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23–180 PDF 2005

SMALL BUSINESS DEVELOPMENT CENTERS: NEW

OFFERINGS FOR A NEW ECONOMY

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC, JULY 13, 2005

Serial No. 109–25

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

Gangi, Mr. Rich, President, American Trim Manufacturing ............................... 4

Naranjo, Ms. Norma, Owner, The Feasting Place ................................................ 6

Conroy, Mr. Christian, Associate State Director, Pennsylvania Small Business 

Development Center, Wharton School, University of Pennsylvania ................ 8

Kauten, Ms. Erica, State Director, Wisconsin Small Business Development 

Center, University of Wisconsin ......................................................................... 10

Chrisman, Dr. James, Ph.D., Professor of Management, Department of Management and Information Systems, College of Business and Industry, Mississippi State University ..................................................................................... 12

APPENDIX

Opening statements: 

Manzullo, Hon. Donald A. ................................................................................ 25

Sweeney, Hon. John E. .................................................................................... 27

Fitzpatrick, Hon. Michael G. ........................................................................... 30

Udall, Hon. Tom ............................................................................................... 33

Brady, Hon. Robert A. ...................................................................................... 35

Prepared statements: 

Gangi, Mr. Rich, President, American Trim Manufacturing ........................ 37

Naranjo, Ms. Norma, Owner, The Feasting Place ......................................... 40

Conroy, Mr. Christian, Associate State Director, Pennsylvania Small 

Business Development Center, Wharton School, University of Pennsylvania .............................................................................................................. 43

Kauten, Ms. Erica, State Director, Wisconsin Small Business Development Center, University of Wisconsin ........................................................ 50

Chrisman, Dr. James, Ph.D., Professor of Management, Department of 

Management and Information Systems, College of Business and Industry, Mississippi State University ................................................................. 56

(III) 

(1)

SMALL BUSINESS DEVELOPMENT CENTERS: 

NEW OFFERINGS FOR A NEW ECONOMY 

WEDNESDAY, JULY 13, 2005

HOUSE OF REPRESENTATIVES

COMMITTEE ON SMALL BUSINESS

Washington, DC 

The Committee met, pursuant to call, at 2:00 p.m. in Room 2360, 

Rayburn House Office Building, Hon. Donald A. Manzullo [Chairman of the Committee] presiding. 

Present: Representatives Manzullo, Fortenberry, Velazquez, and 

Udall.

Chairman MANZULLO. Good afternoon. I would like to welcome 

everybody to the Committee’s hearing on the Small Business Development Center, known as the SBDC program. Small Business Development Centers are located in every State associated with the 

American Higher Education System, and provide invaluable advice 

to entrepreneurs. 

Today’s hearing focuses on four bills designed to provide additional focus for the delivery of services by SBDCs to America’s 

small businesses. In 1980, the Senate Small Business Committee 

determined that the provision of advice and services to small businesses should follow the cooperative extension model. 

Congress created the SBDC program to take advantage of the 

knowledge and the dissemination capability of America’s colleges 

and universities. The interim 25 years have seen more change in 

the American economy than occurred during the 75 years between 

the establishment of the Cooperative Extension Service and the establishment of the Small Business Development Program. 

Small businesses today face new challenges in an increasingly 

global economy. In addition to market challenges, small businesses 

must cope with a regulatory regime far more complex than any 

during the country’s history. 

The Committee must examine whether the Small Business Development Center programs will be even more effective because of 

the new tools offered by the bills we are considering today. 

Today’s hearing will consider four bills that make modest adjustments to the SBDC program. Each bill is designed to offer targeted 

services and assistance by a select group of small business development centers. 

Mr. Sweeney’s bill would provide additional resources for regulatory compliance counseling. Mr. Udall’s bill would improve access 

to SBDCs by the rapidly growing population of Native American 

small business owners. 

2

Mr. Brady’s bill would ensure that SBDCs begin educating our 

vocational and technical students about entrepreneurship. These 

bills have been routinely approved by overwhelming margins in the 

Committee and House during the past two Congresses. 

My goal is to act again in a similar bipartisan manner in order 

to prod the Senate into finally passing these noncontroversial 

measures. Finally, Mr. Fitzpatrick’s bill targets assistance to socalled gazelles, small businesses that are facing rapid growth and 

create most of the new jobs generated by small businesses. 

This bill would use the SBDC network to help establish peer 

learning opportunities so that these dynamic small firms can solve 

business problems in a cooperative dialogue among their colleagues. 

I look forward to working with the members to ensure prompt 

passage of the legislation, and I recognize the ranking member of 

our full Committee, the distinguished gentle lady from New York, 

for her opening statement. 

[Chairman Manzullo’s opening statement may be found in the 

appendix.] 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. At a time when our 

economy continues to struggle through an economic recovery, with 

40 thousand less jobs created last month than expected, it is clear 

that today’s environment is not conducive to our Nation’s entrepreneurs. 

Small businesses are the main job creators and are capable of 

turning these payroll numbers around if they have the right tools 

to do so. Clearly, aspiring entrepreneurs require management 

skills, organizational skills, and technical assistance, all of which 

are provided by the Small Business Development Centers. 

The SBDCs have the proven record of spearheading entrepreneurship and economic development. In 2003, long term counseling 

clients by SBDCs generated over 56 thousand new jobs. Studies 

have shown that for every dollar spent on SBDC services the program returned nearly three dollars to the Treasury. 

Despite all of the benefits that this program provides not only to 

small businesses, but also to our economy, the Administration has 

effectively cut this program by over 30 percent in the last five 

years, when compared to the overall government spending during 

that time. 

If you look across the country, over half of the States are feeling 

the effects of these cuts. For example, the State of Illinois will receive $156 thousand less in Fiscal Year 2006 than it did in Fiscal 

Year 2001 through the SBDC program. And New York will receive 

$403 thousand less. 

While the number of businesses only continue to grow throughout the country, States are receiving less for their SBDC programs. 

These cuts are clearly having an effect. For the first time in five 

years, the number of client hours of SBDCs has decreased. 

This is not because the demand is not there. Businesses are waiting in line for these services. It is because the funds are not there. 

While we are here to talk about some new enhancements to the 

program, the truth is that these discussions cannot take place until 

we examine the glaring funding shortfall. 

3

Clearly, this proposal sounds great, and who will find fault in 

steering business expansion, providing regulatory assistance, or 

helping Native American entrepreneurs. In fact, three of these bills 

have already passed in the House during past Congresses. 

We also review a new initiative, H.R. 3207, which is targeting 

larger businesses. Our intent is not only to maximize the role of 

the SBDCs, but to ensure that any changes to the program do not 

take it beyond its scope, which is to help small businesses. 

While we are here to discuss and evaluate these new initiatives, 

how are they ever going to reach their true potential if we continue 

to inadequately fund the underlying programs. It simply makes no 

sense. 

If the Administration is truly committed to SBDCs, they need to 

stop talking about the loans and contracting opportunities, and all 

of the other regularly field press releases, and start facing up to 

the question of are you going to fund this great program. So far the 

answer is no. 

The SBDC program enables entrepreneurs to take communities 

from poverty to prosperity. It is this program and the SBDC employees who are on the front lines talking to and serving our Nation’s entrepreneurs every day, providing them with the necessary 

skills that they need to keep our economy growing. 

The thanks that we are given is insufficient funding. These are 

the same people that fill waiting rooms every day, and know firsthand the challenges in offering their services to entrepreneurs because of the lack of funding. 

Today is an opportunity to truly access the current conditions 

facing SBDCs. This is only the third time that this Congress and 

this Committee has held a hearing under its jurisdiction, which is 

clearly a contributing factor to why this agency is in such a state 

of disarray. 

