October 2000 - With the Small Business Administration's 8(a) Business Development program under attack again, some people are questioning what good the program accomplishes. Every year the SBA offers a statistical answer in the form of a report to Congress. For 1998 (the latest year of available data), the program had 6,078 member companies, which won $6.4 billion in federal contracts. That breaks down to 26,961 individual contracts with an average value of $191,386. Those numbers indicate that the program fulfills a valuable function by directing relatively small contracts to historically disadvantaged contractors.
In the Hispanic economy, those contracts tend to be concentrated both geographically and among larger companies. Using data from the report, HISPANIC BUSINESS focused on those states where 8(a) contractors seem to prosper. The following pages detail those states and the reasons why 8(a) entrepreneurs thrive there.
Top States for Hispanic 8(a) Companies
Rank & State / Number of Cos.
1. Texas -- 251
2. California -- 213
3. Virginia -- 132
4. New Mexico -- 110
5. Florida -- 96
6. Colorado -- 93
7. Maryland -- 89
8. New Jersey -- 40
9. New York -- 38
10.* Illinois -- 35
10.* Arizona -- 35
Source: "1998 Report to Congress on Minority Small Business and Capital Ownership Development," U.S. Small Business Administration.
It is no coincidence that Texas, the top-ranked state for Hispanic-owned 8(a) firms, also has a plethora of military bases. The state plays host to 14 Air Force and Army facilities.
"Our strong federal presence helps us a great deal. It gives us a chance to grow," says Ana Maria Lecea, CEO of Professional Performance Development Group Inc. (PPDG) in San Antonio, a provider of medical logistic engineering services.
PPDG has contracts with several Texas military bases, including nearby Fort Sam Houston. The business now has 475 employees in 34 states and annual revenues of $11.3 million. The company ranks number 309 on the HISPANIC BUSINESS 500.
In explaining her company's success despite cutbacks in military spending, Ms. Lecea cites a critical mass of Hispanic entrepreneurs in Texas. "It's getting to the point where you have to do business with Hispanics if you want to do business at all," she says. Hispanics account for two-thirds of the state's population growth and will outnumber Anglos by 2025, according to the Texas Department of Economic Development.
The state's Hispanic 8(a) firms benefit from a healthy economy. Since the oil recession of 1986, the economy has steadily diversified. The current construction boom has directed a lot of money to 8(a) contractors. In addition, the service sector's share of Gross State Product has jumped from 14.6 percent in 1986 to 19.4 percent in 1999, and manufacturing has grown from 14.5 percent to 15.3 percent over the same period, according to the Department of Economic Development.
Like Texas, California offers Hispanic 8(a) firms a wide variety of military customers. The Golden State has 15 Naval installations, nine Air Force bases, five Army facilities, and six Marine operations.
"California is a great place for Hispanic 8(a) companies because so much federal money is spent here. Businesses can start with small contracts and grow slowly," says Rafael Martin, CEO of Azteca Construction in Rancho Cordova.
Azteca owes much of its success to military contracts. Forty-five percent of the company's $17 million in sales stems from the armed services. State contracts account for the other 55 percent.
California's Gross State Product totals $1.1 trillion annually, making it the eighth-largest economy in the world, far exceeding either New York or Texas. The state is also fertile ground for small businesses, with 2.6 million of them. The number of new small firms grows 12 percent a year. More than one-third of California's population is Hispanic, according to the state's Office of Economic Research.
Given the size and diversity of California's economy, it could rank first in the number of Hispanic-owned 8(a) businesses, Mr. Martin speculates. "We are second because there aren't enough Hispanic firms that apply for the 8(a) program. We need even more success stories to attract them," he says.
Virginia is smaller than New York, Florida, and Illinois, but it ranks ahead of those states, primarily because of its strategic location adjacent to Washington, D.C.
Southeastern Virginia is home to 11 Naval bases and a half-dozen Air Force bases. Northern Virginia has some of the nation's largest federal facilities, including the Pentagon, CIA headquarters, and the Marine headquarters at Quantico.
"Proximity to the federal government is a key," says Jose Figueroa, CEO of Priority One Services Inc., an Alexandria-based provider of medical research. "It's easier to stay informed about initiatives and contracts."
The federal government dominates Virginia's economy, spending more than $50 billion a year there, according to the Virginia Economic Development Partnership. Virginia ranks third in the nation in per-capita federal outlays. It also registers as a business-friendly state, with a low corporate tax rate of 6 percent and one of the nation's lowest net costs for workers' compensation insurance.
