Good afternoon ladies and gentlemen. I am extremely pleased to have this opportunity to speak in front of such an esteemed group of individuals and organizations. We have private- and public-sector organizations here today. We have entrepreneurs. And, the MBDA is represented here today by the Business Diversity Institute, Inc.
Ladies and gentlemen, I would like to start off this afternoon by sharing my thoughts on the value of the MBDA and MBEs. We will then move to current state of minority businesses in the Northwest. I’ll share my thoughts of what I see coming down the pike over the next 3 years, and conclude with some requests of you.
Value of the Minority Business Development Agency
I will start by drawing a parallel between the National Minority Supplier Development Council (NMSDC) and the Minority Business Development Agency (MBDA). Similar to the MBDA, the NMSDC was founded and funded by the federal government under President Richard Nixon.
Forty-six years ago on March 5, 1969, President Richard Nixon issued Executive Order #11458, establishing the Office of Minority Business Enterprise. President Nixon recognized the impact of minority businesses on the nation’s economy and more importantly the general welfare of the country. Side note: In 1969 the MBDA budget was $100 million.
Following the initial Executive Order, President Nixon signed Executive Order #11625 on October 13, 1971, prescribing additional arrangements for developing and coordinating a national program for minority businesses. The National Purchasing Council was established. And, in 1973 the National Minority Purchasing Council became the National Minority Supplier Development Council. This was a federal mandate 44 years ago.
President Nixon understood the minority community was disenfranchised. His decision to launch the MBDA was based on one simple fact: “All federal contracting was awarded to Non-Minority Business Enterprises and not a single dollar of federal contracting was being awarded to Minority Business Enterprises.” Based on that fact, he did not want a single dollar of federal contracting/federal spend contributing to the creation of the wealth gap between minorities and non-minorities and he did not want a single dollar contributing to helping the rich businesses get big and the minority businesses remain stagnant, unsupported, and eventually go under.
The NMSDC, having its beginning in the federal sector, has grown to be the largest private-sector multicultural minority supplier development organization in the country.
Again, the Minority Business Development Agency (MBDA) was born in 1969 as an act by the Federal Government to support the growth of minority businesses through contracting and financing. They remain the only federal agency whose mission is “to achieve entrepreneurial parity for Minority Business Enterprises by actively promoting their ability to grow and compete in the global economy.” The MBDA has a right to be proud of their accomplishments:
In 2011 the MBDA facilitated $4 billion in contracts and capital and created over 5,700 new jobs.
In 2013 the MBDA increased their performance by facilitating $4.8 billion in contracts and capital, leading to the creation and retention of 25,000 jobs.
The MBDA is successful because of their partnership with all of you in this room!
The Value of You!
While we are on the subject of you – Let’s talk about you and the success you bring to our region.
Before we get to your successful contributions to our economy, allow me to highlight a couple of recent findings. On September 22, 2015, American Express and Dun and Bradstreet released a study known as the Middle Market Power Index.
To put this in context, the study was of 136,603 middle-market companies in the U.S. Middle market is defined as revenues within the range of $10 million - $1 billion. Interestingly enough only 6% of those 136,000 companies are Women Business Enterprises and 5% are Minority Business Enterprises. The six-year study measured performance between 2008 and 2014. The study found that:
- Minority-owned middle-market businesses have outpaced growth of mid-sized companies as a whole;
- Women and minority businesses are entering the middle market at a much faster rate than average commercially active businesses;
- The number of U.S. mid-sized businesses increased by 4.1% from 2008 to 2014
- The number of women-owned middle-market companies grew by 23.6% during the same period
- And, minority-owned middle market companies rose by 22.1% during that period
- Overall middle market revenues fell 2.2%
- Women-owned businesses grew their revenues by 22.7%
- Minority-owned businesses grew 19.3%
- Overall middle-market employment grew 4.4%
- Women-owned companies grew 37.8%
- Minority-owned companies grew 38.7%--nearly 9 times the average rate of employment growth
I share this with you so you can benchmark against yourselves. But I also share this with you so you can think about why women and minorities are in the position to launch businesses at a higher rate.
Now I am going to attempt to demonstrate how valuable you are to our economy. So for this next piece of our conversation I am going to bucket everyone into one industry: construction. So for the next couple of minutes you are all in the construction business. There is no particular reason why I chose the construction industry other than the fact that Rhonnda Edmiston and Howard S. Wright invited me here today. And, I simply wanted to highlight the construction business.