Once again, this is an incomplete hearing. There is no one here 

from the Administration to explain why the SBDC is receiving insufficient funds. More and more it is evident that this Administration is allowed to skip this hearing because they won’t be able to 

answer the questions, such as how will they turn around the job 

and client hours, and why isn’t the Administration providing the 

resources that will enable SBDCs to perform at their fullest potential, and what are they doing to help develop small businesses. 

Unfortunately, this Administration has promised a lot, and delivered little to this Nation’s entrepreneurs. If we want to move forward and provide new initiatives and strengthen the hours of our 

SBDCs, then this Administration and this Committee must start 

backing up its rhetoric with some action. And the first step is by 

providing adequate funding. Thank you, Mr. Chairman. 

Chairman MANZULLO. Thank you. Our first witness is Mr. Richard Gangi, and Mr. Gangi hails from Durham, New York. Have 

any of you testified before Congress before? Is this your first time? 

Okay. 

There is a red light there, and the light system is that green is 

go, and yellow is where you have one minute, and when it is red, 

then the gong comes. So if you could follow that as close as possible. 

4

What we are interested in is your personal stories as to the impact of the legislation, et cetera. Gangi. Is that Italian, like Manzullo? 

Mr. GANGI. Yes. 

Chairman MANZULLO. Then I should know how to pronounce it 

then. Okay. We look forward— 

Mr. GANGI. Wait a minute. Man— 

Chairman MANZULLO. Manzullo. That is correct. I had Ms. 

Naranjo spelled out phonetically. 

Ms. NARANJO. Naranjo. 

Chairman MANZULLO. It did not do me any good did it? 

Ms. NARANJO. No. 

Chairman MANZULLO. We look forward to your testimony. Go 

ahead. 

Mr. GANGI. Shall I start? 

Chairman MANZULLO. Yes, go ahead. 

STATEMENT OF RICHARD GANGI, AMERICAN TRIM 

MANUFACTURING 

Mr. GANGI. My name is Richard Gangi, owner and president of 

American Trim Manufacturing. I would like to take the opportunity 

to thank Chairman Manzullo, and ranking member Nydia Velazquez, and the Committee on Small Business of the United States 

House of Representatives for me to offer my testimony here today. 

I would also like to show my full support for Representative 

Sweeney’s proposal on the H.R. 230. I am putting down my prepared statement, and I really want to talk from my heart. 

Chairman MANZULLO. All of the prepared statements will be 

made a part of the record without objection. Go ahead. 

Mr. GANGI. We are truly a small business. My dad was an immigrant from Africa, and retained citizenship, country of origin, was 

Italian, and he came to this country in 1929, and started a business by the name of Sedaga, and literally built it up from a nothing 

company to a company that is well respected in the world for nomenclature of particular fabrics. 

We later bought it, myself, bought it, and changed the business 

name and doing business as American Trim. We are a small company. Three years ago, we were employing nine people, and we 

have now grown in the last three years to 58 people. 

Myself, along with two sons, Rick and Dan, run the operation, 

and we have a real difficult task in competing with the world market today. The imports, the outsourcing, and anything that has to 

do with killing American small business is happening. We have got 

to fight every day for what we need and for what we have to get. 

This bill that Representative Sweeney has prepared and is proposing I think is a needed bill. It gives us the background and it 

gives us the support laterally to be able to call on these people to 

understand what OSHA is, and what DEP, and EPA is, and things 

of that sort. 

We can’t really and we do not have the resources to be able to 

sit down, and analyze these hundreds and hundreds of pages of 

where we fall, and our rights, and our wrongs. The Greene County 

Development of Greene County has been very helpful tome in the 

last two years, and the NYSBDC has been extremely helpful. 

5

They have guided us and shown us, and brought in people who 

can help us with our computer system, and they have given us 

wonderful ideas in business, and per se, our contact gentleman is 

Larry Larson, who has done a wonderful job for us. 

We have had in our office Senator Seward, and he is absolutely 

delighted at our progress and our growth, but we need help. Every 

drop of help that we can get from the government, from the State 

government, is needed. We are not a big business with resources 

to be able to contact people, or hire lawyers, or prepare statements, 

or delve into that. 

Our staffs are small, and our business is growing, and we really 

have to pay attention to where we are going and how we approaching it. Our competition is overseas. This is where we need the help. 

We need as much help from you people as we can get. 

The business climate in our industry is devastated. We are losing 

every day. The furniture industry, I just came back from my trip 

yesterday from High Point, and they are petrified. They are overseas. Even the people that own the company that are over there 

still don’t know where they are going and what they are going to 

do. 

You speak of losing jobs in this country. We are hiring. We are 

proud to say that we are hiring. We are a company that has been 

growing and will grow. We have an initiative of designing and 

building our own equipment. 

We actually construct and manufacture yarns that we use in our 

products, and we are on a pattern of growth. But every bit of help 

that we can get from the NYSSBDC, and any organization such as 

this that can help us, and give us that pat on the back, to inform 

us. 

As a small businessman, I have not had time to delve into what 

programs are available for us. I have not had the luxury of being 

able to say that I have gone to the State. Actually, they have been 

brought to me by the Greene County people, and it was a wonderful find. 

The people up in Albany are doing a great job. They are helping 

us, and they have given us grants for training our people on computers, and for a small business, we are a big-hearted business. 

But in closing, I would like to thank the Committee for inviting 

me here today, and I do terribly support strongly Representative 

Sweeney’s H.R. 230 bill getting passed, and it will be a great help. 

I appreciate your time and thank you very much for inviting me 

here today. 

[Mr. Gangi’s testimony may be found in the appendix.] 

Chairman MANZULLO. I want to thank you very much. We held 

a hearing about a year ago on furniture and the threat from China, 

and maybe a year-and-a-half ago, and at that time, China had a 

40 percent market of case good furniture, and now it is well over 

50 percent, and I appreciate your concern on it. 

Our next witness is Ms. Norma Naranjo. 

Ms. NARANJO. Naranjo. 

Chairman MANZULLO. Well, then my phonetic is wrong. Ms. 

Norma Naranjo, the owner of The Feasting Place, in Fairview, New 

Mexico. We were down there for a hearing about three years ago, 

6

and we uncorked the mess at Los Alamos. It was a very interesting 

time, and we look forward to your testimony. 

STATEMENT OF NORMA NARANJO, THE FEASTING PLACE 

Ms. NARANJO. Thank you. Good afternoon, Mr. Chairman, and 

members of the board. I would like to thank you all for inviting me 

here today to give this important testimony. I am here today because this important bill is of great importance for me and for my 

Native people. 

I feel that Native American people need to be—have this SBDC 

establishment because we are able to become better entrepreneurs, 

and we will be able to become better business people. I am a member of the San Juan Pueblo Tribe in Northern New Mexico, and 

prior to owning my business, The Feasting Place, I was a U.S. 

Navy Vietnam veteran. I was also a commissioned officer with the 

U.S. Public Health Corps as a social worker. I feel that I have 

served my country, and now I am asking you, Mr. Chairman, and 

members of the board, to serve Indian country by supporting this 

bill. 

I feel that the SBDC in Espanola, New Mexico, has really given 

me a second career. I feel that they helped me over the hurdles of 

becoming a business woman, and without them, I would not be 

here today giving you this testimony. 

I feel that I am a proud owner of The Feasting Place in San Juan 

Pueblo. They have given me the help that I needed, and which I 

had no knowledge of. I had no knowledge of how to become a business person. 

And they have given me the help and support, and the confidence and encouragement to become this small pueblo person that 

knew nothing about becoming an owner. They helped me with the 

establishment of coming into my home and teaching me the marketing skills, critiquing my business, by coming in and helping me 

with my business brochures, and those types of things which are 

really critical and crucial in really starting up a small business. 

