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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Suggested Citation:"Chapter 5 - Keys to DBE Success." National Academies of Sciences, Engineering, and Medicine. 2019. Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program. Washington, DC: The National Academies Press. doi: 10.17226/25538.
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Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

38 The research team identified keys to success for companies that state DOTs identified as success- ful DBEs. Results are based on the analyses reported in Chapters 2 and 3 as well as on interviews with successful DBEs, state DOTs, and trade associations performed in this research. The research team also compiled experiences of DBEs from qualitative information reported in 19 disparity studies completed by Keen Independent Research and other consultants from 2009 through 2018. This chapter also reviews business owners’ past participation in the federal DBE program, use of other state DOT support, and comments about assistance that might be valuable going forward. Business owner perspectives about potential and actual graduation from the DBE pro- gram are also presented. Keys to Success Table 15 summarizes principal keys to business success identified in this research. Six appear to be essential from the very start of the business and eight are related to firm growth and devel- opment. Although some factors might be somewhat more important to a particular type of business or industry (e.g., construction versus professional services), they appeared to be nearly universal. Chapter 5 discusses each key to success in the order listed in Table 15. The column of Table 15 titled “Strategies for some” shows three sets of strategies where suc- cessful business owners made different choices: whether to diversify or vertically integrate, the geographic size of the market served, and whether to bid or propose as a prime contractor. There was no one right answer to each of these questions among the successful DBEs. Chapter 5 describes how the choices made contributed to the success of individual DBEs. Appendices to this report provide detailed analysis of why certain DBEs were successful from the perspective of those companies (Appendices C and F), state DOTs (Appendix D), and trade associations (Appendix E). Experience and Relationships Prior to Start-Up Most interviewees reported that DBEs that are successful today were started by individuals with previous experience and relationships, through work or family ties, in their respective industries. The circumstances of starting their businesses might vary, but prior experience and relationships were often cited as critical to success. Examples of this factor from interviews with owners of successful DBEs include the following: • The Asian American female owner of a construction-related firm who had 25 years of experi- ence in the industry prior to starting her business (she started her company when her job was eliminated by her former employer). C H A P T E R 5 Keys to DBE Success

Keys to DBE Success 39 • The Hispanic American male owner of a professional services firm who reported that before he started his own company, he “worked for a consulting firm for 24 years and worked [his] way up to the executive team.” • The white female owner of a graduated specialty contracting firm who had prior related experience before starting her firm. Some successful business owners had worked for a state DOT or other government agency before starting their businesses. For example, a white female owner of a professional services firm started her career working with a state DOT and left it to start her firm. For some DBEs, success is based on working in a family business or purchasing an established firm. Some grew up in the business. Interviewees included a female business owner who said that her mother started the firm, an African American business owner whose wife’s family owned a construction company, and a white female owner of a specialty contracting firm who said that she started the firm with her husband, who had experience in the industry. One state DOT rep- resentative remarked, “Family continuity in management seems to be a common factor.” A trade association representative summed up the keys to success for a DBE: “One is that they grow up in the industry . . . and two is they have some kind of financial backing.” The importance of this prior experience to the success of minority and female business owners is supported by other national research (Fairlie and Robb 2005; Fairlie and Robb 2009). Mandatory from start Mandatory as mature Strategies for someKey to success Experience and relationships prior to start-up Being in a field with demand for services Access to capital Business acumen Quality of work and reputation Relationships with customers Ability to hire, train, and retain quality workforce Operational efficiency and competitive pricing Succession planning Diversification, vertical integration Serving a geographically large market Bidding/proposing as a prime Table 15. Keys to success for DBEs involved in state DOT work.

40 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program Owners who had purchased their firms included a woman who bought her firm with a $40 down payment, an African American man who purchased his construction business from a competitor, and an owner who worked under the founding owner until taking the business over after his death. Such opportunities are rare and may have helped those DBEs be immedi- ately competitive. Some interviewees commented that women who had a husband in the business or a father who started the business were at an advantage over other DBEs. There were examples of women taking over family-owned businesses, partnering with their husbands, and buying out ex-husbands among the successful DBEs interviewed, but many of the white female business owners who were interviewed did not start their firms that way. Being in a Field with Demand for Services Successful DBEs were identified by state DOTs in part because they had obtained work on state DOT projects. Therefore, these DBEs tended to be in fields in which there was state DOT-related work. (If this research had involved transit agencies or airports rather than state DOTs, the DBEs identified as “successful” would have a different mix of specializations.) Some owners of successful DBEs said that their strategy was to be in a field where there was substantial work and not a lot of competition. For example, an African American male owner of a specialty contracting firm commented, “I am more successful based on the type of work we are capable of doing. There are a number of DBEs who aren’t able to do [my type of work] because they don’t have equipment or manpower.” He added, “. . . I have taken the chance, the challenge, and devoted myself to gaining experience . . . building relationships, working in areas in [the state] where you don’t see DBEs working.” Access to Capital Both initial capitalization and the ability to obtain capital for expansion are major determi- nants of whether a business will be a success. National research indicates that higher rates of business failure of minority-owned companies and other differences in outcomes are due in part to barriers in accessing capital (U.S. Department of Commerce 1991; Mitchell and Pearce 2015; Fairlie and Robb 2010; Premier Quantitative Consulting 2016). A key question for the research concerning successful DBEs is whether they had access to capital at start-up and when growing that other DBEs did not. Start-Up Capital It appeared that many successful DBEs had little capital when they started their businesses, which owners described as a barrier that they had to overcome. The African American owner of a construction-related firm summed up access to capital at start-up as “the hardest part . . . you have nothing and you’re starting from scratch.” Comments such as, “Banks wouldn’t give me any money to start my business” were frequently heard from owners of now-successful firms. As a result, some owners of successful DBEs started their businesses with a very small amount of money ($500 to $4,000). Starting a professional services firm often requires little capital, but examples of initially low investments included construction businesses. Some business owners used their savings, severance pay, retirement funds, or family assistance to start their businesses. Other common sources of start-up capital were credit cards and home equity or personal lines of credit. A graduate from the DBE program said that she was able to use student loans to finance her business because she was a student when she started it. An owner of another graduated firm used personal savings and equity in his house to start the company.

