Originally Broadcast April 26, 2008
Announcer: Welcome to The Business of Government Hour, a conversation about management with a government executive who is changing the way government does business. The Business of Government Hour is produced by The IBM Center for The Business of Government, which was created in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about The Center by visiting us on the web at businessofgovernment.org. And now The Business of Government Hour.
Mr. Morales: Good morning. I'm Albert Morales, your host and managing partner of The IBM Center for The Business of Government.
Small business ownership can be the gateway to opportunities for all Americans. In fact, in just over four years, two-thirds of the eight million new American jobs were created by small businesses. These entrepreneurs foster an economy driven by innovation and their passion, along with the organizations dedicated to serving them, clearly reflect the American spirit of ingenuity and opportunity.
With us this morning to discuss his department's effort in support of American small business is our special guest, Steven Preston, administrator of the U.S. Small Business Administration. Good morning, Steve.
Mr. Preston: Good morning.
Mr. Morales: And joining us in our conversation, also from IBM, is Paul Kayatta, partner in IBM's Public Sector General Government Practice. Good morning, Paul.
Mr. Kayatta: Good morning, Al. Hello, Steve.
Mr. Morales: Steve, let's start by taking a moment to provide our listeners with an overview of the Small Business Administration, or sometimes referred to as the SBA. Can you tell us a bit about the history and the evolution and its current mission today?
Mr. Preston: Sure. And I think, Al, you did a great job of sort of giving us a sense of the importance of small business in our country. Roughly, they're half of our economy. They're most of our job creation and a lot of the innovation that drives our economy. And because of that, the SBA was created in 1953 as an independent agency to support small businesses in any number of ways.
Now, what that means today is that we provide guarantees for private loans to small businesses. That helps our banks and other lenders reach a little bit harder to reach small businesses who need capital to grow. It means that we train and counsel small businesses around our country. Every year, we have programs that touch about a million entrepreneurs a year to help prepare them for ownership or help them through issues they face as a small-business owner. We also help small businesses if they want to sell their goods or services to the federal government. We help prepare them for that process and learn how to bid on contracts.
And then the other thing we do, which is a little different than our primary small business mission, is we are America's government bank for disaster victims -- not only small businesses, but homeowners. So, for example, today we have over $6 billion with homeowners and business owners in the Gulf of Mexico, helping them rebuild their lives after the 2005 hurricanes.
Mr. Morales: That's great. That's a broader mission than I had thought. So can you provide us then a sense of scale and tell us a little bit more about how the SBA's organized, perhaps the size of its budget, number of full-time employees, and your geographical footprint across the country?
Mr. Preston: Sure. Right now, there are effectively two parts to the agency: the disaster side and the non-disaster side. The non-disaster side has slightly over 2,000 employees. Now, the disaster side, the size of the employee base depends on what we're dealing with. So, for example, today we've got about 1,200 employees, but after Hurricane Katrina, we had over 4,000.
In addition to that, in our training and counseling operations, we fund third parties that provide those services for us. They have about 13,000 counselors around the country. And then we work with about 4,000 banks and non-bank lenders. So we have a large base of employees, but we also have a large network that is not employed by us, but works with us to deliver that mission.
Our budget, it takes somewhat over $800 million to run the agency in any given year, but many of our programs are actually self-funding. I think the other thing to note is when you look at all of our guaranteed lending programs and other programs we have to get capital to small business, there is about $85 billion worth of capital in people's hands around our country that is supported by the SBA. So we're a very significant part of getting capital to small-business owners.
Mr. Kayatta: Now that you've provided us with a great sense of the organization, perhaps you could tell us a little bit about your role as the administrator of SBA. Could you describe for us your specific roles and duties?
Mr. Preston: Yeah, well, you know, as head of the federal agency, my duties are fairly broad. But I look at them really probably in a couple of baskets. First of all, I think I need to be the point of accountability for high-quality service delivery by our agency. At the end of the day, we're a service organization that helps Americans. And I feel like I need to make sure that every penny that's spent on the agency is a penny well spent and that we are a high-quality organization delivering that service. We've had a lot of challenges along the way, but I think we've made a lot of progress.
As such, I need to be an important advocate for our employees, and the work that they do. And I also think I need to be a very visible advocate for small businesses in our country. We are consistently facing policy issues, like health care, like tax policy, like export policy, that are very relevant to the small businesses in our country. So as head of the agency, it's important for me to understand what's taking place on the legislative agenda and the regulatory agenda, and ensure that we're doing everything we can to make sure the voice of small business is heard.
Mr. Kayatta: So you've gone over several of the challenges that you're addressing. Could you tell us what you think your top three challenges are, and how are you addressing them?
Mr. Preston: Well, you know, when I came into the position, I came in about 11 months after Hurricane Katrina. And we provide loans to disaster victims, and those are low-interest loans on very favorable terms, and we had just a tremendous backlog at that point. So job number one for me when I came into the agency was to ensure that we got those funds into the hands of disaster victims and then that we ensure that we could reform the agency in a way that would ensure that we could support disaster victims in the future. As people say, hope for the best, but plan for the worst. So we have dramatically changed the process of making a disaster loan at the agency, which has required extensive reengineering of processes, bringing more technology to the table, coordinating with federal and state and local groups much more effectively.
