Victories in Capitalism: The Promise of Strategic Alliances
Written by Judith L. Turnock
To thrive, minority business enterprises (MBEs) must plan beyond the next single contract with another company, even amajor one. To achieve the scale and capacity necessary for real success, their goal must be strategic alliances: ongoing relationships where there is trust, respect and advantage on both sides. That means not only sharing information about innovations and intellectual capital to increase production, reduce cost and improve customer satisfaction. It also means a new level of MBE engagement.
The Minority Business Development Agency (MBDA), part of the U.S. Department of Commerce, has a laser focus on sophisticated strategies to build the capacity of MBEs. MBEs help sustain the competitive advantage of the U.S. in the global economy overall because they bring to the equation multilingual capabilities, cultural flexibility and innovative perspectives on products and services. "More than any other country in the world, we look and speak like every other country in the world," observes MBDA National Director Ronald N. Langston. That's a powerful advantage as the world becomes smaller.
MBDA studies show that MBE success is enhanced by an ability to build and sustain strategic alliances — with larger companies, with other MBEs and with subcontractors, vendors and suppliers. Read here for some examples of successful MBEs that have added to the bottom lines of major corporations and communities across America.
It's a common mistake for small businesses, MBEs included, to become overly enthusiastic about new opportunities. Founded in 1991 by a Native American, Chief Adhesives is a Texas-based manufacturer of hot melt thermo-plastic adhesives used in packaging consumer goods. When the company got its first contract with Cargill Meat Solutions, it immediately understood the pitfalls of growing too fast. "There's a sizable risk with large accounts, because you have to have the resources in place to support servicing them," says Dirk Bundle, Chief Adhesives' director of sales and marketing. "We've always balanced our inputs and outputs." The result is that Cargill's confidence in Chief Adhesives has grown, and so has the business.
VisionIT also had the wisdom to remain focused on the areas that it knows best. After working with EDS, an HP company, on large IT outsourcing engagements for the past ten years, Vision IT won its own direct outsourcing engagement with the Detroit Public School district. This is the largest IT outsourcing program for a public school district in the U.S. and the only one of its kind managed by a minority-owned supplier.
Operating as a prime supplier on its own IT outsourcing program has opened up a whole new world to VisionIT Chief Executive Officer David Segura. According to Segura, his time with EDS offered "a front-row seat to learn the business from the best," as he, over time, added the right personnel to VisionIT. "Keeping our commitments to EDS solidified our strategic alliance," says Segura. "EDS has some of the largest global outsourcing contracts in the world and saw the benefit of utilizing our personnel in selected engagements across the U.S." Latin America, Europe and Asia that can meet the requirements of our customers." VisionIT's strategic plan continues to build momentum as it grows in larger-scale IT services for major global corporations.
Alliance of Professionals & Consultants, Inc. (APC) is a North Carolina-based IT company founded by Native American Roy Roberts. After his 1993 retirement from IBM at age 48, Roberts recruited four other IBMretirees part-time and began leveraging their connections — out of his basement. First they sold IT consulting services back to IBM divisions that knew them, and slowly, fortified with IBM as a customer reference, began to get more business. But not until 2000 — when APC had grown its annual sales to $20 million — did Roberts acquire a "real" office. Today, eight years later, with 630 employees and annual sales almost tripled, APC has just begun to look for new office space. "We deliver value," says Roberts, " and our goal is to be considered among the top suppliers by all our clients." Continuing engagements prove it.
Torres Construction in Los Angeles began making cabinets in a family garage in the 1970s. In 1998, when company founder Timoteo Torres was joined by his sons Tomas, Esteban and Ismael, they began to envision a different business future. They started taking $10,000 to $30,000 maintenance and operations contracts from the Los Angeles Unified School District (LAUSD), the kind of work many contractors avoid as too small. Torres, however, recognized them as an opportunity. For ten years Torres Construction teams worked in more than half of LAUSD's 700 facilities, giving them a unique understanding of the ins and outs of this large bureaucracy and its administrative procedures, logistics, rules and material specifications. Torres Construction's revenues from LAUSD business have reached $40 million, and the company is steadily taking on larger contracts.
To achieve the scale and capacity necessary for real success, MBEs' goals must be strategic alliances: ongoing relationships where there is trust, respect and advantage on both sides.
"It's MBDA and especially Ron Langston who got us to understand the strategic nature of our LAUSD relationship," says Tomas Torres, president. "Ron opened our eyes and minds by focusing on our advantages.'We're not about color or disadvantage,' he'd say repeatedly. 'We're the backbone of the U.S. economy.'"
