Thought Leadership

Interise Insights: Contracting factor from the 2020 business year

Interise

This post is part of an Interise Insights series, sharing findings from our most recent 2021 Annual Assessment survey with 1,164 responses from established small businesses across race, ethnicity, and place. All graduates of Interise’s flagship StreetWise ‘MBA’ program from the past three years, their responses represent a unique firm-level dataset. These latest outcomes are from the 2020 business year, and reflect the first year of the COVID-19 pandemic and its multifaceted health, economic, and social effects.

Small business growth can be a powerful tool to create good jobs and build wealth for business owners, employees, and communities. Contracting to provide goods and/or services can be an organic way for many businesses to tap into new and diverse revenue streams, whether with government entities, large place-based anchor institutions, or corporations. Interise understands this important “contracting factor” and seeks to build capacity to leverage it. Our most recent impact data highlights that throughout the first year of the COVID-19 pandemic, Interise businesses that secured new contracts experienced different outcomes from those that did not, often with greater growth in key metric categories such as revenue, jobs, and capital access. While not controlling for other factors, the contracting factor was evident and demonstrates its potential for small business growth trajectories. One fifth or 20% of respondents secured new contracts in 2020, with an average of 13 and a median of five awarded for those businesses. Fifteen percent of respondents contracted with government entities (tribal, local, state, or federal), eight percent with corporations, and five percent with anchor institutions. The average size of a contract was $163,000 and the median sum of new contract dollars per contracting business was $625,000.

While over half or 51% of businesses without contracts increased revenue in 2020, nearly two- thirds or 64% of those with contracts did so. Contracting businesses also outpaced their counterparts with an average revenue growth rate of 28% and a median of 10%, compared with 8% and 1% respectively for non-contracting firms. Businesses with new contracts were more likely to add new jobs, with 56% doing so, and on average created two net new jobs per business. Comparatively, 40% of those without contracts added jobs, and had an average of one job lost per business.

Another interesting outcomes category regarding the contracting factor is in good job characteristics. Contracting businesses had higher average and median salaries for new employees. In terms of the seven benefits that we tracked employers offering to employees, contracting businesses offered them all at higher rates, with double digit differences across the board. This shows how new jobs created by contracting businesses are more likely to offer employees value in an array of categories including but not limited to health and dental insurance, paid time off, retirement savings, and training opportunities.

Winning and successfully carrying out contracts with large purchasers can be a transformative growth strategy for small businesses, but is not a panacea. Business owners can become more contract-ready by building on their existing knowledge and experience base. They can strengthen capacity by developing internal systems, learning about contracting processes, and arranging for the right capital access. To facilitate more equitable contracting opportunities, Interise seeks to make structural changes to procurement systems. Our Leadership in Equitable Anchor Procurement (LEAP) initiative, and other related projects, are advancing supplier diversity by applying a systems thinking approach.