And the other thing we did is we're trying to move our disaster operation -- we actually already have -- from feeling like a large bureaucracy to a friendly organization. So everybody who applies for a disaster loan right now is going to get a case manager, somebody they can talk to about how to submit their loan, the person can help them through the process. We want to be a helpful, responsive body. So that was the big challenge and I'm thrilled with the progress we've made there.
I'd say, secondly, we face similar operational challenges that have made it difficult for us, I think, to deliver the service that we do with the type of quality that we need to. And so we've applied many of the same learnings to other areas in the agency to become a much more customer-friendly organization in our lending programs, in our procurement programs, and in all sorts of other things.
And I'd say the other thing is, you know, when I came into the agency I think we had some real employee morale issues. The government surveys on employee satisfaction indicated that the SBA had a lot of challenges in that area. So I've been very focused on ensuring that our employees are trained to do their jobs effectively, that they have the tools to do their jobs effectively, and that they have a work environment that really makes them look forward to coming to work every day. And we've made a lot of progress on that front as well. A couple months ago, we got results from an employee survey that was roughly a year after we brought the new team in, and we saw very dramatic improvements. So we're thrilled with the progress we're making there as well.
Mr. Morales: Steve, I understand that prior to coming to SBA, you were an executive in the private sector. Could you describe your career path for our listeners and perhaps let us know how you got started in government?
Mr. Preston: Yeah, it's probably more of a zigzag than a straight line. You know, I came out of business school with a finance MBA and went to work in investment banking. I worked on Wall Street for a number of years, from sort of the mid-'80s to the early '90s. It was very exciting. I learned a tremendous amount. It was, I think, just a great place for a young person to be who wanted to learn about financial services and the markets and dealing with corporate issues. But I really decided I wanted to be part of building something in a different way. I always felt that my clients were having more fun than I was by being part of building an organization, so I became the treasurer of one of our clients. And it was a very large company with a lot of very complex financial challenges. And then I ultimately moved from there to become the chief financial officer of a Fortune 500 company, and then ultimately an operational leader there.
So my pathway has sort of gone from being a provider of financial services to companies to working as the financial and strategy person within the company on to roles where I actually was focused on improving the operations of the company to help it provide better service, to help it do that more efficiently, and to improve the growth of the company. When the opportunity to come to the SBA, which, as I mentioned earlier, is a large service organization that has had some operational challenges, when that opportunity came up, it made a lot of sense to me to take it.
The mission, also, made it, I think, particularly compelling. Like a lot of Americans, after Hurricane Katrina, you know, I watched the footage from my living room and, you know, I prayed for those people and I, you know, sent money and just wished I could do more to help. And sure enough, the opportunity came up to really pour what I had built over almost a 25-year career in financial and operational roles into an agency that directly impacted those people's lives. So I just felt like if I was looking for a sense of mission I couldn't have gotten a better one.
Mr. Morales: So, Steve, as you reflect back on these experiences, how have they prepared you for your current leadership role as administrator and perhaps shaped your management approach and leadership style? And if I may, what management lessons have you learned and brought to the SBA culture from these private sector experiences?
Mr. Preston: Okay, great. Well, I think I can probably wrap all of those questions up in a handful of thoughts. First of all, if you're leading an organization and you want it to go somewhere, you have to really paint a compelling vision of where you're going to take that organization. And that compelling vision is something that has to live and breathe within the organization. And so, when I very first came into the role, I spent a lot of time understanding what we needed to do as an organization, who we needed to serve, and how we needed to serve them, and working closely with the employee base, listening to them, and the customer base, listening to them, in bringing that forward.
Then I think once you paint that compelling vision for people, you need to make sure that everything you do in the organization lines up behind it: launching major initiatives to support that vision, tracking the progress, fervently supporting the progress in those initiatives; every month or periodically, whatever, looking at the progress and making sure that things don't get off track; looking at compensation programs and reward programs that support that; and then continually being up front in front of the organization reinforcing where you're heading and why you're heading there.
The other thing I've learned over my career that I've definitely employed at the SBA is if you're going to have an effective service organization, you need to have motivated employees that care about what they're doing and you need to provide those employees with the training to do their jobs and the tools to do their jobs. Because if they're motivated employees and they care about what they're doing, the last thing you want to do is put them in an environment where there's poor morale, where they're not trained to do their jobs, or they don't have equipment or whatever. So you really need to focus on the employee base and their ability to serve the mission as sort of square one in being an effective service organization.
Mr. Morales: That's fantastic. What about SBA's reform agenda? We will ask Steven Preston, administrator at the U.S. Small Business Administration, to share with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Steven Preston, administrator at the U.S. Small Business Administration. Also joining us in our conversation, from IBM, is Paul Kayatta.
