Adding a Small business allocation to your spending with diverse businesses can make a greater impact to diverse communities.
Small businesses are important to the economy for their ability to create jobs. Many supplier diversity programs either do not track small business spending, or marginalize small business results in comparison to other categories. With Small Business Saturday less than a week away (November 26th), we want to highlight the benefits of smaller firms and explain why your supplier diversity program should be tracking small diverse businesses .
When it comes to supplier diversity, an emphasis is placed on minority, women, veteran, disabled, and LGBT businesses. Although each category has a history of underrepresentation, large diverse organizations are less likely to need supplier diversity assistance versus small firms. Once a company has grown past it’s “small” status, the necessity of resources like supplier diversity programs, decreases.
This is not to say supplier diversity programs should exclude a women owned business with revenue in excess of $100 million, for example. Instead we recommend that corporations allocate a portion of their spending towards small businesses. We believe this action will help drive economic impact in local communities.
Let’s take a look at the recent Initiative for a Competitive Inner City (ICIC) report, which highlights small business job creation in five cities (Chicago, Dallas, Detroit, Los Angeles, and Washington DC) as an example. According to the ICIC, small businesses create over 50% of jobs in four of the five cities covered, “58 percent in Chicago, 53 percent in Detroit, 74 percent in Los Angeles and 62 percent in D.C.” Within the inner-city, small businesses create an even greater portion of jobs, totaling “70 percent in Chicago, 64 percent in Detroit, 77 percent in Los Angeles and 74 percent in D.C.” The study goes on to argue that unemployment in four of the five cities could be solved if every small business created one new job.
Corporations are at times hesitant to engage with small businesses as smaller firms may lack the experience or the scale to support them. A Catch-22 of sorts is created as small diverse businesses are not able to acquire new customers due to scale and cannot scale due to a lack of new customers. This is unfortunate as many small organizations can be nimble, work more closely with customers, and are willing to develop custom solutions for customers.
Targeting and developing small diverse organizations is key to economic improvement in underrepresented communities. In most supplier diversity programs, purchasing dollars are spent with a few large minority and women owned firms. Supplier Diversity professionals have the opportunity and obligation to drive inclusion of small diverse businesses as part of their program. A clear and distinctive separation focusing on small minority, women, veteran, disabled, and LGBT firms can help bolster spend within inner-city communities and grow low income economies.