Demographics of Successful DBEs: Results of a National Study

DEMOGRAPHICS of SUCCESSFUL DBEs: Results of a National Study

By Keen Independent Research

What makes a firm successful in the highway construction and engineering industry? How many “successful” minority- and women-owned firms are there across the country? Do firms graduate from the Federal DBE Program – and what happens to them when they do?

Keen Independent Research sought to answer those questions by identifying the most successful minority- and women-owned firms working with state departments of transportation and then learning as much as possible about them. The Transportation Research Board of the National Academies of Sciences, Engineering and Medicine (TRB) commissioned the study. The full report will be published by TRB in the coming months (look for Compendium of Successful Practices, Strategies and Resources in the FHWA Disadvantaged Business Enterprise (DBE) Program). This research provides the first national examination of DBEs that have been successful working with state DOTs, including program graduates.

Following identification of successful DBEs in nearly every state, Keen Independent Research compared the companies’ characteristics to a random sample of all DBEs. The study team then conducted an online survey and indepth interviews with state DOTs and successful firms.

Research results from this study will appear in two American DBE Magazine articles. The first provides a profile of successful DBEs working for state DOTs. The second will describe how they became successful and any assistance that was important along the way, including through the Federal DBE Program. Although the research focused on firms related to highway construction and engineering, including different types of subcontractors and suppliers, it has applicability to other industries as well.

Number of “successful” DBEs

Keen Independent Research worked with state DOT staff and other groups to identify the DBEs that were most successful in working with their state DOTs. They identified 749 successful DBEs, including graduated firms, based on different criteria for “success.” For example, a firm met the criteria for “successful” if it received considerable work on state DOT contracts, competed for prime contracts, had graduated or was on a path toward graduating from the Federal DBE Program, among other criteria.

Key facts regarding these DBEs included:

The 749 DBEs identified by state DOTs as successful represent a small share of the approximately 41,000 certified DBEs in the nation. Being certified as a DBE does not guarantee a company’s success (even when just comparing firms that specialize in highway work).

DBEs working with state DOTs do, if rarely, graduate from the Federal DBE Program. State DOTs identified about 100 companies that had graduated, but as many as one-third of those firms re-entered the program as owner net worth or business revenue changed to the point that they were eligible again.

About one-half of the 749 successful DBEs are white women-owned firms, which is more than what one would expect given the relative number of all DBEs owned by white women. About 17 percent are Hispanic American-owned firms and 16 percent are African American-owned businesses. Table 1 shows detailed results by group.

Most successful DBEs have been in business for many years. Only 16 percent were less than eight years old at the time of the study, compared with 35 percent of DBEs nationally. Table 2 shows the age of firms identified as successful DBEs.

About one-half of successful DBEs became certified within two years of when the company started

Note: To see the tables for this article, open the link using a desktop, laptop of tablet computer.

David Keen, Principal for Keen Independent Research

There are many paths and different strategies that might help a company become a successful DBE.

Because of the nature of state DOT work, the DBEs identified as successful were mostly construction or professional services firms (nearly one-half and onequarter, respectively). However, within those two industries, successful DBEs cut across many different specializations beyond highway construction and engineering, including fields such as electrical work and environmental consulting. This also shows that, overall, state DOT operation of the Federal DBE Program does not lead to a concentration of DBEs in any single type of work.

Almost every state DOT identified at least one DBE that was successful in participating as a prime contractor in their contracts. In addition, about 80 percent of successful DBEs surveyed said that they perform work as a prime contractor at least some of the time.

Almost one-third of successful DBEs had changed their primary specialization from the work performed when they started. For example, about 2 percent of successful DBEs surveyed said that they specialized in underground utility work when starting out. Less than 1 percent of successful DBEs indicated that that is now their primary line of work. However, about 8 percent of successful DBEs reported being able to perform that type of work. Eighty-six percent of successful DBEs performed more than one type of highway-related work.

Ninety-five percent of all successful DBEs reported that they perform work in both the public and private sectors. About 30 percent of firms indicated that public sector work accounts for at least 90 percent of their work. Most of the other firms had a more equal mix of revenue from public and private sector contracts.

When asked about the largest contract or subcontract the firm had received, almost one-half of successful DBEs surveyed indicated their biggest contract was between $1 million and $5 million. About one-in-six surveyed DBEs reported being awarded a contract over $5 million.

One-half of successful DBEs said that contracts with DBE goals accounted for more than 50 percent of their revenue.

Growth paths

Annual revenue alone does not indicate “success.” Many DBEs identified as successful by state DOTs were well below the SBA small business size standards for their fields. Table 3 provides information about the revenue of DBEs identified as successful in this study.

Most of the successful DBEs surveyed in the study indicated that they were not close to exceeding the size limits of the Federal DBE Program. Only 70 DBEs were identified by state DOTs as being on a path toward graduation.

Stay tuned for more

The second article in this series will provide an in-depth look at DBE owners’ perspectives on why they became successful, the challenges they still face and how they are addressing them. Keen Independent Research also compares the types of assistance that successful DBEs see as helpful and what state DOT staff members think is most useful. Stay informed about this important research in the next issue of American DBE Magazine.