Steve, from my conversations with government executives, anytime you drive broad organizational change you need this compelling vision that you talked about earlier and you need to drive it through your teams. Now, applying that back to SBA, can you give us a brief overview of SBA's actual strategic plan and can you describe the vision that underlines and unifies your strategic goals?
Mr. Preston: Yeah. I think there are a handful of things that we're very focused on right now. First of all, we've really worked very hard, as I mentioned a little earlier, to ensure that we're prepared to handle whatever disaster might affect our country and, in doing so, get capital to people to help them rebuild their lives. It's not very difficult, frankly, to get people within the agency to see that as a heartfelt mission that they care about deeply. And the people in our disaster operation really want to serve well. And so I think an important thing to do there has been to help them understand how what they do in their jobs helps us deliver that mission effectively.
The other part of the mission, which I often refer to as our "reform agenda," is to look at all of our programs and services and make them easier to use, more customer-friendly, more compassionate in how they're delivered, and much more efficient, frankly, because there's a tremendous opportunity for us to improve the efficiency of the organization. And what I tell people often about that portion of the vision is, look, we can have the greatest product or service in the world -- whether it's guaranteeing loans to help people get capital, whether it's a program that helps them with procurement -- but if they're extremely difficult to use, if there is a ton of paperwork to fill out, if it takes us very long to make decisions or get back to people, if we're overly bureaucratic, people will not use the program. It might be a great service, but if it's too tough to use, they won't come to us and they won't seek our help.
I was talking to somebody about this recently and I said, gee, you know, when you look at opening a bank account do you look at the interest rate or do you look at the ease of use? You know, is there a branch nearby you? Do you like the electronic banking? Is that easy to use? Can you get information on your account? If they forgot to send you your statements every month and you had to drive six miles, getting another, you know, half a percent on your savings account may not make a big difference. So it's very important for us to understand that ease of use, simplicity, and responsiveness is a big part of quality service in helping America's small businesses because these people have big jobs that consume a tremendous amount of their time. They need us to respect that as we're delivering the service.
Mr. Morales: Now, Steven, I have to admit here that I cheated a little bit by doing some research on your plan and it seems like it's guided by four core pillars. Could you elaborate on these pillars along with your vision that complement the reform agenda that you described? And in so doing, could you give us a brief introduction to the reform agenda for SBA?
Mr. Preston: Yeah. What I found not long after I came to the SBA is it was important for us, in setting the vision and in establishing initiatives to fulfill that vision, it was important for us to agree on what we needed to talk about. What are sort of the guideposts for making decisions? And we came up really with four key things.
First of all, we decided our agenda had to be outcomes-driven. It couldn't be about how many loans we processed or, you know, how much paperwork we shoved. It had to be about the value we created to people. And so what are the outcomes we're driving? Are we helping people get back into their homes? Are we helping small businesses get capital ultimately? So not let's just talk about the process, let's talk about the value we're creating, so outcomes-driven.
Number two, everything we needed to do had to be customer-focused. What I talk to people about is, when we look at a new opportunity, I say we have to start with the customer and work back from the customer because that's the person we're serving. And our customer is a taxpayer, whether it be a small business or a disaster victim.
The third thing we talked about is being employee-enabled. We need to enable our employees to deliver that service because, if we don't, we won't be able to do it effectively.
And the fourth thing, we couldn't figure a pithy or short term to come up with, but it gets to the notion of having an agency that's transparent around what we're doing. We're a government agency. We've got to be open and transparent about how well we're doing. If we're not doing well, we have to be honest about it. We have to be accountable and we have to be efficient. It all gets to the concept of stewardship and openness in management. So outcomes-driven, customer-focused, employee-enabled, and then the last one we kind of call transparent, accountable, and efficient.
Now, as we look at applying that to sort of the reform agenda, we can use those guiding principles and we can look at each one of these programs to say do we know what outcome we're driving and are we set up with our initiatives to improve that outcome? Does that outcome really affect the customer the way we want it to? Do we have programs in place to support our employees to deliver that service with a high quality or are we disabled at that level? And finally, are we really accountable in how we're delivering the service? Are we measuring it right? Are we driving toward the right goals? And are we honest about how well we're performing?
So that's kind of how the four pillars apply to the reform agenda.
Mr. Morales: That's great. Now, you know, earlier in the first segment, we talked a little bit about the growth of small businesses over the past several years. What's interesting is, over the last three decades, the number of employees at large Fortune 500 companies has actually been declining. Could you elaborate a bit on your efforts to improve the economic environment for these small businesses?
Mr. Preston: Certainly. There are a number of things that we focus on in that regard. Right now, obviously, we are seeing somewhat of a challenging time in our economy, and one of the things that we are concerned about is the ability of small businesses to get capital. So we are working very hard to meet with hundreds of banks around the country to make sure that they understand our programs fully, that they're using them in a way that will help them get capital to small businesses, and that if they have any problems in working with us that may discourage them to use our services, that we're taking care of those issues, that we're being a good partner with them. So it's very much about outreach and improving our service quality to the banks so that they, in turn, will adopt our programs and get capital to small businesses.