Keys to DBE Success 41 He said that “overcoming the financing at the beginning” was the most challenging moment for his company. In sum, owners of successful DBEs reported the same challenges and solutions to finding money to start their firms as other DBE business owners based on information in the state DOT disparity studies examined as part of the research team’s research (noted in Appendix C). Those who were able to use bank loans were more often purchasing an existing business rather than starting one. Overall, there was little evidence that owners of successful DBEs started their firms better capitalized than others. Supplier Credit and Equipment Financing Sometimes, the first real “financing” a company obtains is payment terms from its suppliers. Several of the owners of successful construction firms said that establishing relationships with suppliers is an asset that allowed them to obtain fair pricing and open a line of credit on materials purchases. Obtaining favorable financing or lease terms from equipment suppliers was also important for these firms. Other Financing for Operations and Growth Access to capital for operations and growth was a concern for construction, professional services, and other firms. As companies were more established, bank financing became available for some of them. For example, the Hispanic American male owner of a professional services firm reported that he needs capital to grow and has worked with his banker to secure a tripling of his line of credit. The Asian American male owner of a graduated firm recalled that when he needed financing he could not get it and it was only later that banks offered it. He commented, “The banks come to you when you don’t need them.” Other owners of successful DBEs reported still struggling to obtain conventional financing. Some examples include the following: • The Asian American female owner of a specialty contracting firm stated that her firm has taken out loans “at a much higher rate than [they would] like” because her firm cannot yet qualify for traditional bank loans. • The African American owner of a construction firm remarked, “. . . I always foresee road- blocks to getting capital . . . there’s always problems . . . finding money, absolutely.” Some of the need for financing relates to cash flow and required working capital. A rep- resentative of a national engineering-related trade association indicated that the biggest key to success for DBEs is “funding” needed “to ensure that they can still operate, pay all their employees, and still make a profit.” When surveyed, the Native American male owner of a construction firm said, “Access to mobilization and capital to start projects is very difficult.” He suggested there be “a new rating system to award DBE businesses that perform well on projects the ability to access mobilization.” Lines of credit were often used by companies because of their flexibility. A few business owners obtained lines of credit but rarely used them. Some business owners were careful to manage their growth and how much debt they took on. One successful DBE owner’s key to success was “not letting [her] company outgrow [her] . . . finding different markets . . . [and not] get[ting] overloaded with debt.” Another business owner said, “I have tried very carefully not to extend ourselves . . . to minimize risk. . . .”

42 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program Some owners of successful DBEs described how they plowed profits back into the company and self-financed almost all of their growth (only used loans for vehicles). For example, the white female owner of a graduated specialty contracting firm reported that her business is successful because it makes a profit and they have funds to reinvest in the firm. She said that success was uncertain at start-up. She stated, “The first 2 years I didn’t cash a paycheck. I took all the money and reinvested it back in the company.” Many other business owners made similar statements. Finally, there was some reporting from successful DBEs that financing was more difficult for people of color, which is consistent with the other research cited in this chapter. Bonding The ability to bond a project is important to some construction firms and is closely linked to their capital. Even for successful DBEs and graduates of the program, bonding capacity affects the contracts on which firms can bid. Some successful DBE contractors said that they do not bid on contracts of more than $2 to $2.5 million due in part to limited bonding capacity. When asked about the challenges that she faced at start-up, a white female owner of a specialty contracting firm reported, “My main problem at that time when we started was bonding. We couldn’t get enough cash to get bonding.” Business Acumen Many potential business owners know how to manage a construction or design project, but do not know how to run a business, according to interviewees. Interviewed business owners, representatives of state DOTs, and trade association staff agreed that basic business acumen and business skills are necessary for success. Business owners described the needed business acumen in different ways, including the following: • An African American owner of a specialty contracting firm said, “It’s learning the lingo of the business, the ins and outs, being informed as an owner. . . .” • A white female owner of a Women’s Business Enterprise (WBE)/DBE-certified construction- related firm said, “Being a business person first and understanding construction second is imperative.” She said that those in construction should “take all the business classes [they] can.” • A white female owner of a graduated DBE said that “knowing the rules to play by” is a key to business success. She went on to say that DBEs who understand simple business practices, cash flow, and show up on time are more successful. • A Hispanic American male owner of a professional services firm said that knowledge of “bidding, contract law, estimating, operations, marketing, accounting, and finance” makes a firm more successful than others. • A white female owner of a consulting firm said, “Probably the biggest challenge was just . . . getting my feet under me from a business management standpoint.” Business acumen is often linked to prior relevant management experience. A trade associa- tion representative summed it up as follows, “[It comes down to] basic business skills.” He added, “[Successful DBEs] know how to run a business . . . they are well-networked, they have experience . . . or they have worked for an experienced contractor. . . .” Success of these DBEs appears to be due in part to how they dealt with adverse situations. Many of the owners of DBEs that are successful today or have graduated from the program talked about times when they were not making much if any money from their company. Some

