For 14 years, Dan Berkon's entire business has relied on government contracts.
His Alexandria, Virginia-based company, Culmen International, assists the federal government with a variety of security needs, ranging from counterterrorism training to procuring "crucial equipment" for border and nuclear security purposes. He's never wanted or needed commercial clients. After the recent 35-day partial government shutdown--the longest in U.S. history--sidelined 20 percent of his roughly 250-employee workforce, he's reexamining that.
"We're a mission-oriented company," says Berkon, who is reluctantly considering diversifying Culmen--a seven-time Inc. 5000 honoree that pulled in nearly $43 million in revenue in 2017--by lining up non-governmental firms as customers. "Why we get out of bed every morning and come to work is because we believe in these missions that we're supporting for the government, so for us to really diversify away from a federal to a consumer base isn't really what we're about."
Still, for entrepreneurs like Berkon, the latest shutdown has been eye opening--revealing kinks in an otherwise well-oiled machine. Perhaps the business isn't diversified enough, and employees can't easily transition between projects because they lack training or the proper security clearance. Wherever the weak links are, many founders say they aren't waiting around for another shutdown--which could happen as soon as February 15, the day the current stopgap bill expires--to fix them.
"If [the government] ends up shutting down again in February, it will be tough," says Berkon, who paid his employees salaries in full during the shutdown and shaved about $250,000 off his company's profits in the process. He hasn't finished running the numbers, but he estimates he will have lost up to $500,000, or roughly 1 percent of his company's full-year revenue. "It's one thing not to get the money. It's another thing not to get the money but then also have the expense."
Coming Up With a Contingency Plan
That was the case for Yousif Mostafa, the president and CEO of Digital Global Connectors, a cybersecurity company based in Chantilly, Virginia. He also paid his entire 22-person staff during the shutdown. His firm works with federal agencies including the U.S. Food and Drug Administration and the United States Agency for International Development. The former was mostly closed during the 35-day standoff on Capitol Hill, which arose after President Trump refused to sign any spending bill passed by Congress that did not include $5.7 billion to build a wall along the U.S. southern border. Mostafa, whose business made more than $1.6 million in 2017, says he expects to lose from 7 to 10 percent of his annual revenue because of it.
He is now crafting a new contingency plan designed to avoid similar losses in the future. Previously, Mostafa was solely focused on having enough cash on hand to cover payroll for a couple of months, if needed. "Having a relationship with your banker is important," he says. Now, he's starting new security clearance processes for a few of his employees, so he'll be able to easily move workers from one contract to another when necessary. He's also putting in place new financial protocols. In the event of another shutdown, the company first will cut back on its annual marketing budget--and risk missing a business opportunity down the road--before asking employees to take leave.
"You want to do the right thing from the human standpoint, but it's also a business decision," says Mostafa, who co-founded the company with his wife in 2012. "Strategically, turnover is very costly and time-consuming, especially in cybersecurity. You need to take that into consideration as a business."
Cross-training employees is also high on Brian Chaney's contingency planning to-do list. He's the president of TACG, a Beavercreek, Ohio-based company that offers IT, supply chain, and health care management services to the federal government. Chaney says his staff's continuing education plans--which feature courses in specialized topics like cybersecurity or health care--are usually spread out between 12 and 20 months. He is now working on a new process that would accelerate that pace.
"We know we can't control it," says Chaney, referring to the prospect of another shutdown. The former acquisitions and contracting officer for the Air Force says TACG, which pulled in nearly $25 million in revenue in 2017, used to be "very dependent" on a single government client. Since he came on in 2012, he's worked on broadening its client list, looking at opportunities across other federal agencies, local and state governments, and commercial clients. (TACG has been an Inc. 5000 honoree the past three years.) Diversify, he recommends, because "your sphere of influence as a single business owner is definitely not big enough to control the government."
Truth and Transparency
There's no doubt contingency plans may provide solace to business owners, and may even curb money drains for the business. There's no guarantee they will do the same for current--or future--employees, however.
Corliss Udoema, founder and CEO of Manassas, Virginia-based Contract Solutions, a company that provides staffing services for project management, court reporting, and IT-related jobs, says hiring is becoming problematic due to the political standoffs. During this past partial government shutdown, one of her newest employees resigned. Udoema, whose business has landed on the Inc. 5000 list twice--in 2017, its revenue hit $3.9 million--says she is struggling to fill not only that position, but another critical role as well. "I've never had any problems trying to recruit people. Now? I don't know," she says with a sigh.
This year, Udoema estimates Contract Solutions will lose about 4.6 percent of its annual revenue because of the shutdown, but she says that is nothing compared with other "intangible" effects. "People don't want to come work for us because they're afraid of the shutdowns," she says. "How do you put a price on that?"
Still, her hiring strategy is to be up front about the risks. "I believe in being truthful and transparent: TNT," she adds, cautioning candidates that she "can't make any guarantees." And while she is disheartened by her new-found difficulties in recruiting, Udoema remains focused on her business and staff. For one, she is planning to offer personal finance classes to her employees sometime between the second and third quarters of this year. That way they can learn about smart savings, investment strategies, and other related ideas. "The shutdown is not going to shut me down," she says.
As for Berkon from Culmen International, he is exploring whether to build in a bigger cash cushion in case of future shutdowns. He's also planning on checking with his government clients into the possibility of telecommuting when the agencies are partially closed. That way his employees can continue to work from home, even if workers can't access shuttered federal buildings.
Ultimately, he hopes these plans will help the company keep working with the government exclusively. "We're here to support these national security missions that we exist to support," says Berkon. "It's what we do for a living."