I live in Northern New Mexico, which is a very rural area, and 

I feel that the Small Business Development Centers came in and 

really understood my talent. My business is very unique, and I will 

go into that in a minute. 

But they understood my talent, and I feel that as Native Americans that we have beautiful talents to offer. We were at the museum this morning and I saw all the talent that there is, but we 

need the other side to make this happen as a business. 

And without the Small Business Development Center, I feel that 

this can’t happen. We need the education, and we need the services 

that are valued. I feel very blessed that Julianna Barbee, who is 

the Director of the Small Business Development Center in 

Espanola, New Mexico, has given me this. 

My business, called The Feasting Place, is nested in San Juan 

Pueblo, New Mexico. It is out of my home. The reason why my 

business is very unique is because I offer Native American authentic cooking classes, and I offer Native American baking classes out 

of my Home. 

It is a beehive adobe hut that we do our baking out of, and I 

have had many people throughout the world come into my kitchen, 

7

and learn about baking, and about cooking. But they have not only 

taken away what they have baked, or what they have learned how 

to cook, but they have taken away a wonderful experience as to 

how our native people live, our traditions, our way of life. 

And they have taught me and left me with those wonderful experiences, and it has been just wonderful to see and to experience 

how people live. Especially in this day and age how we don’t support that, and I feel that the SBDC has really given me the help 

of being profitable in a very short time. 

I have—and to some people it may be peanuts, but to me it is 

important that I have hired one full-time person and five part-time 

people at peak season. And to me that is important, that I am able 

to help my native people. 

And the SBDC has given me great exposure as well. If you look 

in the SBDC webpage, you will see my name there, and that I was 

chosen as business person of the year. I am very proud of that. 

And with that, I have gotten great exposure to the point where 

I have gotten many calls from magazines, and from newspapers, to 

hear my story. I got a call a couple of weeks ago from Gourmet 

Magazine. I am very proud of that and that there may be a featured story on my business. 

So there is success in SBDC. You start small, but as time goes, 

you grow. I feel so, so proud to be here to give you this story. And 

they have given me a lot, and I know that my time is getting shorter, but they have also given me—and we are able to collaborate 

with Native American clients. 

We are able to collaborate our services in terms of marketing 

ourselves with each other. There is a group called the ‘‘Ancient Storytelling,’’ which is also a client of the SBDC. They are going out 

to the trade shows out in Europe, and next week, they are going 

to Japan. I am part of their marketing service, because I am part 

of the tour. 

So I feel very blessed that we have this small office in Espanola, 

New Mexico, but yet we can become very global. I feel that with 

the services that are expanding through my business, and I am 

going to be doing a cook book by the year 2006, and with the help 

of the SBDC, they will help me market my book. 

And they will continue to support me by upgrading my brochures, and giving me the support that I need. So I feel that this 

is a very valuable bill that needs to be supported. So I wanted to 

thank you for having me here today, and I know that I will continue to be successful with the help of the SBDC. 

And I just want to end by saying that any time any of you are 

in Espanola, New Mexico, feel free to stop by The Feasting Place, 

and I can guarantee that you will have a wonderful Native American experience. With respects, thank you very much. 

[Ms. Naranjo’s testimony may be found in the appendix.] 

Chairman MANZULLO. I am getting hungry listening to you. I 

would like to order at least two of those cookbooks, one for Ms. 

Velazquez and one for myself. 

Ms. NARANJO. No problem. 

Chairman MANZULLO. And I need an advanced order on them 

and that is exciting. Thank you so much for your testimony. 

Ms. NARANJO. Thank you. 

8

Chairman MANZULLO. Our next witness is Mr. Christian Conroy. 

He is the Associate State Director of the Pennsylvania Small Business Development Centers, The Wharton School, University of 

Pennsylvania, and we look forward to your testimony. 

STATEMENT OF CHRISTIAN CONROY, PENNSYLVANIA SMALL 

BUSINESS DEVELOPMENT CENTER, WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA 

Mr. CONROY. Good afternoon. Thank you, Mr. Chairman, and 

ranking member Velazquez, for inviting me here to testify on H.R. 

527, the Vocational and Technical Entrepreneurship Development 

Act. A very common third type of entrepreneur is a little bit different from the two folks that you have heard testify so far today, 

folks who are looking to start a business based upon a skill or 

trade that they have. 

If you own a home or a car, you think of your auto mechanic, or 

your electricians, or your contractors, or anybody like that that you 

deal with. And that is not surprising. What is surprising though, 

I think, and I think maybe what is important, is that our vocational educational system is not really doing anything at this point 

to teach folks how to be a small business owner. 

They are focused on teaching people a skill or a trade, which 

they are very effective at, but they are not doing anything to teach 

them how to be a small business owner. And if you look at the 

measures that are used to evaluate the success of vocational education, that won’t be surprising. 

Those measures don’t include anything about being a business 

owner and about being an employer. Currently, when graduates of 

vocational programs decide to make the move to self-employment, 

which many will do, they find that starting and managing a firm 

requires a very different set of skills than those that they acquired 

from training at a vocational school. 

Many who are attempting to make this move are ill-prepared and 

regrettably too many will fail, and there is no reason for these students to fail as entrepreneurs when we have the resources that can 

help them to succeed. 

I firmly believe that the best resource available with respect to 

entrepreneurs nationwide who are interested in starting a new 

business is the Small Business Development Center program. I am 

not going to get into the details on the impact of the program since 

Dr. Chrisman is going to be talking about that in a few moments. 

But I am sure after you have heard his testimony that you will 

agree that the record of impact of this program is impressive. But 

the thing is, our resources are such that we cannot meet the demand for assistance in starting businesses, because the SBDCs are 

operating at capacity. 

Therefore, if the SBDCs are to serve more potential entrepreneurs, they must transfer our knowledge of the entrepreneurial 

process to those educational systems having the capacity to educate 

a much larger segment of the population than we can currently 

serve. 

The vocational education system is chosen as a starting point, because it is a system that is market based, and it is one through 

which a significant number of potential entrepreneurs will pass. 

9

Yet, with some isolated examples, very few of these schools currently provide any cohesive curriculums on small business management. 

The vocational educational system was also chosen based on the 

SBDC’s past relationship with these institutions, and I will give 

you two examples. The Kutztown University Small Business Development Center has a very strong partnership with the Thaddeus 

Stevens College of Technology, which is a post-secondary school in 

Lancaster, Pennsylvania. 

Every two months the SBDC offers its four week business planning for success course at the school, and approximately a hundred 

students throughout the year will attend that course. 

As the SBDC also operates an outreach office directly in the 

school, SBDC staff are frequently asked to speak during Stevens’ 

classes. The location of the outreach office at the school also enables students who are considering starting their own business the 

opportunity to work one-on-one with an SBDC consultant to further explore their business dreams. 

In Northeast Pennsylvania, the University of Scranton SBDC is 

frequently called upon by teachers from schools such as Johnson 

Technical College, Northhampton Community College, and the 

McCann School of Business and Technology, to speak to students 

on the option of self-employment. 

During their time in the classroom, SBDC staff not only discuss 

what is involved in starting a business, but they also tailor their 

programs to provide specific information, trends, and demographics 

particular to the industry that the students are studying. 

While these two examples demonstrate how a partnership between the SBDC and vocational schools can be valuable, it is important to note that these joint programs are not occurring as part 

of a systematic formal program. 

Because of resource constraints, the SBDCs are not able to provide in-depth, ongoing educational or consulting services as part of 

the curriculum taught at these and other vocational schools. 