Keys to DBE Success 43 described surviving these hard times in terms of what they could afford to eat: “only put ramen on the table” for an owner of a now-graduated DBE, and “rice and beans” for another successful business owner. Many owners of successful DBEs survived hardship at some point in their firms’ development, and a number of interviewees had once feared their businesses would fail. Some aspects of “business acumen” might be better described as “determination” or “grit.” Some examples are the following: • When asked how he overcame business challenges, the Hispanic American male owner of a professional services firm commented, “Dust yourself off and move on. . . .” • The white female owner of a specialty contracting firm said, “We are more successful because we’re willing to change.” • A Native American female owner of a specialty contracting firm said, “We have had difficult times” but it was always clear that they would be successful. Successful DBEs used their business acumen to survive the Great Recession, which nearly all experienced. An African American male owner of a construction firm reported, “The big- gest challenge was when the real estate bubble burst in 2008 . . . that was the biggest problem I faced . . . ever. The whole [market] collapsed.” Commenting on the Great Recession, a Hispanic American female business owner said, “Fortunately, we had seen the handwriting on the wall and had started to diversify our business. . . .” One business representative noted, “Because of our relationships, we were able to flourish during the down economy. A lot of the smaller . . . one-man [and] family operations didn’t survive in the downturn, so that allowed us to create market share.” Successful DBEs in this research as well as hundreds of DBEs interviewed in past disparity studies report that they scale the size of their workforce depending on work opportunities. This includes seasonal and cyclical adjustments. This ability to expand and contract is important to their success. Some of the worst difficulties owners of successful DBEs reported pertained to predatory practices of others. Sone examples are the following: • An African American male owner of a DBE-certified specialty contracting firm stated, “When I had worked under a large prime contractor on a major project . . . and we weren’t being treated appropriately . . . I lost a lot of money on that project . . . I was on the verge of closing my doors.” • An African American male owner of a construction-related firm reported that some primes “are pretty slick . . . they know you’re a little guy and they take advantage.” • The Asian American male owner of a graduated firm said their experience working in the private sector was “they don’t pay you.” Quality of Work and Reputation Across the groups interviewed and surveyed, a key reason given that successful DBEs were successful was that they dependably delivered quality work; a customer or prime contractor could count on them. Some examples are the following: • A female business owner summed up the importance of dependability as follows, “That’s how we made it. I did what I said I was going to do, and I got the job done.” • The white female owner of a professional services firm noted, “Part of the reason my company is successful is the quality of service. I have heard [that] finding quality DBEs is an issue.” • The Hispanic American male owner of a DBE-certified construction firm commented, “Do what you say and say what you mean. Do not expect handouts.”