Our council MBEs’ average annual revenues are $22,386,542 and employ an average of 73.4 FTEs.
Each industry—manufacturing, Professional Services, Food Services, etc.—has an economic multiplier. In the construction business the output multipliers are as follows:
- For every $1 million dollar in revenues, a construction company hires 10 employees;
- For every 1 employee a construction firm hires, 2.58 jobs are created outside;
- For every $1 construction pays in labor, it generates an additional $1.97 in labor revenue; and
- For every $1 construction pays for products and/or service, $0.54 in economic impact is generated.
Let’s apply these multipliers to our assumptions. This will demonstrate how important you are to our regional economy.
- There are about 25 MBE companies represented in the room
- Averaging $22.3 million in annual revenues per company, they total $557.5 million in annual revenues.
- Average 73.4 employees = 1,835 total construction employees;
- Generated an additional 4,734 jobs outside
- Assume a 20% profit with an 80% spend. As I mentioned, our MBEs’ average revenues are $22.3 million per year.
- Collectively, the construction companies in this room generate $557.5 million
- At 80% spend for delivery of products and/or services, you spent $445.6 million
- At a multiplier rate of $0.54, you folks in here generated an additional $240.6M in the regional economic impact
- Your collective total impact to the regional economy is greater than $686.2 million in economic impact
You are important! This is who you are. This is how important all of you are to this economy. Corporations, public agencies, MBDA, and MBEs—you are a driving force in this economy. You drive these results. You are in fact lessening the wealth gap between the non-minority and minority communities.
We understand how important the MBDA is, how important corporations, public agencies, and MBEs are in this equation. The question then becomes why is this important?
It is important because we have a significant problem. Minorities will become the majority by the year 2045. In 2045 Latinos will be the largest minority group in the country and by 2065 Asians will be the largest minority group in the country. Although we will become the majority our significant problem is this – “We are not developing knowledge workers within our communities of color.” More specifically the African Americans and Latinos are graduating less than 50% of our students from high school. Approximately 7,000 kids are dropping out of school every day. Only 47% of African American and Latino kids go to college. Only 44% of these kids will graduate from college. How are we going to build a “Knowledge-Based Work Force of Color” if we do not educate our children?
This is why what you do is so important. By driving growth in your business you drive community investments. Community investments drive increased employment, increased payroll, and drives empowered communities vs. socially dependent communities. Your business growth facilitates your employee families’ ability to purchase preschool educational toys, puts food on the table, drive healthy diets, drives improved school work and preparation for what is to come in the future. We need those kids to graduate from high school and college, and enter the workforce where they will make decisions, decisions which will impact minority community wealth. You are a key driver! All of us in this room have the ability to strengthen our communities and drive a stronger economy. So you see the problem, if we do not position our children to be tomorrow’s leaders we will become the “Wealthless Majority!”
I want to say one thing more about the importance of us educating our children.
I conducted a very short survey of some very prominent corporations in our region. What I found is that the boards of directors are about 63% white male, 37% female and ethnic minority – you have a mix of women and minorities. There are only 25 women CEOs within the Fortune 500 Companies.
We need to fill those board rooms with qualified minorities if we want to leverage the changing demographics. If we do not, nothing will change—we’ll simply be a larger population with no comparative wealth and definitely no political voice – “The Wealthless, Unempowered Majority.”
State of the Business in the Northwest
Let’s switch gears and look at business here in the Northwest?
As you all know the great recession of 2008 was good to some to some of you, who started your businesses in 2008 and are here today because you persevered and succeeded. Congratulations! Some of you were here during the economic boom and weathered the 2008 recession. Again, congratulations to you! You chose not to allow the circumstances to determine your fate; you chose not to participate in the recession.
Others were not as fortunate. Our Council saw entrepreneurs either go back to work for corporate America because their business was struggling – they needed to provide security for their families; they sold their businesses; put their businesses on hold; or even flat-out disappeared never to be heard from again.
What we have seen since 2008 is the economy consistently slumbering along the bottom with no real recovery. This is why the Feds have not raised interest rates: they been fearful of a double recession. This will change shortly.
