The terms “supplier diversity” and “small business” are often used interchangeably, but are they really the same thing? If your company has a small-business program, is that the same as a supplier diversity program? While the two may seem the same on the surface, they are different categories and should be treated as such by your procurement professionals.
What Is a Small Business?
The definition of a small business often varies from company to company. Do you measure based on sales and revenue? Number of employees? What are the thresholds that determine whether a business is classified as small, medium, or large? These variables can make it confusing to determine classifications.
The U.S. Small Business Administration (SBA) has established two widely used size standards: 500 employees for most manufacturing and mining industries and $7.5 million in average annual receipts for many nonmanufacturing industries.
Exceptions exist, but these are the general guidelines to qualify as a small business for most SBA and other federal programs. You'll notice that definition is based on the number of employees and annual receipts. A small business can be owned by anyone regardless of socioeconomic background, gender, race, ethnicity, or sexual orientation. These factors are not considered when defining a small business according to the SBA.
What Is a Diverse Business?
On the other hand, a diverse business classification does require that the majority owner of the business be of a specific socioeconomic background, gender, race, ethnicity, or sexual orientation, depending on the categories.
Diverse or disadvantaged small businesses fall into one or more of the following categories: minority-owned, women-owned, veteran-owned, LGBT-owned, service-disabled veteran-owned, disabled-owned, and/or historically underutilized business.
To be certified under one or more of those categories, at least 51 percent of the company must be owned by someone who meets the diverse qualifications. Third-party certification entities such as the National Minority Supplier Development Council, Women's Business Enterprise National Council, National Gay & Lesbian Chamber of Commerce, and U.S. Business Leadership Network review applicants thoroughly to ensure they meet criteria before granting their nationally recognized diverse business certifications.
In response to a think piece on LinkedIn suggesting that small-business and supplier diversity programs should be merged, commentator Kelisha Garrett points out a significant difference between the two:
“Diverse or disadvantaged businesses are based on specific demographic information and [generally describe] those who would not be given equal [access] to participate in opportunities, even if their business [has] the capacity to do so,” she writes.
Of course, all businesses can run into obstacles when trying to obtain access to capital, networks, or opportunities. However, for minority-owned, diverse, and disadvantaged small businesses, the challenge to growth extends to an issue of systemic discrimination - not something non-diverse businesses need to worry about.
A diverse business is often a small business, but not all small businesses are diverse. It is disingenuous to define these two types of businesses as the same. It also overlooks the fact that the needs of the two groups are inherently different.
The effective supplier diversity program is the one that goes beyond window dressing or checking a box on a corporate responsibility checklist. To truly maximize your diverse suppliers, empower your supplier diversity team to identify obstacles that these suppliers face and find opportunities to help break through those barriers.