44 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program • A representative of a trade association said that “quality work performed, reliability, pricing, and management” are factors that determine business success. • A trade association representative commented, “It’s a matter of finding what you’re good at and pursuing that particular line of business. . . .” One state DOT interviewee combined the factors for success as follows: “These [successful DBEs] are established companies and have relationships, do good [work], and perform types of work that the [state] needs.” Another state DOT representative reported, “The DBEs that are suc- cessful do good work, are known in the community, and are used on jobs whether a DBE or not.” One representative of a state DOT talked about DBEs that obtain subcontracts without the help of DBE contract goals. She said they are generally “established companies that have relationships [and] do good work.” Several owners of successful DBEs said that they wanted to be perceived as good contrac- tors and consultants rather than as a DBE. For example, the Hispanic American male owner of a specialty contracting firm said, “Our success truly hinged on being able to take a leap from, ‘I’m going to use you cause you’re a DBE,’ to ‘I’m going to use you cause you’re a good contractor.’” Relationships with Customers, Primes, and Others “Relationships are key” and “relationships with customers are essential” were frequent com- ments from the interviews with owners of successful DBEs as well as representatives of state DOTs and trade associations. Talking about his relationship with customers, one business owner said, “Our service is one of trust. . . .” An important finding from Chapter 3 is that 89% of successful DBEs have been in business for at least 8 years, and often much longer. Most have been DBE certified since the early years of their firm. Therefore, those firms have had the opportunity to develop strong relationships with their customers over a long period of time. It might also be true that they are still in business because they excelled at developing those relationships. Several business owners said it was difficult at first “to get your foot in the door.” Like other new businesses, owners of successful DBEs faced the “catch-22” of needing experience to win work that would gain them that experience. Some owners of successful DBEs commented on how DBE contract goals on projects opened the opportunity to develop relationships with prime contractors. Ability to Hire, Train, and Retain a High-Quality Workforce At the time this report was written, construction businesses and other companies across the United States were struggling to find and retain high-quality workers. Information from DBEs in the disparity studies reviewed in Appendix C suggests that a large number of business owners believe that qualified, diverse, and well-trained employees are important to business success. This is true for successful DBEs as well, and many owners of those firms cited having a quality workforce as a key to success. These included companies that have graduated as well as those that are currently DBE certified. Some business owners reported that recruiting and retaining quality workers were among their biggest issues. For example: • A Subcontinent Asian American male owner of a professional services firm reported that the biggest challenge for his firm going forward will be “getting hold of and hanging on to” talented employees.

Keys to DBE Success 45 • Regarding future challenges, a white female owner of a specialty contracting firm stated, “Finding qualified help . . . I could run 24 hours per day . . . we have that much work.” She went on to say, “The only way we can find good people is to steal them.” Some business owners pointed to how they train and treat their employees as a key to attract- ing and retaining workforce. Examples include: • The white female owner of a specialty contracting firm who said that “making sure to take care of your employees” is a key factor to success. • An Asian American male owner of a graduated professional services firm who said, “We planned to be the best and . . . [keep] our employees happy and . . . [have] good in-house training.” • The white female owner of a construction firm who reported that “hands-on” training for employees in her industry is important since many have never worked in the industry. • A Native American female owner of a specialty contracting firm who said, “[We] value the employee and try to provide them a different atmosphere to work in than some places. We have parties and events that get employees involved, and we have wellness programs.” Other business owners discussed other strategies for recruiting workers. For example, an owner of a specialty contracting firm reported that her firm works as a “second chance employer” for people who are released from prison. A few successful DBEs mentioned that they are union signatories and that this was key to their success. Operational Efficiency and Competitive Pricing Most of the owners of successful DBEs described their fields as competitive, and many said that they needed to be efficient and competitively price their work (especially construction firms). Comments include the following: • The white female owner of a graduated specialty contracting firm who said, “We have profit margins we want to maintain,” and that they invest in staff training and promote efficiency. • A white female owner of a DBE-certified specialty contracting firm who reported that effi- ciency and overhead are key to her ability to secure subcontracts. • A Native American female owner of a specialty contracting firm who stated, “We run our operation intelligently; we care about the little things which makes sure big things get taken care of; we aren’t frivolous with our choices and we don’t chase the market in bidding.” • A representative of an African American male-owned specialty contracting firm said that the firm is successful because they “fit right in with their price, because they have to . . . have a competitive price.” For some firms, operational efficiency included being able to adjust staffing levels to their workload, even if that meant layoffs. Succession Planning Some owners of successful DBEs got into business when former owners sold their businesses or passed away. Many of the current owners of DBE businesses are reaching the age when they also need to plan for a transfer of ownership. However, only a few discussed the future of their businesses—when they might want to give up control or retire. Comments on these next steps included the following: • An African American female owner of a professional services firm who stated that her long- term plan is focused more on preparing her company and herself for retirement. • A white female owner of a consulting firm who said, “Right now, I think I’m kind of at a crossroads because I’m personally on the . . . slow taper to retirement.” (She did not discuss how she was going to accomplish this step, however.)

