Testimony of Michael Hendrix, Manhattan Institute — Senate Small Business Committee, February 1, 2022

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Written testimony of Michael Hendrix, Senior Fellow and Director, State and Local Policy at the Manhattan Institute, for a February 1, 2022 hearing of the U.S. Senate Committee on Small Business & Entrepreneurship titled Review of SBA Entrepreneurial Development Programs and Initiatives. The testimony argues that SBA entrepreneurial development programs and resource partners, including SBDCs, SCORE and Women's Business Centers, are too often ineffective and duplicative. It cites resource partner costs above $180 million, SBA inspector general findings on oversight of SCORE and the WBC program, and a 2012 client survey. It contends private-sector, state and local programs offer similar services and calls for less bureaucracy, more scrutiny and consolidation of duplicative programs.

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                                                                                                              Michael Hendrix
                                                                              SENIOR FELLOW AND DIRECTOR, STATE AND LOCAL POLICY




                                                   Testimony of:
                                               Michael Hendrix
                  Senior Fellow and Director, State and Local Policy, Manhattan Institute

                                                    Hearing for:
           Review of SBA Entrepreneurial Development Programs and Initiatives
                       U.S. Senate Committee on Small Business & Entrepreneurship

                                                 February 1, 2022

Chairman Cardin, Ranking Member Paul, and Members of the Committee, thank you for the honor
of participating in today’s hearing. My name is Michael Hendrix, and I serve as a senior fellow and
director of state and local policy at the Manhattan Institute. Along with my colleagues, we seek to
advance freedom and opportunity across America’s communities.

Entrepreneurial success makes the American Dream a reality. New businesses create jobs and
foster opportunity, help build vibrant communities and empower marginalized Americans. The
Small Business Administration through its 14,000 resource partners has committed to assisting
these entrepreneurs, and they should be applauded for their worthy mission.

But my message today is simple: The Small Business Administration’s (SBA) entrepreneurial
development programs and initiatives are too often ineffective and duplicative. We must find a
better way to serve America’s entrepreneurs.

INEFFECTIVE

The track record and oversight of the SBA’s entrepreneurial development program is spotty at
best. If these programs helping small businesses were small businesses themselves, they would
have failed. And there’s too much failure to launch as it is: The rate of new business formation has
fallen by nearly half in the four-plus decades since the SBA’s establishment of its Small Business
Development Centers (SBDCs).1




1
    Business Dynamics Statistics. Census.gov. https://www.census.gov/programs-surveys/bds.html
The bill for the SBA’s resource partners is north of $180 million, a figure that’s been rising faster
than inflation, not including the $175 million for Covid-19 assistance and outreach and much more
spent on aid. Altogether, the SBA’s Office of Entrepreneurial Development spent a half-billion
dollars in FY2020 and another $300 million in FY2021 on training and counseling small businesses.
They claim a million entrepreneurs and owners being trained yearly through the Small Business
Development Centers, the SCORE mentoring network, Women’s Business Centers (WBCs), and
Veterans Business Outreach Centers (VBOCs), among others.

I’ve visited these offices. At one, located in a Colorado-based startup hub, I was told my first step
as a technology entrepreneur was to visit the library to learn Microsoft Word. And after that to
write a business plan, which I could design with Microsoft Paint and clip art. Not only was this
advice clearly out of date, but it was also out of context. Even the notion of drafting business
plans, which feature prominently in the SBA’s material, risks becoming “an old economy relic,” as
The New York Times observed seven years ago.2

Still, a 2012 survey of partner clients found the advice was generally useful.3 But when they were
asked if that same assistance meant, say, increasing profit margins or hiring and retaining new
staff, the positive results suddenly vanished—few could say that. In fact, Women’s Business Center
clients actually lost staff. And of SCORE’s 195,000 unique clients, only 480 became new
businesses.4

What makes these results worrisome is not simply that a study or two showed mixed results from
the SBA’s resource partners. It’s that there’s not much more than a study or two. The SBA and
their partners are barely keeping track of whether their work actually works. The SBA’s inspector
general found that the agency does not “accurately measure or report SCORE’s program goal
achievements” and had a limited ability to “assess whether the program achieved its intended
purpose.”5 As of a few years ago, they weren’t even tracking customer feedback (as they’re
supposed to).6 I can’t imagine they’d advise their clients to do the same.