Now, the other thing that's very important during this period of time is often small businesses, they're facing something that they haven't faced before: potentially a decline in sales or, in this case, in the current environment, higher energy costs, or challenges like that. Our network of counselors can sit down with those small businesses and actually help them think through how to address those issues. Should they be thinking about an adjustment to their prices? Are there strategies that they can have to bring down their energy costs? We're also about to launch a program that will help small businesses learn how to become more energy efficient because it is an increasing cost for them.
Mr. Kayatta: In rural areas, small businesses account for two-thirds of all jobs and in inner cities, small businesses provide 80 percent of all the employment. So entrepreneurship can be a very valuable vehicle in these communities. Could you elaborate on SBA's efforts to develop new products and to serve these underserved markets?
Mr. Preston: Yeah. This is a very, very important focus for us because in areas of our country where we see higher poverty and higher unemployment, we want to make absolutely sure we're doing everything we can to support entrepreneurship. And the reason for that is very, very simple. If new businesses can get a foothold, if small businesses that are existing there have the resources and the support to grow, they will create jobs, they'll bring investment, they'll improve the physical face of neighborhoods and in a way that is sustainable and lasting and, in many cases, growing. So we are working very hard to drive our services to areas of our country that need it the most so they can get lasting change.
Now, how are we doing that? First of all, we're providing goals for all of our offices around the country to increase our presence in those areas, and those goals have shown real fruit.
Secondly, we are rolling out products that are specifically designed to help people in those areas. For example, many small community banks are reluctant to use our services, our guaranteed lending services, because they're concerned about dealing with the government bureaucracy, and it can be challenging for them if they don't have a lot of staff. So we're rolling out an entirely new program for them that has a simplified application; they can do it online. We give them a customer support desk if they have any questions. And we promise them that we'll turn around their loans in a few days. We want to make it easy and supportive for them, and we'll be signing up small banks that reach many rural areas as a result.
And another thing that I would mention is a very exciting initiative we are launching right now called the "Emerging 200." We've chosen 11 cities in the country for a pilot called the "SBA Emerging 200." These are cities that have experienced job loss in the inner city. We are going to those areas and we're bringing in 15 to 25 small businesses that have a profile of a growth company. It looks like they've got an idea that could really ramp, but it looks like they also need a lot of help. So we're putting them through an intensive program for six to eight months. They'll get classroom training. They'll get one-on-one counseling if they want it. We'll give them business connections in the community. We'll provide them with introductions and support with lenders and investors. But we want to make sure that these companies in our inner cities that have potential to grow dramatically have every bit of support from us to become successful. And if they're successful, if you have 20 companies, for example, in Baltimore, which is one of the cities, or in Memphis, which is one of the cities, and they begin creating new jobs, that abets more economic activity. Hopefully, next year, we'll have another class of people coming in. And it can begin to change the face of neighborhoods and communities around our country. So we're very, very excited about the launch of the Emerging 200.
Mr. Kayatta: As you mentioned earlier, the SBA manages a loan portfolio in the range of $85 billion. To that end, OMB's Improved Credit Management Initiative requires agencies to strengthen the way that they award and service loans, manage portfolios, and collect debts. Would you tell us about the department's management and strategy for improving its credit management capability?
Mr. Preston: Certainly. This is a very important initiative and I'm thrilled that OMB has focused so heavily on this because the federal government does have a lot of financial resources out there and it's critical that we're managing those very tightly. Really what it requires is a focus to make sure that you have the right policies in place to manage those portfolios and that you are being very diligent about following those policies. And so in our case it's required us to really look at the whole pathway, the life of a loan, to make sure of how we're servicing loans, how we're managing the portfolios, how we're collecting the debt, that those things are all managed tightly, that we're tracking them, and that they're done in compliance with the OMB directives.
Now, over time what we're doing in addition to that is we're rolling out new systems to be able to support us so that we can do it much more efficiently and in a way that allows us to kind of get all of our information and all of our management processes in one place.
Mr. Morales: Steve, you've been talking quite a bit about your work in the area of disaster recovery. What lessons has your organization learned in the aftermath of the Gulf experiences? But more importantly, what are some of the major improvements to SBA's disaster operations that you've made that ensure the agency is stronger in the face of any future national emergencies?
Mr. Preston: Well, we've learned a number of things and I think these are the areas where we really have focused on improving. First of all, on a very base level, I think it's important to realize that when somebody has gone through a disaster, in many cases they're absolutely shell-shocked. It is a very, very difficult situation. I've been in many of our disaster recovery centers after a tornado or a flood. Sometimes people come in, they look entirely dazed because they're just in shock. We need to be a compassionate, helpful face and voice to them when they come into our process because they need help in getting through the process of doing a disaster loan when they've lost so much.