46 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program • The African American female owner of a professional services firm who said she has taken classes on “transitioning into retirement.” One owner of a successful DBE recommended that the personal net worth cap be raised to adjust for inflation, in part, so that owners can save money for retirement. One interviewee said that he knew of owners of firms that graduated from the federal DBE program who immediately retired. A Hispanic American male owner of a professional services firm said he would retire if his firm exceeded size ceilings for DBE certification. Diversification and Vertical Integration Three keys to success for successful DBEs are effectively implementing strategies concerning specialization versus diversification, geographic markets served, and whether to focus on sub- contract work or also compete as a prime. For some business owners, keys to their success included diversification into different types of work or different markets. Both construction and professional services firms pursued this strategy. There were also business owners who “vertically integrated” by adding a supply func- tion to their business. Many successful DBEs perform more than one type of work, but some have been successful specializing in one field. To be counted toward meeting a DBE contract goal under the DBE program, a firm must be certified under the NAICS code for that work. Some owners of DBEs indicated that they had or were planning to ask for certification under additional NAICS codes. Other business owners said that specialization is important to the success of a business. The white female owner of a graduated specialty contracting firm observed that DBEs fail when they are pushed into scopes that they know nothing about. She observed, “If you have a company who does concrete flatwork or trucking, why would you encourage them to expand into an unrelated scope? They are more likely to fail.” She discussed one state DOT that encouraged DBEs to move into scopes of work in which they were not experienced or qualified. Some successful DBEs perform substantial work in both the public and private sectors. The business owners who reported working in both sectors said the advantages of this strategy included “not wanting to limit opportunities,” “to keep busy,” “better markup on private sector work,” “less paperwork on private sector work,” and “when one is doing bad, the other is doing good.” Other companies primarily perform work for public agencies. The number of companies that have been successful by being highly specialized and serving only public sector customers suggests that diversification and vertical integration are strategies that can be effective, although not essential. Serving a Geographically Large Market Some successful DBEs have expanded into multiple markets geographically, including markets in multiple states and sometimes markets outside of the country. A few business owners said that the majority of their work was located outside of their home state. An African American male owner of a specialty contracting firm said that he purposefully went into areas of the state “where you don’t see DBEs working” in order to gain competitive advantage. For many successful DBEs, this geographic expansion occurred over time. One-half of successful DBEs identified in the research were certified in more than one state. This includes companies in the west, where jobs may be 1,000 miles apart. One graduated

Keys to DBE Success 47 company serves four states. However, other DBEs had a narrow geographic focus and were suc- cessful with that approach. The best strategy depends on the region, competitive environment, and the degree of specialization of a company. Bidding and Proposing on Prime Contracts Some business owners said they preferred to bid as a prime, and some preferred to bid on sub- contracts. In the survey of successful DBEs, most performed some work as a prime contractor or consultant, but only a small portion of their total revenue came from these prime contracts. For example: • The owner of a graduated DBE said that his firm was lucky to have started working as a prime as soon as the firm was certified as a DBE. He attributed some of his success to that opportu- nity. Some owners of successful DBEs said that they started as subcontractors and now also bid as prime contractors (sometimes exclusively). The owner of another graduated DBE said she began working as a prime only recently. • One owner of a successful DBE reported that the firm started as a prime by bidding on small state DOT contracts (under $1 million). The company was successful and has been able to increase the size of contracts it pursues. Other owners of successful DBEs reported that they have tried to bid as a prime with a state DOT but have not been successful. Obtaining prequalification by the state DOT or meeting other qualifications requirements was a barrier mentioned by several owners of successful DBEs. One business owner said that the ability to bond a project is a factor in whether the firm can bid as a prime. Another business owner said that because he chooses projects that do not require extensive financing, he is usually a subcontractor on public sector projects. State DOT Assistance The online survey of DBEs asked about many different types of business assistance, net- working, and other state DOT efforts to help DBEs. The list of programs included DBE con- tract goals. For each type of assistance, respondents were asked if • Their company had participated in that type of assistance within the past 3 years; • That assistance contributed to the success of the firm; • That assistance would be helpful to the firm in the future; and • Whether it was very important to the success of the company. Table 16 presents the percentage of DBEs responding “yes” to those questions for each type of assistance listed in the survey. Classes and Training As shown in Table 16, more DBEs (42%) mentioned that they had participated in classes on record-keeping, contract compliance or office functions than any other type of class. A similar percentage indicated that such classes had contributed to the success of the firm and would be helpful in the future. Seven percent said that it was very important to their success. Thirty percent of successful DBEs had recently participated in classes or other training related to safety. Safety training also received relatively high numbers of affirmative responses for contributing to the success of the firm and being helpful in the future. Forty-three percent of DBEs said that their firms had participated in training academies or general training courses in the past 3 years, and a relatively large portion said that type of

48 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program training contributed to the success of the firm and/or would be helpful in the future. Ten percent (a relative high percentage) cited those classes as being very important to the success of their company. Fewer successful DBEs reported that their firms had participated in human resources train- ing or classes or training on access to capital. However, more than one-third of those business owners indicated that such training would be helpful in the future. Nine percent of successful DBEs indicated that training on access to capital had been very important to the success of their business, the highest percentage of any specific type of classes or training. Type of assistance provided by state DOT Specific classes, training sessions, or online training on: Record-keeping, contract compliance, and other office functions 42 % 43 % 38 % 7 % Human resources 23 27 36 6 Company financial statements 23 25 25 7 Company websites 14 11 29 3 Preparing bids and proposals 28 27 31 4 Other company marketing 17 28 31 2 Access to capital 15 14 37 9 Bonding 13 13 21 2 Insurance 18 17 31 2 Safety 30 30 36 4 Training academies/general training courses 43 38 40 10 One-on-one business assistance 31 30 41 7 Reimbursement for training or other expenses 25 24 48 6 Mentor-protégé programs 10 7 34 4 Business development programs 28 25 41 4 Dissemination of DBE directory 29 27 33 4 Routine notification of contract opportunities 52 42 44 4 Meet and greets with public sector staff 37 34 42 5 General networking events with primes 50 33 48 6 DBE conferences and events 49 40 46 2 Project-specific outreach events 35 29 44 3 Prompt payment and return of retainage 44 42 57 9 DBE contract goals 56 65 55 22 Small contract bidding restricted to small businesses 18 21 52 2 Unbundling of contracts suitable for bidding as primes 12 15 49 6 Other contract goals 10 16 35 0 Other efforts to increase DBE participation as primes 16 21 57 0 Very important to DBE success Would be helpful to DBE in the future Contributed to the success of the DBE DBE participated in within the past 3 years Table 16. Participation of successful DBEs in state DOT-provided assistance.