Nor do the SBDCs have the resources to provide training to vocational school teachers on how to incorporate small business management topics into their course curriculum. This bill will provide 

funding for the SBDCs to enable us to establish programs with 

more vocational schools. 

The primary benefit of this bill is that students graduating from 

both vocational and technical schools will not only be skilled in a 

particular trade, but will be armed with the knowledge and tools 

relevant to building a successful business in their field. 

As a result, you can expect to see more trades-people start and 

grow successful new businesses across the country. We feel that 

this bill represents an excellent vehicle to combine the resources of 

two well established, proven programs, to begin to make entrepreneurial education available to a larger pool of prospective business 

owners, if provided the resources to do so by Congress. Our economy and our communities depend upon it. I urge the Committee’s 

approval of this bill. Thank you. 

[Mr. Conroy’s testimony may be found in the appendix.] 

Chairman MANZULLO. Our next witness is Erica Kauten, formerly the State Director of the Wisconsin Small Business DevelopVerDate 0ct 09 2002 19:08 Nov 15, 2005 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 G:\HEARINGS\23180.TXT MIKE
10

ment Center, the University of Wisconsin Extension. I am sorry, 

still there. 

Ms. KAUTEN. Yes, still there. 

Chairman MANZULLO. Since 1995, managing business and industry outreach at the University of Wisconsin systems. The top part 

of my Congressional District touches your State. 

Ms. KAUTEN. That is right. 

Chairman MANZULLO. So, we look forward to your testimony. 

STATEMENT OF ERICA KAUTEN, WISCONSIN SMALL BUSINESS 

DEVELOPMENT CENTER, UNIVERSITY OF WISCONSIN 

Ms. KAUTEN. Thank you, Chairman Manzullo, and ranking member Velazquez. I am very pleased to be here today to be able to 

present both Wisconsin and a new program for second stage entrepreneurs. 

I am the State Director of the Wisconsin SBDC, and I find it particularly significant that I am here today at the same time actually 

when in Madison, Wisconsin, we are holding a memorial service for 

Gaylord Nelson, the actual founder and originator from the House 

of the Small Business Development Center. 

So it is again my pleasure. The SBDC in the State of Wisconsin 

operates through all of the University of Wisconsin four year campuses, and we also have three specialty centers, one of which specializes in market feasibility and product innovation; and the other 

one in prototype design, and the other one in taking tech transfer 

opportunities from the private sector, and offering them to small 

businesses. 

We are in our State the largest provider of small business services around. We, two years ago, were charged to take a leadership 

role and to provide a strategic planning session for economic development, and in particular for entrepreneurship in our State. 

And we did that by assembling 40 leaders from the business community, and also from the economic development community, and 

putting them on a bus for six hours going to Chicago. 

We asked them to give up some of their weekend, and we conveyed a strategic planning session at the Edward Lowe Foundation 

in Casapolis, Michigan, and the Edward Lowe Foundation is one 

that centers all of its resources on entrepreneurs, and in particular 

second-stage entrepreneurs is a term that they have coined to identify entrepreneurs, and distinguish those that are starting on the 

new venture side, and those that are more experienced, and are 

ready to grow, and have both the intent and the capacity to grow. 

We ended up at that facility, and we came away from there after 

a day-and-a-half with two charges, one of which was that we were 

going to redouble our efforts to work with more businesses in the 

State of Wisconsin. 

And we have really been using collaboration with other partners 

that I think in a way has exploded what we have been able to do. 

Additionally, we thought that it was time for us to identify a market segment that we felt that we heretofore not paid as much attention to as we might have. 

And one that has statistically and by research shown to have the 

greatest job growth and the greatest ability to grow outside of the 

11

communities, and those are that category that we are calling second stage. 

I want to be careful and identify that group not as large businesses. They are in no way large. They are much represented by 

many of the same small businesses that we serve on a regular 

basis. 

And in my testimony, I identified 4 or 5 of those businesses, and 

I would just like to give you a profile. One of them produces sweet 

and dried cranberries in the Central Wisconsin area, but does it 

nationally and internationally. 

Another one in our Madison area is a biotech firm, and another 

minority-owned business in Milwaukee that provides hydraulic 

analysis. Another cyber-defense agency in Wisconsin Rapids, which 

is a community of about 10 thousand, is a company that actually 

improves security to both the government and to commercial services. 

That CEO found me just after I came off of the plane today just 

to make sure that I had his opinion as part of my thinking, and 

to try to reinforce how significant this particular learning experience has been to him. 

Now, the SBDC, as the Committee well knows, has been in the 

educational business for 25 years and primarily we do counseling 

one-on-one, sitting down with clients, and working with those much 

in the line of what our former testimony identified. 

We also do training. With the help of the Edward Lowe Foundation, and trying to better identify what this new segment was looking to us to help them with, in terms of a new educational experience, we found that both a classroom and a consulting kind of relationship was not the optimal way to learn for this particular segment. 

They identified that they really wanted to learn from each other, 

and there are many of those kinds of peer learning roundtable activities going on both in the private sector and probably many of 

which are in your States. 

What I think significantly differentiates this program from those 

is two points. One, for example, is that we have been able to be 

successful. We have 11 groups going on the State now, and we have 

less than one year of operation. 

We have been able to identify and put together groups in communities that the private sector has attempted to find groups in, but 

has not even after putting in one case $40 thousand in marketing 

efforts towards it. 

And it has not found the density that it needed to put a group 

together. It is imperative that there are 10 to 12 people in noncompeting industries put together, and commit to a particular time 

frame that is really quite ambitious. 

In our case, we meet monthly for about five hours per month in 

this facilitate roundtable group, and they commit to it for a 10 

month period. The private sector was not as ambitious into that 

area and was unable to find success. Whereas, the SBDC, because 

of their long tradition of working with those businesses, was able 

to identify those firms that fit the profile and were looking for a 

way to learn from one another. 

12

The kind of testimonials, in terms of PeerSpectives, is that in my 

testimony I welcome questions from the Committee, and would welcome any opportunity to have those Wisconsin folks that are in 

these groups be able to talk to you about just how successful that 

has been as an educational process. 

And I look forward to the Committee considering this as one pilot 

to try to broaden the scope of education activities for the SBDC. 

[Ms. Kauten’s testimony may be found in the appendix.] 

Chairman MANZULLO. Thank you. I appreciate your testimony. 

Our last witness is James Chrisman, with the Department of Management and Information Systems for the College of Business and 

Industry at Mississippi State University. I look forward to your testimony. 

STATEMENT OF JAMES J. CHRISMAN, COLLEGE OF BUSINESS 

AND INDUSTRY, MISSISSIPPI STATE UNIVERSITY 

Mr. CHRISMAN. Thank you. Chairman Manzullo, Ranking Member Velazquez, and Members of the Committee on Small Business. 

I thank you very much for inviting me here. My purpose today is 

to talk about the SBDC program in general, rather than to comment on specific bills before the Congress. 

In my experience as a professor, I have studied the SBDC program for 23 years, and have done approximately 250 studies, including studies of the national program, and studies of individual 

States; studies of States which are represented by most of the 

members of the Committee. 

I have also published 23 peer-reviewed journal articles based on 

my research. My overall conclusion is that the SBDC makes a positive impact on the economic development of the United States in 

terms of job creation and sales growth of its clients. 

In addition, the tax revenues generated by the incremental improvements of these clients exceeds the costs of the program. Before I talk a little bit more about the specifics, I thought it was important to explain why I think that this program has an impact. 

And I think that it is particular important given the bills before 

the Committee, because those bills tend to be about programs that 

are educational in nature, and the impact of the program, and the 

cause is because of its educational nature. 

As you know the SBDC provides information, research assistance, advice, and mentoring to clients. However, one of the big 

components of the program is that the clients themselves perform 

much of the work under the guidance of an experienced counselor. 

