Getting Ready for the Fiscal Cliff

With major budget cuts looming, a defense contractor adopts a new strategy.

If Congress and the White House cannot resolve the deadlock on the federal deficit by year's end, government contractors will be among those who feel the pain. Under a provision called sequestration, $1.2 trillion in cuts over the next nine years would be triggered in January, with roughly half of those cuts coming from defense spending. That's bad news for companies like AM Pierce & Associates, which provides engineering services to the military. With $4.2 million in sales last year, the Lexington Park, Maryland-based company landed at No. 203 on the 2012 Inc. 5000. To prepare for sequestration, CEO Adelle Pierce is shifting her focus to new markets within the federal government. Below, in this Inc. 5000 profile, she discusses her strategy for broadening the company's horizons.

We've been tracking sequestration for some time. If it happens, it will have some far-reaching consequences, because there's no rationale to how the cuts will be spread across programs. It's just an across-the-board cut to every single line item. There will be less work to go around for contractors.

A lot of small businesses, including us, play a role as subcontractors to large prime contractors. When the amount of work declines, those prime contractors are going to be inclined to keep the work themselves and less inclined to pass it through to small businesses.

One critical part of our business strategy right now is staying active in industry associations. I'm the industry co-chair for the Naval Aviation Small Business Roundtable, which is a partnership between government and industry to foster the success of small businesses. That position helps me stay in dialogue with my government customers as they're making decisions. Many companies don't have the resources to spend time being engaged at that level.

The second thing, which we've put most of our focus on, is diversifying our customer base. About 98 percent of our work is currently with the Department of Defense. Because defense would see the most significant impact from sequestration, it's important for us to find ways to branch out into other federal markets.

I knew when I started the company that federal IT, especially in the health care space, was a potential market for us. I had some relationships in that area, and my contacts encouraged me to look at entering the market. But at the time, I wasn't prepared. I wanted to build a good, strong infrastructure for my company and to develop a strong footing within the defense space. Once we had established that, then we could see about entering new markets.

In the spring of 2011, we developed a strategic plan to expand into the federal IT market. If we weren't facing sequestration, we might have waited until next year to begin expanding in that area. But now, that plan has become much more critical. We've sped up our timeline by about six to 12 months.

We've focused a lot of attention on business development. Given the potential impact of sequestration, honing our internal processes is really important. In September, I hired a vice president to lead that area. She's very connected in the federal IT space, so she is a great complement to my defense network. We've just gotten our first assignment from the Department of Health and Human Services, and I'm delighted about that opportunity.

As I talk to other business owners in our space, some are very focused on the practical, day-to-day impacts of sequestration. But I like to take the long-term view. There are significant opportunities if we position ourselves appropriately.

--As told to April Joyner

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