Keys to DBE Success 49 About one-third of respondents from successful DBEs indicated that classes or training on company websites, preparing bids and proposals, other company marketing, or insurance would be helpful in the future. For each type of assistance that was asked about in the survey, the research team compared the responses of successful DBEs to the responses of state DOTs. For some types of training, the interest of successful DBEs in future assistance matched what state DOTs thought would be helpful for successful DBEs. These include the following: • Training on record-keeping, contract compliance, and other functions; • Access to capital; • Human resources (however, only one-half of state DOTs offer that training); and • Safety. There were other types of training where responses from successful DBEs did not match those from state DOTs. For example, many state DOTs reported offering classes on preparing bids and proposals, and classes on preparing bids and proposals were chosen by more state DOTs than any other form of assistance to be in the top five types of assistance that have helped DBEs become successful. However, successful DBEs did not indicate that this training was more valuable than other types, in the past or for the future. In addition, relatively few successful DBEs reported participating in training concerning bonding or insurance. This assistance was offered by many state DOTs, and state DOT repre- sentatives generally thought continued training in these areas would continue to be valuable to successful DBEs. Especially when asked for the training most important to advancement of DBEs, state DOTs frequently mentioned bonding. This was not borne out in the survey responses of successful DBEs, although some firms noted how useful that training was to their firms. The continued participation of successful DBEs in training academies or general training courses, their interest in future training of this type, and the relative percentage who said that assistance was very important to their success only somewhat matches state DOTs’ perception of the value of such training to successful DBEs. Less than one-half of state DOT respondents thought such training would be valuable for successful DBEs in the future, one of the lowest results found for this question among any specific type of training. However, one-third of state DOT respondents placed this assistance in their top five forms of assistance that have helped DBEs become successful. Some successful DBEs recommended changing training from a classroom setting to on-demand or other accessible delivery. One business owner suggested that state DOTs utilize more webinars for their supportive services since many small businesses cannot spare the time to attend meet- ings in person. Another business owner suggested having more tailored content, which would require delivery methods other than traditional classes. One business owner recommended that more “next-level training” and less entry-level training needs to be available to growing businesses. Other owners of DBE companies said that much of the business assistance was not particularly helpful to them at the current stage of their companies’ development. For example: • A Native American owner of a DBE commented that most business assistance programs are “for new DBEs that don’t have a lot of industry experience.” • Commenting that many state DOT assistance efforts are focused on new firms, an African American business owner said, “All of the people there are going to be bored 90% of the time, until they get to the 10% nugget that’s for them.” • One DBE owner commented that “With me being a graduate of the SBA 8(a) program, a lot of the [DOT] training is a waste of my time.”

50 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program In contrast, some owners of successful DBEs were critical of technical assistance delivered through other organizations, such as Service Corps of Retired Executives (SCORE). They preferred training specific to the transportation contracting industry offered through the state DOT. Individualized Business Assistance One-third of successful DBEs said that they had participated in one-on-one business assis- tance in the past 3 years. They often reported that it was valuable, and 41% of DBEs indicated that it would be valuable in the future. Seven percent said that one-on-one business assistance was very important to the success of their firms, a percentage that was tied for fourth highest after DBE contract goals, training academies/general training courses, and prompt payment and return of retainage. Results were similar when successful DBEs were asked about business development programs. When surveyed, the white female owner of a DBE-certified construction supply firm reported, “A full assessment and one-on-one counseling session will provide what [new DBEs] need now and in the future.” Noting the positive effects of one-on-one business assistance, an African American owner of a DBE reported that a state DOT representative had reached out to her to assist with business plans. She added that the business assistance covered accounting, regula- tions, figuring overhead, and other business skills. Mentor–Protégé Programs Only 10% of successful DBEs reported participating in a mentor–protégé program in the past 3 years, but one in three DBEs said that they would be interested in such a program in the future. Some business owners and other interviewees had positive comments about mentor–protégé programs (see Appendices C through F). “Business acumen sort of assessments . . . business capacity” was one outcome cited, and a surveyed firm noted gaining “additional experience and certification/prequalification.” One owner said that successful DBEs should mentor newer DBEs, adding, “We have a wealth of knowledge that is never utilized.” Networking and Conferences One-half of successful DBEs indicated that their companies had attended networking events with primes in the past 3 years and a similar percentage said that those events would be help- ful in the future. One-third indicated that such events had contributed to the success of their businesses. Results were very similar when respondents were asked about DBE conferences. Although fewer successful DBEs had participated in meet-and-greets with public sector staff in the past 3 years, the share who said this was valuable and were interested in future events was similar to results for networking with primes. Several successful DBEs provided positive comments about each of these types of events, and some had specific suggestions for improvement. One business owner said the events were helpful but that she had a 350-mile round trip for most of the classes or networking events. She suggested that state DOTs offer more programs that are accessible throughout the state. An owner of a consulting firm recommended that the state DOT have networking events and programs for those who provide services besides construction. Another DBE owner who recommended events for professional services companies commented on feeling “like a fish out of water” at state DOT construction-related networking events.

