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Should NAICS Small Business Size Standards Be Increased?

I talk to a many small businesses who aspire to sell their services and products to federal agencies. And when I explain to them that a “small business” under their NAICS Code is any business that makes $25M a year or less, they say, “25 MILLION?!” and they deflate a little. How can a truly small business compete with a $25-Mil company? or even a $5-Mil company?

Another day, another conversation – this time with a small government contractor who is afraid of hitting the small business set-aside threshold and having to compete “with the big guys” in Full-and-Open competitions without any preference. “Raise the size standards to $30 or $50M” they say.

HOLD ON! I call shenanigans. If the purpose of set-asides is to allow truly small businesses to compete for work otherwise unattainable in a competitive environment, how high or how low does the SBA need to set the bar? Who are we trying to protect – the truly small businesses, or the growing enterprises that simply haven’t ballooned yet?

The capitalist in me argues that if a business can’t compete on the merits, well maybe it shouldn’t compete altogether. Of course, there’s always an element of social policy when the world’s biggest buyer happens to be your customer, and that customer can in fact mandate policy as it writes the check. So who should the SBA protect?

I say, the NAICS codes are INflated already. Raising them even further denies the truly small, new vendors any chance of competing because you raise the set-aside playing field to allow more and more players with substantially greater resources, deeper pockets, years (decades) of experience claim the same benefits. What’s the point? Once a business is making over $10M a year (and oftentimes, even before), they need to behave like a big business already, by:

  • creating an internal infrastructure of processes, practices, and lessons learned

  • maintaining an opportunities pipeline and establishing a list of ongoing / recurring work that will sustain the operation

  • hiring an executive team (internal or external) to manage all the aspects of running a busines

  • establishing costing / pricing / proposal development mechanisms

  • having a business development method in place, whether through dedicated sales, teaming, and/or buyer outreach

What about the truly small businesses? I say we need to protect / give preference to the business that

  • is managed by the owner(s) with little defined structure

  • is still figuring out its strategies for marketing, customer retention, business development,

  • does not have internal processes on ‘autopilot’ through HR, recruiting, proposal centers

  • doesn’t have significant past performance that can “speak for itself”

If the point of the program is to get new blood / new businesses / new ideas into the federal procurement process, then boosting the size standards to protect the entrenched players is doing everyone a disservice. At some point, everyone needs to sink or swim on his/her own merits.

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