In 2021, the U.S. Small Business Administration (SBA) released its latest profile on the state of small businesses in the United States. According to the report, there are currently 32.5 million small businesses, which is up from 28.8 million in 2016.
According to the SBA 2021 Small Business Profile report, small businesses made up 99.9 percent of all U.S. businesses and employed 46.8 percent of U.S. employees, which is even more significant when you consider the number of small businesses that are owned by minorities and other historically underrepresented groups.
To put some actual numbers on it:
- Women make up 47.3 percent of workers and own 43.1 percent of businesses [SBA 2021].
- Veterans make up 5 percent of workers and own 6.6 percent of businesses [SBA 2021].
- Hispanics make up 17.6 percent of workers and own 13.3 percent of businesses [SBA 2021}.
- Racial minorities make up 24.8 percent of workers and own 19 percent of businesses [SBA 2021].
- There are about 1.4 million LGBT business owners in the U.S. that contribute $1.7 trillion to the national economy.
- Disability-owned business enterprises generate more than $536 million in revenues with a total U.S. economic impact of more than $1 billion.
Many organizations have implemented supplier diversity programs to support continued growth and initiatives that increase visibility of and access to diverse suppliers such as these.
However, for these initiatives to succeed, it’s important to fully understand what a diverse supplier is and how working with a supplier diversity program helps ensure the relationship is beneficial for all parties.
What is supplier diversity?
The origins of today’s supplier diversity initiatives began taking root during the civil rights movement and really began to gain traction in 1971 when President Richard Nixon created the Office of Minority Business Enterprise. After the establishment of this new department, President Nixon issued an executive order that required federal agencies to launch comprehensive plans and programs to support a national minority business enterprise contracting program.
Today, most organizations recognize the benefits of sourcing supplies from groups that are traditionally underrepresented or underserved in business. As a result, supplier diversity is a widely embraced business practice that proactively seeks out partnerships with businesses owned by minorities, women, veterans, service-disabled veterans, LGBTQ individuals, historically underutilized businesses, and SBA-defined small business vendors.
How are diverse suppliers categorized?
To be classified as a “diverse supplier,” a person or persons who is part of one of the officially recognized categories must own at least 51 percent of the business.
There are eight commonly recognized categories used to designate a diverse supplier, and it’s possible for a business to fall into multiple categories.
These categories are:
- Minority-owned business
- Women-owned business
- LGBT-owned business
- Disabled-owned business
- Veteran-owned business
- Service-disabled veteran-owned business
- Historically underutilized business zones (HUBZone)
- Small business enterprises
Most of these categories are determined based on race and other human- or social-derived factors. For example, to qualify as a minority-owned business, the owner must be an American citizen with at least 25 percent of their heritage being of African American, Hispanic, Asian Indian, Asian Pacific, or Native American descent.
However, HUBZone and small business enterprises, while also considered diverse suppliers, obtain the classification based on factors not related to race or background. For instance, HUBZone businesses are evaluated based on where the business operates, (i.e., in economically disadvantaged urban and rural communities).
Small businesses, on the other hand, must meet criteria based on the number of employees or earnings below an average amount of sales/revenue.
Why do diversity certifications matter?
Qualified businesses that hope to become part of a large enterprise or government supplier diversity program are encouraged to get certified. Certifications improve a business’s odds of being accepted into a program, and, in some cases, are even a prerequisite for consideration.
Certification with an appropriate third-party agency or agencies makes diverse suppliers more accessible—and attractive—to supplier diversity programs for several reasons:
- The first reason is that a formal certification ensures that the supplier satisfies specific designated benchmarks and requirements. This is especially important in regulated industries and for securing federal contracts.
- Another way certification helps diverse suppliers join supplier diversity programs is that certification programs often offer educational, development, and advocacy programs that the business wouldn’t have access to on its own.
- And, all other reasons aside, in some organizations, certification is required for a supplier to be added to a diversity program’s vendor portfolio, and an uncertified business won’t be considered.
What are the benefits of working with a supplier diversity program?
Supplier diversity programs are good for businesses across the board. These programs help build long-term, profitable partnerships that benefit both the supplier and the program owner.
Being part of a supplier diversity program gives small and underrepresented businesses access to more opportunities, which helps them build a strong reputation that can lead to work with other programs and lucrative federal contracts.
Learn more about the benefits of supplier diversity programs in this on-demand webinar.