Nor would I hope they would recommend their own management practices. Consider the recent
multi-million-dollar grant awarded by the SBA for a hub educating small businesses on federal


2
  Zimmerman, E. (2014, December 3). As start-up strategies evolve, so does role of a business plan. The New York
Times. https://www.nytimes.com/2014/12/04/business/smallbusiness/business-plans-for-start-ups.html
3
  U.S. Small Business Administration. (2012, September). Impact Study of Entrepreneurial Dynamics: Office of
Entrepreneurial Development Resource Partners’ Face-to-Face Counseling.
https://www.sba.gov/sites/default/files/aboutsbaarticle/Impact_Study_of_Entrepreneurial_Development_Resources
_2012_09.pdf
4
  Congressional Research Service. (2021, January 14). Small Business Management and Technical Assistance Training
Programs. https://crsreports.congress.gov/product/pdf/R/R41352/73
5
  Office of the Inspector General. (2019, April 25). Audit of the SBA's Oversight of the SCORE Association.
https://www.sba.gov/sites/default/files/2019-07/SBA-OIG-Report-19-12.pdf
6
  Office of the Inspector General. (2018, December 19). SBA's District Offices' Customer Service.
https://www.oversight.gov/sites/default/files/oig-reports/SBA-OIG-Report-19-06.pdf
resources available during the Covid-19 pandemic. This hub ended up helping just one percent of
the businesses it was intended to serve.7 And out of 14,000 resource partner counselors, only 62
completed any of the training intended to help them help businesses in a time of crisis.

The SBA’s inspector general has found again and again that the agency has poor oversight over its
resource partners and the taxpayer dollars they’re spending. We saw this in 2018 with the
“systemic issues with the SBA’s financial and performance oversight of multiple grant programs,”
including its resource partners.8 And in 2019, when “program officials did not effectively oversee
SCORE’s use of federal funds.”9 And again in 2021, when the “SBA did not provide effective
oversight over the WBC program.”10 Again and again, we see systemic failures in oversight and
administration on the part of the SBA and its resource partners.

Consider the example of SCORE. The inspector general found the program was susceptible to
“fraud, waste, and abuse.”11 SCORE “inappropriately solicited donations for mentoring services,”
charged for publications they should’ve been providing for free, and generally bungled funds for a
laundry list of activities. A sample of expenses found thousands of dollars being illegally spent on
booze. Worse yet, the SBA admitted that it didn’t even know how much SCORE cost to run. The
SBA promised to do better, while at the same time boasting that SCORE had been a resource
partner for more than 50 years. Why then has it taken so long to hold SCORE and programs like it
accountable?

DUPLICATIVE

The SBA’s resource partner network is duplicative, plain and simple. When the SBA and programs
like SCORE were launched, there weren’t many resources like them available—but there are now.
We see programs in the private sector helping entrepreneurs without the need for government
subsidies, similar services being provided at the state and local level, and even the same offerings
being delivered by other federal resource partners in the same neighborhood.




7
  Office of the Inspector General. (2022, January 18). SBA’s Oversight of the Grant Recipient’s Implementation of the
Cares Act Resource Partners Training Portal. https://www.sba.gov/sites/default/files/2022-
01/SBA%20OIG%20Report%2022-07.pdf
8
  Office of the Inspector General. (2021, March 30). Evaluation of SBA’s Award Procedures for the Coronavirus Aid,
Relief, and Economic Security Act Entrepreneurial Development Cooperative Agreements.
https://www.oversight.gov/sites/default/files/oig-reports/SBA/SBA-OIG-Report-21-11.pdf
9
  Office of the Inspector General. (2019, April 25). Audit of the SBA's Oversight of the SCORE Association.
https://www.sba.gov/sites/default/files/2019-07/SBA-OIG-Report-19-12.pdf
10
   Office of the Inspector General. (2021, May 4). Audit of SBA’s Oversight of Women’s Business Centers’ Compliance
with Cooperative Agreement Financial Requirements. https://www.sba.gov/sites/default/files/2021-
05/SBA%20OIG%20%20Report%2021-14.pdf
11
   Office of the Inspector General. (2019, April 25). Audit of the SBA's Oversight of the SCORE Association.
https://www.sba.gov/sites/default/files/2019-07/SBA-OIG-Report-19-12.pdf
Today, if you’d like to find a free business plan, Google gives you 3.5 billion results. The Harvard
Business Review will show you “How to Write a Winning Business Plan” alongside Google’s 57
million video results answering the same question. The Kauffman Foundation’s FastTrac program
will teach you the steps to entrepreneurial success. If you’re in need of mentoring, there’s the
Young Entrepreneurs Council, Goldman Sachs’s 10,000 Small Businesses program, Ashoka for
social entrepreneurs, 37 Angels for women entrepreneurs, and so on. This doesn’t include the
entire ecosystem of incubators and accelerators for new and small businesses of all stripes. The
SBA and its resource partners are simply not competitive with the private sector; the Small
Business Administration has been outcompeted by small businesses.

They are also facing competition from state and local governments. In New York City, where the
Manhattan Institute is based, there’s the Small Business Services agency and the Economic
Development Corporation—each with their own initiatives helping women, minority, and veteran-
owned businesses. Then there’s the city council-backed Made in NYC effort helping manufacturers
and even the New York Public Library’s Small Business Resource Centers. And I haven’t even
scratched the surface of the city’s partnerships with outside groups, such as in creating the NYC
Small Business Resource Network during the Covid-19 pandemic. What innovation might we see if
entrepreneurial support came from the states and localities closer to entrepreneurs themselves
rather than from Washington? Even so, all government entrepreneurship programs should be
subject to rigorous scrutiny and regular client feedback, at the very least.

