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Small Business/Large Business Relationships
 

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Many small business owners see large businesses exclusively in competitive terms. For small enterprises that compete directly with larger companies, this characterization is an accurate one. An independent record store owner, for example, will undoubtedly—and legitimately—regard the arrival of a new record store operating under the banner of a national chain as a threat. Similarly, a small plastics manufacturer will view larger firms engaged in the same industry sector as competition. But small businesses should recognize that large regional, national, or even international companies can take on other, decidedly more attractive, identities as well. Larger companies may assume roles as business partners, product distributors, or customers. Indeed, large enterprises wear different hats to different observers. One small business's aggressive competitor may be another small firm's business ally, distributor, or client.

LARGE BUSINESSES AS PARTNERS

The 1990s saw a general increase in business partnerships between small and large companies. Alliances between large companies are still more prevalent, and many large firms continue to prefer to simply swallow up smaller enterprises via acquisition, but analysts and consultants alike contend that growing numbers of large companies are recognizing the benefits that can accrue from establishing partnerships with nimble, entrepreneurial firms. Small but growing companies can offer mature partners access to new customers, innovative products and management practices, and opportunities to bask in the glow of the small business's innovative, contemporary image. This is especially true in the biotechnology sector and in other industrial sectors characterized by rapid change and innovation. Partnerships of this sort often cross industry boundaries as Myron Gould explained in Direct Marketing, "Partnerships can be formed in the profit and nonprofit sectors, in the same or different industries, within different divisions of the same company, and in similar market segments/demographics in non-competitive industries."

Indeed, many observers believe that in recent years, festering suspicions and stereotypes in both the large- and small-business camps about the motivations and abilities of the other have begun to give way to an increasing recognition of the positives that can be gained by working cooperatively. James W. Botkin and Jana B. Matthews, authors of Winning Combinations: The Coming Wave of Entrepreneurial Partnerships Between Large and Small Companies, stated that "entrepreneurs and corporate executives now need each other more than ever. Their needs and their strengths are often opposite and complementary. Both large corporations and small companies can brighten their global prospects by forming collaborative partnerships that capitalize on their complementary strengths while respecting the independence of each party."

Well-managed smaller companies have long proven themselves to be very adept at anticipating market trends, capitalizing on new technologies, and using their lean structures to outpace larger companies. But while their small size enables them to evade the lumbering bureaucracies that hamper the actions of all but the most progressive larger companies, small companies are also limited by certain realities that can be easily addressed by big firms, and these impediments are often emphasized if the small firm hopes to establish a presence beyond its domestic borders. "Increasing globalization '¶ makes it difficult for small entrepreneurial companies to act alone effectively," wrote Botkin and Matthews. "Their marketing and distribution channels are frequently inadequate for getting their innovative products and services to an international marketplace. The continual need of small companies for capital also limits their maneuverability. The time and attention of their entrepreneurial management is often diverted to finding and negotiating financing instead of developing markets and distribution systems'¶. Though their innovations may be exactly what the marketplace needs and wants, they are likely to be handicapped in reaching it."

Large firms are an obvious source of assistance in many of the above areas—distribution, financing, marketing, etc.—but small businesspeople have a tendency to regard large corporations with suspicion. After all, many entrepreneurs come from corporate environments that were not necessarily characterized by adherence to any code of business ethics, and American corporations have not always shown respect for small business autonomy. "Given the 'big fish eats little fish' history of large-to-small encounters, founders of small companies may understandably be leery of forming partnerships that they fear will destroy their company's autonomy and identity," admitted Botkin and Matthews. "But this need not be the case. We suggest that any partnership offer be examined critically and carefully. Entrepreneurs must learn to discriminate between corporate sharks with a bite and swallow mentality and those suitors who have a mutually beneficial arrangement in mind. It's natural to be suspicious. However, many founders of small businesses write off strategic alliances altogether, closing off what might be an increasingly important avenue of rapid growth."

Keys to Successful Partnerships with Larger Companies

Following are several tips that entrepreneurs should consider when negotiating and maintaining a partnership with a larger company:

Research. Some partnership offers sound great on the surface, but are fraught with unpleasantness under the surface. Entrepreneurs should make sure that they undertake diligent research so that they can best assure themselves of finding the right partner, for as Botkin and Matthews admitted, "not every partnership yields happy results; ill-conceived partnerships can leave your company in worse shape than before. Bad partnerships, like bad marriages, can drain resources, end up in costly litigation, and sour both partners on future relationships." Typically, however, warning signs will be there for the small business owner who takes the time to look.