Some people will say to me, how can it be efficient to give people that kind of support? Isn't it expensive? And what I typically say is, no. A, it's the right thing to do but, B, it is efficient because if you invest 15 or 20 minutes with an individual, taking him through the process, helping them understand what they have to do, it saves all of us a tremendous amount of time in getting the documents correct. Before we were frequently shipping documents back and forth because they're weren't filled out right or we didn't have enough information. So helping people at the front end the compassionate way can also be more efficient. That's number one.
Number two, I think we have to have a system in place that allows us to ramp our capacity very quickly in a major disaster. That means that we have to have a way to hire people very quickly. It means that we have to have a way to ensure that we have systems in place to handle high volume. And it means that we need to have facilities to put those people in those systems. So we have a very detailed surge strategy in place. And, in fact, we'll be testing it in a simulation to test all of our disaster capacity in various events. And we have thousands of reservists around the country right now that are ready to be called up, and that's very important.
And the third thing I would highlight is we're not alone when something like this happens. There are many people out there to support us and there are also people that we have to coordinate with so that we can both do our jobs more effectively. So we've dramatically improved our coordination with other federal agencies. We have put in place protocols to improve our coordination with local groups. And we've also, believe it or not, we have a field network around the country that delivers non-SBA disaster services. It delivers lending and all the other services which is separate from disaster. We haven't always coordinated between those two, but we have a wealth of resources with almost a thousand people in the field that know their local chambers, know the local banks, and know the local media outlets. So we have protocols in place now to coordinate with our other SBA resources on the ground to leverage their resources. And that is very important because in a situation like this, everybody needs to lock arms and work together closely if they're going to effectively deliver the services to the disaster victims.
Mr. Morales: That's great. That sounds like you're taking a very proactive position against any future occurrences. Steve, another critical area is our country's veterans. Could you tell us more about your efforts to ensure that veterans receive fair access to federal contracts and that veterans get the capital and technical assistance they need to be successful as small-business owners? What are some things that you do in this area?
Mr. Preston: Well, this is a very important area to us and it's an area that we've invested a lot of focus. Because not only do we all feel a heartfelt commitment to the people that have served us in the military, it's also important to remember that these people, men and women who've served us so well, have learned critical skills that make them great entrepreneurs. They've learned disciplines, they've learned hard skills. In many cases, they've learned how to sacrifice to build something. Those are all great things to pour into a small business and veterans make very successful small-business owners. So we've got a number of programs that provide training and technical assistance to veterans. We have veterans centers that specifically focus on delivering those services around the country. And we also have partners that have special veterans programs, whether it be through small business development centers or our SCORE partners, which some people know.
The other thing we've done is we've designed specific lending programs to reach members of the military community who need capital to grow. First of all, last year, we launched something called the "Patriot Express," which combines the best elements of all of our loan products into one. And the thing I love about the Patriot Express is it's not just for veterans. It's for reservists, it's for National Guard members, and their spouses. Military service is a family affair. Small business ownership is a family affair. And we're supporting the entire military family in doing this. Since our launch last summer, we've made over $100 billion in Patriot Express loans around the country, which is very exciting.
The other thing is a great program we have, but, very frankly, we've had a hard time telling people about it. It's something called the "Military Reservist Economic Injury Disaster Loan," maybe because it has such a long title. But effectively, what we say is this: If you're a reservist and you work for a small business and you get called up for active duty, if that small business is in some way injured economically by the fact that you were called up for active duty, that small business can apply to the federal government through the SBA for a 4 percent business loan. And on those loans we can go out as long as 30 years. So this is a great loan product for small businesses that are disrupted by the sacrifice that our reservists are making for our country.
Now, Congress just passed a bill and the president signed it earlier this year that allows people to pre-apply for these loans before they get called up. So if you're a reservist and you work for a small business, you should give us a call and pre-apply for one of these loans, so that if the small business is impacted somehow by your being called up, your paperwork's in place and we can kick in and support the challenges that the small business faces as a result of it.
Mr. Morales: That's a fantastic program. How is SBA ensuring accountability and managing for results? We will ask Steven Preston, administrator at the U.S. Small Business Administration, to share with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Steven Preston, administrator at the U.S. Small Business Administration. Also joining us in our conversation, from IBM, is Paul Kayatta.
Steve, it's my understanding that in an effort to increase the transparency and accountability in small business contracting, SBA and OMB issued a small business procurement scorecard. Could you tell us a little bit more about this scorecard and what it tracks? But more importantly, could you elaborate on the overall federal performance in this area and what lessons are you learning?
Mr. Preston: Well, you know, just by way of background, the federal government has a mandate -- it's not a requirement, but it's a strong mandate -- to purchase at least 23 percent of what they buy from small businesses. We're the largest buyer of things in the world and so this is an important part of providing an opportunity to small businesses. But as I always say, it's not just about fairness, it's about good business. Because small businesses are often more flexible, they're often cheaper, they give everything they have, so it's good business to do business with small business.