This leads to knowledge generation. First, explicit knowledge, 

where they gain facts and theories, is very important. And second, 

which I call tacit knowledge, or the experiential knowledge that 

they gain by going through the process of counseling, is more important. 

In other words, clients learn how to better manage their business, and as a consequence, they gain competitive advantages that 

have advantages for them in terms of their survival, growth, and 

success in achieving their own objectives. 

Briefly, here are some of the results. Some of these have already 

been mentioned, but my most recent study of the national program 

and 2002 clients, of those 61 thousand long term clients, they genVerDate 0ct 09 2002 19:08 Nov 15, 2005 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 G:\HEARINGS\23180.TXT MIKE
13

erated approximately 56 thousand new jobs. That is almost one per 

client. 

They generated about $5.9 billion in incremental sales. That is 

about a hundred-thousand dollars per client. In terms of jobs, the 

cost of a new job is about $3,400 a job. That is a pretty good investment. 

It is also a good investment for the government, because the tax 

revenues, the incremental tax revenues generated by these clients 

exceeded the cost of the program by a ratio of approximately 2.5 

to 1. 

Now, I want to emphasize that this is a result of just one study. 

These results have been consistent over time in the national studies that I have conducted, and they have been consistent in the 

studies that I have conducted in individual States. 

They are also consistent across different types of clients, different 

types of businesses, and different types of objectives that the client 

businesses have been trying to achieve. 

Now, these studies have been designed to measure the effects of 

the program. What I think is also important is the other work that 

I have done, which has tried to gain an understanding of the 

causes. 

Now, part of that I have already discussed. As well as to test the 

cause and effect relationships that are implied. In a recent study 

that I did on the Pennsylvania program, a long term study, I found 

a direct relationship between the amount of assistance received 

and the survival, sales growth, and employment of the clients 4 to 

8 years after receiving counseling. 

So these are documented results and I think pretty impressive. 

So, in conclusion, I think it is clear based on the work that I have 

done over the years that the SBDC makes an important contribution to economic development and it is a sound, cost effective investment for the government to be engaged in. 

Critical is the educational component, and these bills, and again 

today I want to mention, have an educational component that I 

think make them particularly consistent with the mission and capabilities of the SBDC program. So, thank you very much. 

[Mr. Chrisman’s testimony may be found in the appendix.] 

Chairman MANZULLO. Thank you. Let me recognize Congressman Udall of New Mexico to talk about his bill, H.R. 2981. 

Mr. UDALL. Thank you very much, Chairman Manzullo, and I appreciate the panel, and I appreciate your testimony here today. You 

have already heard from one of my constituents here, Norma 

Naranjo, from the San Juan Pueblo. 

Ms. Naranjo is, as I am sure you have heard, is the owner of The 

Feasting Place, a dining establishment featuring Native American 

cuisine. You may not have known that in January of 2002 that she 

was recognized by the New Mexico State Legislature and the Governor’s Office as one of New Mexico’s SBDC’s successful clients during New Mexico’s SBDC Day in the legislature. 

She joined 17 other successful SBDC clients at a recognition 

ceremony held in the Capital’s rotunda in Santa Fe, and she is an 

excellent example of an entrepreneur who has been successful 

through her ambition and diligence, mixed in with a little help 

from the New Mexico SBDC. 

14

With additional funding to SBDCs who seek it, they can provide 

assistance to more entrepreneurs like Ms. Naranjo. And I thought 

I would take a few minutes, Mr. Chairman, to talk about my bill, 

but on the whole, I would like to put my entire statement in so 

that we can go to questions. 

[The information follows:] 

Mr. UDALL. Some of you I know that are on this Committee are 

very familiar with my bill since it has passed several times through 

the Committee and through the House. It will establish a three 

year pilot project, offering grants to SBDCs to assist the Native 

American, Native Alaskan, and Native Hawaiian populations with 

small business development needs. 

Those of us on this Committee know how important small business entrepreneurship is to the health of our economy. The 25 million small businesses in America create 75 percent of all new jobs 

and help provide economic growth and development to their communities. 

However, there are places in this country where economic development and the prosperity experienced by so many has yet to 

reach. These areas deserve our attention and assistance. Consider 

this. Nowhere in America has poverty persisted longer than on or 

near Native American reservations. 

These lands suffer an average unemployment rate of over 45 percent according to the Bureau of Indian Affairs, which is almost four 

times the national average. Nevertheless, there is reason for hope. 

Small business creation has dramatically increased on tribal lands, 

and this has led to some job growth in these areas. 

In fact, in recent decades, Native American business growth and 

gross receipts have vastly surpassed overall small business growth 

rates and total growth receipts. I would like to continue the growth 

and expansion of small business enterprises with H.R. 2981, which 

passed the House overwhelmingly in the past two sessions of Congress. 

My bill ensures that Native Americans, Native Alaskans, and 

Native Hawaiians seeking to create, develop, and expand small 

businesses have full access to the counseling and technical assistance available through our Nation’s small business development 

centers. 

This bill helps SBDCs extend these resources to areas that will 

benefit greatly from their assistance. The bill permits State SBDCs 

to apply for additional SBDC grants to establish one or more Native American small business development centers on or near Native American lands. That the business development tools offered 

by these SBDCs can assist Native Americans with the training, 

mentoring, and technical assistance to build sustainable businesses 

in their communities. 

In an effort to ensure the quality and success of the program, my 

proposal requires grant applicants provide to the SBDC with their 

goals and objectives for services to be provided for the grant, including their experience in assisting entrepreneurs with the difficulties in operating a small business. 

Additionally, the applicant must show their capability to provide 

training and services to a representative number of Indian tribal 

members, Native Alaskans, and Native Hawaiians. Most imporVerDate 0ct 09 2002 19:08 Nov 15, 2005 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\HEARINGS\23180.TXT MIKE
15

tantly, this bill ensures the participation of governing bodies of 

tribal organizations to ensure that these business development 

tools are provided in a culturally sensitive manner. 

While the current economic situation on Native American lands 

is grave, it holds great promise for the future. It is clear that we 

can and must do more to aid Native American entrepreneurs. 

I believe that this legislation will help the Native American population with the opportunity to build sustainable businesses in 

their communities, which will in-turn create further economic opportunities for those that need them with the most. And with that, 

once again I thank the panel, and I yield back to the Chairman. 

Chairman MANZULLO. Thank you. Let me ask the first question 

of Ms. Naranjo and Congressman Udall. You testified on the same 

thing. As I understand it, Congressman Udall, your bill would 

make an extension, and not exactly another office, but an extension 

of a nearby SBDC to a Native American tribe at the reservation 

site? Is that the thrust of your bill? 

Mr. UDALL. Chairman Manzullo, and ranking member Velazquez, the basic thrust of the bill is to try to get SBDCs in a culturally sensitive way to reach out there on to the reservation and 

provide services, and generate entrepreneurs, and train them, and 

mentor them, and move them along in the process to really get 

businesses going. 

And if you look at 200 years, and you look at people on many 

of these tribal and Native American lands, and you ask why there 

has not been a job growth, and why there has not been development. 

And I think it really comes down to the fact that some of our economic developments, and economic development projects have not 

in a culturally sensitive way tried to work with the people that are 

there that want to do these kinds of things. 

She is a good example of the success, but I think we could do a 

lot more. And I am convinced that with your support of the support 

of the ranking member of the Committee that we can get this done. 

We can really move forward with tackling this unemployment situation, which is as I said four times, or many, many times more on 

some of these tribal lands, and four times the national average. 

Chairman MANZULLO. Ms. Naranjo, how far do you live from the 

Espanola SBDC office? 

