The New SBA Chief's Honeymoon Period

The small business community offers Steven Preston advice on what to tackle first as he starts his job as head of the Small Business Administration

Steven Preston, a former executive vice-president at ServiceMaster (SVM)—a conglomeration of franchised-based lawn care businesses—and a former investment banker at Lehman Brothers (LEH), was recently sworn in as the new administrator of the United States Small Business Administration.

He succeeds Hector Barreto, who resigned on April 25. Preston was confirmed by the U.S. Senate by unanimous consent, despite grumbling within the small business community about his lack of related experience (see, 6/29/06, "Mr. Small Biz?").

By all accounts, Preston has a tough road ahead of him. The SBA, whose main role in the federal government is to grant guaranteed loans to U.S. small-business owners, has faced budget cuts of up to 40% in the past five years (see, 1/27/06, "Is the SBA Hurting Small Business?").


 Some opponents of the agency have called for the its disbanding, arguing that its programs often stunt growth and that the private sector would be at least as effective in granting needed loans to small businesses—and require less waiting and red tape (see, 12/19/06, "A Talk with a Small Biz Heretic").

Preston is upbeat about his post, which he assumed on July 10. During his confirmation hearing, he emphasized the importance of sophisticated financial management, operational responsiveness, and a customer service culture at the SBA. "None of this happens by accident. It requires dogged focus to move the ball forward each and every day," Preston said in a statement. asked three leaders in the small business community how they would they advise Preston to rebuild the SBA. Here's what each had to say.


 Carl Schramm, president and CEO of the Kauffman Foundation, an entrepreneurship and education foundation, says Preston should examine the SBA's core competencies, then redefine its purpose. "I'd first clarify my mission," says Schramm, who calls the SBA a lending organization for small businesses, not a financier of dynamic entrepreneurship.

"The presumption [when the SBA considers a loan recipient] is that they're local, low-growth enterprises, they're lifestyle businesses. That's not the same thing as an entrepreneur. The SBA has nothing to do with it and shouldn't. It's for small and low-growth businesses."

Schramm's second piece of advice to Preston is to start a sweeping program to improve the human capital within his organization. Today, Schramm says, the SBA's small business counselors lack firsthand experience from the trenches and are often bureaucrats who have transferred from other government posts.


 "People who go to work for the government don't go there after a successful career in small business. Maybe their first job was at the post office, then they did an interagency transfer, and before they knew it, they were a 'small-business counselor.'" That inexperience doesn't serve the country's small-business owners, he believes. "If we're helping people develop plans for their business, our advice ought to be tested by practical experience," says Schramm.

The example of small-business counseling organization Service Corps of Retired Executives (SCORE) is instructive, says Schramm. "I'd encourage Preston to hire people who are experts in running their own businesses, mimicking the idea of SCORE." Schramm proposes a reform of the SBA's hiring practices where it wouldn't accept transfers from other branches of government, and requiring that 50% of the employee base be 55 and older, with experience running a business.

Another important task for the SBA is to recognize its limitations—it's not the only lending organization for small businesses and may not best serve every entrepreneur or small business. "I'd encourage Preston to make an alliance with all the banks that are recently discovering small business," says Schramm.


 Loan advisors could then be trained to recognize when to recommend an SBA-backed loan and when to refer a client elsewhere. "If [an entrepreneur] needs the money quickly and the differential cost is low, then why not refer them?," asks Schramm.

Giovanni Coratolo, the executive director of the Council on Small Business at the U.S. Chamber of Commerce, works closely with the SBA. His first piece of advice, like Schramm's, is for Preston to focus on human capital. "They've been embattled with last year's natural disasters, and morale is probably at an all-time minimum," says Coratolo.

Besides hiring more good people, Coratolo says it's just as important to make sure the SBA's existing employees are invigorated with "new spirit, new enthusiasm." To do that, Coratolo recommends making some "new hires, internal promotions, and overall things that will give people reasons to enjoy what they're doing." Preston's experience in the private sector should help with this task, adds Coratolo.


 Next on Preston's agenda: prepare for uncertain times. Previous SBA chief Hector Barreto encountered bureaucracies and slow loan processing post-Katrina, but still claimed to be doing more with less (see, 05/11/06, "The SBA's Iffy Future"). "The benchmark [Preston] is going to be compared with is how well he does is in a crisis situation--how he performs in a natural disaster," says Coratolo.

While Preston tries to mend fences along the Gulf Coast, he can't neglect the need for a game plan going forward. "He's not in the business of saving lives; he's in the business of reconstruction. [When a disaster hits], the SBA has to be there early, interfacing directly with those in need," says Coratolo.

To get on the ground most effectively requires an existing network. Coratolo recommends fostering more involvement with state and local chambers of commerce, bankers in local areas, as well as faith-based groups. "You have to have avenues of outreach, and you have to have horizontal ties to resources to direct people to other resources," says Coratolo.


 Andrew Langer, the manager of regulatory policy for the National Federation of Independent Business, a Washington D.C.-based small business advocacy organization, says the first step to a good legacy for Preston is to accept accountability for his agency's shortfalls—then move forward.

"Overall, it's important to be open and accountable for the mistakes that have been made in recent years, especially when it comes to disaster preparedness," says Langer (see, 2/2/06, "The SBA Chief Comes Out Swinging").

Next, Preston should bolster funding for the Office of Advocacy, which is the group that pipes-up for small business when the federal government's legislative and rule-making processes stand to affect them adversely.


 "Preston should make a specific line item for the Office of Advocacy to safeguard against budget cuts for future generations. For every dollar [the Office of Advocacy] spends, it saves hundreds of dollars for small business. It gets great bang for its buck," says Langer. The Office of the National Ombudsman, which assists small businesses with unfair and excessive federal regulatory enforcement, also must be strengthened, he says.

If Preston wants to have a lasting legacy, says Langer, he should enact a proposed program known as the Business Gateway Program to minimize paperwork and simplify regulatory compliance for small businesses. The Office of Management and Budget (OMB) estimates that paperwork increased by 441 million hours to 8.5 billion hours over the past year, with much of the impact absorbed by small businesses.


 Business Gateway would simplify the process of compliance and minimize paperwork through an online tool available to all small businesses. "Imagine a system where small-business owners can go online, type in a few key pieces of info, and the system spits out every regulation they need to comply with, two-page instructions on how to do it, then walks them through how to do it all online," says Langer.

"If Steve Preston wants a legacy, he should make this a priority, put staffing and funding behind it, then make it simple for us to do. It's a sweeping project, but it's a lasting one," says Langer.

Today Steven Preston is set to shape the future of the SBA. Critics and supporters of the agency are back in their corners for now, asking the question: How will Preston perform?

Before it's here, it's on the Bloomberg Terminal.