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January 3, 2023

How to Successfully Graduate from the SBA 8(a) Program - Part 1

Part 1 - A Framework for Success

The SBA (Small Business Administration) 8(a) Business Development program is a robust nine-year program created to help firms owned and controlled by socially and economically disadvantaged individuals. The program is a great way to bootstrap firms that want to sell goods and services to the federal government. While the program has undeniable benefits, only 35 % of companies successfully graduate from the SBA 8(a) program. Improving your chances of success after you graduate requires developing and executing a comprehensive graduation strategy that allows you to compete in the full and open competitive environment. This means that you must be able to deliver competitive wrap rates such as a wrap rate of 1.65 which is where your most capable competitors perform. Investing in and developing the right client-facing and back-office capabilities is the foundation for establishing indirect rates required to compete and win in full and open competitions. In this 3-part blog, we provide a framework that will improve your chances of success, we describe the typical capabilities journey for most 8(a) firms which describe the capabilities required for success after graduation, and finally, we discuss the role that building competitive indirect rates will play in bidding and winning more contracts.

The SBA 8(a) Business Development Program

Businesses that participate in the SBA 8(a) program receive training and technical assistance designed to strengthen their ability to compete effectively in the American economy. Additional participants in the 8(a) program include businesses owned by Alaska Native corporations, Community Development Corporations, Indian tribes, and Native Hawaiian organizations. Small business development is accomplished by providing various forms of management, technical, financial, and procurement assistance.

SBA partners with federal agencies to promote maximum utilization of the 8(a) program participants to ensure equitable access to contracting opportunities in the federal marketplace. Once certified, 8(a) program participants are eligible to receive federal contracting preferences (aka set-asides), training, and technical assistance designed to strengthen their ability to compete effectively in the American economy.

SBA 8(a) Business Development Program Benefits

If you have been in business for at least two years or more and are interested in expanding your footprint in the federal marketplace, the SBA 8(a) program is a valuable tool for companies classified as socially and economically disadvantaged. Although the 8(a) certification does not guarantee contract awards, the SBA 8(a) program does offer unique and valuable business assistance that is properly utilized as a dynamic tool to pursue and capture new opportunities from the government.

Certified firms in the SBA 8(a) program can:

  • Efficiently compete and receive set-aside and sole-source contracts
  • Receive one-on-one business development assistance during their nine-year term from dedicated Business Opportunity Specialists focused on helping firms grow and accomplish their business objectives
  • Pursue opportunities for mentorship from experienced and technically capable firms through the SBA Mentor-Protégé program
  • Connect with procurement and compliance experts who understand regulations in the context of business growth, finance, and government contracting
  • Pursue joint ventures with established businesses to increase capacity
  • Qualify to receive federal surplus property on a priority basis
  • Receive free training from SBA's 7(j) Management and Technical Assistance Program

The SBA 8(a) certification qualifies your business as eligible to compete for the program's sole-source and competitive set-aside contracts. The government authorizes sole-source contracts to 8(a) participants for up to $7 million for acquisitions assigned manufacturing North American Industry Classification System (NAICS) codes and $4.5 million for all other acquisitions. Entity-owned 8(a) program participants are eligible for sole-source contracts above these thresholds, as long as they meet the additional requirements i.e. the Department of Defense requires approval of a formal justification if the 8(a) sole-source contract exceeds $100 million; all other federal agencies require approval for sole-source 8(a) contract actions that exceed $25 million.

SBA 8(a) program participants are eligible to compete for contract awards under other socio-economic programs or small business set-asides they qualify for.

Graduating from the SBA 8(a) Program

In a 2013 article, the Los Angeles Business Journal stated, "Only about 42% of 8(a) firms are still in business 9 years after acceptance into the program." According to the SBA, only 65% of those are economically viable 3 years after graduation. SBA has reported these client success rates: FY 2017 65%; FY 2018 64% percent.

A 2018 research study, presented at the Acquisition Research Symposium, titled Acquisition Research: Creating Synergy for Informed Change (study link) cited the difficulties 8(a) firms experience even after graduating.

"8(a) graduates do not fare well over time, with more than 60% no longer receiving federal prime contract obligations less than 10 years after graduation from set-aside eligibility. Those who were still federal prime contractors gained very little additional government business, with the average contract obligation up only 3.3% to $6.25mill, from 6.05 million (showing a decline when adjusting for inflation). Additionally, 8(a) graduates still depended on set-asides for more than half of their federal prime contract dollars. Overall, they are not rewarded for graduation."

