Direct communication with:
George E. Koklanaris - Associate Administrator - U.S. Small Business
Administration - Office of Small Business Development Centers
I was chair of the committee that comprised
the guidelines for the SBDCs at The White House Conference on Small Business in 1986. Youll find my name on page 74 of
SBDCs, founded because of the severe economic recession at that time, were to be temporary
in nature and there was to be no competition with private sector businesses.
SBDCs do compete, however. Two easy to confirm
#1) Our local SBDC provides meeting rooms for rent to the dismay of hotels, executive
suites and co-working spaces that provide same by the hour, day, week or month.
#2) I can give you numerous examples of large and small businesses that provide
instructional workshops, courses and seminars of exactly the types the SBDCs promote.
Please stop SBDC direct competion with tax paying business.
In Houston, a tax subsidized small business development
group (University of Houston Small Business Development Center (see footnote
#1) attempted to extend its reach (and therefore qualify for more public funding) to
include small business incubation using the same inexperienced personnel it uses to
provide startup business assistance. Those three incubators, Venture Center One in Houston
and satellite incubators in Stafford and Victoria, failed.
Upon failing, the SBDC attempted to justify its incompetence by blaming the failures of
its incubators on the startup business clients it was providing assistance to, saying the
"businesses didn't grow" and "Houston doesn't need a business
Now isn't that just a crock? Considering that Houston, since 1999, has had more business
starts than any other city in the country makes this just another example of how SBDC
staff are totally unconnected with the startup business environment.
And, those unfortunate startup companies were lured
into the SBDC incubators with the promises (from SBDC staff) that they would grow. What
irony that the SBDCs then blamed the business failures on the startup business clients.
Wait. The saga isn't over yet. Needing a
"win," the same SBDC
convinced NASA to allow it to commercialize technologies developed for the space
program. Guess what? More funding. Guess what again? The SBDC's fourth incubator failure!
And, in true bureaucratic fashion, rather than have to
accept any professional responsibility for gross mismanagement and failure of the
incubators, the SBDC director was conveniently transferred to head the SBDC in another
Unfortunately, there is still more. The SBDC also
convinced NASA to lend shuttle engineers to assist with small business startups. With the
loss of the Columbia, what an absolute travesty, disgrace and national tragedy that
Further, as indicated by this email, NASA still doesn't
seem to get the picture that its funding is to provide a space program with engineering
focus on mission safety, not on small business development:
||Richard Smith <email@example.com>
||Monday, January 12, 2004 11:21 AM
||NASA's technology outreach
I am a senior project engineer
for a NASA funded program named the Space Alliance Technology Outreach Program. We
provide free technical and engineering assistance to entrepreneur's and small
businesses. Perhaps you would be interested in meeting with me to discuss how our
organization can donate free support to your members. Please give me a call or email
me to discuss.
Technology Outreach Program
(footnote #1) Small Business Development Centers were
funded by Congress in the early 80's when the U.S. economy was experiencing a severe
recession. Many Americans were forced to self-employment because there were so few
available jobs in the workforce. Training former employees into becoming self-employed was
in the nation's best interest and was the only option for hundreds of thousands of
unemployed people who were not likely to be rehired. However, Congress purposely
designated SBDC funding to avoid competing with tax-paying private sector
consultants (see footnote #2) and the 300+ SCORE chapters (Service
Corps Of Retired Executives - established 1964) around the nation that were already
doing an excellent job at minimal tax-payer expense. Therefore, by grand
design, the mission of the SBDCs was limited by Congress to provide
free counseling as a temporary charity:
A) " . . . only to those who could not afford to pay a
professional . . .";
B) " . . . only in suburban and rural areas where
professionals (and SCORE chapters) were unavailable . .
C) " . . . only experienced business owners were to provide
consulting services. . . ";
D) " . . . only to those who were becoming startup business
owners because they were unable to return to the workforce . . ."
Check with your local Small Business Development Center
to see how many of these stipulations are met. Chances are, if you are in an urban
location, none of them are.