When the SBA’s inspector general came before this committee in 2011, she had a simple message:
“Reduce duplicative business counseling.”12 The agency’s Small Business Development Centers,
Women’s Business Centers, Veteran’s Centers, SCORE Chapters—they all provide similar services,
she concluded. 13 Their websites and counselors also offer much of the same information.14 And
that’s before considering that the Commerce Department has its own Minority Business
Development Agency (MBDA) Business Development Centers, also offering the same advice. Many



12
   Statement of Peggy E. Gustafson, Inspector General, U.S. Small Business Administration.
https://www.sbc.senate.gov/public/_cache/files/c/5/c52363d2-56b9-4763-ad54-
1467200995da/0EEF09BAC155FEDF6BF6A480CA3D1435.gustafson-testimony.pdf (2011, June 16).
https://www.sbc.senate.gov/public/_cache/files/c/5/c52363d2-56b9-4763-ad54-
1467200995da/0EEF09BAC155FEDF6BF6A480CA3D1435.gustafson-testimony.pdf
13
   The SBA’s Entrepreneurial Development Program also funds, for instance, the Microloan Technical Assistance effort,
the Program for Investment in Microentrepreneurs, Native American Outreach, Entrepreneurial Development
Initiative, Entrepreneurship Education Initiative, Growth Accelerators Initiative, HUBZone, National Women’s Business
Council, Step Trade and Export Promotion, Cybersecurity for Small Business, and the FAST Partnership Program,
among others.
14
   In 2007, the Government Accountability Office (GAO) found the SBA pushing for a duplication of efforts: “We also
found that on some occasions SBA encouraged WBCs to provide services that were similar to services already
provided by SBDCs in their district.”

United States Government Accountability Office. (2007, November 16). Opportunities Exist to Improve Oversight of
Women's Business Centers and Coordination among SBA's Business Assistance Programs.
https://www.gao.gov/products/gao-08-49
of these facilities are located close to each other; for instance, 95 percent of Women’s Business
Centers are within 25 miles or less of an SBDC or SCORE office.15

BETTER WAY

Nearly 60 years of the SBA’s entrepreneurial development program has yielded questionable
results and mounting inefficiencies.16 Every new decade has brought new initiatives and new
requests for more funding, all without asking a fundamental question: is this really what
entrepreneurs need?17

What America’s entrepreneurs need is less bureaucracy, for one thing. If government wants to
help, start by cutting red tape. Having fewer top-down dictates and more local innovation. It’s in
communities across this country, after all, where we see neighbors linking and leveraging assets
into an entrepreneurial ecosystem.

This is not to say that SBDCs, SCOREs, WBCs, Veterans Business Outreach Centers, and the whole
universe of SBA programs are not impacting some entrepreneurs somewhere, or that they do not
have dedicated staff and mentors who want to help. But we should question just how much
duplication is going on and hold them accountable. Numerous voices over the years, including the
Government Accountability office, have called for merging the agency’s duplicative programs for
entrepreneurs.18 Ideally, groups like SCORE should be able to stand on their own feet without tens
of millions of dollars in federal subsidy; they should compete, just as their clients must. Ultimately,
we must ask: is the federal government best placed to offer entrepreneurs advice?




15
   And all 41 MBDA Business Development Centers are located within 25 miles or less of an SBA funded SBDC or SCORE
Chapter (or both). See: Gustafson Testimony.
16
   Or, to quote a representative of the U.S. Women’s Chamber of Commerce, “Over the last 50 years, the SBA
entrepreneurial development system has grown into a fragmented array of programs, which has resulted in a
disorganized, overlapping, and [in]efficient delivery of service through a system that is ill-prepared to effectively
address the challenges of our economy.”
Full Committee Hearing on the State of the SBA’s Entrepreneurial Development Programs and their Role in Promoting
an Economic Recovery (2009, February 11). Committee on Small Business, United States House of Representatives.
https://www.govinfo.gov/content/pkg/CHRG-111hhrg47055/html/CHRG-111hhrg47055.htm
17
   As Rep. Sam Graves noted, “The SBA has increasingly spawned its own entrepreneurial development initiatives. In
doing so, the SBA has repeatedly requested increased funding for its own initiatives while allowing funding for
statutorily authorized programs, such as SBDCs, to remain static.... I continue to question the necessity of these
initiatives given the potential overlap with both private and public sector efforts already in existence.”

SBA-Created Initiatives: Necessary or Redundant Spending? (2014, April 30). Committee on Small Business, United
States House of Representatives.
https://www.govinfo.gov/content/pkg/%20CHRG-113hhrg87751/html/CHRG-113hhrg87751.htm
18
   Dilger, R. J. (2014, May 7). Small Business Management and Technical Assistance Training Programs.
https://www.hsdl.org/?view&did=754089
While some are here today to praise the hard work of the Small Business Administration and its
partners, I believe we must reserve our highest praise for America’s small businesses and seek to
serve the entrepreneurs at their helm.

Thank you.


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