My concern sits with firms roughly between $8 million and $30 million – i.e. large enough that the work is worth a scaled competitor’s attention, not yet large enough to defend it. The better question is not whether value rises or falls. It is how far apart it spreads.
Since SBA published its proposed size standards in August, the question I get most often is some version of: what does this do to what my company is worth?
I do not know. Nobody does. These are proposals, not final rules. Comments close September 21st, and a final rule may be a year or more away. SBA has walked back its own proposed rules before. So, anything anyone tells you today is speculation, not a fact.
But owners are making decisions now, and two things seem worth thinking through.
The risk of the size-out cliff would not disappear. But the risk could move down market.
Most of the commentary has focused on firms near the top of their NAICS code standard, and for good reason. If engineering services NAICS code goes from $25.5 million to $252 million, an owner who has spent five years managing revenue to avoid sizing out gets a decade of runway back. That risk has been suppressing valuations for years. Understandably so, as a buyer looking at a $22 million engineering firm with exclusively set-aside revenue is buying a company that has to face the risk of becoming a full-and-open competitor within a year or two. Remove that risk, and the discount should go with it.
The firms nobody is talking about are the ones well below the size-out line. The argument I keep hearing is that a company heading toward $500 million will not chase an $800,000 task order, and that is true. But a $10 million firm may not be hurt at its current size, but it might be prevented from growing. The $15 million and $25 million opportunities that this small business was pursuing could suddenly be contested by companies with sophisticated capture organizations, proposal teams, vast funding capabilities, and past performance at scale.
It is also worth remembering that the small business pool is not growing. In FY2025, small business prime dollars fell 2 percent to $183.5 billion, and the number of firms winning them fell nearly 7 percent. Set-aside goals are a share of total spending, so adding more eligible competitors to a flat pool is dilution.
My concern sits with firms roughly between $8 million and $30 million – i.e. large enough that the work is worth a scaled competitor’s attention, not yet large enough to defend it.
The better question is not whether value rises or falls. It is how far apart it spreads.
This is the point I keep coming back to. The honest answer is not that small businesses get more valuable or less valuable, it is that two firms with identical revenue would end up in very different places.
Consider two $15 million companies. One has differentiated technical capability, diversified customers, and limited recompete exposure. The other resells undifferentiated labor on set-aside task orders. While the differentiated company will get a better valuation than the undifferentiated company, the common risk of sizing out and the resulting thin buyer pool weigh on both today.
Under the proposal, both effects would change. Affiliation works in both directions, so the buyer universe for a $15 million firm would widen from companies under roughly $16 million to companies with hundreds of millions in revenue. That is a vastly different marketplace. The differentiated firm becomes something a growing mid-tier would rather buy than compete against. However, the undifferentiated firm becomes something that same buyer can beat or simply ignore.
The premium would widen for larger small businesses. So would the discount for smaller companies with undifferentiated services.
Which means the question owners should be asking is not how long until I size out; it is whether a larger small business would rather acquire me or outcompete me. That question is answerable today, and the reality is worth working to improve regardless of what the final rule says.
Sharon Heaton is the CEO and Founder of sbLiftOff, a national M&A advisory that focuses on government contracting. A national advocate for small business founders her commentary can be found in Harvard Business Review, Orange Slices, Washington Business, and beyond.