But what we did was the following. We wanted to make sure that we were doing everything we can to help the other federal agencies meet their small business procurement targets, but also hold them accountable and to be honest about how we're doing. And so what we did is we launched a scorecard. Every one of the larger federal agencies has a small business goal: a percentage of their goods and services that they buy that should come from small business. And for also some different types of small businesses, we also have goals. For example, businesses owned by service-disabled veterans, they have goals for that. We were just talking about veterans.
What we do now is we rank every federal agency against their goals and then we also rank them based on the progress they're making to improve their performance. And then once a year, we issue a scorecard. And some people get green if they're doing well and hitting their goals, some get yellow, and a lot of them have gotten red. All of our views are that, you know, if somebody's not hitting their goal, we have to be honest about it. We're the federal government and this is a mandate. Let's be honest about it and if we're not hitting the goal, then let's put a pathway in place to achieve that goal.
Mr. Morales: Now, Steven, we talked earlier about reform and accountability. So specifically, what types of reengineering efforts are you embarking to address some basic operational issues such as reducing error rates, reducing backlogs, and reducing decision-making bottlenecks within the organization?
Mr. Preston: Well, you know, I think probably a very good example of that would be in our lending operations. As I mentioned before, we guarantee bank loans and credit union loans and other private lenders. If we need to make good on that guarantee, effectively what happens is the bank sells the loan back to us and we buy it and then we make good on it. Well, there have been many challenges in that operation. The backlogs at one point were very, very long. Our policies were confusing. It was difficult for the banks to interact with us, and so we did a number of things.
First of all, we made sure to clean up our policies, to make sure that they made sense, and then we rewrote all of our standard operating procedures and sent those to the banking community. It doesn't sound very exciting, but in a process like that you've got to make sure that the rule book is clear and the rule book wasn't clear. And the banks were asking us to make sure that we were crystal clear on how we did these things.
Then we actually took a look at how we do the process of purchasing a loan. It's almost like a little manufacturing operation except, you know, you've got a loan going through it. There were a lot of issues there that needed to be cleaned up to make it more efficient, to make it more consistent, to improve the processes. And then in addition to that, we needed to improve the technology so that we could support the improvement of that process.
The next thing we did is we instituted a customer service desk in our processing centers, so that the banks would have a place to call if they needed help or had questions.
And then the last thing we did was we undertook a very significant retraining program, not only for the people processing the loans, but for people in our field offices. And the reason for that is this: The banks are out there in the field and our people are out there in the field, and we wanted to make sure that we could have our people go physically to a bank if they were confused about our process, sit down with them, and help them work through it.
When we analyzed the bigger problems we had here, one of the biggest problems we had was a lot of the banks were sending in information that was incorrect or incomplete or they didn't understand the process. So we decided we had to train our people in the field to sit with banks and help them get it right the first time.
The other thing we do now is everything is tracked. I know what the backlog looks like. I know how old it is. I know which banks we're having challenges with. I know how much production we're doing. We have metrics on all of these responsiveness and efficiency measures, which we never had before, so that we can actually manage it effectively.
And the last thing we did is we told banks that we were going to make the process easier. And if they complied with the new process, we would deliver a promise to them of getting them their money in 45 days. Well, we have done that and right now we're getting them their money on average in about 25 days.
Mr. Morales: Wow, that's fantastic.
Mr. Preston: We're hitting the bank promise and we're getting tremendous kudos from the industry, so we're very excited about that.
Mr. Kayatta: Steve, could you tell us about some of the most critical issues that face small businesses today and what you're doing to assist them through those issues?
Mr. Preston: Well, right now, based on what we're seeing in the economy, I mentioned a little earlier that a lot of small businesses, especially those that have vehicle fleets or large facilities, are hurting from the increase in energy costs. Another thing that small businesses have been facing for a number of years, which is so difficult, is the increase in health care costs. Many people don't think of the health care challenges we have in the country as being a small-business issue, but many statistics would show that 70 percent of our uninsured workforce works for a small business. And the smaller a business is, the less likely they are to offer health care. So we have to make sure we understand how to work to improve the health care system to allow small businesses to offer it to their employees or for those employees to be able to buy it directly on a reasonable basis.
So for businesses that are specifically impacted by this economy or these costs challenges, we offer a lot of counseling services to help them think through how to address them in their business, how to manage their costs more effectively, how to manage their labor more effectively, how to manage cash flow more effectively, for example.
The other thing we're doing right now is making sure that we're doing everything we can to help them get capital they need. If they need working capital to grow or help through a challenging time, to make sure our guaranteed lending operations are getting to those people and supporting them.
Then the last thing I'd say that we're doing probably more so now than ever is making sure that we do everything we can that the voice of small business is heard on the policy front. We need to make sure that we're advancing the health care policy improvements that I mentioned. Right now, exports are very much on the agenda. A lot of people don't realize that almost 30 percent of our country's exports come from small- and medium-sized businesses. So we're working very hard to help people understand that because many of the trade agreements that are being contemplated right now are very good for small business, will open up those markets for them, add new jobs, and help them address the issues they face in the economy today.
