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Investing In Diversity
Using $1.7 million in start-up capital from We Will Rebuild, the post-Hurricane Andrew economic development group, and $900,000 in additional hurricane money, the fund targets south Dade County businesses.
One business that fit the bill was Miami's Transantilles International, a 14-year-old global trading firm founded by Trinidad-born Stephen Herbert. The venture fund invested $200,000 through the purchase of preferred stock. "They get a quarterly dividend and we repay the investment in years three, four and five at 25%, 25% and 50%," says Herbert.
So far, Hall's group has invested in 10 businesses, ranging from an inner city optical center to the developer of Miami's first black-owned hotel, RDP/Atlantic Development. Now he is embarking on a campaign to raise $7.5 million to expand the fund's reach.
It's difficult for small, minority-owned businesses to find outside investment capital because venture capitalists typically are looking to invest at least $1 million. But a couple of new ventures hold promise for the small entrepreneur:
The Beacon Council recently set up a venture fund targeting Hispanic-owned businesses in Dade County. Capitalized with $1.5 million in state money and a $1 million line of credit from Hamilton Bank, the venture fund will invest $50,000 to $250,000 in Hispanic-owned companies in six fast-growing industries: bio-medical, film and entertainment, information technology, international commerce, telecommunications and tourism, according to Christina Cuervo, the council's executive vice president.
The Florida Black Business Investment Board (FBBIB) expects to take over operations of Miami's BAC Investment Corp., which has $1.1 million in capital. Florida businesses will be able to submit proposals to their nearby Black Business Investment Corp.
The Black Business Investment Fund of Central Florida and Ed Timberlake, executive vice president of corporate banking at Barnett Bank, N.A., Central Florida, are exploring the feasibility of a venture fund that would spur minority-owned manufacturers, wholesalers and assembly businesses. Says Timberlake, "We have to find a way to generate some capital for them."
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MINORITY-OWNED
Pieces Of The Pie
Minority-owned businesses comprise 17.3% of all Florida companies, according to the U.S. Census Bureau's 1992 survey. That total includes 118,000 businesses owned by Hispanic Americans, a group that dominates the economic landscape in parts of south Florida. When it comes to sales, Hispanic-owned businesses are even stronger, generating more than 75% of revenues posted by the state's minority-owned businesses.
African-American-owned companies, on the other hand, comprise 23% of Florida's minority businesses but post only 10% of minority business sales. The reverse trend holds for Florida businesses controlled by Native Americans, Asian-Americans and other minorities. While those groups own only about 9% of businesses, they generate 15% of sales.
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MINORITY CONTRACTING
Beyond The "Set Asides"
It's smart business for large companies to buy from minority vendors, according to Windell Paige, president and CEO of the Miami-based Florida Regional Minority Purchasing Council (FRMPC). "Minorities are going to do business with companies that do business with them," he says.
Paige's group and Orlando's National Minority Supplier Development Council of Florida foster reciprocal relationships between Florida companies and minority businesses. "The main things that councils do is network minority businesses and major corporations," says Malik Ali, chairman of the Orlando group.
The councils run a minority vendor certification program that gives businesses credibility with corporate buyers. (The state of Florida runs a separate "Minority Business Enterprise" certification for government contracting.) Minority businesses pay $100 (Orlando) to $200 (Miami) to cover the cost of screening, interviews, site visits and capability studies that lead to certification.
On the other side of the table, there's a blue-chip list of more than 200 corporations, including Office Depot, Burger King and Walt Disney World. They pay $500 to $2,000 for council membership in Orlando, $1,000 in Miami.
Each council runs an annual trade fair. Miami's event will be held June 4-5 at the Radisson Mart Plaza Hotel; Orlando's on July 25 at Disney's Contemporary Resort. The councils also provide loan guarantees of up to $500,000 through the Business Consortium Fund (BCF), part of the New York-based National Minority Supplier Development Council. Venture capital investments are made by BCF's specialized small business investment company (SSBIC).
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FINANCE
Lending To Black- Owned Businesses
"The only deals that we do are deals that can't be done without us," says Inez Long, president of the Black Business Investment Fund of Central Florida. Long, a former commercial lender, runs one of Florida's seven private Black Business Investment Corporations (BBICs) that provide direct loans, loan guarantees and technical assistance to businesses that are 51% owned and operated by African Americans.
Although the BBICs are private, the state-run Florida Black Business Investment Board helped establish these local investment companies in the mid 1980s using $5 million appropriated by the Florida Legislature. In the past decade, the local BBICs have helped more than 450 companies, according to Gregory Hobbs, executive director of the Florida Black Business Investment Board.
Most BBICs make some direct loans, though loan guarantees are more common. And while they do help startups, the average business borrower is about four years old and seeking a loan package of $100,000.
BBICs also offer workshops, one-on-one counseling and access to consultants who charge below market rates. "Our major objective is to try to get viable businesses in business and keep them in business," says Long.
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COMPANY PROFILE: HOPS INTERNATIONAL
Information Explosion Growing revenues by leasing sophisticated software.
Thirty-five years ago, Harvey Goodman was a pioneer in the computer leasing business. After running Data Processing Financial and General Corp. in New York for a decade, taking it public and making a fortune, Goodman moved to Florida.
