HAVE YOU THOUGHT ABOUT YOUR BUSINESS EXIT OPTIONS, TODAY, OR AT THE TIME THAT YOU GRADUATE FROM THE 8(a) PROGRAM?…
A PERSONAL LETTER FROM DICK OTERO
Dear 8(a) Friend:
As you approach the end of your nine year term in the 8(a) program, it’s no surprise that your level of business angst with the continued survivability of your company and your personal welfare is consistently on your mind. If it isn’t, it should be!
You should know that less than 10% of all 8(a) graduates are still in business less than 2 years after their 9-year life in the 8(a) program. Will this be you? I hope not, especially since you (with a little help from your friends) worked so hard to get into and stay in this program.
Unfortunately, hoping is not enough. As you have probably heard, “If you fail to plan, you plan to fail”. As a successful 8(a) graduate myself, I would like to share a roadmap that I and about 50 other successful 8(a) graduates followed to ensure the survivability, growth and prosperity of our businesses long after we left the 8(a) program. Here we go!
“Start with the end in mind”. This bit of advice from Stephen R. Covey, author of Seven Habits of Highly Effective People should be your first step in answering the above question. Let me give you some personal clues to help you begin answering this question. You might consider one of the following 3 options:
- Do the same things that you’re doing now and see what happens at the end of your 9 years in the 8(a) program
- Prepare for graduation day by developing and implementing a plan to prepare for the eventual “graduation shock” and continue your business after the 9 year term
- Seek a buyer, mentor or partner for your business in the near future, before the end of your 9 year term.
What does it take to successfully graduate from the 8(a) Program? Before I discuss the consequences of following any one of the above options, let me share with you what I have learned from my own personal experience as a former successfully graduated 8(a) firm and also through discussions with many other former 8(a) contractors that managed to survive and prosper after graduation day.
Successful 8(a) graduates exhibit a number of similar characteristics at the time of their graduation, including:
- Large enough business base to withstand graduation shock
- Reduced dependence on 8(a) contracts
- Already exhibited ability to compete and win in the open marketplace
- Progressive record of successful management of ever-larger contracts
- Competitive bidding rates
- Ability to finance operations through sound banking relations
- Solid recognition of past performance
- Diversity of products/services, skills and operating locations to withstand inevitable market shifts
- Rapid development and employment of new products or services to exploit new marketing opportunities
- In-place infrastructure to deal with management, financial, marketing, corporate governance and legal challenges
- Ability to retain key players at the time of graduation
- In-place contractual vehicles to effectively extend and/or replace 8(a) market successes
- In-place business alliances with 8(a) and large prime contractors using mentor-protégé and joint venture relationships
- Business mentors, coaches and consultants guiding them through the re-invention of their business
- In-short, they understand what successful graduation meant, they had an 8(a) graduation plan, reviewed it frequently and implemented like crazy
The above listing of characteristics might be that “end in mind” that Covey mentioned.
Now for the consequences of the 3 options that I mentioned above.
Option 1 – Hope for the Best!
This option requires no change to your daily management routine and frankly, it is the most frequently used by current 8(a) participants. This is why less than 10% of all 8(a) graduates are still in business less than 2 years after their 9-year life in the 8(a) program.
Option 2 – Plan to Succeed
This option requires that you define and quantify the characteristics that you believe will maximize your chances for survival, continued prosperity and growth following your graduation from the 8(a) program. This will require that you develop and implement a “Graduation Plan” as early in your 8(a) term as possible. My own experience and that of other successful graduates, fully recognize that if you are very successful in securing 8(a) business while in the program, the activities and decisions that you must make to implement this plan will be difficult to do and to make, since they will run contrary to the same cultural practices that made for success as you were growing the business during its program term. Despite this necessary change of culture, management style and even some key people, without this plan and its religious implementation, you will likely be subject to same failure rates experienced by those that select the “Hope for the Best” option above.
Call me at 703-966-5560 and I will send you a template of an 8(a) Graduation Plan that worked for me.
Option 3 – Seek Outside Help
This option requires the business owner to recognize the power of collaboration with others to effect a smooth graduation from the 8(a) program, even the need to cede control of the ownership to another entity to maximize the success of the business and financial return to the company’s owners. The sale, merger and affiliation of an 8(a) business, especially during their 9-year program term, has been complicated until recent times by archaic SBA regulations and the associated need for buyers during the program term to be 8(a) eligible in order to preserve the large 8(a) contract backlogs characterizing successful and thus attractive 8(a) acquisition candidates. Fortunately, today there are a growing collection of 8(a) eligible organizations that are anxious to acquire, mentor, joint venture and otherwise be connected with your business and we know who they are and what they are looking for in terms of 8(a) program participants. If you are seriously interested in selling, merging or otherwise being connected to a firm that can use your 8(a) history for your mutual benefit, I invite you to call me at 703-966-5560 to discuss this option. You might be surprised that you can preserve your presence in the 8(a) program, continue your management of your firm and continue to grow your company, and yes, make a small fortune by choosing this option.
What are you waiting for?
Richard J. Otero, Sr.
8606 Wintergreen Court
Odenton, Maryland 21113