In-Depth Perspectives on DBE Success

IN-DEPTH PERSPECTIVES ON DBE SUCCESS

Results of a National Survey

By Janine Kyritsis and David Keen

David Keen, Principal Keen Independent Research

Owners of DBE firms find their own paths to success. Even so, there are lessons from DBE success stories for new and emerging business owners. In this extension of our Spring 2019 article in American DBE Magazine, Keen Independent Research highlights our research on practices of 749 DBEs identified as “most successful” by state departments of transportation. We performed this analysis as part of our nationwide study for the Transportation Research Board of the National Academies of Sciences, Engineering, and Medicine (TRB). The full report, “Compendium of Successful Practices, Strategies, and Resources in the FHWA Disadvantaged Business Enterprise (DBE) Program,” will be published by TRB in the coming months.

Our first article in American DBE Magazine discussed the number of successful DBEs working for state DOTs and reviewed data about their characteristics. We described how 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.” This second article provides an indepth look at DBE perspectives on what made them successful. We also summarize the types of training and other assistance that successful DBEs see as helpful and compare those insights to what state DOT staff think are most useful. These results are gleaned from in-depth interviews with current and graduated DBEs, survey responses from DBEs and state DOTs, and review of interviews and focus groups conducted with successful DBEs.

Janine Kyritsis, Senior Consultant, Keen Independent Research

Practices and Behaviors of Successful DBEs

Successful DBEs seem to go through the same stages of development as any other firm, but with better results. These stages of development can be summarized as:

• Pre-start-up;

• Start-up;

• Growth and change;

• Surviving unfavorable economic conditions or other events;

• Relative stability and profitability;

• Succession planning; and

• For some, exiting the DBE Program or another program.

Different types of assistance are needed for a company to move from one stage of development to another, as discussed later.

The in-depth interviews with successful DBEs revealed nine common factors important to their success:

1. Experience and relationships prior to start-up 2. Being in a field with demand for services 3. Access to capital 4. Business acumen 5. Quality of work and reputation 6. Relationships with customers 7. Ability to hire, train and retain quality workforce 8. Operational efficiency competitive pricing 9. Succession planning.

Many owners of certified businesses said that they had prior experience in their respective industries (see factor #1). Many owners had family in the industry as well, and this factor often influenced their decision to start their own business. For example, an African American business owner commented that because his wife’s family owned a construction business, he’s “always been around it,” and was confident enough to start a similar business of his own.

Access to capital is also needed for success (see factor #3). Access to capital, financing and bonding are all related, and many businesses examined in this study commented on the importance of those factors. An African American owner of a certified professional services firm, for example, said that access to capital and financing are key to her firm’s success. She credited a microloan she received from a local business initiative as being especially helpful. One African American owner of a construction firm credited his state DOT’s loan guarantee program as a reason for his firm’s continued success.

Positive relationships with customers were identified by most successful DBEs as a reason for their continued success (see factor #6). Business owners said that reputation and quality of work, business longevity, and building good business relationships with customers and others are keys to the success of their companies.

One interviewee said that good relationships with prime contractors and “doing the job 100 percent” are reasons for their success. Another interviewee, an Asian American business owner, said simply, “It’s all about trust … and great relationships.”

Hiring quality employees and investing in their training (see factor #7) were also discussed by many successful DBEs. An Asian American business owner and graduate of the DBE Program said that his company had always planned to be “the best,” to keep their employees happy, and have “good in-house training.”

Another interviewee, a Native American owner of a certified specialty contracting firm, suggested, “Value the employee and try to provide them a different atmosphere to work in than [other] places.” She went on to say that her company has parties, events and a wellness program to engage employees.

Ignoring the importance of any one of the first eight factors can lead to failure of a company, even if it has strong capabilities in the others. For example, having just enough financing or capital is not always sustainable and can cause business failure. One successful female DBE owner commented that “one lawsuit would put [them] out of business.”

The ninth factor, succession planning, was not often discussed among DBEs and state DOTs. However, for small businesses owned by individuals who are becoming older, effective succession planning will not only determine whether a company continues to be a DBE, it will determine whether it remains in business at all.

State DOT Assistance to Promote DBE Success

There are many ways DBEs can obtain training and other assistance. Many forms of assistance including DBE contract goals, are offered by state DOTs (see Table 2 below).

Many state DOTs said that they foster relationship-building between DBEs and prime contractors and sometimes with state DOT staff. One state DOT representative said that successful DBEs make efforts to build relationships on job sites and beyond. One interviewee commented that, “DBEs that have existed in the program for a long time have developed strong relationships with primes.”

Training is also offered by most state DOTs. In some states, trainings are tailored to meet the needs of individual firms. For example, one state DOT offers a technical assistance program that gives DBEs an assessment of their strengths and weaknesses and then coaches them to put recommendations into action. Some state DOTs are using new delivery methods for training (such as web-based, on-demand assistance) that may better meet how DBEs want to receive that assistance, while saving costs long-term.

In addition to training and other assistance under the Federal DBE Program, DBE contract goals have helped DBEs achieve success. Nearly all successful DBEs interviewed as part of our study said that the program was helpful. Most agreed that without it they would not be as successful today, with some even saying that without it they would no longer be in business.

Other Strategies for Success

Keen Independent Research found three strategies that were employed by some successful DBEs and not others:

• Diversification or vertical integration (expanding types of work performed and adding new services);

• Serving a geographically large market (traveling across states to reach new customers); and

• Bidding or proposing as a prime contractor or consultant (working directly with the client by expanding from subcontract work to prime contract work).

The factors discussed in this article and the three strategies above apply across different fields and regions of the country. Work specialization versus diversification, identifying the size of geographic markets to serve, and choosing whether to focus on subcontract work or to also compete as a prime are key questions successful DBEs have had to address.

More Information for DBEs and Small Businesses

Ensuring business success is an ongoing process for any business owner. The data and anecdotal information collected for the TRB study, summarized in Keen Independent Research’s “Demographics of Successful DBEs, Results of a National Study” (Spring 2019) and discussed in this second article, identify many keys to success. Additional information and studies related to business planning, growth and success, can be found at www.keenindependent.com and www.trb.org.

Table 1: Keys to success for DBEs involved in state DOT work

Table 1 shows which of these nine factors were mandatory at business start-up and which were mandatory as the small business matured. Many factors overlap, including offering goods or services that are in demand, having access to capital, possessing business acumen, doing quality of work, and having positive relationships with customers. New business owners and those thinking about starting a business can benefit from recognizing these factors and planning for the challenges that come with success.

Table 2: State DOT use of different types of DBE assistance

Training on how to do business – specifically with your state DOT – is available in some states. For example, one state DOT said they offer weeklong, in-person and online courses that focus on estimating, bidding and project planning. Although a few successful DBEs said the services offered by their state DOTs are too “basic,” many said they still use the training and assistance and will continue to do so.