Now, at age 64, he's back in the technology fast lane, drawing on both his love of computers and his savvy in leasing. As president and CEO of Miami Lakes-based HOPS International, Goodman licenses, rather than sells, his software. The going rate? HOPS gets a startling $20,000 a month. Says Goodman, "Every customer we've ever had has been satisfied."
HOPS, an acronym for Heuristic Optimized Processing System, sorts, indexes and retrieves large amounts of information quickly using a unique series of algorithms developed by Goodman. Given the steep licensing fee, it's not surprising that most HOPS customers are Fortune 1000 companies. Blue Cross Blue Shield of Florida, for example, uses the software to manipulate its claims history data as a way to detect Medicare fraud. Blockbuster Entertainment looks for new ways to market its products by scrutinizing its billion transactions each year. Other customers include Walgreens, Westinghouse and Corning Fiber Optics.
In 1996, HOPS generated about $10 million in leasing revenues; this year, Goodman projects the 60-worker business will take in about $20 million. HOPS revenues are only a fraction of the $4 billion posted by its main competitor, Oracle Corp., but that doesn't concern Goodman. He says HOPS' low overhead and powerful technology give it unlimited potential. "Anything Oracle can do, we can do better," he asserts.
To market HOPS, Goodman relies on recommendations from current customers and contacts with companies such as Arthur Andersen and Unisys. "You find one customer and use that as leverage," he says, noting that HOPS has a small sales force.
Now Goodman is thinking about taking HOPS to Wall Street, just as he did with his other company 35 years ago. This time, it's not to fund the company's growth or make money for himself, he says, but to "give employees a chance to get rich." Although he may have an initial public offering for the entire company, he'd prefer separate offerings for each part of HOPS' business - fraud detection, sales analysis, inventory analysis and so forth. Says Goodman, "What we would like to go public with is a golden egg at a time."
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SBA Loan Cutback
In a move designed to keep its popular 7(a) loan guarantee program healthy through the end of September, the Small Business Administration has temporarily cut the maximum loan amount. The new loan limit is $500,000, down from $1 million. Because the SBA guarantees a maximum of 75% of the dollar amount of 7(a) loans, the new loan guarantee cap is $375,000.
Driving the change was SBA's perception that too much money was being allocated to too few loans. In the first five months of 1997, 40% of loan dollars went to the 10% of loans that were $500,000 or more. With the new rules, the agency hopes that borrowers looking for larger loans will utilize other SBA programs, such as the 504 loans available to renovate or acquire buildings and land.
Government Sales
The University of South Florida's Small Business Development Center presents its "12th Annual Small Business Government Contracting Trade Fair," on Thursday, June 26 at the Quality Hotel-Westshore in Tampa. The full-day program will include sessions on electronic commerce, government contracting for women-owned businesses, defense subcontracting, local government contracting and 10 other topics. The price is $50 including breakfast and lunch. For more information, 813/554-2351.
Ranking Black Biz
The Beacon Council, which compiles a list of Dade County's top 100 black-owned businesses, now is working on its first statewide list. Businesses with 51% black ownership and sales of $1 million or more should call the council at 305/579-1300.
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WORKERS' COMPENSATION
NFIB's Choice
The Florida office of the National Federation of Independent Business (NFIB), which has a membership of 20,000 small and independent businesses, is giving small business owners a new option in purchasing workers' compensation insurance. NFIB is sponsoring a workers' comp program offered by The Hartford insurance company. "We had persistent member inquiries," says Bill Herrle, Florida state director of NFIB, adding, "We were one of the few associations that didn't offer workers' comp insurance."
Indeed, the state's two most prominent business groups, Associated Industries of Florida and the Florida Chamber of Commerce, have long offered their members workers' compensation insurance, until recently through self-insurance funds (SIFs). Florida's landmark workers' comp reforms in 1993, however, shifted the competitive advantage to commercial carriers at the expense of SIFs. The Florida Chamber responded by introducing Chamber One, which endorses workers' comp insurance underwritten by Reliance National Indemnity Co., a commercial carrier [FT, Small-Business Adviser, Nov. 1996]. AIF converted its self-insurance fund to Boca Raton-based Associated Indemnity Insurance Co., a stock insurance company owned by AIF.
One key feature of NFIB's program will be five different payment options, allowing small businesses to manage their cash flow better by spreading out premium costs rather than making one upfront payment. "We hope this will offer us a market advantage," says Herrle.
For information, call 1-800-505-NFIB or visit an independent insurance agent.
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MANAGEMENT
Coping With ADA
Small businesses with questions about the Americans with Disabilities Act can find answers in a new publication from the U.S. Department of Justice.
"The ADA Guide for Small Businesses" is a 15-page illustrated guide that presents an overview of basic ADA requirements for small businesses that provide goods and services to the public. It provides guidance on how to make services accessible and how tax credits and deductions may be used to offset some expenses incurred in complying with the law.
To obtain a free copy of the guide, call the Americans with Disabilities Act Information Line, 800/514-0301. Or check the Internet(http://www.usdoj.gov/ crt/ada/publicat.htm).