Ms. NARANJO. The San Juan Pueblo is located like five miles 

away from where the office is located at. 

Chairman MANZULLO. Okay. What would this bill do in your situation? 

Ms. NARANJO. Well, as I mentioned— 

Chairman MANZULLO. You are pretty close to the office there. 

Ms. NARANJO. Yes, and I am fortunate that I am. But there is 

other tribes that live a lot further away than I do. 

Chairman MANZULLO. There is a distance problem? 

Ms. NARANJO. There is, and as I said, we are a rural community, 

and that is why I invite you all to come to my home. 

Chairman MANZULLO. I raise beef cattle, and so we don’t do 

those in the city. But there are areas in this country where Native 

American reservations are located huge numbers of miles away 

from the nearest SBDC. Is that the thrust of your bill, Tom? 

16

Mr. UDALL. Yes, Mr. Chairman, it is. And she is fortunate because it is close, but there are other—we have 22 tribes in New 

Mexico. We have the largest tribe in three States, the Navajo Nation, which is the size of probably many of the good-sized States 

up in the northeast; bigger than Connecticut, and New Hampshire, 

and Vermont put together, the national reservation itself. 

The SBDCs are sometimes—I think the two SBDCs that I am familiar with are 20 to 30, to 40 miles on the outside of the reservation’s boundaries, and we are just talking about the Navajo Reservation. So we are talking about trying to nudge the SBDCs that 

are in operation right now to be more culturally sensitive, and to 

reach out in these particular areas. 

Chairman MANZULLO. Is there a need for more staff? 

Mr. UDALL. More staff, more programmatic efforts to push the 

kinds of good things that we know that SBDCs do into the reservations, so that you can have on reservation businesses. 

I mean, many of these Native American people in New Mexico 

want to remain on their tribal lands, where they have been for in 

some cases thousands of years. And the effort I think will work out 

the best when you do it in a culturally sensitive way, and reach 

out on to the reservation. 

Chairman MANZULLO. You could put Norma in charge of the program couldn’t you? 

Mr. UDALL. Hey, I would be happy to do that, Mr. Chairman. I 

don’t have any problem with that. We have some good SBDC directors, but I think that this really targets the Federal SBDC efforts 

in a very specific way to help Native Americans. 

Chairman MANZULLO. The second question is what is there—let 

me try and frame the question. How would you direct a program—

and I know that you used the word culturally sensitive, but give 

me some parameters. 

Mr. UDALL. Why don’t I let her start, and then I will try to— 

Chairman MANZULLO. Well, she has a unique situation there. Do 

you understand my question, Norma? 

Ms. NARANJO. Yes. Mr. Chairman, and Members of the Committee, as I mentioned earlier, and maybe I did not make my point 

as clear as I wanted to, but I feel that people need to understand 

how you live, and where you live. 

They need to understand that the talents that you have, a lot of 

times people think that, well, Native Americans have this to offer, 

but they don’t know how to go about getting this information out. 

And reaching out to get the services that are needed, and that 

is why I said that Native American people are very talented. Like 

I mentioned earlier, I went to the museum next store, and you will 

see all this talent, but the people don’t know how to go about getting the services. And I think many times that people forget that 

we are part of the economy of the State of New Mexico. 

Chairman MANZULLO. Let me ask you a question. The bill has 

passed the House a couple of times, and the Senate sits on it, and 

if you were made the director of this program, what would you do? 

Is that a valid question? 

Ms. NARANJO. Well, I think the first thing I would do is I would 

lead and educate the tribal leaders, because they are the ones that 

you would have to meet with as protocol. Just like you have to 

17

come here and meet, you have to meet your native leaders as protocol to let them know and educate them that you are getting funding for this particular program. 

And then if you get the funding, you come on to the reservation, 

and you educate the people as to what the money is about so that 

they can have an understanding. I had no clue that there was an 

SBDC in Espanola, New Mexico. I didn’t know. 

I didn’t know how to go out and get some help. I just came upon 

them by accident. 

Chairman MANZULLO. I think you have answered my question. 

People have to know that it is available. 

Ms. NARANJO. Yes. You need to educate people in terms of what 

is available to them, and what does that office there for. 

Chairman MANZULLO. I appreciate that. Tom, if you wanted to 

add a footnote to that. 

Mr. UDALL. Well, I just wanted to speak a little bit further. I 

think that what she is emphasizing is that when thee communities 

have been in one spot, and in particular in New Mexico, where you 

are talking thousands of years where they have lived, and for many 

it is an agricultural life, or a pastoral life where they are herding 

sheep, and yet in a very, very talented people. 

But there is a kind of protocol as she has said within the community in terms of bringing things on to the reservation or on to the 

tribal lands. And part of that is the government to government relationship and having the individuals go out and talk to pueblo 

leaders. 

And the pueblo leaders then introduce the program, and the 

ideas and things to the community, and help with it. And that is 

what I mean when you asked me what does culturally sensitive 

mean. It means that you deal with the community that is there. 

You try to break through what some would call barriers. To me, 

it is just cultural traditions, and to get through them, and then 

when a very capable person like Ms. Naranjo discovers this, and 

gets the training and assistance, and all of that, everything takes 

off from there. 

And I think that she is a great example of exactly what we are 

trying to do in a dramatic way across the board on these tribal and 

Native American lands in these bills. 

Chairman MANZULLO. Thank you. Ms. Velazquez. 

Ms. VELAZQUEZ. Ms. Naranjo, you have the talent, the skill, the 

creativity of cooking, but you don’t know how to go about it, how 

to market the business? 

Ms. NARANJO. Exactly. 

Ms. VELAZQUEZ. You are in the business of cooking and you are 

not in the business of teaching other people how to be successful? 

Ms. NARANJO. Exactly. 

Ms. VELAZQUEZ. And that is what this center would do, and also 

what are the type of programs. What are the type of programs that 

exist, and provided by the Federal government there, but you don’t 

know. Information is power and you don’t have it. 

So once you know that there is loan guarantees by the government, that will help you get a loan, and that will allow for your 

business to expand, and then you will benefit. And the other thing 

18

is that people need to know that you have to build credit and to 

have a credit history. 

But it takes more than just putting your profits or your money 

under the mattress. That you need to have a savings account, a 

credit account, and you have to show that you are responsible in 

paying your bills. 

So that is the type of technical assistance that can be provided 

through this program, and we have to understand the cultural 

uniqueness of certain communities that we might think that, hey, 

it does not make sense to them, but to them it does make sense, 

and we have to get into their mind frame to understand that. 

But I would like to address my question to the SBDC directors. 

I have talked with a number of directors of local and State centers, 

and they tell me that the cost of running their centers is getting 

more expensive. 

As with most small business owners, whether it be with increased rents, health care costs, or even energy costs, prices, they 

are starting to be hit with rising costs. Yet, funding for their centers remains flat. 

Do you find it more difficult to deal with the funding provided 

by the Federal government in light of these increased costs? Is it 

more difficult to retain veteran works on your staff? 

Ms. KAUTEN. I think the ranking member is absolutely correct. 

One of the things that I think has happened at the national level 

is a new phenomenon to embrace entrepreneurship as a strategy 

for States. I think that five years ago, and certainly 10 years ago, 

as we were talking about economic development in the broader 

sense, and ways of kind of increasing the economy of States, we 

would be talking about strategies of working with existing businesses, or talking about in the worst case scenario of perhaps going 

to other businesses in other States, and bringing those businesses 

across our borders. 

I think that there is a lot less acceptance certainly of the recruitment strategy, and as we have become I think more sensitive to 

how it is that we grow in our State—we have a State of 5 million 

people, and we have budget deficits that continually keep us looking for ways to try to create a more robust economy. 