Keys to DBE Success 51 Dissemination of the DBE Directory About one-third of successful DBEs thought dissemination of the DBE directory would be helpful to them in the future. Four percent of respondents listed the DBE directory as very important to their success. Notification of Bidding Opportunities and Project-Specific Outreach About one-half of successful DBEs indicated participating in state DOT programs that noti- fied them of bidding opportunities. More than 40% thought those efforts would be helpful in the future. One-third of respondents indicated participating in project-specific outreach, but more than 40% said that it would be helpful in the future. Some successful DBEs suggested advanced notification about upcoming projects and urged state DOTs to notify them of work in their specific fields. One comment was, “I get so many notifications for construction, and I’m in consulting. It is a waste of my time to manage the construction notices.” Prompt Payment and Return of Retainage The federal DBE program requires prompt payment of subcontractors. Prompt payment and return of retainage were tied for the most positive responses when asked about state DOT efforts that would be helpful in the future. There were a number of comments in the interviews with successful DBEs about the difficulties caused by slow payment. Several successful DBEs reported that they had difficulty related to retainage being held on state DOT contracts. DBE Contract Goals and Other Encouragement for Primes to Use DBEs as Subcontractors Among the types of state DOT assistance mentioned, DBE contract goals appeared to be important to more DBEs than any other type of assistance. Nearly two-thirds indicated that DBE contract goals contributed to the success of their firm. More than one-half of the respondents indicated that DBE contract goals would be helpful to their firm in the future. Twenty-two percent of successful DBEs cited DBE contract goals as being very important to the success of their firm. In the in-depth interviews with successful DBEs and in their survey responses, many business owners said that DBE certification was a key to their success by helping them to secure subcon- tract opportunities. Some examples include the following: • The African American business owner who said, “It gives a small business a chance to grow and compete in the community. . . . Without the DBE program, I think small companies like ours would find it most difficult, if not impossible, to move forward.” • An African American business owner who stated that DBE contract goals are significant to his firm’s future, saying, “. . . it fosters relationships between prime contractors and DBEs. . . . I think these guys [primes] left to their own devices will do an ‘old boy network’ and work with their old friends. . . .” • The female business owner who remarked, “Without certification, you can’t get anything. . . .” • The Hispanic American female business owner who reported, “Without [certification] I wouldn’t be able to bid half this stuff. My phone didn’t ring until I had the certification.”

52 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program • The African American business owner who said, “The program . . . allows me to get in and play with the ‘big boys.’” • A business owner who commented, “[The DBE program] creates willingness for [primes and public entity representatives] to let us in their door, to talk to us.” • An owner of a graduated DBE who reported, “We would not be where we are if there hadn’t been a DBE program.” When surveyed, the African American male owner of a construction firm said that WBE goals should be separate from DBE goals so that equitable portions of work would go to both minority-owned firms and companies owned by white women. Opening Prime Contract Opportunities for DBEs Many successful DBEs reported difficulty competing for prime contracts with state DOTs. Contract opportunities were too large for some firms, and bidding procedures put small busi- nesses and companies that might not have experience as a prime at a disadvantage. Very few successful DBEs (12%) indicated that their state DOT had unbundled contracts. However, one-half of the respondents said that unbundling contracts would help them in the future. An example of a comment from a successful DBE was, “I would break up contracts into smaller sections so DBEs can bid on them . . . themselves.” Survey results for successful DBEs were similar when asked about potential programs that would restrict bidding on small contracts to small businesses. Many DBEs indicated that such programs would be helpful. Some of the owners of successful DBEs participating in interviews or surveys mentioned that staff of state DOTs do not understand the difficulties that DBEs and other small businesses face in trying to work with state DOTs. For example, the African American female owner of a con- struction firm said, “Sometimes, we hear from DOT engineers and managers, ‘We treat all firms the same,’ [but] what does that mean? Many DBE firms have special needs and circumstances. Keep in mind they are disadvantaged for a reason. They are usually behind in capital, funding, staffing, et cetera. They need . . . different treatment to help them get to the level where they will not continue to be disadvantaged.” Other Policies or Practices That Positively or Negatively Affect DBEs Some DBEs reported on policies or practices of the federal DBE program that might be improved. Several successful DBEs commented on difficulties with DBE certification, espe- cially the paperwork involved. They urged state DOTs to streamline the process. More “cross- certification” between entities was also recommended. Challenges and Future Needs for DBE Success Many DBEs with plans for future growth commented that the federal DBE program continues to be vital to their future success. Reporting on the importance of the DBE program to future success, a Native American DBE said, “Absolutely . . . it will give us an advantage to compete in a market dominated by big business.” When DBEs were asked about the challenges that they continue to face, their comments included concerns about finance, operational issues, finding workers, and providing employee benefits. Several successful DBEs mentioned the continued difficulty of competing against

