In recent years, minority-owned small businesses and enterprises in the US have seen unprecedented opportunities arise, thanks to policy changes requiring corporations to make efforts to contract minority firms. However, while federal contract set-asides provide openings, fast expansion also poses risks for minority enterprises’ finances and independence. Though joint ventures with larger white-owned partners can aid minority companies in accessing opportunities, some arrangements risk minorities serving merely as ‘fronts’ rather than full collaborators.
Policy boosts contracts but growth risks overextension
Legal measures compelling corporations to seek and document minority subcontractors has substantially increased federal contracts with minority-owned enterprises. Total annual corporate contracts with minority firms rose from $4 billion in the 1970s to over $100 billion by the late 1990s, with continued growth anticipated. However, successfully capitalizing on new federal contract set-asides poses difficulties for small minority businesses. To fulfill major corporate orders, they may overinvest in equipment and staff needed for new government projects. But if subsequent contract volumes then fall unexpectedly, high fixed costs can jeopardize such firms’ viability.
Joint ventures require scrutiny to assure collaboration
Teaming with larger white-owned companies can help minority enterprises land opportunities beyond their individual capacity. However, some ‘partnerships’ exploit minority firms as fronts to capture minority contract set-asides while limiting their decision-making clout. Before undertaking joint ventures, minority business owners should thoroughly assess proposed governance roles, resource commitments, and profit/risk sharing arrangements to assure fair power balances enabling genuine collaboration.
Reliance on single customers threatens resilience
Succeeding in winning one major corporate or government contract can make a minority firm complacent while also distracting it from diversifying its customer base. But such dependence on a sole customer leaves minority companies vulnerable if the major buyer changes plans. Instead, minority enterprise owners should make ongoing business development and marketing a priority, steadily expanding into new commercial and government sectors to sustain revenues should any single relationship erode.
In sum, minority business enterprises now have more opportunities via public and private sector diversity initiatives but face risks if rapid expansion overextends capacities or masks dependence on narrow revenue streams.