But as we look in those areas, we are becoming I think more 

aware of what entrepreneurship is, although a long term strategy, 

and although one that is risky, is certainly in many communities 

the only alternative that they have to try to grow and to be more 

successful, and to try and get the tax revenues that they need to 

keep themselves going. And that means that they are looking to us. 

Ms. VELAZQUEZ. Ms. Kauten, could you please answer my question? Do you feel that you are getting less money than you were 

getting like in the early 2001 from the Federal government? 

Ms. KAUTEN. The capacity, and what we find is that all that 

means is that we do not have the capacity to deal with what these 

natural phenomenon are. And as the costs go up and the capacity 

remains the same, and the demand goes up, obviously that means 

that we are struggling to try to find ways to continue to keep our 

payrolls. 

Ms. VELAZQUEZ. Mr. Conroy, if rents are going up, and if health 

care is going up, if prices are going up, if energy is going up, and 

19

if your money is getting less in terms of your budget, are you afraid 

that the services provided by SBDCs will be diluted? 

Mr. CONROY. That is something that is of concern to us. In Pennsylvania, over the past 12 years, we have taken a 25 percent cut 

in Federal funding of this program, and it has been a real challenge to try to come up with other sources of resources to be able 

to make up for that. 

And with advances in technology, and other approaches that we 

take towards maximizing efficiency, we have been able to pretty 

much keep our service delivery stable. but it is becoming increasingly difficult, and quite frankly there are portions of the state that 

are terribly under-served. 

And anything—and one of the things that is interesting, I come 

down here and meet with a lot of the members to talk about what 

has been happening in their districts, and if you look at the district 

profiles of service delivery, it varies substantially among the 19 different districts that we have in Pennsylvania. 

And that is because it is a factor of resources, and when those 

programs came into the SBDC program. 

Ms. VELAZQUEZ. Ms. Kauten, this bill, 3207, provides an additional $1.5 million to set up the second stage PeerSpectives networking program. How do you think you are going to achieve the 

goals that are set out by this program with such a small amount 

of money? 

Ms. KAUTEN. The bill establishes a pilot in one of each of the regions within the SBDCs, and I think it provides an opportunity for 

the SBDCs to identify and to be able to demonstrate the impact of 

a program like this. 

It certainly is only a start, but nevertheless it is a start in a target market that I think all the SBDCs around the country have 

been trying to access more aggressively, and I think that because 

that market is there, and one that we want and think is appropriate for us to service, we think that those pilots will be one way 

that we can show that we have a particular set of services that is 

very compatible with the learning needs of growing businesses. 

So only because it is a pilot, and only because there are a few 

States that would be designated to begin that service, I think is the 

$1.5 million adequate. 

Ms. VELAZQUEZ. Well, it would be adequate if you are taking resources from programs that are already in existence under the 

SBDC to be able to provide the services required under these new 

proposals. 

But I think that we should be in the business of providing the 

resources that you need to continue to do the job that you are 

doing. Dr. Chrisman, you said before that they created 56 thousand 

new jobs, and that is a way to increase the tax revenue base of our 

economy. 

Don’t you think that by increasing resources so that SBDCs continue to do their job of generating more jobs by providing the technical assistance that would allow entrepreneurs to continue to create those jobs, don’t you think that instead of the $88 million that 

we are providing, if we provide the $108 million that is authorized 

that this is a way to reduce the deficit? 

Mr. CHRISMAN. That would be my conclusion, yes. 

20

Ms. VELAZQUEZ. So sometimes there are certain things that do 

not make sense, because if we want to get our economy back on 

track, we should provide the economic tools that would allow for 

small businesses to continue to do what they do best, and that is 

creating the jobs. 

After all, they create 75 percent of all the new jobs, but instead 

of providing those economic tools, we are cutting the budget in 

those programs that are precisely tackling the issue that our economy is facing today, and that is to get it back on track. 

Mr. CHRISMAN. Yes, I think that putting money into the SBDC 

program is a very good investment, and accomplishes the kinds of 

things that I think the government wants to accomplish. In other 

words, growing the economy out of a deficit position, and I think 

that this makes a material contribution to that. 

Chairman MANZULLO. Mr. Fortenberry. 

Mr. FORTENBERRY. I want to thank you, Mr. Chairman, for holding this important meeting, and I want to apologize for coming in 

late, but I was trying to do a little catch up and Dr. Chrisman, the 

ranking member actually preceded me in a similar line of questioning. 

And I just wanted you to summarize your findings in terms of 

the economic multiplier impact that this government investment 

has overall, and if you can, compare it to other governmental investment. 

In other words, when we look at the Highway bill, for instance, 

it has been suggested that there are significant economic multiplier 

effects there because of the job creation and increased tax revenue 

from further economic development. 

Have you done any cost comparisons in terms of this investment 

by the government and its return as measured in increased economic activity, and therefore, tax revenue? And do you have other 

measures by which you are suggesting that this is a good investment? 

So could you quantify those in a way and then compare it to 

other government investments, or have you ever done that? 

Mr. CHRISMAN. Unfortunately, I have never done that. The numbers that I have given in my reports are direct impacts. They don’t 

include a multiplier effect. If you would include a multiplier effect, 

then the numbers would be greater, which of course the suggestion 

of the multiplier effect is that when new businesses are created, 

and when existing businesses grow, they create opportunities for 

still other businesses. But that has not ever been done and this is 

just the direct effect. 

Mr. FORTENBERRY. Well, I liked your analytical findings as well, 

in terms of pointing out the cessation that can sometimes occur 

through these centers of insufficient placement of resources. In 

other words, stopping bad business decisions. 

I know that is terribly difficult to qualify and I don’t know how 

you measure the economic benefit of stopping a bad decision, but 

that is an important factor as well. 

Mr. CHRISMAN. Yes, I think that that is a very important thing 

that the SBDC does, and it is very, very difficult to measure the 

negative case. In my written testimony, I discussed one example 

21

that I was directly involved in back early in my career when I was 

a Ph.D. student. 

I was a staff counselor and I worked with one client in particular who was planning on getting a $5 million government grant to 

begin printing and distributing some books that they had prepared. 

I did a detailed analysis for them, and my results suggested that 

in a five year period that they would eat all that $5 million, and 

need another $3 million before they reached a positive cash flow. 

So at the time, I figured that we probably saved the government about $5 million, and the cost of running the SBDC in Georgia at 

that time was something like a million-and-a-half a year. So that 

was one case. 

And that was an extreme case, but it was pretty substantial, and 

I think if you had a chance that you would find that there are a 

number of those kinds of cases that occur every year. 

Mr. FORTENBERRY. And, Mr. Chairman, if I may follow up on 

that right quick. Perhaps those of you who run the centers might 

be able to comment on that, in terms of how many clients you 

have, and that you convince that they do not need to do something, 

and therefore place resources inefficiency, resulting in a negative 

multiplier effect if you will, when they could have been placed more 

efficiency elsewhere? 

And I don’t mean to put you on the spot. That is a hard time 

to calculate, I know. 

Mr. CONROY. Well, actually, it is funny, because it is something 

that we have struggled with as long as I have been with the program. I think that one of the greatest things that we do is that we 

help people preserve their assets so that they don’t take out another mortgage on their house, or they don’t spend their kids’ college funds, or retirement savings on something that as Dr. 

Chrisman pointed out may not be viable. 

But we sort of feel that our job is to create positive economic impacts and it is very difficult to measure a hypothetical negative impact. We do track to some extent the number of folks who decide 

not to go into business as a result of working with us. 

But what we have done is that we have set up a process for delivering services in such a way that most of these folks self-select 

themselves out before they invest a significant amount of time. So, 

for instance— 

Mr. FORTENBERRY. So you don’t have to deliver the bad news is 

what you are saying? 