Mr. Figueroa cites two other positive factors for Hispanic entrepreneurs: a regional Small Business Administration office that actively reaches out to minorities, and a growing cadre of Hispanic business people who network with each other and with government officials.
New Mexico's high ranking stems largely from the combination of a strong state economy and the presence of three unique federal facilities – Los Alamos and Sandia national laboratories and White Sands Missile Range. New Mexico also is close to other states with a heavy military presence, such as Texas and Colorado.
"We sit geographically in a very good place for federal procurement," says Elizabeth Pohl, CEO of Trinity Construction Enterprises, an Albuquerque-based company with revenues of $15 million.
Ms. Pohl notes that the state's business development organizations and most powerful politicians support minority business development. She says Republican Senator Pete Domenici, chairman of the Senate Budget Committee, is an avid fighter for small businesses and for keeping large employers in the state. She also gives credit to the Albuquerque Chamber of Commerce.
Filiberto Pacheco, CEO of PB Inc., an Albuquerque-based computer systems integrator with revenues of $7 million, cites another reason for the state's 8(a) success: "It is a matter of numbers. We don't have the population of other states but, relatively speaking, we have a lot of Hispanic entrepreneurs joining the program," he says.
The state's large research and scientific community includes a large population of engineers and scientists, a critical asset in a time of high-tech expansion. The state also has a huge Hispanic community, representing nearly 40 percent of the population. New Mexico and Hawaii are the only states where Anglos account for less than half of the population.
Florida's last three governors – Republican Bob Martinez, Democrat Lawton Chiles, and incumbent Republican Jeb Bush – have pushed hard for minority business development.
"They have promoted programs through state agencies and the legislature to help us get our feet in the door," says Robert Castro Jr., CEO of American Data & Computer Products Inc., a Tampa reseller of computer systems and products with $11 million in revenues.
Enterprise Florida, the state's economic development agency, has aggressively pushed state lawmakers to pass pro-business legislation. Current projects include phasing out the state's "intangible" tax and increased funding for work-force training. Already, Florida has no state income or property taxes. It has a right-to-work provision in the state constitution, resulting in the lowest rate of manufacturing unionization.
In terms of customers, Florida's military bases and aerospace installations provide ready markets for Hispanic 8(a) businesses. The state hosts NASA's Cape Canaveral Air Station, seven Air Force bases, seven Naval installations, and five Coast Guard facilities. These facilities demand local offices of prime contractors such as Raytheon, Boeing, and Lockheed to support federal projects.
To many people in government circles, "Colorado" means "Air Force." In addition to the Air Force Academy, the state has two Air Force bases and the Cheyenne Mountain Air Station, home of the North American Aerospace Defense Command – the war room with global maps so familiar to movie-goers. Colorado also has two Army facilities and an Air National Guard base.
"The state has been very vocal about supporting small businesses and 8(a) companies," says Fred Kaplan, marketing director for Productive Data Systems (PDS), a telecommunication services firm that ranks number 86 on the HISPANIC BUSINESS 500.
Even with state support, companies must hustle to land contracts. PDS has aggressively sought government contracts by sending representatives to SBA conferences in Colorado and nearby states. The company has a full-time staffer who tracks potential 8(a) contracts. Right now, management has its eye on contracts with the Los Alamos and Sandia national laboratories in New Mexico.
In Colorado, the battle to secure new contracts appears winnable. PDS reports sales of $55 million, with 500 employees in eight cities. Contracts through the 8(a) program make up about one-fourth of its total revenue.
Finally, Colorado has a strong dynamic between private high-tech and the federal government, making it ideal for companies with a dual focus on commercial and federal markets. The American Electronics Association ranks Colorado as the number 2 state on the basis of the number of high-tech workers per thousand in the work force. The Corporation for Enterprise Development in Washington, D.C., ranks Colorado third in the number of Small Business Innovation Research Grants per worker.
Like its neighbor Virginia, Maryland has the advantage of closeness to Washington, D.C. Many of the state's Hispanic firms that benefit most from that proximity are located in the counties directly bordering the capital – Prince George's and Montgomery.
One of those firms is Washington Consulting Group Inc., a Bethesda-based company that trains air traffic controllers. "The majority of federal contracts are awarded out of Washington. If you're in the 8(a) procurement business, it's highly advisable that you be within close range of the capital," counsels Armando Chapelli Jr., the company's CEO.
WCG has its headquarters in Montgomery County, which aggressively recruited the company with financial enticements. "When I moved my company from Washington, D.C., to Bethesda, the county gave us all kinds of training and relocation grants – hard dollars, not just tax breaks," says Mr. Chapelli.