Fred Loya, founder of Fred Loya Insurance, ran his family's cattle ranch in Mexico and only took an apprenticeship with an El Paso Farmers' Insurance agent because the cattle market was down and he had a family to support. He found he had a knack for selling and continued with the agency, setting up his own firm in 1974. He concentrated exclusively on auto insurance, finding an unmet need among the large Latino population. Soon his customer base grew.
"I was always conservative: no speculation, no products other than car insurance, no loans until 1995. That year I purchased my current company headquarters building. I was able to secure financing through the auspices of the first of three 'white knights' who have been instrumental in the development of the company. I even paid cash for my first office," recalls Loya. When he wanted to charter his owninsurance company, he saved one-half of the $5 million Texas required and took on his first loan for the balance. His steady and responsible work brought him to the attention of the other two "white knights." One, an attorney, got the new company set up in Texas, California, New Mexico and Colorado; a second, a CPA and former Texas state insurance official, keeps him in compliance with all the state regulations.
His business is booming.With revenues of almost $320 million in 2007, over 300 offices and nearly 2,000 employees, Loya Insurance is ranked 19th in Hispanic Business, Inc.'s list of the 500 Largest Hispanic-Owned Companies. Even though he does no government business, he is proud of the Lifetime Achievement Award he received from the MBDA in 2008.
Focus on Customer Innovation
Uncovering innovative solutions for customers is another key strategy for achieving and sustaining a competitive advantage. Consider the growth trajectory of Synico Staffing Inc., a temporary and permanent staffing company founded by Robert Marsh, who relocated from Texas to Minnesota. Synico customer innovations worked to ensure that temporary placements would be accompanied by onsite field managers, who then studied the internal processes of low-performing teams in client companies in order to find cost-effective solutions. The results were improved productivity, lower worker's compensation claims and lower attrition. Chief Executive Officer Robert Marsh learned that quality personnel was just step one, and that real success came from their turnaround capacity — the permanent solutions. "When a premier company like Cargill is your client," says Marsh, "you can't just do what everyone else does. You have to stretch yourself to add value."
Today, Synico has operations in 23 states and has grown to more than 1,000 employees, eight of them on-site field managers; a growing list of clients, many Cargill business units among them; and steadily increasing revenues. "We understand how to position ourselves," explains Marsh, "so now we're one of the largest minority staffing companies in the Midwest."
MBEs help sustain the competitive advantage of the U.S. economy because they bring to the equation language ability, cultural flexibility and innovative perspectives on products and services.
Networks of Subcontractors And Vendors
Too many new companies, including MBEs, focus on getting that big contract. But to attract and sustain strategic alliances, MBEs have to deliver value conconsistently, in a timely manner and with high quality. Sustained capacity often requires a solid network of quality subcontractors and vendors who trust you, respect you and know from experience that they can count on you to value them and their contributions.
Searching for Capital? Talk to MBDA's Strategic Partner: The Marathon Club
MBDA's strategic alliances with financial institutions, investors and equity firms are prime examples of how it servesminority entrepreneurs and emulates a successful business practice. The Marathon Club (TMC) and the MBDA work collaboratively on their synergistic goal of providingMBEs with access to the private equity market.
TMC is founded on the premise that wealth creation for MBEs results from well-conceived businesses with sufficient capital and highly skilled management. Because MBEs are relatively new to deal making in the world of private equity, TMC became the concerted effort to bring private equity investment to MBEs that target emerging domesticmarkets (EDM). TMC is an unprecedented network of affluent, deal-focused professionals who are committed to better balancing the success scales for MBEs by linking them with private equity.
TMC President Carmen Ortiz McGhee oversees a raft of "equity quotient" training opportunities for MBEs as well as the annual DealMakers' Summit, at which MBEs and potential private equity providers can meet one-on-one in a purposeful but unstructured environment. She also presents at MBDA meetings and has begun to explore expanding the mission beyond EDMs to global opportunities.
When your business is ready, plan to attend TMC's annual DealMakers' Summit.
