise development,
cumulatively reaching over 50,000 entrepreneurs annually.31
The U.S. Small Business Administration funds a network of skilled nonprofits under the Small
Business Development Centers (SBDCs) program. Most SBDCs offer one-on-one consulting
and classroom training, and some now offer small business peer groups.
31 The 1996 Directory of U.S. Microenterprise Programs, Self Employment Learning Project describes 328
microenterprise programs.
National Minority Supplier Development Council (NMSDC)
Recognizing that a large company endorsement
contract. To assure that the references have the
is often critical in breaking into other national
highest value (only 21 companies are endorsed as
contracts, the National Minority Supplier
of January 1998), the MBE must pass reviews by
Development Council created the Corporate Plus
NMSDC. Once recommended, each Corporate
program. In Corporate Plus, major companies like
Plus minority-owned company suggests five other
AT&T, Lucent, Ford, General Motors,
corporations with which they would like to do
DaimlerChrysler Pepsi, and Toyota sponsor small
business, and the sponsoring company is
firms by submitting detailed letters of reference on
responsible for serving as an intermediary between
behalf of minority-owned companies that attest to
the small company and its targeted corporate
their ability to handle a national or multi-regional
customers.
As an example, Baltimore Advisors, Inc. (an affiliate of the Initiative for a Competitive Inner
City) aims to increase wealth and employment in the City of Baltimore. The privately funded
non-profit organization provides discounted fee-based services to Baltimore City-based
companies with revenues generally between $1 million and $20 million annually. Its core
services include strategy development, marketing and finance services, and operational
assessments. A network of corporate partners, comprised of senior level business professionals
and owners of mid-sized and large businesses in the region, and area business schools, perform
mentoring, educational and consulting roles for the client companies.
Community-based organizations have historically played an important "market organizing" role
in neighborhoods. These organizations include community development corporations,
community development financial institutions (CDFIs) and local non-profits.³² Community-
based organizations often represent wider interests than purely business ones. Many community-
based organizations work closely with local residents and business owners and can address
issues of local small business development.
For example, ACENET (Appalachian Center for Economic Networks) in Athens, Ohio works
with 50 businesses in specialty food production. The companies in the ACENET network are
typcially less than one year old and have annual revenues under $500,000. ACENET describes
its services as a conduit for local business to share information by organizing peer mentoring,
entrepreneurial workshops and business assessments.
32 In Rebuilding the Inner City, Robert Halpern observes that community development corporations often "put
themselves in the role of buffer and mediator between the marketplace and the local community. CDCs have
proven to be reliable brokers among different interests inside and outside of inner-city communities." Halpern,
Robert, Rebuilding the Inner City, Columbia University Press, 1995, p.144, 148.
CDFIs, such as Coastal Enterprises, Kentucky
Highlands and Shorebank Corporation, often
North Texas Commission - Dallas/Ft.
make pioneering investments in the
Worth Minority Business Development
revitalization of housing and retail services.
Council Mentor-Entrepreneur Program
CDFIs work exclusively in underserved
markets, defined either by geography or
In 1994, the North Texas Commission partnered with
targeted populations. With their intimate
the Dallas/Ft. Worth Minority Business Development
knowledge of the local market and of
Council to advance the growth and development of
available programs of various kinds, CDFIs
small minority- and woman-owned companies in the
may have special expertise in brokering
North Texas region. By matching the small
companies with larger, more experienced firms, the
business assistance. Because of their
one-to-one relationships enable the small companies
community-building missions and broader
to access the experience and knowledge necessary to
residential constituency, most have focused on
reach the next level of success.
small and micro-businesses, and on first-time
entrepreneurs with limited capital. The best
Annually, 40 entrepreneur companies are matched
with 35 mentors from the North Texas Commission
community-based intermediaries connect
and the Dallas/Fort Worth Minority Business
small businesses with other local business
Development Council. Entrepreneurs are identified
networks and mentors, in addition to the direct
through: local ethnic chambers of commerce
services provided by them and established
including the Hispanic, Black and Asian Chambers;
city minority development departments; the Southern
public sector programs.
