August 13 , 2004
Cincinnati Business Courier

Minority Report

The Freedom Center generated critical revenue for minority firms, but is it enough to sustain growth?
Lucy May
Courier Senior Staff Reporter

When the people responsible for the National Underground Railroad Freedom Center began planning a museum to showcase the freedom born of blacks and whites working together, they decided immediately that minority contractors would play a huge part.

The center's leaders hired Walter Blackburn, an African-American architect, to design the building in partnership with a larger, white-owned firm. They hired black-owned Megen Construction Co. as the lead firm for the project's three-company construction management team.

Contracts for the $80 million center were broken into smaller pieces to make it easier for black-owned firms to bid.

The dozens of contracts, the tens of millions of dollars in payroll, the hundreds of people employed -- all included minority-owned firms and black workers to a larger degree than seemed possible a few years ago. "The entirety of what we're about is inclusion," said Gary Bockelman, the center's chief financial officer. "We hope to make Cincinnati a strong city economically. Anything we can do to help small businesses helps the local economy."

But despite all those efforts, scholars and local business leaders question whether the Freedom Center project -- or any construction project -- can help local minority-owned firms in a lasting and meaningful way.

"We've missed the boat a little on building 'capacity,'" said Mel Gravely, a local entrepreneur who founded the Institute for Entrepreneurial Thinking and has helped local business leaders create a program to build stronger minority-owned companies. "Capacity doesn't just get grown by creating opportunity."

And for those who follow the growth of local minority-owned firms, capacity is everything.

No Guarantees

While work on big public construction projects can help minority-owned firms with an infusion of revenue and valuable experience, it doesn't always help businesses grow capacity for bigger jobs, said Thomas Lyons, professor of urban and public affairs at the University of Louisville.

"Some of those companies may disappear from the radar screen after that money dries up," Lyons said.

The idea behind including minority firms in these big projects is good, he said, "but something is wrong here in the way we're developing sustainable businesses."

Lyons has seen black-owned firms in Louisville swell in revenue and stature as they help build projects seeking minority participation, only to quietly go out of business after the projects are completed.

Over the years, Kamlesh Kothari, vice president of Penquin Painters, has seen the same thing here in Greater Cincinnati.

Kothari has watched employees leave to start minority-owned painting contractors to compete with Penquin, which has 10 employees, plus field workers, and annual revenue between $3 million to $5 million. Good painters run the startup firms and win bids. But within a year or two, he said, they often collapse under the requirements of running a business.

"When the time comes for bonding, they cannot bid the job," he said. "When it comes time to see the financial statements, there are a lot of questions."

Penquin, which won two of the Freedom Center's three prime painting contracts, is among the handful of local minority-owned contractors that has persevered over time and grown strong enough to take on sizable contracts for big public projects.

Other standouts include Megen and D.A.G. Construction, which won several prime contracts on the project, handling such jobs as installing doors and hardware, fire doors and projection screens. D.A.G. also handled the "head houses," or structures that cap the street-level entrance to the parking garage beneath the museum.

Still Smaller

But even after the $1 billion worth of public projects that preceded the Freedom Center along the riverfront -- Paul Brown Stadium, Fort Washington Way and Great American Ball Park -- most other successful local minority-owned firms only competed for smaller bids as subcontractors.

Megen President Evans Nwankwo said that's a function of time.

"You don't grow capacity like that overnight," he said. "This is our 11th year of operation. In the last five years, we've become somewhat significant. We were referred to as a nonentity at one point."

Through strategic partnerships with white-owned companies, such as Turner Construction, and by slowly winning larger and larger jobs, Megen has grown to the point that it can take on major construction management jobs without a partner. The firm has annual revenue of $15 million.

And Nwankwo takes issue with the idea that the Freedom Center project won't help other firms grow as his has.

While previous public projects haven't catapulted many black-owned firms into prominence, Nwankwo said the Freedom Center will because it succeeded where others did not.

For example, Hamilton County had a goal of 15 percent participation by minority- and women-owned businesses for Paul Brown Stadium and fell short. The Freedom Center had a goal of 30 percent small-business participation and exceeded it.

"If the result is weak, the capacity will be weak," Nwankwo said. "Those projects started the process of talking and then escalate the talk because of the bad results."

Still, Nwankwo said, there are many white-owned firms that want to partner with black-owned firms to win bids that require minority participation -- without sharing enough work to really help.

"We have and continue to get opportunities where we will be asked to do something where we felt it was not in the best interests of our company," he said.

"There are certain stigmas that society attaches to a minority business that we constantly have to overcome," Nwankwo said. "We have to prove we are a great company first. The longer we are around, and the more significant projects we are able to do on our own, the more we are able to dispel such stigmas."

Even after 14 years in business, getting meaningful work on important projects is still a struggle, said D.A.G. President Dale White. D.A.G. has average annual revenue of $8 million, according to the SBA.

"I want to employ people. It's not the money issue for me," White said. "I want to grow this thing. I want to be a Messer or a Turner one of these days."

But too often the construction industry, with its bonding requirements and cash-flow issues, makes that tough and slow.

