In 2016, the U.S. Small Business Administration (SBA) estimated that America has 28.8 million small businesses—or about 99.7 percent of all businesses in this country. According to census data, nearly a million minority-owned employee firms (businesses with more than one employee) were operating in the U.S. in 2015, the last year this data was collected.
Also, a report from American Express OPEN found that the number of woman-owned businesses has "more than doubled" over the past 20 years.
These three statistics reflect the impact of businesses commonly accepted as “diverse” by supplier diversity programs. But what really constitutes a diverse supplier, and why is the definition so important?
Let’s look beyond the numbers to get a better understanding.
Diverse Supplier, Defined
Broadly defined, a diverse business (usually a small business as well, which we’ll cover in a moment) is any enterprise in which 51 percent of the ownership is of a designated diverse background, or even multiple diverse backgrounds. This may include women, minorities, LGBT individuals, veterans, or service-disabled veterans.
Additionally, Historically Underutilized Business Zones or HUBZone businesses qualify as diverse. HUBZone, managed by the SBA, covers companies operating in certain economically disadvantaged urban and rural communities.
Small businesses take on a different general definition: any enterprise with either fewer than a certain number of employees, or earnings below an average amount of sales/revenue.
Generally, the SBA considers companies to be small if they have less than 500 employees for manufacturing and mining industries, and $7.5 million or less in annual receipts for nonmanufacturing industries.
These numbers can vary by industry, supplier diversity program, or government entity seeking to contract out work to a small business. For instance, advertising agencies have a $15 million annual receipt threshold and beer wholesalers must have 250 employees or fewer to be considered small.
While small business size standards vary by industry, eligibility as a diverse supplier is pretty cut and dry. There may be slight discrepancies when dealing with supplier diversity programs or government contract requirements, but the definitions above serve as a good base.
Now let’s take a deeper dive into diverse supplier categories.
Diverse Supplier Categories
The number of supplier diversity categories is plentiful. We’ve already touched upon a few, and below is a more complete list. Keep in mind that a diverse person(s) must have at least 51% ownership in a business for it to be considered diverse.
- Minority-owned Business Enterprises (MBEs), with owners defined by the National Minority Supplier Development Council (NMSDC) as an American citizen of at least 25 percent heritage of African-American, Hispanic, Asian-Indian, Asian-Pacific, or Native American descent
- Woman-owned Business Enterprises (WBEs)
- LGBT-owned businesses
- Disabled-owned Businesses
- Veteran-owned Businesses (VOBs)
- Service-disabled Veteran-owned Businesses (SDVOBs)
Small Business Enterprises (SBEs) and HUBZone businesses are also considered diverse, but, as noted earlier, their diverse classification is owed to factors outside of the owner’s race and background.
Note, one diverse supplier can fall under several categories. A small, minority-owned, veteran-owned enterprise can be thus certified in each of its appropriate diversity designations.
Why Certification Matters
Supplier diversity programs may accept self-classified suppliers, but most prefer suppliers that are certified as diverse.
Certification allows for easier management of the diverse suppliers in a program’s vendor portfolio, and often certification is required to meet companies’ diversity benchmarks and requirements.
Moreover, certified diverse suppliers are usually more visible to supplier diversity programs looking to add businesses to their rosters.
Diverse suppliers can certify themselves by ensuring they have the necessary ownership and revenue documentation to confirm their status.
Although this is better than not being certified at all, many supplier diversity programs won’t consider self-certified partners.
In CVM’s 2018 State of Supplier Diversity Report, 53 percent of responding supplier diversity professionals say they don’t count self-classified vendors toward their diverse spend and count.
Certification with an appropriate third-party agency (or multiple agencies if a business is qualified in more than one diverse category) gives diverse suppliers an edge with supplier diversity programs as well as possibly securing federal contracts.
Benefits of Working with a Supplier Diversity Program
Suppliers certified as diverse can see a whole world of opportunities opening for them.
Because of their importance to supplier diversity programs, outstanding diverse suppliers that partner with contracting companies tend to stay with those companies for a long time.
Such suppliers’ reputations grow, thus leading to more opportunities to additionally work with other programs and potential consideration for federal projects.
Moreover, many partnerships between supplier diversity programs and contractors are more than just numbers and certifications—they truly become partnerships.
Programs may become invested in their diverse suppliers because if their suppliers succeed, they succeed. The relationship is perfect for supplier development, in which companies help their diverse suppliers become stronger partners.
Benefits such as these are impossible to ignore for diverse suppliers and supplier diversity programs alike.
What benefits have you seen from working with a supplier diversity program?