Keys to DBE Success 53 larger firms. A Hispanic American owner commented that “everything at the DOT is set for larger firms,” making it difficult for him to plan for growth. A female DBE owner commented that legal issues could cause challenges for her in the future, saying, “One lawsuit would put us out of business.” Insights Regarding Graduation from the Federal DBE Program Owners of DBEs and state DOT and trade association representatives offered their insights on the effect of “graduation” on DBEs. Interviews of state DOT representatives indicated only one DBE business failure after gradu- ation. Some firms had sold to other businesses, and a few owners had retired. Other businesses continued to succeed outside the program and/or experienced a drop in revenue or personal net worth that made them eligible for the program. Only a few firms appear to have graduated because of exceeding SBA size standards for their NAICS code; more graduations occurred because the firms exceeded personal net worth limits or because they showed the ability to accumulate substantial wealth. State DOTs may not know the exact reasons why some DBEs leave the program. Research results presented in Chapter 3 also suggest that most successful DBEs that are still in the program have revenue substantially below the size limits associated with their lines of work. Perspectives of business owners on graduation are grouped into three categories: graduation as a goal, fear of graduation, and “not on the radar.” Graduation as a Company Goal Some owners of successful DBEs said that graduation from the federal DBE program is a goal for their company. They associated graduation with being financially successful. For example: • An Asian American male owner of a professional services firm that “graduated” from the pro- gram reported, “We never had a strategy for me to be a DBE for all my life. To me, the more work we [can] get, we [are] blessed.” (This firm graduated because it exceeded the revenue ceiling for its subindustry.) • One business owner commented, “Isn’t that everyone’s goal?” • Another owner said that she plans to “graduate” and “stand on her own two feet.” • The African American owner of a construction firm commented, “Yeah, of course graduating out of the program [is a goal]. . . . I’m doing well [and it’s] something that’s certainly one of my goals.” • The white female owner of a professional services firm reported, “I feel like I am on that path, and I am trying to strategically navigate it. . . . When the time comes, I will make a big deal about [it] and thank everybody who helped along the way.” Fear of Graduation Some of the owners of successful DBEs expressed concern about their prospects if they graduated. Some examples are the following: • The white female owner of a construction-related firm commented, “I am extremely grateful that the DBE program helps me when needed. My goal is graduation, [but] I am fearful that graduation might not be perceived well by the industry/DOT.”

54 Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program • Another business owner said, “I don’t think my clients want me to outgrow [the DBE program].” • When asked about growing to the point of graduation, the Native American owner of a spe- cialty contracting firm reported, “I would probably give the money away [to remain certified] because I am still not 100% sure we can compete in this market without having the DBE [certification].” He added that they compete against companies with revenue in the billions of dollars. Not Thinking of Graduation Some owners of successful DBEs do not think about graduation. Some said that their finan- cial situation is such that they are nowhere close to exceeding any limits for DBE certification. For example, one business owner said that she “hadn’t really looked into it.” Another owner incorrectly thought that the SBA revenue threshold was about $25 million but that DBEs grad- uate when they reach a level around $2.4 million [which is incorrect]. A Native American female owner of a DBE-certified specialty contracting firm said that exceeding the size or personal net worth standards of the DBE program is not necessarily a goal because it’s hard to operate at those levels. She commented, “It simplifies issues by not being so large. . . . Our goal is less about growth and more about profitability.” The research suggests that many owners of DBEs are either fearful of graduation or simply do not think about it. Only a small number of interviews discussed planning for graduation from the federal DBE program.

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Firms that have graduated from the federal Disadvantaged Business Enterprise (DBE) program or have successfully competed for state transportation agency contracts are the focus in NCHRP Research Report 913: Compendium of Successful Practices, Strategies, and Resources in the U.S. DOT Disadvantaged Business Enterprise Program.

The DBE program provides small businesses owned and controlled by socially and economically disadvantaged persons with opportunities to participate on federally assisted highway contracts. As a requirement of receiving federal highway funds, state departments of transportation (DOTs) must administer the DBE program. FHWA provides oversight of the state DOTs’ operation of the program to ensure that they are in compliance with federal regulations.

The report includes appendices that define success, profile successful DBEs, and describe state DOT initiatives for DBE success. It also explores the types of business assistance that contribute to the success of DBE firms.

The report serves as a resource for staff in state transportation agencies, U.S. DOT, and other groups implementing the DBE program or providing business assistance.

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