Pros and Cons of the SBA’s Mentor-Protégé Program
The SBA’s Mentor-Protégé Program (MPP) offers opportunities for small businesses to formally partner with larger businesses. In a nutshell, this program allows Protégé businesses to access developmental and financial assistance, and also win more federal contracts. Additionally, it also allows Mentor businesses to bid on federal contracts that have been set aside for small businesses and specific socioeconomic set asides like 8(a), WOSB, SDVOSB and HUBZone.
This program has been highly beneficial for businesses of all sizes, but (as with any other business arrangement), it pays to learn about both the advantages and disadvantages of the MPP. Whether you’re talking about a brand new 8(a) business, or an established company with a solid track record of winning federal contracts, the MPP could significantly impact your organization for the better. In order to understand all the implications for your business, though, you have to see the big picture.
A few technical details about businesses that join the MPP
In order to be approved for the MPP, both Mentor and Protégé businesses must meet certain criteria.
Size. The Mentor can be any size, but the Protégé has to qualify as a small business in a primary NAICS.
Registration. Both businesses have to be registered in SAM.gov, and be for-profit corporate entities.
Affiliation. The companies cannot have been found to be affiliated with each other.
Once they’ve been approved by the SBA, the Mentor and Protégé businesses enter a formalized agreement that includes well-defined objectives and a developmental timeline. For example, the Mentor can’t simply commit to providing “guidance and training” to the Protégé; they have to commit to something that’s actually measurable. This could be a specified number of training hours on a certain topic, an agreed-upon loan from Mentor to Protégé, or countless other forms of business developmental assistance. The main point is that both businesses can look back after a set period of time and see that key milestones have been fulfilled.
Both Mentors and Protégés benefit from the MPP
In a mentor-protégé relationship that takes place between individuals, most of the tangible benefits are received by the protégé. However, that isn’t how the SBA’s MPP is set up. After all, bigger businesses need some incentive to provide assistance to small businesses regarding management, administration, contracting, business development, and other matters.
The main benefits for Mentors are an exclusion from affiliation and being able to bid on contracts that they wouldn’t normally qualify for. These aren’t the only benefits for Mentors, of course; they’ll be discussed in more detail below.
Pros of the SBA’s Mentor-Protégé Program
There’s a lot to be said about the pros of the MPP; there are plenty of advantages for businesses of all sizes who qualify either as Mentors or Protégés. Here are some of the primary points:
Both Mentors and Protégés can access federal contracts that were previously out of reach.
This can be advantageous for Protégés, as well as for medium-sized businesses who want to be Mentors. Instead of the medium-sized business having to compete head-to-head with larger businesses for unrestricted federal contracts, they can enter into an MPP joint venture agreement with a Protégé, giving them access to contracts that are set aside for small businesses. From the Protégés’ perspective, teaming up with a more experienced Mentor means that their lack of past performance won’t hinder them from winning contracts.
Mentors can have up to 60% of the work share for contracts.
This is an important rule, since it’s one of the primary incentives for businesses to become Mentors. If and when they win a contract along with their Protégé, the Mentor can take up to 60% work share. This is negotiated between the Mentor and Protégé with each bid. Typically, we see the 60% workshare going to the Mentor more in the beginning as the Protégé gains experience and builds infrastructure, and then the workshare is on more on a sliding scale later in the relationship.
Mentors can have up to 40% equity interest in their Protégé’s corporation.
This can be good for the Protégé, because it can provide valuable capital that makes increased growth possible. It can also be good for the Mentor, because they’ll have a share in whatever contracts the Protégé is awarded. This is in addition to the Mentor’s work share for each contract. This allows the Mentor to be truly invested in the Protégé’s success and reap the rewards together.
Protégés can leverage the capacities and past performance of their Mentors to win larger contracts.
If a small business is trying to win their first federal contract, it can be difficult to compete against other businesses with proven successes. If they enter into an MPP joint venture agreement with a Mentor business, though, they’ll be backed by the Mentor’s experience and be able to use the Mentor’s past performance. There’s also the question of resources. Small businesses can be limited in the types of federal contracts they can bid on by themselves, but with access to the resources of much larger businesses, their own limitations won’t be as much of a concern.
Protégés can grow faster thanks to the assistance of larger businesses with greater resources.
Business development for the Protégé is one of the key elements of the MPP, but it’s not the only help that a Mentor can provide. This could include assistance in developing corporate structure, guidance for short- and long-term business goals, advice on creating or revamping their onboarding process, support while developing contract agreements, support with sponsorship of security clearances, loans or equity investments, and much more.
Cons of the SBA’s Mentor-Protégé Program
Although many businesses have already benefited from the MPP, this program isn’t necessarily the right choice for every business that could qualify as a Mentor or a Protégé. Here are a few reasons why:
Disputes between Mentors and Protégés can be trickier to resolve.
Compared to run-of-the-mill joint venture partner disputes, this type of joint venture dispute must be handled delicately. It may turn out that one or both parties are violating their agreement or other SBA rules, which will put the joint venture at risk. Other consequences include suspension (or debarment) of both parties, contract termination, and sometimes even civil or criminal penalties.
The joint venture could be jeopardized because of non-compliance with SBA regulations.
A joint venture that’s formed as part of a MPP is similar in some ways to regular joint ventures, but here are key differences. The SBA has strict provisions in place for Mentors and Protégés to comply with; if they aren’t followed to the letter, this could put contracts at risk. This could then lead to protests, which may be successful if the joint venture was found to be invalidated because of non-compliance.
The Protégé and the Mentor aren’t on the same page…and don’t know it until they’re knee deep in the relationship.
The biggest issue that crops up again and again in Mentor Protégé relationships is that the Mentor and the Protégé aren’t on the same page. They both go into the program just wanting to win contracts and they both have drastically different expectations of what the other party will be doing. They don’t put a strategy together on how the relationship will work on a day-to-day basis and one or both get quickly disillusioned. It’s difficult to go back and fix this after the fact. It’s much better that the Mentor and the Protégé spend the time to lay out a plan and expectations on paper.
There’s plenty of potential for tension as Mentors adjust to the Protégés’ comparative lack of management experience.
Even though the Mentor will be the one with the practical experience, the Protégé will be the one in control. In a best-case scenario, the Mentor would provide sound guidance on how to handle the sudden increase in responsibility, and the Protégé would listen to their advice. If there isn’t enough trust or solid communication between them both, however, the Mentor’s guidance could be perceived as overbearing instead of helpful.
Protégés may have difficulty due to more demanding performance requirements.
Assuming that the Mentor and Protégé have formed a joint venture, the Protégé will likely experience a sharp learning curve as they navigate more complex business structures. In addition to that, larger companies also have higher organizational and operational standards, to which the Protégé will also have to adjust. This hurdle can be overcome with the aid of appropriate guidance from the Mentor, but it still presents a challenge for the Protégé.
Could the SBA’s Mentor-Protégé Program benefit your business?
Whether your business could be a Mentor or a Protégé, there are plenty of reasons for you to consider it. As a Mentor, you could access set-aside federal contracts that most larger businesses can’t bid on; as a Protégé, you could get the chance to kickstart growth and business development. Many businesses have already found success in the MPP, and even more are joining every day. If you think it sounds like the right step for your business, the MPP represents a chance to partner with another corporation in a well-defined, mutually beneficial relationship.