The End of DEI Puts Small Businesses on the Frontlines: Getting This Right Could Define America’s Economic Future

By TED ROSE, ROSE FINANCIAL SOLUTIONS

After three decades of working with government contractors, I’ve learned one unshakable truth: every administration brings a new deck of cards for small businesses to play with. Some hands are better than others, but they all shape the landscape. President Trump’s recent executive order to phase out Diversity, Equity, and Inclusion (DEI) initiatives is the latest reshuffling—and the implications for small businesses are as intriguing as they are uncertain.

This decision has sparked heated debate, but it also raises a tantalizing question: Could this shift to a merit-based approach open new doors for small businesses? If executed wisely, it just might.

A Closer Look at President Trump’s Executive Order

The executive order, boldly titled “Ending Radical and Wasteful Government DEI Programs and Preferencing,” takes a clear stance:

“DEI policies have failed to achieve their stated goals and instead foster division and inefficiency in government.”

In short, the administration is swapping demographic preferences for a merit-first focus, emphasizing fairness and efficiency. This pivot marks a significant shift for federal agencies and their contracting processes.

DEI initiatives have long been celebrated for their role in promoting inclusivity, but this order suggests a growing appetite for policies that streamline operations and spotlight performance.

Why Small Businesses Might Win Big

For small businesses, this shift could be the equivalent of clearing the clutter off a desk—it’s all about focus and simplicity. If demographic criteria take a backseat, more small businesses might have a shot at winning federal contracts.

Here’s the thing: Any action that negatively impacts small businesses is like grabbing the third rail—small business is the lifeblood of this country. It’s as unthinkable as cutting Social Security. That’s why this shift has the potential to spark a Golden Age for small businesses.

Imagine a system where innovation, results, and good old-fashioned hard work reign supreme. That could mean fewer hoops to jump through and more time spent doing what small businesses do best: delivering value.

Here are a few potential benefits:

1. Leveling the Playing Field: Contracts awarded based on merit could allow all small businesses to compete more effectively.
2. Streamlined Processes: Simplified requirements could save small business owners time, money, and a lot of aspirin.
3. Innovation on Center Stage: Merit-based systems reward creative solutions and strong execution—a win for entrepreneurs who thrive on results.
   
   

What This Means for SBA Programs

Hallmark SBA programs like Women-Owned Small Businesses (WOSB), Tribal-Owned, Veteran-Owned Small Businesses (VOSB), and the 8(a) Business Development Program remain intact. These programs are essential tools that help level the playing field for underrepresented groups, and they continue to support small businesses in accessing federal contracting opportunities.

However, don’t rule out future adjustments. Consolidating programs with overlapping goals could reduce administrative headaches while maintaining access.

As someone who has spent decades helping small businesses navigate SBA programs, I’ve seen the beauty—and the bureaucracy—of these initiatives. Simplification isn’t necessarily bad if it makes life easier for business owners and helps agencies meet their small business contracting goals.

Possible changes to watch:

• Streamlining Programs: Merging similar initiatives might cut red tape without cutting opportunities.
• Merit-Based Focus: Contracts that prioritize results over preferences could foster healthy competition and drive growth.

It’s also worth noting that most federal agencies have small business contracting goals, typically around 23% of their overall contracting budgets. However, these targets have historically been challenging to meet. The shift to a merit-based system may make these goals more attainable, while keeping the focus on supporting small businesses while reducing the administrative burden that small business face.

The Big Shift: Merit-Based Contracting

A merit-based approach isn’t just a buzzword; it’s a potential game-changer. Businesses that excel at what they do—whether it’s developing groundbreaking products or delivering stellar services—stand to gain the most.

If you’re running a small business, you’re no stranger to competition and you are in a better position to provide more cost-effective solutions. You know how to add value, and if this shift prioritizes results, you might finally get the recognition you deserve.

Predictions for small business contracting:

1. Fairer Competition: Merit-based systems could level the playing field for all small businesses, regardless of their demographics.
2. New Opportunities: Smaller players could find it easier to compete against industry giants.

Interestingly, these changes may pose a bigger challenge to large businesses than small ones. Larger organizations that have built cumbersome corporate infrastructure to navigate preferential policies might find the transition to a merit-focused system disruptive. For small businesses, the impact could be far less jarring, as many are already accustomed to competing on their strengths and agility.

Bipartisanship in Small Business Support

Here’s the silver lining: Small businesses have friends on both sides of the aisle. Whether it’s through regulation or deregulation, administrations typically align on one thing: empowering entrepreneurs.

This policy shift may represent different means, but the end goal remains the same—fostering innovation, growth, and opportunity.

Challenges Ahead (Because There Are Always Challenges)

Of course, no policy change comes without growing pains. Transitioning to a new system may leave some small business owners scratching their heads (or yelling at their computer screens).

From my experience, early confusion is par for the course, but with clear guidance from the SBA and other federal agencies, these hiccups can be smoothed out.

A Call to Action for Small Businesses

If you’re a small business owner, now’s the time to roll up your sleeves:

• Stay Informed: Keep tabs on federal contracting changes and SBA updates.
• Leverage Resources: SBA tools and mentorships are there for a reason—use them.
• Focus on Results: A merit-based system rewards performance, so make sure your offerings are top-notch.

Preparation is key to thriving in this new era.

Final Thoughts

The end of DEI initiatives marks a significant shift in federal contracting, but it’s not the end of opportunity—it’s a pivot. By reducing bureaucracy and prioritizing results, these changes could open new doors for small businesses to shine.  Having witnessed countless policy overhauls, I remain cautiously optimistic. If implemented thoughtfully, these changes could position small businesses not just to compete, but to lead. With both sides of the isle united, this could be the the start of a Golden Age for Small Businesses.

So, small business owners, take note: This is your moment. Seize it.

Ted Rose

President, CEO, and Founder

In 1994 Ted Rose founded Rose Financial Solutions (ROSE), the Premier U.S. Based Finance and Accounting Outsourcing Firm. In 2010, the Blackbook of Outsourcing named ROSE the #1 FAO firm in the world based on client satisfaction. As the president and CEO of ROSE, he provides executives with financial clarity. Ted has also acted as the CFO for a number of growth companies and assisted with various rounds of financing and M&A transactions.