Torres Construction, the company that built a thriving business concentrating on small repair and modernization projects for the LAUSD, found that partnership was key to its success. According to President Tomas Torres, "Once we understood the value of that strategic alliance — especially being a partner instead of an adversary — we saw we needed an army of loyal subs and vendors. Otherwise we'd never be able to take on many jobs at the same time, so we'd never grow." Over the years, Torres has built the capacity of many subs and vendors, and some of course became competitors. Torres at first saw them as threats, but now he sees them as investments with a great payoff. "Nobody can do everything," observes Torres," and competitors are good, because they increase the total quality of work out there. We are the contractor of choice for many subs, but we can all concentrate on increasing the size of the pie." Torres is proud to be building the next "generational cycle of alliances."
The growth of APC's IT consulting business likewise relies on a network of loyal, reliable and high-quality vendors and suppliers. "I've done this steadily by providing suppliers with opportunities to assess, develop and improve services to our clients, and I've never had a problem including minority- and women-owned businesses," says Chief Executive Officer Roy Roberts. "When both partiesmeet the client's expectations, feel rewarded and want additional joint opportunities, APC is successful." With over 200 supplier strategic alliances, retention is nearing 100%.
MBDA: Master Facilitator
MBDA walks its talk about strategic alliances. For almost 40 years, MBDA has been the small agency with a big mandate, modeling strategic alliances with other organizations, MBEs, corporate America, the capital markets, and governments and business leaders abroad to extend its ability to facilitate MBE success. To develop common agendas among all these entities, MBDA National Director Langston focuses on an enterprise development model: "We have moved beyond disadvantage and social needs to a business case for minority business development. U.S. population demographics and trends in business ownership that reveal phenomenal growth in each area clearly illustrate that investment in minority business development is a national imperative."
Corporate America's Imprimatur: The Billion Dollar Roundtable
To belong to the Billion Dollar Roundtable (BDR), a company must spend a minimum of $1 billion annually on contracts with first-tier M/WBE suppliers. Even in our current challenged economy, the membership list of 13 — AT&T; The Boeing Company; Chrysler LLC; Ford Motor Company; General Motors Corporation; IBM Corporation; Johnson Controls, Inc.; The Kroger Co.; Lockheed Martin Corporation; Procter & Gamble Company; Toyota Motor North America, Inc.; Verizon Communications, Inc; and Wal-Mart Stores, Inc. — is about to welcome more new members.
BDR members are the barometer of corporate support for supplier diversity. By their example, research and policy papers and public statements, they encourage other companies to increase their own commitment. "When these mega-finance, retail, consumer products and telecommunications companies share and publicize their collective experiences, everybody benefits," explains BDR Chief Executive Officer Sharon Patterson. Now BDR is focused on increasing participation of diverse suppliers in advertising and marketing, where spend lags way behind spend in other industries.
Since BDRmembers include the four largest U.S.-based advertisers and several more within the top 15, they bring unique clout to the discussion. They began their campaign in 2006 with the drafting of a policy paper entitled "Opening Opportunities for Diverse Suppliers in Advertising." The policy paper released last month, "Opening Opportunities for Diverse Suppliers in Advertising andMarketing: Progress and Best Practices," highlights ramped-up efforts while concentrating on the road map for the future. The paper will be available shortly on the BDR Web site, www.bdrusa.org.
The payoff in minority business development is job creation, revenue growth and community sustainability across the U.S. Today, with over 4 million minority-owned firms, America is seeing main streets in minority neighborhoods revitalized with successful MBEs employing 4.7 million local citizens. From Harlem in New York City to Little Havana in Miami or Chinatown in San Francisco, minority entrepreneurs have a long history of contributing to the local and national economy. They are also having an impact on the global marketplace.
This year MBDA published "Characteristics of Minority Businesses and Entrepreneurs," which builds on the statistical survey data released by the U.S. Census Bureau. One fascinating discovery the report revealed was that minority firms were twice as likely as non-minority firms to earn at least 10% of their revenues from exporting. This finding supports the MBDA tenet that minority firms offer the U.S. a unique competitive advantage globally. It also suggests that MBEs could play a role in reversing the national trade imbalance. Partnering with and among MBEs has its strategic advantages.
"We have moved beyond disadvantage and social needs to a business case for minority business development. Investment in minority business development is a national imperative."
— Ronald Langston, MBDA National Director
MBDA develops targeted programs to boost MBE capacity and marketability, most notably the Strategic Growth Initiative, which facilitates matches between high-growth and highly innovative MBEs with financing and contracting opportunities. Also of particular interest to MBEs in today's tight credit crunch is the Agency's Access to Capital Program, which hosted a session at this year's annual National Minority Enterprise Development (MED) Week Conference in collaboration with the Financial Services Roundtable and The Marathon Club.
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