As we begin to stimulate inflation and growth, we will once again enter our 54-month economic cycle. Historically, economic cycles last about 54 months; the front end of the curve is growth, we peak and optimize performance in the middle, then the downward cycle begins and we launch into the next 54-month cycle. This being said there is not going to be any economic boom where MBEs grow exponentially. We need to grow smartly. We are going to see slow growth in business reflecting slow economic growth.
Corporations will continue to search for MBEs that are qualified, have the capabilities, have the capacity/scalability to perform in accordance with what is important to them and their customers – similar to you – what is important to your customers!
Corporations will continue to identify MBE firms that have proven themselves to be “high value” and help develop them into more significant suppliers.
So I have to ask several questions. How are we preparing ourselves to grow? How are we building our organizations to grow in a state of slow growth? How are we building our team culture of success in spite of sluggish economic growth? Are we articulating our compelling value to insure we get into the “high value sandbox” where relationships are built and contracting occurs?
Are we working within both the public and private sector to insure we have a balanced portfolio? Are we building our business broad and deep, what we refer to as our 5 x 3 Service Matrix, within our client base so we are providing multiple services to multiple customers, thereby mitigating the risk of being too dependent upon one customer?
By the way, our Council’s rule of thumb is that, “if more than 26% of our business is dependent upon one customer we are at risk.” A friend of mine, Dr. Leonard Greenhalgh from the Tuck School of Business at Dartmouth, is a bit more forgiving – he states that if “your revenue is more that 30% dependent on one customer you are at risk.”
So here is my advice: Refuse to allow the circumstances to dictate your future. Refuse to play in the recession. Refuse to play in the sluggish economy. Let’s drive our compelling value and differentiating qualities so we get to play in the “high value sandbox” where we can win and unseat the incumbents. And, if we are the incumbent, let’s continue to elevate our value, keep our position inside the Sandbox, and do not crack the door open for anyone to unseat us.
Lastly, the ethnic minority community is a tremendous marketplace. If you know companies that do not care about supporting MBEs, you must decide whether you wish to support them as well. I know I don’t!
Understanding the current state of business we are in, where are we headed in the next 3 years?
Minority Business 3 Year Forecast
The Federal Reserve just announced they will be raising short-term interest rates before year-end. This may happen this month. For certain it will happen by December.
Interest rates will go up through 2017 in an effort to stimulate the economy without sending us into a recession once again. This means,
- Cost of credit will go up,
- Cost of capital will go up,
- Access to capital will continue to burden MBEs,
- Corporations will continue to rationalize their supply chains,
- Corporations will continue to reduce Supplier Diversity resources not really seeing and understanding the “Compelling Value.”
Supplier Diversity will remain a high priority for only 40% of the corporations engaged in this process. (i.e., 60% of the corporations that have a supplier diversity process consider it a “low priority”). This does not include the thousands of firms that have no concept of Supplier Diversity. In turn no concept or intent of building a “fair and equitable procurement process.” Is your intention to keep buying from them?
We operate in a global economy and therefore activities across the globe resonate here in the U.S. just like our activities resonate in other parts of the world.
- China, Brazil, Turkey, and other emerging markets are moving towards a more domestic consumption model
- This means less exports for the U.S. – less exports for you
- Higher costs to manufacture in those countries as well.
Business tax rates will remain high for small to mid-size businesses. Isn’t it interesting that the engine of growth—MBEs, Women, and Middle Market businesses—carry a higher tax burden than all other corporations or individuals?
Ladies and gentlemen, in closing I would like to leave you with several thoughts and a couple of actions.
I want to applaud all of you in the room. Collectively, we drive strength into our regional economy. Collectively we have the ability to empower our communities and educate our children. Together we have the ability to build wealth and become a political force to be reckoned with as our demographics shift.
I am however, disappointed that we are still fighting the same fight which President Nixon started over 46 years ago.
We are in a position where we can influence government, drive systemic change and stop the erosion of federal support for MBEs. Here is my call to action:
- Write to your national legislators and request an increase in the MBDA annual budget from $35 million to $100 million a year. The last time the MBDA was funded to this level was in 1969 when President Nixon created the MBDA; and,
- Build a minority voting block by creating political action committees whereby we become a force to be reckoned with through voting strength.
Lastly ladies and gentlemen, refuse to play in the recession and slumbering economy. Be compelling in your value and break into the “high value sandbox.”