A 35%+ failure rate is also an indicator of the difficulties involved in transitioning from the 8(a) program into open competition. The right type of planning is required to ensure survivability. In the first part of this blog, we provide a framework for successful planning to increase your organization's odds of success. Our framework provides a strategic plan consisting of four high-level steps. Each step consists of a list of tasks that need to be completed. In the second part of this blog, we provide more detail on building the capabilities that will enable you to execute the tasks in the framework.

Step 1 - Build Your Exit Strategy Well Before You Graduate

Build Your Management Team

  • Leadership: Have the right people in the right positions far in advance of graduation.

Focus on the Core Building Blocks

  • Revenue: Have a very strong pipeline and backlog before graduation.
  • Brand: Develop your key discriminators.
  • Segment: Find your niche market.

Prepare for fiscal belt-tightening at graduation time

  • Plan for a 2-to-3-year decline in revenue. Be ready!
  • Understand your cash position!
  • Pre-identify potential sources of credit.
  • Warn loyal employees that a temporary decrease in revenue has been planned.
  • Let employees know the company has prepared for the exit.

Step 2 - Build Your Business Development Capabilities

Never put all the eggs in one basket

  • Relationships and partner companies are critical to success.
  • Reduce reliance on the SBA 8(a) program far in advance of graduation.
  • Not more than 50% of revenue should be derived from 8(a) set-asides.
  • By the final year, that percentage should have reduced to 45%-25%.
  • Diversify the NAICS code offerings within your segment.

Market your company

  • Get to know customer Sr. representatives.
    SADBU, Contracting Officers, Program Managers, Directors
  • Attend the seminars
    Ask questions, shake hands, give them your card,
    ask if you can visit their office, things that help them
    remember who you are.
  • Hire a BD person who is a recent retiree from a targeted agency.

Track down contracts

  • Business intelligence is critical to finding new work
    Business Contacts
    Professional Associations - Rotary, Kiwanis, Lions Club, etc.
    Online leads tools: GovWin, FedBizOps, etc.
    Find the work no one knows about
  • Pursue 8(a) Indefinite Delivery Indefinite Quantity (IDIQ) contracts that will continue beyond your program graduation date.
    Typically this will allow you to continue pursuing 8(a) set-aside task
    orders after your graduation date, until the IDIQ expires.
  • Find the work the customer needs but has no budget for; then find the money for them -
    MPIR, SBIR, Grants, and other "special" programs

Step 3 - Build Strategic Partnerships

Find other sources of revenue

  • Find a large company mentor
    DOD and GSA each have a robust mentor protégé program
  • SBA allows graduated 8(a)s to mentor new entrants
    Find a company that's already been there, and done that
  • Support development of smaller 8(a) companies
    These companies can work with you to "flip" your 8(a) work to them
    They take over as Prime, with you as their subcontractor
    This may result in less revenue, but it reduces the amount you lose
    and builds strong, long-term relationships

Step 4 - Build Your Capabilities (Client-facing and Back-office)

Develop client-facing capabilities

  • Find a market niche and invest in developing core capabilities
  • Develop core contract and project management capabilities
  • Obtain key certifications: e.g. ISO, CMMI, CMMC, ITIL, etc.
  • Invest in developing proposal writing capabilities

Develop back-office capabilities

  • Adopt technology that will eliminate manual processes to right-size your indirect cost.
  • Build a plan to allow your indirect rates to be competitive for your selected market niche
  • Implement the right infrastructure: e.g. Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), etc. that underpin building corporate capabilities
  • Implement strong Capture Management, Contract Management, Project Management, Human Resource Management, Risk Management, and Procurement practices that align with your ERP infrastructure
  • Stay lean and laser-focused on price-to-win ... manage your indirect rates to create competitive advantages

Conclusion

Each of these steps can be broken out into further detail to assist in developing the strategic plan. Overall, the process can seem daunting, but with the right team, and an early start (5 years or more 'til graduation), your organization can mitigate or eliminate most of the risks and set you up for long-term success.

In Part 2 - Building Capabilities Required for Success, we focus on building the core capabilities you'll need to successfully compete and win full and open competitions.

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