In the first few years of operation, SBDCs in urban
locations started to run into trouble for numerous reasons. Here are the top five:
1) The majority of the funding was being used by SBDC administrators (starting annual
salary in 1987 for a mid-level SBDC administrator was $60,000+benefits) and to promote,
publicize and advertise the SBDCs, leaving very little with which to pay the actual
business counselors, resulting in a very low business skill level of counselors and many
(most or all in some SBDCs) with no actual small business ownership experience. Today, the
offer of the free SBDC counselor is primarily used as the loss leader to enroll clients
into taking classroom courses provided by the SBDC, which, interestingly, also compete
with numerous courses provided by numerous private sector companies and community
colleges. For instance: Houston had a very successful private sector company named Leisure Learning Unlimited
which had been in business for decades. It provided hundreds of classes and presentations
monthly given by private sector business owners on topics of interest to startup companies
and small businesses wishing to grow. It published a quarterly calendar of upcoming
courses which was distributed at more than 1,000 locations across Houston. The Houston
SBDC, under the knowledge and direction of SBDC local management, had its staff contact
those business owners who were presenting classes/courses via Leisure Learning Unlimited
and offer the SBDC facilities at no charge and promising a large turnout. Leisure Learning
Unlimited went out of business because of the SBDC competition.
2) Neither the skill level nor the mindset (go home at 5:00 p.m., take regular breaks and
full lunch, don't work weekends, evenings or holidays, max out on paid sick days,
inability to understand and operate at risk, motto: "to have a successful
business, all you need is a business plan," etc.) of the SBDC counselors met the
needs of the startup entrepreneur, generating a negative response to the SBDC program,
specifically because it was operated as a charity and staffed with personnel having no
hands-on business experience (See Incubator Startup Notes),
requiring the SBDCs to hire more staff for promotion, spend more for advertising and
(you've gotta love this) establish local, regional and national SBDC councils so SBDC
administrators could travel all over the country (at tax-payer expense, of course) to see
what the problem was that SBDCs couldn't grow businesses like the SCORE counselors or
private sector consultants could. When the lack of experience of the SBDC counselors
became evident to even the SBDC administrators, the SBDCs then solicited larger businesses
to donate experienced managers to volunteer time as SBDC counselors, which interestingly,
also competed with another successful group called ACE (Active Corps of Executives) which
is not tax funded.
3) The SBDCs had little or no accountability or accuracy in reporting of results. A
well-documented example was the SBDC business fair conducted, jointly, by ten different
SBDC sub-centers (under the main center in Houston) which had 150 total people
attending. Yet, each of the sub-centers reported the same 150 people as unique clients and
the main center reported the grand total of 1,500 people as clients. When an independent
auditor asked for verification of data for that job fair, the original records were (as
said by the SBDC representative) "unfortunately lost due to a hard disk failure"
and could not be produced.
4) When SBDCs could no longer draw people to SBDC events because of absence of
substance, SBDC personnel were universally "volunteered" to staff the
registration tables of economic development events (trade fairs, conferences, workshops,
seminars, networking groups, etc.) sponsored by other organizations, including those
conducted by private sector, then take the attendee list and report the people attending
as SBDC clients. Now, SBDCs seldom sponsor events and are rarely asked to co-sponsor or
5) Even in the best environments, startup businesses often take many years to produce
significant revenues or employees. When budgetary questions were raised in Congress for
such matters as administrative costs of the SBDCs vs. number of jobs produced or return
taxes generated as a prelude to eliminating SBDC funding entirely (please remember, it was
only an emergency, temporary charity program brought about by the negative employment
growth of the 80's), it became even more glaring that the SBDCs weren't producing at
nearly the same levels of efficiency as the SCORE chapters or private sector consultants.
