Ask any Inc. 5000 company and they’ll probably tell you that business education, mentorship, access to capital, and building solid networks are all key to creating strong, fast-growth businesses.

Numerous studies have pointed out how crucial such factors are to growth. Now the latest data from a program launched by investment bank Goldman Sachs in 2009, called 10,000 Small Businesses, seems to support those findings as well.

The program has a goal of providing up to $500 million in small business support including direct loans, educational courses, and networking opportunities. On Wednesday, Babson College, with which Goldman partners to develop the curriculum for its program, released the second annual progress report for the nearly 5,000 businesses that have gone through the program.

"We were constantly encouraged to think big, and think collaboratively, and to look for ways to identify new opportunities," says Carla Walker-Miller, chief executive and founder of Walker-Miller Energy Services, a 43-employee company based in Detroit that provides energy audit services. She participated in 10,000 Small Businesses' 10-week course in the fall of 2014.

Walker-Miller, an engineer by training who previously worked at ABB Engineering and Consulting and Westinghosuse, said her company, which she founded in 2000, grew quickly in the years leading up to the financial crisis.

"We had eight great years, and then almost died in years nine and ten," she says.

Walker-Miller says she learned about the Goldman program through the Detroit Economic Growth Corporation. The curriculum, which included a deep dive into financial statements as well as marketing and leadership courses, helped her rethink her business. She decided to shift away from equipment like circuit breakers and transformers, which she sold to public utilities prior to the recession, to energy audit services, which can be sold regardless of the economic cycle. She says the curriculum and mentorship she received also helped her reassess her network of business contacts, leading her to find lucrative opportunities doing energy audit work as a subcontractor for big businesses such as Siemens USA and Johnson Controls.

Over the course of the last year, Walker-Miller says, she’s added 18 employees and increased year-to-date revenue 50 percent to $5 million.

Program success

It’s hard not to be cynical about Goldman’s involvement with small businesses. The white-shoe investment bank caters primarily to the super-rich and re-chartered as a bank holding company in 2008 in order to access government bailout money following the mortgage meltdown, in which it played a well-publicized role. The fallout from the crisis led to a credit market freeze-out for small business owners that has only recently thawed.

In keeping with its new charter, Goldman in recent months has repositioned itself with a stronger focus on less wealthy clients, for example announcing plans to offer consumer loans online. (Goldman did not make a company representative available to comment for this story.)

Nevertheless, Jill Kickul, director of New York University’s Stern Program in Social Entrepreneurship, says Goldman is providing capital and educational resources in a pretty safe area, and one where it's likely to succeed. While the program is available to any business that’s at least two years old and has $150,000 in annual revenue and four full-time employees, the businesses getting funded are quite a bit more mature. They had a median age of 11 years, revenues of $692,000, and 11 employees, Babson reports.

What’s really needed, Kickul says, is a program that addresses the funding issues companies experience in their early days.

"Eighty percent of businesses fail within their first two years of existence,” Kickul says. “It would be interesting to get Goldman to develop curriculum and address the capital gap between the startup phase and a company’s tenth or eleventh year."

Still, Goldman has followed through with its commitments to small business. By contrast, competing investment bank Morgan Stanley, which also re-chartered as a bank holding company following the financial crisis to get government bailout money, similarly launched a program in 2011 to provide $500 million worth of small business loans. It’s unclear how much lending that program actually did, and a Morgan Stanley spokesman was unable to provide information by deadline. (While the banks are competitors, it's hard to know why they pledged the same amount of assistance; however, as bank holding companies, both faced greater regulatory scrutiny, including of their capital requirements and lending.) 

And Goldman’s success rate with its businesses seems impressive. Through 2014, three-quarters of its businesses had grown their revenues within 18 months of participating in the program and two-thirds had increased their revenues within the first six months, according to the Babson report. What’s more, 57 percent added employees in the 18 months following the program.

By way of comparison, 45 percent of businesses surveyed by the National Small Business Association in its annual report for 2014 increased revenues for the year, and just 22 percent of businesses added employees.

The effect of capital

The program participants’ successes demonstrate just how critical accessing capital is for entrepreneurs. While just 12 percent of participants have gotten financing, 81 percent of those who did increased their revenues, compared with two-thirds of those who did not. Just as important, companies that got financing increased their employee base 73 percent on average, compared with a job-growth rate of just 40 percent for companies that did not get financing.

So far, Goldman has committed $160 million, of which $100 million has been made available through 25 community development financial institutions, or CDFIs, which are nonprofit lenders with a community development focus. The average loan size is $200,000. The firm also has lined up a list of prominent partners, including investor Warren Buffett, former New York City mayor Michael Bloomberg, and Harvard business professor and management guru Michael Porter.

In fact, the Goldman program bears many of the hallmarks of Initiative for a Competitive Inner City, a Porter brainchild that launched in 1994 with the goal of supporting urban, minority-owned small businesses. The ICIC also has a program that connects entrepreneurs to financing and education, although its businesses tend to be a bit more mature, averaging about $2 million in annual revenues. That program has helped inner-city businesses raise $1.2 billion in capital, primarily through banks, and produce close to 11,000 jobs since 2005.

ICIC is helping Goldman find its yearly roster of program candidates as well. "Their businesses are at a different stage, but we think there is a potential pipeline [for ICIC]," says Matt Camp, president and chief operating officer of ICIC.

Meanwhile Walker-Miller says she's is getting ready for her company's next phase of growth. That includes applying for a loan of up to $1 million from Invest Detroit, a CDFI through which Goldman provides financing, to build a company headquarters that will be net zero, meaning it will produce as much energy as it consumes. The building will create needed assets for the business, and act as a showcase for her services, she says.

"One of the things I’ve learned is that there is an appropriate time to ask for financing, and that might vary by the state of the business," Walker-Miller says.

Published on: Jul 8, 2015