The Lure and Danger of Big-Client Projects
It's every small-business owner's dream to land a big contract with a big corporation -- or is it?
Three years ago, Leslie Saunders, president of Leslie Saunders Insurance & Marketing International Inc., wanted a six-figure contract with Avis Rent A Car System Inc. so badly that she underpriced the deal to win it. Once the contract got under way, Ms. Saunders, whose Tampa, Fla., firm provides insurance and related services, knew she had made a mistake.
"No matter what I did I was going to lose money," recalls Ms. Saunders. Indeed, her company was losing several thousands of dollars a month and she had to cancel the contract or renegotiate it. Lucky for her, the rental-car company allowed her to draw up a new contract.
Avis remains a client today, and Ms. Saunders learned a valuable lesson: Don't overreach to play in the big leagues. Too often small businesses will sacrifice everything to build their businesses, but that isn't always what's best for them.
It's only natural that businesses would jump at every opportunity and more so now in a sluggish economy. Yet small-business owners have had to be more aggressive on price to get big contracts as big companies tighten their belts. That kind of eagerness, however, can sometimes get small businesses in trouble. "Every time is the right time -- sometimes against all odds and common sense," says Harriet Michel, chief executive officer of National Minority Supplier Development Council Inc., a New York group that links many small businesses with big corporations.
Ms. Michel says when a small business finds itself in over its head the key to surviving is to acknowledge there's a problem right away. "Usually, small businesses are too scared to say, 'I'm in trouble,' " she says.
What they don't factor, she adds, is that big companies don't have the time to get angry. "If the corporation feels the supplier is a valued supplier, it's in their best interest to work out the problem as well. They don't want to disrupt their supplier. It's time consuming for them to pull it."
In Ms. Saunders's case, she notified Avis two months into the yearlong contract. Lynn Boccio, vice president of supplier business alliances for the Cendant Corp. unit that owns Avis, says senior management was willing to renegotiate the contract because Ms. Saunders had "earned the opportunity" by building a good relationship with Avis.
But Ms. Boccio warns that getting second chances "may not always be the case" and that small-business owners should think twice about going after big deals. "They will hear the great name of a corporation. They need to know, even if the name is great, they need to say no if the contract is not good for them," she says.
Sometimes the solution to a sticky situation is to bring in a partner. That's what Charlie Garcia, chief executive of G.M. Construction Inc., Indianapolis, did when halfway through building a pharmaceutical plant he realized his company lacked the technical expertise to finish the project. Even though it meant spreading profits, he brought in another contractor and vendor. "That was the lesson learned: Know what your capability and capacity is and subsidize it in any form or fashion," he says.
Some small-business owners are learning that bigger isn't always better. Bigger companies may have deeper pockets but they also have more bureaucracy and one glitch can delay payment for months. Janice Bryant Howroyd, chairman and CEO of ACT-1 Group, a Torrance, Calif., staffing and human-resource management company, found that out when she jumped at the chance to work with a multinational staffing firm to help build market penetration for her own company. "I didn't investigate the whole contract," she says today. "It became a nightmare."
A year after the contract was over, the company, which she declined to name, owed ACT-1 $1.2 million for services provided. One invoice discrepancy held up processing of the other invoices, which prevented timely payment. Without that cash flow, ACT-1 had to shut down a regional office. "We still only recouped $900,000 of it. For a small company that is tough," says Ms. Howroyd.
So sometimes the road not taken is the best choice. That was the case for Nancy Connolly, founder and president of Lasertone Corp., when she decided not to pursue a contract with Pitney Bowes Inc. that would have doubled the sales of her fledgling ink-cartridge business.
In 1995, the Littleton, Mass., company's toner cartridge for fax machines had passed quality testing at Pitney Bowes, giving it a shot at wide distribution for the mail- and message-management concern. If Lasertone won the contract, it would have had to double production and hire more people.
Ms. Connolly wondered whether her young staff could handle the increased load and whether quality would be sacrificed with such a rapid ramp-up. After agonizing over what to do, she wrote a letter to Pitney Bowes withdrawing from the bidding process. "If I do this, I would be out of business," she explained.
Eventually, Lasertone grew and got another shot at Pitney. Late last year, the company won a contract to distribute cartridges to 1,400 locations.
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