Dallas Development Corporation; and the North Texas
Women's Business Council. Matching is based on
The CDFI Fund, a subsidiary of the Treasury
location, industry, and the needs and resources of
Department, supports CDFIs through direct
each of the participants. Within each mentor
grants, loans and investments, as well as
company, a contact person is identified to facilitate
through training and technical assistance. In
assistance to the entrepreneur from the resources
available within the mentor company. A minimum of
addition, the Fund's Bank Enterprise Awards
two hours per month is the recommended goal
reward traditional banks for demonstrated
Although business is not prohibited between the
increases in development lending and
mentor and entrepreneur over one-half of
development services, including
participants end up doing business with each other
BusinessLINC activities with businesses in
it is not the goal of the program.
distressed areas.
Crowne Plaza Bristol Hotel & Resorts mentored
Porche's Creole & Cajun Café in East Ft. Worth,
The Small Business Development Center
owned by Tana Porche-Johnson and Rudy Johnson:
(SDBC) program funds a national network of
The Porche Johnsons point to Bristol's help with
over 1,000 centers that deliver one-on-one
advice on marketing their catering business, and the
kitchen operations John Longstreet, Vice President
counseling, training and technical assistance
of Employee Services said, We became involved at
in all aspects of small business management.
first because we're a service business and we believe
in community service. What we didn't expect was
that our managers would come back and say I'm
getting as much out of this relationship as Porche's
is.
Special SBDC programs and economic development activities include rural development
activities include rural development and procurement assistance. Some SBDCs offer small
business peer groups.
Business-led membership organizations
Local chambers of commerce often serve as a primary organizing institutions for local
businesses. While chambers have traditionally focused on basic networking activities and the
regulatory and business climate of their geographic base, some chambers have moved into more
active business linkage activities. Chambers of commerce can also help groups with differing
business cultures or linguistic background bridge communication gaps to form effective business
relationships. Chambers may be less suited to provide industry-specific guidance or depth in
areas requiring more sustained and focused effort, such as strategy development for individual
companies.
Trade associations may function as a clearinghouse for consulting, accounting and other services
and industry-specific information. With first-hand knowledge of a given industry, trade
associations can naturally broker groups of industry peers who may want to meet informally or
formally. Many associations have begun developing broad marketing and technology initiatives
for their membership, as competition between regional (and international) markets intensifies.
Trade associations also have potential to exploit internet-based technologies to better screen and
match supplier opportunities and member companies.
The Stempel Plan and Modifications
In 1993, Ron Stempel of the Port of Portland
Beginning in late 1997, Wegmans Food Markets
observed that small businesses were not
and the Rochester Minority Business Development
succeeding in winning contracts from the Port,
Council established a "modified Stempel Plan' in
and he began a program to match larger
which they serve as program sponsors. Both
construction-related businesses with smaller
serve as the Advisory Council, however, the
businesses SO they could become more
Minority Business Development Council has chief
competitive. Variations of the "Stempel Plan" have
responsibility for recruiting proteges, and
been adopted by trade associations, public sector
Wegmans has chief responsibility for finding and
organizations and private companies.
coordinating mentors from the industry. There is
no public subsidy in the program. David Cariello,
The Port's program lasts one to three years, and
Operations Manager at Wegmans and a major
both mentor and protégé sign a letter of
advocate of the program, says that Wegmans is
commitment and meet monthly: The program
doing this because 'six months into this program,
provides $15,000 per company in technical
I can tell you the costs that I've got invested in this
assistance, with more than half of the budget spent
program have been easily overshadowed and
on outside consultants who provide technical
exceeded by the amount of money we've saved
services to proteges. The Port itself provides two
just by buying it for a better price, and we're still
full-time staff to the program. Of the 18 protégé
getting the services. So we're helping companies
companies, all have completed the mentoring
develop. We're getting it at a better price. What's
program, and 40 percent have formally graduated
wrong with this picture? Nothing
indicating the Port's certification that they can "get
work, do work, and handle money.
