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Want More Mega Women-Owned Businesses? Then Modify Supplier Diversity Requirements

Geri Stengel Contributor ForbesWomen

Access to markets is critical to all businesses. Having customers who spend billions on goods and services, such as government agencies or the Fortune 1000, increases your chances for high growth.

Supplier diversity programs at local, state, or federal government agencies or large corporations have helped many women-owned businesses grow. Becoming a certified women business enterprise (WBE) opens doors to business development opportunities.

To become a certified business, you need to be 51% owned and operated by a woman. However, to become a mega company, you typically need outside investment. Unfortunately, that may take your company under the 51% woman-owed threshold.

Lauren Casentini, founder and CEO of Resource Innovations, is on her way to becoming a mega company. However, to do so required raising private equity and going below the 51% threshold. She has developed diversity equity and inclusion (DEI) metrics to hold herself accountable. She is urging the public and private sectors and certification organizations to expand their approach to supplier-diversity eligibility requirements. Such modifications would allow WBEs and MBEs to scale big time.

She’s not alone. The National Minority Supplier Development Council (NMSDC) has developed an approach that allows minority business enterprises (MBEs) to maintain their certification status while accepting investment.

Casentini has decades of experience working for a utility and starting and growing companies in the energy-efficiency space. In 2016, she cofounded Resource Innovations based on four pillars:

  • Making a big impact on mitigating and adapting to climate change.
  • Transforming the energy industry to be more diverse, equitable, and inclusive not just because it’s the right thing to do, but because diverse companies outperform those that are not.
  • Tackling energy efficiency with innovative solutions.
  • Scaling the company’s impact in a big way.

The company self funded and grew to 70 employees in four years. In 2020, Resource Innovations was recognized as the 15th fastest-growing private company by Inc. Magazine. The combination of being a high-quality provider of innovative energy-efficient solutions and leveraging its WBE-certified status led to the growth. However, to scale the company and make a much more significant impact, Casentini needed outside investment.

Based on her experience with a previous company she cofounded—which scaled through private equity funding and then was acquired by another company—Casentini chose to raise money through private equity. “I also was on the board of a company that grew to be the largest in the energy-efficiency industry,” said Casentini.

Through the years, Casentini worked with several different private equity partners and realized that different partners would bring different benefits to the company and different expectations.

“It was important to me to find a private equity partner that would honor and share the goals that we [my team and I] had set in place,” said Casentini. Boston Ventures isn’t one of the big-name firms. Still, it has decades of experience and its values are aligned with Resource Innovations’ four pillars.

McKinsey has written about how private equity can catalyze DEI in the workplace. DEI provides levers for financial outperformance. Its research shows that companies with greater diversity in executive management are more likely than those with less diverse leadership teams to perform better than the industry average on margin growth.

“I was able to continue to drive the vision for the company as the CEO,” said Casentini. Built into their agreement between Resource Innovations and Boston Ventures is also that the board of directors has to be a majority of women and several additional commitments to DEI metrics. “[Before me doing it], I had never come across any private equity firms that had any diverse requirements in their board of directors or commitments to diversity as a part of the operating agreement.”

Anecdotally, Casentini has heard that other large firms in the industry, with private equity backing, are now asking themselves if they need to look at their diversity metrics for their boards, management teams, and at all levels of employees. “I am very excited about driving change,” she said. Casentini is not just a role model; she’s an advocate for DEI as a member of industry associations across the country.

In May, through its acquisition of Nexant, Resource Innovations added to its deep-clean energy industry experience. It gained technical expertise, infrastructure, and industry-leading software capabilities. Nexant is a 20-year-old company with about 400 employees. “I’m the CEO of the combined company,” said Casentini.

“I do retain a significant portion of that overall company, but below the 51% required to be WBE certified,” said Casentini. “We have lost our certification.”

Some of Resource Innovations’ contracts mandate that a certain percentage of the contract be awarded to certified diverse businesses. As a result, her company could lose contracts as they come up for renewal. The utility companies want to continue to work with Resource Innovations and continually ask how (re)certification is going.

With some modifications to the system, diverse companies can maintain their certification. Growth Initiative allows NMSDC-certified MBEs with the potential for substantial growth to access equity capital from institutional investors while retaining their minority status through management and control of their business enterprise. It requires a new certification category―minority-controlled firms. Casentini is advocating for something similar for WBEs.

How will you advocate for scaling women-led companies to retain their certification while accepting investment?

About Geri Stengel – I am president of Ventureneer, which specializes in defining and eliminating problems that hold underrepresented entrepreneurs back, especially minorities and women. Our work provides clients with branded research, training and content opportunities that generate thought-leadership, visibility, sales, and brand loyalty. I am a WE NYC and digitalundivided mentor as well as an advisory board member of Million Dollar Women, Women Startup Lab, and Aleri Research..

Article Courtesy of FORBES: https://www.forbes.com/sites/geristengel/2021/11/03/want-more-mega-women-owned-businesses-then-modify-supplier-diversity-requirements/?sh=5b0513706340