More Power To You

A new empowerment contracting program offers small business a huge advantage.
Magazine Contributor
6 min read

This story appears in the March 1997 issue of Business Start-Ups magazine. Subscribe »

Empowerment zones were one of those rare political ideas that evoked real excitement, quite simply because they made sense for all involved. Economically distressed areas would receive an injection of life, business owners would get to tap a market in need, and the federal government could encourage employment and discourage crime.

Too good to be true? Maybe not. Recently, the Commerce Department took the biggest step toward making empowerment contracting a reality since President Clinton first promoted the idea in August 1994. "One component of [Clinton's] affirmative action speech was his plan to establish a program that would provide preferences for businesses, regardless of race or gender, that were located in distressed areas," says Larry Parks, assistant to the secretary of the Commerce Department, and director of the Office of Regional Growth. "He wanted to use the government contracting system as a way to stimulate business growth in distressed areas."

This spring, after what Parks describes as "a lot of internal action," the Commerce Department plans to start testing its empowerment contracting program. Small-business owners have quite a bit to be excited about, as the program offers them a considerable advantage over big businesses. "When you're a federal contractor, you look for competitive advantages," says Parks. "And this is one of them. There is a huge advantage for small businesses in using the program."

The Commerce Department, says Parks, has set up a point preference program, which allows the government to "score" bidders. Though contracts traditionally go to the lowest bidder, this point system opens the door for higher bidders that are located in areas in which at least 20 percent of the population is considered distressed. Three qualifications would give businesses an edge in qualifying for government contracts: Fifteen to 25 percent of the employees would have to be residents of the distressed areas, at least
25 percent of the business's physical plant would have to be located there, and at least 15 percent of the subcontracting done would have to be with businesses in the distressed area.

According to Parks, big businesses have to meet two of these three criteria, while small businesses have to meet only one of the three, giving entrepreneurs great opportunities. "There have been a lot of changes in the federal procurement system designed to make it easier to do business with the government. However, a lot of small businesses feel that when we move to this efficiency level, we're actually just scaling back on dealing with small businesses," Parks acknowledges. "This gives them reassurance that that's not the case."

And, perhaps more important, it provides them with a chance to make a difference. "[Empowerment zones] can add to the tax base of communities that are really struggling," says Parks, "and employ people who are most in need. This represents a ray of hope for these communities, too. It shows them that the government is going to do everything it can to encourage new businesses to come there."

Starting in April, the Commerce Department will post Internet notices of empowerment contracting opportunities in the Commerce Business Daily.

American Way

Entrepreneurship soars from coast to coast

Entrepreneurship is a more integral part of American life than we even imagined. According to a recent pilot study by the Entrepreneurial Research Consortium (ERC), about 35 million households--more than 37 percent of the U.S. total--include at least one person who is either running a small business, has invested in a small business, is trying to start a small business, has run a small business, or has tried in the past to start a business.

"The finding that more than one-third of all [U.S.] households have at least one person who is involved in the world of new and small business, that's a surprise," says Paul Reynolds, ERC coordinator and a professor of entrepreneurial studies at Babson College in Wellesley, Massachusetts.

Of these 35 million U.S. households, about 18 million include someone currently running a business, 6.8 million include someone trying to start a business, about 2.6 million include someone privately investing in a small business, and the rest include someone who once started or attempted to start a business.

The prevalence of "business angels," or private investors, was another major surprise in the ERC's study. "If you count the money coming from venture capital firms, the Small Business Administration and banks, that's probably only 50 percent [of business capitalization]," says Reynolds. "So the other 50 percent may be coming from these informal arrangements. If you're talking about $5,000 to $10,000 from 2 million households, that's $10 billion or $20 billion. And that may be the key to how people are capitalizing their business start-ups."

Reynolds adds that the link between the households and entrepreneurship was at about twice the level he expected. And even that number is conservative. Reynolds points out that the study counted only one individual involved in each activity, even though about 10 percent of the households reported multiple occurrences of each activity.

Considering the implications, "I think it's criminal that the government doesn't have better information on this issue," says Reynolds. "I mean, look at the basics here--one-third of our households have someone involved in [small business] in some fashion, and about 4 to 6 percent of the adults in their prime working years are trying to start a business. We already know new and small businesses are one of the major sources of job growth, and yet our government does not know how many new businesses are being started every year. That's the bottom line."

Reynolds expects the ERC, a consortium of universities and research groups, will find even more groundbreaking conclusions in its second pilot study, which will delve deeper into issues such as the number of start-up efforts required to get one business in place, or how much education and training entrepreneurs have. "We hope when the initial work is done in the scholarly academic sector and when it proves its value for policy purposes," he says, "the federal government will pick up the ball."

Read All About It

What are business owners reading these days? The top 10 business books at press time (based on net sales) were:

1. The Dilbert Principle, by Scott Adams, $20 (HarperBusiness)

2. Dogbert's Top Secret Management Handbook, by Scott Adams, $16 (HarperBusiness)

3. The Road Ahead, by Bill Gates, $15.95 (Penguin Books)

4. Wall Street Money Machine, by Wade Cook, $24.95 (United Support Association)

5. What Color Is Your Parachute--1996, by Richard Nelson Bolles, $14.95 (Ingram)

6. Personal Finance for Dummies, by Eric Tyson, $19.99 (IDG Books Worldwide)

7. Forbes Greatest Business Stories of All Time, by Daniel Gross, $24.95 (John Wiley & Sons)

8. J.K. Lasser's Your Income Tax 1997, by The J.K. Lasser Institute, $14.95 (Macmillan)

9. Investing for Dummies, by Eric Tyson, $19.99 (IDG Books Worldwide)

10. Only the Paranoid Survive, by Andrew S. Grove, $27.50 (Doubleday & Co.)

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