Mr. Kayatta: So there's certainly a lot of opportunity in the whole world of international trade, and you talked about collaboration as well. Could you describe the Resource Partner Program and how it's working to fulfill the mission?
Mr. Preston: Yeah. And specifically in trade, our resource partners in the small business development centers and women's business centers and our partners at SCORE, which is a network largely made up of volunteers, many of those people have specific expertise in foreign trade. And they will sit down with a small business and help them think through what they need to do if they're looking at foreign markets to expand.
We also, in conjunction with the Department of Commerce, work very directly with small businesses on exporting to specific countries. So if somebody comes in the door, they can go to a U.S. Export Assistance Center and get help with respect to a particular country. For example, if they want to export to Portugal, we can help them understand it and then the Department of Commerce actually has resources in Portugal that can help them.
The last thing I would say right now is we are kicking off a series of trade symposia around the country. Just recently we had one in Miami, in a town outside of Miami actually called Hialeah, and we had 400 small businesses come to learn more about exporting. We brought small businesses that were successful exporters to speak in a roundtable to share their experiences. I talked about the value of free trade agreements in exports. We had a number of service providers that explained what services they could provide to help them out. We had a number of banks there to help them with their financing issues. It was a very, very exciting day for those businesses. And many of them were really encouraged by the opportunity they have to reach foreign markets.
We also do provide financing through our guaranteed programs for small businesses who need to build working capital to support their exports or if they export financing for the actual shipments.
Mr. Morales: So many people may not know that some of SBA's former clients, if you will, included such notables such as Intel, Apple, Amgen, Ben & Jerry's, and Federal Express, just to name a few. Given such success stories and these American icons, could you highlight perhaps, if you can, some up and coming success stories that you see in the near future?
Mr. Preston: Yeah, there's a great one. I mentioned Miami just a second ago, our trade symposium there. I had a chance to visit with an exporter down there who ships products all around the world for installation into industrial kitchens. And he has installed kitchens throughout Asia, in Latin America. Sometimes you really don't even know what's out there until you actually start seeing these small businesses and what they do. But, you know, he had a familiarity with China 20 years ago, and he set up an operation there and began installing kitchens in hotels that were being built and other industrial kitchens. Then he took it to a number of other countries, and now he's exporting to countries around the world.
A couple of months ago, I was in St. Louis, and there were two ladies who had started a business that develops software that blocks hackers from foreign countries who are trying to get into government computer systems. I mean, an incredibly valuable service to our country to protect our security infrastructure, and it was a small business with, you know, 10 or 20 employees that developed this software that's doing so much for our country.
So we forget how varied and valuable and innovative so many of these companies are. When you start hearing the stories, I got to tell you, it's just so encouraging. And that's, you know, actually one of the great things about this job is I get to go around the country and meet many of them.
Mr. Morales: That's exciting. It must give you a great sense of pride to see some of these organizations starting up and doing so well with what is seemingly a very small set of resources.
Mr. Preston: Well, you know, one of the other things I had the opportunity to do is speak with my counterparts around the world, who either lead commerce departments or small business departments in other governments. And frequently, people will say, well, how do you do it in America? You know, how come your small business culture is so energetic and so rich and it drives your economy? What should we do?
And I tell them about our programs and I tell them about our policies, but then, you know, I stop and I say, but small business is in our DNA. That's who we are as a country. We are an entrepreneurial culture. Kids grow up many times thinking about owning a business. They join Junior Achievement. They go to college and they take courses on entrepreneurship. Many of our best known Americans started out as small-business owners that they built into big businesses. And so it's so important that we have policies in our country that support the small-business owners, that support the people that have a dream and want to build that dream because it is the backbone of our economy. It drives innovation and competitiveness for our country around the world.
Mr. Morales: That's fantastic. So what does the future hold for SBA? We will ask Steven Preston, administrator at the U.S. Small Business Administration, to share with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Steven Preston, administrator at the U.S. Small Business Administration. Also joining us in our conversation, from IBM, is Paul Kayatta.
Steve, I'd like to transition now to the future and talk a little bit about what you see as some of the major opportunities and challenges that your organization will encounter in, say, the next two to three years, and how you think SBA will need to adapt to meet these challenges.
Mr. Preston: There's a lot in that question. One of the things I'd say is we have to be ready for whatever changes might happen because some of them will be unexpected. And one of the things we're doing right now is to work throughout our employee base to put in place tools to help people address challenges, known or unknown, help people learn how to manage change, to envision positive change, and then to actually sponsor it and manage it. And so it's important for an organization to have a flexible mindset. That's a lot of what we're doing.
More specifically, things that we know that are coming down the pike, we have a significant population that's eligible for retirement, and it's not only unique to the SBA. Much of the federal government faces that issue. So what we are trying to do is actually look at that as an opportunity for our people. Because as people retire, we understand that we're losing a lot of talent and a lot of knowledge, but it also creates opportunities for other people for promotion. So we're rolling out very extensive training programs to ensure that people have the skills to do the jobs that they're in today, but also to prepare them for the jobs that may arise in the future.