The National Association of Government Guaranteed Lenders (NAGGL) is a trade group
consisting of nearly 700 commercial banks, small business lending companies, loan originators,
and other businesses active in various aspects of lending. On behalf of its membership, NAGGL
signed a Memorandum of Agreement with SBA to provide 25 NAGGL-developed seminars
across the country to educate loan originators, underwriters, and those entities that assist small
businesses to obtain financing.
Other intermediary organizations
For-profit companies can also serve as intermediary organizations. For example, good
consulting and accounting firms frequently provide business contacts and introductions for client
companies in addition to the discrete services they deliver. Moreover, several for-profit
intermediaries feature business-to-business links as an integral part of their product. One
example of this type of business, springing up throughout the country, is the "business
roundtable" concept. Small and mid-sized companies pay a fee to join the group, and they meet
regularly with other owners and managers over a period of time to discuss specific business
issues or be trained in areas of mutual interest. These groups also become valuable sources of
leads and new business relationships.
An example at the microenterprise level is a day care provider from the Women's Self
Employment Project who started a second business assisting other women to become home day
care providers. She hired two employees for her own day care center and draws about $40,000
annually from the business. Her second business helps other providers obtain contracts, stay in
legal compliance, and budget cash flow. She says she started the second business "to help
women in the new process of welfare-to-work because I knew it was going to be hard."
State and local governments' economic development responsibilities include targeted business
development services such as technical assistance in raising capital and real estate services.
Some governments also have the staff infrastructure to encourage BusinessLINCs in their
communities. For example, the Louisiana Department of Economic Development's Small
Business Assistance program coordinates a Development Assistance Program, a recognition
program, and a Small Business Bonding Program and is currently developing a formal mentor-
protégé program.³³
The role of academic institutions is also potentially valuable to BusinessLINC strategies. Many
academic institutions house SBA Small Business Development Centers. The example of the
mid-career training offered by Tuck Business School and many HBCUs also merits special
attention by other academic institutions that could adapt these efforts to their local communities
33 The Mentor-Protégé Program was developed based on consultation with officials from the Department of Defense
and the City of Atlanta. The Mentor-Protégé program is currently in the proposal stage, and Louisiana anticipates
a launch date in early 1999. As proposed, this program will recruit potential mentors, assist in the certification of
potential protégés following SBA guidelines where applicable, assist in brokering formalized agreement between
the mentor and the protégé (which may require a commitment of up to two years), and provide bonuses to mentor-
protégé partnerships that meet early completion or exceptional job standards.
white (see chart one).⁶ This growing population of customers is increasingly attractive because
of its spending power.⁷ To compete for these customers, many companies will need to develop
new sales channels and may also seek new suppliers that reflect this customer base. Floyd E.
Lewis, Director of Corporate Affairs at Anheuser-Busch explains, "We expect minority
communities to consume our products, so it's only logical for us to understand that minority
communities expect us to do business with them."8 In this view, firms create a competitive
advantage in reaching these customers by using a base of suppliers and sales channels attuned to
their consumer preferences.
U.S. Population
Percent of Total
Changing Demographics, 1990-2050
US Population
US Census Bureau
80%
70%
60%
50%
40%
30%
20%
10%
0%
1990
1995
2000
2005
2010
2020
2030
2040
2050
White
Asian and Pacific Islander
African American
Hispanic
Native American
all Non-Hispanic and Non-White Ethnic Minorities
This demographic trend in the consumer base occurs at the same time that many businesses
owned by minorities and women, as well as those located in inner cities or central business
districts, are prospering. One index comprised of businesses in which African Americans,
6
U.S. Department of Commerce. Bureau of Statistic Administration, Bureau of the Census, Current Populations
Reports, P25-1130.
7
A study by the University of Georgia's Selig Center for Economic Growth projects that the nation's black buying
power will grow from $308 billion in 1990 to $533 billion in 1999, well ahead of the nation's overall growth.
8 Quoted in Miller. Jill, "They Lead by Example." NAPM Insights, January 1, 1995, pp.45-47.