Mr. CONROY. Well, they come to realize it on their own. The first 

thing we do is we make them go through a course called the First 

Step Course, and it is kind of a cold shower, and this is what is 

involved in being an entrepreneur. 

And then we have a series of other things. What we have found 

is that of the folks that work with us in a consulting capacity to 

start a business, 25 percent of them go on to start a business, and 

80 percent of those are still in business eight years later. So I think 

it is a process that works. 

Mr. FORTENBERRY. So, 25 percent of those who start, of those 25 

percent, 80 percent are still in business eight years later? 

Mr. CONROY. Yes. 

Mr. FORTENBERRY. That is your track record? 

22

Mr. CONROY. Yes. 

Mr. FORTENBERRY. Now, is that a self-selective figure based upon 

your work with them, or other determining factors that you point 

out, such as many more advanced experience or education in the 

area? 

Mr. CHRISMAN. The study that Christian is referring to looked at 

the amount of assistance and compared it with survival and growth 

rates. We controlled for factors such as business experience, management experience, industry experience, start-up experience, general education, business education, entrepreneurial education, and 

other assistance received, gender, ethnic background, and type of 

business, and a variety of other factors. So those were all controlled 

for in the study. 

Mr. FORTENBERRY. [Presiding] Excellent. Thank you. Are there 

any further questions? 

Ms. VELAZQUEZ. Yes, Mr. Chairman. Thank you, Mr. Chairman. 

Ms. Kauten, while I understand that the definitions in H.R. 3207 

are taken directly from the Edward Lowe Foundation study, I am 

troubled that this definition is very confusing. 

According to the way that I understand it, if a company has five 

employees, and less than $750 thousand in sales, or working capital, it is not eligible. But if a company has 98 employees, and $10 

million in sales or working capital, it is eligible. 

This seems to penalize smaller companies, and I would like to 

understand the logic of that. Can you please comment on that? 

Ms. KAUTEN. Absolutely. As I tried to describe in the earlier testimony, this was in Wisconsin an attempt to target a particular 

stratum of businesses that we found that we were not serving as 

adequately as we thought that we needed to. 

It was the result of a planning session that we know that there 

is a group of businesses that have been in business for a while, and 

that all of the criteria that the ranking member just identified, and 

that seldom use the SBDC services. 

We thought that there was an opportunity to help them grow 

and the research suggested that these companies that now have 

been in business for several years are really posed to grow. That 

there is a lot of return in working with them. 

The definition is as the ranking member identified always a difficult one. The problems surrounding that is that there is nothing 

in the research that very definitely identifies those businesses that 

have the potential to grow and the intent to grow in definitive 

terms. 

It may not be perfect, but in Wisconsin, we have found that they 

have identified a group that has enough similarity and that the 

problems that they identify within those roundtables are similar 

enough that they can learn from each other. 

The definitions were not meant to exclude businesses. They were 

simply meant as a way— 

Ms. VELAZQUEZ. But it does. 

Ms. KAUTEN. And roundtables could be appropriate for other 

groups as well. This is only the Wisconsin experience, and what we 

have done is identified a group and created an educational activity 

around them. 

23

The similar activity could also be identified for those that are in 

other categories. But the thinking is that the experience of having 

been in business for a while and having employed people, and having understood now not the start up issues, but the growth issues, 

are those things that are being discussed in Wisconsin in those 

roundtables. 

Ms. VELAZQUEZ. Ms. Kauten, the lowest measure of the Small 

Business Administration size standards is 50 employees. In fact, 

SBA size standards are focused more on making sure that true 

small businesses receive assistance. After all, it is small businesses 

that we are supposed to focus on. 

They are the ones in need of technical assistance, and the mission of the Small Business Development Center is to provide technical assistance, and capacity building for small businesses. 

This bill allows companies with as many as 500 employees to 

participate as long as they meet the revenue criteria. If you go by 

the SBA size standards, most of these companies will not qualify 

for any other small business programs government wide. 

So I just want you to explain to me why this double-standard? 

One for small businesses for every other program, and different 

measures for this initiative? If we are going to adopt this proposal 

shouldn’t it be more in line with SBA size standards? 

Ms. KAUTEN. It certainly should, and the criteria of between six 

employees and 99 was meant to be a ceiling of 99, and the criteria 

of $750 thousand to $18 million was meant to be a ceiling of $18 

million. 

So in Wisconsin, the kinds of businesses that are in those groups, 

that is the way that we interpreted those rules. There is no business that is larger than 99, and in fact the reality is that most of 

those businesses are precisely in the category that the ranking 

member mentioned; less than 50, and many with 20 and 30. It is 

that size category specifically that we are looking for. 

Ms. VELAZQUEZ. But do you recognize that $18 million in working capital does not represent a small business? 

Ms. KAUTEN. Working capital was a definition that we tried to 

use in order to not exclude those businesses that in fact are based 

on IP, the biotechnology business, that have capital, but don’t have 

revenue. So that was the thinking behind that. 

Ms. VELAZQUEZ. Okay. Another question that I have is with respect to the working capital measure in the bill, is how this will 

be verified? Unless a company provided financial statements to the 

SBDC, which I don’t see them doing voluntarily, who is going to 

evaluate this eligibility factor? 

Ms. KAUTEN. I can only tell you what we have been doing in our 

State. We tried to get the kind of cohorts together to do what it 

is that we have been trying to do. We established those standards 

and in fact the participants self-identified themselves to be within 

those categories. 

Because the roundtable in and of itself is a dynamic among businesses that have as I said like issues, we found that was adequate 

to bring people to the table that were alike, and we have not found 

in our 103 participants that we have had in this pilot year that we 

put together that people self-identified themselves inaccurately. So 

they followed the criteria. We did not ask for a financial statement. 

24

Ms. VELAZQUEZ. So you don’t see any room here for abuses? 

Ms. KAUTEN. I can only say that in Wisconsin, with the experience that we have had now for a year, and a hundred people and 

11 sessions, that there have been none. That has been our experience. 

Now, if the Committee saw that there needed to be more criteria 

in there, in terms of self-identification not being an appropriate 

way, that certainly could be built in. I am only saying that that has 

not been built into it. 

And to tell you the truth, my whole objection and concern is that 

in light of the insufficient money that is provided by the Federal 

government, and the President’s request for the budget for the SBA 

and programs such as the SBDCs, when we know that you are diluting services because you don’t have the resources that you need 

in order to provide the kinds of services that your clients are demanding, now to come and dilute what you are doing much more 

to service a segment that really have been quite successful. 

Our mission is to provide for those who we need to help them in 

order to grow and to expand their businesses. But if you are talking here about $10 million given the financial constraints regarding 

the budget, I have a question with that. 

Ms. KAUTEN. And I understand the ranking member’s precaution 

there. Those businesses are in fact posed to growth, and in our experience, they are also needing assistance for growth. 

Ms. VELAZQUEZ. But not at the expense of those which the mission, the core mission of the SBDCs, is to help those start-ups and 

those that are growing, but to take away those services that you 

are supposed to be providing to those businesses that are doing 

quite well at the expense of those, then the first order should be 

let us get the funding that you need to get, $109 million authorized 

by this Committee, and then we can talk about other programs. 

Thank you, Mr. Chairman. 

Mr. FORTENBERRY. Thank you, Ms. Velazquez. With that, we will 

conclude today’s hearing. Thank you all so much for coming, and 

I appreciate your willingness to join us, and for the portion of the 

time that I had with you, your insightful comments. We are very 

grateful that you took the time to be with us today. We are adjourned. 

[Whereupon, at 3:25 p.m., the Committee was adjourned.]

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