We're also rolling out a process where every employee who elects to can do an individual development plan with their manager. That individual development plan looks at their strengths, opportunities for improvement, and then puts in place a pathway for them to be able to address those areas for improvement. We're then taking all of that information and building employee development programs designed around specialized training, potentially internship-type programs that would help these employees along their development pathway.
Mr. Morales: So along those lines, Steven, could you tell us a little bit about some of the major training initiatives, such as SBA University? And how do you ensure that your employees have the appropriate training and skills to meet some of these upcoming challenges that you described?
Mr. Preston: Well, training is so important and I think it's the easiest thing for an organization to cut when there's a budget challenge, but it's one of the most important things, I think, for any organization to protect. What we have done is, this last year, we designed something called SBA University, which was a one-week, off-site experience for employees to ensure that they had the fundamental skills to do the jobs that they're in as well as the tools to be more effective in addressing opportunities going forward. And we worked very extensively throughout our network of experts to design a curriculum that was very relevant to our programs and very relevant to the challenges we face. At this point, our entire field organization of almost a thousand people have been through at least one week of SBAU. People in our processing centers have been through it. And this summer, people in our headquarters operation will be going through SBAU.
The other thing it's designed to do is to ensure that people in management positions have the skills to manage their people effectively. We want to make sure that we have a management culture that fosters development and growth as well as productivity, as well as service quality. So those are the kinds of things we're doing there.
Now, through the individual development plan process, we will then use what we learned from our people in terms of their development needs and design a much longer term, much broader training strategy for the organization that will, I believe, provide a sustainable quality culture for the organization for many years to come.
Mr. Morales: So, Steven, to take advantage of this moment on radio, what advice could you give to a budding entrepreneur who may be out there listening to this show?
Mr. Preston: What I'd tell a budding entrepreneur is a few things. First of all, understand what you don't understand. Think about what it's going to take to be successful and understand where your challenges are going to be, and then get out there and get help. Make sure you've thought about your markets, you've thought about the capital you're going to need for that business, you've thought about what it's going to take to be successful. And then when you're honest about where you're strong and where you're not strong, make sure that you fill in your blind spots. Because we want to take all of that excitement and all that energy and all that commitment that you're going to be putting into that small business and make sure it's successful.
The other thing I'd say is it takes a lot. You know, I've often said every dollar of equity an entrepreneur puts in their business is matched with $10 of sweat equity. That's going to be very important to be a small-business owner. You really got to give it all you have and be realistic about the challenges.
I was interviewed recently by somebody who said, gee, you know, if somebody wants to have a more relaxed life and more free time, wouldn't you recommend their getting into a small business and owning a business? And I said you know what? That's just the opposite. It takes blood, sweat, and tears. But you know what? That's why our small-business economy is so powerful. It's because we have people who give it all that they've got.
Mr. Morales: And I've got to believe the rewards are even greater on that side.
Mr. Preston: They're terrific. And it's not just a job for people. It's their lives and it's their passion, and that's what makes it so exciting.
Mr. Morales: So, Steve, as a follow-up now, what advice would you give to a person who perhaps is considering a career in public service, whether that be at a local level or at a federal level?
Mr. Preston: Well, the advice I would give is based on the fact that I just think it is an incredible honor to be able to serve in a capacity that helps other people, that serves Americans in either delivering services to them or doing, you know, so many things that our government does for people that's valuable. I think it's very easy to get a sense of mission and a sense of value in work if you go into public service. And so what I would do is say, think about what you can give. Think about how you can move the needle. Think about how you can provide value to other people through that. And think about, you know, the skills that you build in the private sector or someplace else, how they can be effective in doing that.
Mr. Morales: That's great. Steven, unfortunately, we have reached the end of our time. More importantly, Paul and I would like to thank you for your dedicated service to our country in supporting the small business community.
Mr. Preston: Great. Thank you very much. And certainly, if there are any potential entrepreneurs out there or any small-business owners that have any challenges that they'd like us to help them with, please come to the Small Business Administration. You can find us at sba.gov.
The other thing I would like to encourage small-business owners out there to do is to look at some of the provisions in the stimulus package that was passed earlier this year. There are many tax advantages to investing in your business in 2008 that you may not be aware of, that could be very good for you and very good for our economy. So thank you very much.
Mr. Morales: Great. Thank you, Steven. This has been The Business of Government Hour, featuring a conversation with Steven Preston, administrator at the U.S. Small Business Administration. My co-host has been Paul Kayatta, partner in IBM's General Government Practice.
As you enjoy the rest of your day, please take time to remember the men and women of our armed and civil services abroad who may not be able to hear this morning's show on how we're improving their government, but who deserve our unconditional respect and support.
For The Business of Government Hour, I'm Albert Morales. Thank you for listening.
Announcer: This has been The Business of Government Hour. Be sure to join us every Saturday at 9:00 a.m., and visit us on the web at businessofgovernment.org. There you can learn more about our programs and get a transcript of today's conversation. Until next week, it's businessofgovernment.org.