To overcome this loss of funding, SBDCs began to operate completely outside their charters
A) . . . Provide free services to large and/or solidly established, profitable
businesses (that could well afford to pay private sector consultants) solely so that the
SBDCs could report the employees and taxes of those companies as statistical data to
justify continued SBDC funding;
B) . . . Offer door prizes or gifts as incentives - our tax dollars at work - to
have people attend SBDC functions, seminars and workshops;
C) . . . Recruit private sector companies to conduct workshops on topics of popular
interest, for which the company presenters were not paid or paid minimally with the
promise of a large target audience to sell to and so that the SBDC, solely, could charge
the attendees a fee AND claim the attendees as clients;
D) . . . Failed to disclose the SBDC quote: "unbiased statistics by a highly
respected, independent third party" as reported by the SBDC for many years as proof
of economic development results from its startup small business support activities to
justify continued funding were actually compiled by a former SBDC staff member, not an
independent auditor as claimed by the SBDC. When asked to supply the original data, the
former staff member refused, citing "client confidentiality." Consequently, the
Freedom of Information Act was evoked to obtain a copy of the report, which revealed:
"... 61% of SBDC clients were not startups, but established
businesses, with about 82% having sales of up to $1M, 14.5% having sales of $1M-$5M and
3.5% having sales greater than $5M. When established business clients and clients able to
pay for services are removed from the statistical base, SBDC return is less than 5% of the
SBDC tab. Job generation statistics are also dramatically lowered when clients able to pay
are removed, making SBDC costs per job created among the highest (if not the absolute
highest) of any federal or state employment generating program in the United States.
Further, this SBDC sponsored study does not indicate loss of tax revenue contributions
from the private sector when SBDCs divert those clients able to pay from the private
sector. If those clients able to pay were serviced only by private sector, the return to
the tax base would significantly exceed SBDC tax data because the private sector pays
taxes on those revenues, whereas SBDCs do not."
"Unfair competition enact legislation to prohibit
government agencies and tax exempt and anti-trust exempt organizations from engaging in
commercial activities in direct competition with small business.
A resolution unanimously passed at The Texas Governor's Conference on Small
Business - May 16 & 17, 1996, specifically directed to SBDCs in Texas actively competing with private
Virtually every state continues to address the issues
regarding SBDCs competing with local service providers, inability/unwillingness to provide
audited statistics, refusing independent third-party oversight and repeatedly suppressing
activities by other economic development groups attempting to replace costly, ineffective
SBDC support with other forms of small business assistance.
SBDC funding was intended to be matched, dollar
for dollar, by the host establishment. However, almost exclusively, hosts provide only
in-kind support rather than cash. In-kind support is generally spare offices, equipment,
personnel, a share of the host's infrastructure costs, etc. SBDCs are operated as lucrative
profit centers for their host establishment, which is typically a university or college.
SBDC statistics are so distorted that the program has
been identified as pork. Just for fun, ask your SBDC how many
alumni of the sponsoring college or university are on the SBDC payroll, or how much tax
funding is used by them to produce a successful business from startup, or how many of
their business counselors have actual hands-on successful business
experience rather than being employed by the SBDC after having their own business just
fail, or exactly how much is it costing the U.S. tax-payer to provide that hour
of "free" counseling, or what the factual ratio is for having
startups become successful.
Continued major issues regarding SBDCs:
1) Continued insistence by SBDC counselors that a business plan is mandatory to have a
2) Persistent rumors of SBDC counselors requiring "under the table" referral
fees to recommend specialists to SBDC clients.
3) SBDC services provided to larger, profitable companies as political favors for having
made campaign contributions.
4) Continued hiring of business owners of failed businesses as SBDC counselors.
5) SBDC requesting a million dollar contract to provide oversight on itself. (Can you
believe - fox guarding the hen house, eh? ) And the Houston SBDC was given a grant of more
than $3,000,000 by the Federal Government in order to "help start businesses."
(That's what SBDCs are supposed to do: "help start" businesses.)
Development Methodology, Letter to Washington,
Conference Resolution, Free Consulting,
Memo to SBA,
Letter to Select
Committee for Deficit Reduction
Editorial by C. Dean Kring, who bears sole
responsibility for content.
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