"This thing is designed for minorities to become subcontractors," said Gravely. "When we do that whole percentage-of-the-project thing, it should be just one of the numbers reported."

Gravely argues that to help minority firms grow -- so that subcontractors grow strong enough to be prime contractors --the people behind these projects must begin to measure more complex things. Questions about whether the firms grew as a result of the project or whether they were able to bid on bigger jobs afterward would have to be asked, he said.

"But I'm not sure people really want that," he said. "I'm not sure anybody is even looking at that as a goal."

It's the Economy

The idea behind making Greater Cincinnati's black-owned businesses stronger is that it makes the local economy stronger. Black-owned businesses employ more black people, pumping more paychecks into black households.

Black church leaders threw their support behind the 1996 campaign for a half-cent increase in the countywide sales tax after Hamilton County Commissioners agreed to a goal of 15 percent minority- and women-owned business participation in the county's riverfront redevelopment efforts.

But the issue of economic inclusion took on greater urgency after a police officer's fatal shooting of an unarmed black teen-ager triggered rioting in April 2001.

A Courier investigation in the months after found black companies here grew more slowly than their counterparts in Columbus and Cleveland over the last 30 years and also lagged the national average.

Veteran businesswoman Lovie Ross, who founded Penquin with her late husband 20 years ago, said that economic backdrop was bound to lead to social unrest.

"The good-old-boy network is still alive and well," Ross said. "Companies do business with their friends. The people they play golf with or the people they're at the country clubs with. And we don't belong to those country clubs.

"If they wonder why Cincinnati exploded, that's why," she said. "It's not accessible."

Cincinnati CAN, the task force formed by Mayor Charlie Luken after the riots to identify ways to create opportunities for blacks in the city, concluded that a lack of economic opportunity was a root cause of the riots. The group recommended the formation of a minority business accelerator to help grow more sizable black-owned companies.

Gravely was hired to develop a plan for the MBA, which now is housed at the Greater Cincinnati Chamber of Commerce. The program helps minority-owned firms with annual revenues of at least $1 million by facilitating joint ventures, acquisitions and sizable contracts with major corporations.

Already, the MBA has helped with the purchase of a minority-owned firm by another minority entrepreneur, has helped several minority firms win major contracts with large corporations and has helped create a joint venture run by a black businessman, said Calvin Buford, who directs the program for the chamber.

"To grow, minority firms must develop relationships with large customers who turn to them year in and year out," Buford said. "It's difficult to support sustained growth on one-off construction projects."

Louisville's Story

The University of Louisville's Lyons called Cincinnati's MBA an interesting approach but said he thinks Louisville is tackling the issue more effectively.

Lyons helped Louisville create a service provider network, linking the two dozen organizations that worked with minority entrepreneurs in some way.

The organizations began meeting monthly, and Lyons and his research partner developed a way to classify the work each organization did based on the businesses they helped. Some worked with startups, or rookies. Others worked with more established businesses that Lyons classified as AA or AAA, depending on each firm's level of sophistication.

But none paid enough attention to the people running things, Lyons said.

"There was too much emphasis placed on the business and not enough placed on the entrepreneur," Lyons said.

The city developed a single point of entry for minority entrepreneurs at its Metropolitan Business Resource Center.

There, entrepreneurs are assessed to determine what they need to grow their businesses. The center's staff links the owners with the help they need at the right level and price, Lyons said.

The Louisville metro government gives the center $145,000 each year, said center Manager Verna Goatley. She estimates that she and her staff have helped about 30 businesses over the past year.

Louisville's center uses the information it collects to create a game plan for each entrepreneur based on what can be accomplished in 60- to 90-day increments and then tracks each client's progress in a case management system, Lyons said.

"It's no longer a maze," he said. "It's really a ladder to success."

Behind the Curve

No such formal network exists here. But local groups that assist minority business owners have worked together more closely in the last 18 months than ever before, said De Asa Brown, president of the Greater Cincinnati Northern Kentucky African American Chamber of Commerce.

"We all know each other, and we all share information," she said.

Still, Brown said she agrees the local network could be more formalized and said there are other programs that could help support minority business owners here.

A one-stop resource center would be a huge help, she said.

"I don't like to feel I'm sending people here, there and everywhere. But right now, that's how it is," Brown said.

The chamber had a minority business mentoring program years ago that paired minority business owners with more experienced businesspeople. The program no longer exists, but Brown said she would like to see it revived in some form.

Gravely said such programs work better than consulting with people who've never been successful owners themselves.

"Most of these people have read about it, but they've never made payroll," he said.

Penquin's Ross said she's not a fan of programs that simply provide consulting.

"I'm wary when they tell me I need technical assistance," Ross said. "You know how you grow? By making money -- from rev-e-nue. What you need is opportunity."

That opportunity comes from local corporations, public projects and from minority companies recognizing that they can help each other through minority-to-minority joint ventures, she said.

Gravely said he has great hopes for the MBA program he helped develop.

"If we do things right, three years from now, our landscape will be significantly different," he said. "The sad thing is that 'significantly different' may not be noticeable because it was so dismal before."

© 2004 American City Business Journals Inc.