1. What is a “Small Business”? The Time is Now for Solutions
Presenter:
Stephen Kong, Esq.
The Kong Firm PLLC
Small Business Size Standards Solutions Summit
March 4, 2011

2. Small Business Size Standards Solutions Summit
The Stars are Aligned for Reform 1. Stagnant Economy  Small Businesses = Jobs 2. Fed Government Budget Crisis  Small businesses provide cost-effective, high-quality work agencies, who must “do more with less,” desperately need Administration with public commitment to revaluation of size standards  Concrete proposals create accountability
Small Business Size Standards Solutions Summit
March 4, 2011

3. Small Business Size Standards Solutions Summit
Reform: What Are We Looking For? Need solutions that are realistic and comprehensive, provide small businesses with a simplified methodology for determining their status, and can overcome the obstacles of history, politics and self-interest.
Small Business Size Standards Solutions Summit
March 4, 2011

4. Small Business Size Standards Solutions Summit
Solutions: The Philosophical Debate— How Small is Small? Small, small businesses vs. “large” small businesses  Traditional small biz: “How can a firm with 1,000 employees be small?” “How can a small biz with 10 people compete with a small biz with 1,000 employees?”  Mid-tier small biz: “How can you compare the IT industry to retail? “How can a small, small business handle the work for a $100M contract?
Small Business Size Standards Solutions Summit
March 4, 2011

5. Small Business Size Standards Solutions Summit
Solutions: Scope— What Do We Change and How Far Do We Go? --Interaction of NAICS code definition reform and size standards reform --Explore dual size standards for Federal procurement and Federal loan programs --Revaluate the SBA’s anchor size standards and fixed levels within each industry
Small Business Size Standards Solutions Summit
March 4, 2011

6. Small Business Size Standards Solutions Summit
Solutions: Implementation— How to Maximize the Effectiveness and Minimize the Harm of Reform --SBA Statutory vs. SBA Regulatory Reform (other changes, such as NAICS reform, will require amending additional statutes/regulations) --How to protect small businesses that will become “other than small” under new standards?  limited grandfathering  “growth” factor --Use of pilot programs with specific industries
Small Business Size Standards Solutions Summit
March 4, 2011

7. Small Business Size Standards Solutions Summit
Solutions: Sample Proposals-- Springboard for Discussion --Size standards based on firm’s number of employees for all industrial classifications  Positives: no need for inflation adjustments; revenue-based standards hurt contractors in supply/ value added reselling that can rapidly reach revenue limits but only attain small profit margins  Negatives: encourages subcontracting; small businesses in services/retail industries would be harmed due to large staffs of seasonal/part-time employees
Small Business Size Standards Solutions Summit
March 4, 2011

8. Small Business Size Standards Solutions Summit
Solutions: Sample Proposals-- Springboard for Discussion (cont.) --Separate size standards for firms that do business with the Federal Government  Positive: Appropriately groups similar entities together by recognizing that government contractors under different constraints than those that focus on private sector work (e.g., limited by government requirements on submission of G&A budgets)  Negative: where do you draw the line when label a firm a government contractor (e.g., how many contracts, for what $ value qualifies?)
Small Business Size Standards Solutions Summit
March 4, 2011

9. Small Business Size Standards Solutions Summit
Solutions: Sample Proposals-- Springboard for Discussion (cont.) --Size standards for all industries established at certain % of size of dominant firms in industry  Positives: predictability; provides tremendous boost to small businesses about to head into full-and-open competition with billion dollar companies  Negatives: without strong justification, % determination can be attacked as arbitrary; can result in extremely large companies being designated “small”
Small Business Size Standards Solutions Summit
March 4, 2011

10. Small Business Size Standards Solutions Summit
Solutions: Example Proposals-- Springboard for Discussion (cont.) --Focus on industry classifications: place each into one of three groups  Concentrated industries: highly unequal distribution of sales among firms in the industry  Competitive: display more equal distribution of sales, and average firm relatively small when measured by sales or employees  Mixed: does not meet criteria of two categories above, with 4 largest firms accounting for 20-50% of industry sales --Grouping will determine how that size standard will be handled (e.g., simply exclude dominant players, set low, set high, etc.) --Both praised and villified when proposed in  Positive: a comprehensive rationale based on industry competitiveness, as opposed to a piecemeal approach  Negative: probable net effect of reducing number of firms classified as small
Small Business Size Standards Solutions Summit
March 4, 2011