Other advantages: Montgomery County is home to more than half of Maryland's biotechnology firms as well as the High Technology Council of Maryland, a membership organization serving over 800 companies through professional networks, seminars, education, and political lobbying. Mr. Chapelli also cites the pool of available Hispanic talent as a major attraction of Maryland, calling it "a highly educated community that includes people who come out of the defense community to build businesses."
The Garden State may has neither enormous military bases nor a border with the District of Columbia, but it still offers strategic location for a federal contractor. With its vast industrial infrastructure and position between New York City and Washington, D.C., New Jersey boasts an aggressive cadre of Hispanic 8(a) entrepreneurs.
Elizabeth-based Imperial Construction Group has sought contracts with each of the five military operations in New Jersey and has won business with most of them, says Executive Vice-President Lou Fernandez. Imperial's sales have risen from $14 million in 1998 to projected 2000 sales of about $40 million, he reports.
Federal contracts account for 70 percent of Imperial's sales. "Our goal is to eventually become a large defense contractor," says Mr. Fernandez.
Such optimism typifies Hispanic 8(a) companies in New Jersey, including the newer firms, according to Mr. Fernandez. He mentors Hispanic and other businesses, and he makes it a point to subcontract with them. "More than 65 percent of our purchasing dollars go to such businesses," he says.
Mr. Fernandez also points to New Jersey's support of business development. The state offers more than a dozen different loan programs, an eight-week training program for aspiring entrepreneurs, and a program that helps minority businesses bid on projects and get performance bonds.
Hector Guevara, CEO of Hytech Industries Corp., isn't quite sure why New York ranks ninth on the list of top states for Hispanic 8(a) firms – he thinks it should rank higher.
"It could be the relative lack of military installations. It's not the lack of state and federal help, and we certainly have the numbers in terms of Hispanic-owned businesses," he says. New York has only two Air Force and five Army installations. Census statistics indicate that the state accounts for nearly 10 percent of the nation's Hispanic population.
According to Empire State Development, New York's economic agency, the state offers numerous business incentives, such as investment and research tax credits, sales tax exemptions, property tax abatement, loans, and environmental tax credits as well as no personal property taxes. New York has cut its taxes 36 times over the last four years.
Hytech, a design engineering and manufacturing firm, has been an 8(a) firm for about four years. Last year, Mr. Guevara appointed an employee to handle government contracts full time. Although the company has secured contracts with Amtrak, the Federal Aviation Administration, the Army, and a subsidiary of prime contractor Westinghouse, it has yet to land its first deal under the 8(a) program.
Claudia Fabela gives much of the credit for developing the state's Hispanic 8(a) firms to the regional office of the Small Business Administration. "Some SBA offices take a long time to approve contracts, but our office is very responsive," says Ms. Fabela, CEO of Naperville-based TDF Corp., a computer consulting firm. Most of her company's revenues, which totaled about $7 million last year, came from contracts with Scott Air Force Base and the Army's Rock Island Arsenal. The state's other major military base is the massive Great Lakes Naval Training Center.
Ms. Fabela sees an advantage in being away from the crowded competition of Washington, D.C. "The great thing about Illinois is that it has fewer companies like ours," she says. "Most of our competitors are centered in the eastern U.S., so we can offer a local presence within our customers' own constituency."
On the business-development side, Illinois makes a strong case. Fortune magazine ranks Chicago fifth among the world's best cities for businesses, and the state ranks third in the nation for number of corporate headquarters, according to the Illinois Department of Commerce and Community Affairs. Census data show that Illinois manufacturing workers are some of the most productive in the country, on the basis of value added per working hour.
"I mentor other 8(a) companies. I tell them that they have to go outside of Arizona if they really want to succeed big time," says Hector Armenta, CEO of Cabaco Inc., an 8(a) firm based in Sierra Vista.
Luckily, Arizona companies have plenty of directions to follow as they seek business beyond the state's borders. California, Nevada, and New Mexico are brimming with military and other federal facilities, while Arizona itself has only two Air force bases, one Army facility, and the Yuma Proving Ground.
"It's sort of a misnomer to say that Arizona [has a lot of 8(a) firms], because you will find that the really successful 8(a) firms here do most of their business outside the state," comments Mr. Armenta. "We are here mostly because of the quality of life."
Cabaco designs and installs communications networks and computers. Last year, the company posted $30 million in revenues. But 75 percent to 80 percent of that amount comes from outside Arizona, and most of the company's 500 employees also work in other states.
State profiles written by Derek Reveron. Introduction by Senior Editor Joel Russell.