Fundamentally sound business practices. Entrepreneurs hoping to secure a partner to bankroll their R&D efforts or market their products are wasting their time if they do not have a viable business already in place. If the small company's business practices are shoddy, disorganized, or incomplete, large companies will be sure to notice.

Recognition of own responsibilities. Entrepreneurial companies can reap many benefits from partnering with large firms, but they need to recognize that those big companies are for-profit enterprises; they expect something in return for their financial, marketing, and/or management help.

Monitor requirements of successful partnership. Many partnerships with larger companies require entrepreneurs to make a greater commitment to their business in order to meet the obligations and conditions explicated in the partnership agreement. If the entrepreneur in question launched his or her business for the express purpose of realizing greater personal wealth or establishing a significant presence in a given industry, finding the desire to meet those partnership obligations should not be a problem. If, however, the entrepreneur launched his or her venture in order to stake out a lifestyle of independence and travel, that person may want to weigh the sort of impact that the partnership could have on those aspects of his or her life.

Do not be intimidated. The trappings of the corporate world (high-rise buildings, cavernous conference rooms, legions of blue suits, etc.) can be intimidating, but small business owners have to remember that they run viable businesses of value themselves, and they should negotiate accordingly.

Maintain independence. Autonomy is assured if you maintain ownership, so be leery of turning over too much equity in the business in exchange for financial help.

Establish clear and open lines of communication. Good communication practices are essential to all business relationships, both internal and external, and alliances with large companies are no exception.

LARGE BUSINESSES AS PRODUCT DISTRIBUTORS

Myriad small manufacturers rely on major mass merchandisers (regional, national, or international) to sell their goods. Indeed, these distributors can dramatically heighten a small business's fortunes in a matter of weeks or months. But entrepreneurs seeking to establish such relationships will find that 1) competition to secure a place on the shelves of major retail outlets is fierce, and 2) some mass merchandisers will be better suited for the small business's product than others.

Competition

The single most important factor in securing a distribution agreement with a major retailer is, of course, having a quality product that will sell. But small business owners seeking to establish themselves with a major mass merchandiser also need to make sure that they attend to myriad other business matters every step of the way. After all, the mass merchandiser in question has plenty of product options from which to choose; if your company stumbles at any point, there are plenty of other competitors waiting to take your place on the merchandiser's shelf. Given that reality, entrepreneurs have to make sure that they have a dependable production/delivery operation in place. In addition, small business owners should be prepared to provide prospective distributors with information on the firm's management and financial situation.

Compatibility

Moreover, entrepreneurs need to make sure that they concentrate their efforts on finding mass merchandisers that already sell products to the new product's probable demographic audience. For example, an expensive, "high-end" home furnishing product is more likely to be compatible with the existing product lines of an upscale retailer than one of the major discount retailers (Kmart, Wal-Mart, etc.). Conversely, an inexpensive but functional item that would be commonly used might be better suited to discount outlets rather than Nordstrom's or some other high-end retailer.

LARGE BUSINESSES AS CUSTOMERS

Many small businesses, whether involved in retail, wholesale, manufacturing, or services, count fellow businesses as significant or primary customers. Pleasing corporate clients is in many fundamental respects no different than pleasing individual customers. As Richard Gerson observed in Great Customer Service for Your Small Business, "much of customer service comes down to plain old common sense. Simply put, customer service involves everything you and your employees do to satisfy customers. That means you give them what they want and make sure they are happy when they leave. If you just manage complaints, offer refunds or exchanges on returns, and smile at customers, you only provide a small part of excellent customer service. Customer service also means going out of your way for the customer, doing everything possible to satisfy the customer, and making decisions that benefit the customer—sometimes even at the expense of the business [depending on the customer's future potential]."

However, corporate customers sometimes have different needs and priorities than do private individuals, and small businesses that do not recognize these differences are unlikely to provide service that will be acceptable in the long term. For example, delivery deadlines are often far more important for businesses than they are for regular customers. Late delivery of a service or product may constitute no more than a minor convenience to a private-sector customer, but it might mean significant monetary loss for a corporate customer that was depending on that delivery to meet deadlines imposed by its own customers.

Small business owners are painfully aware of the fact that the loss of a single corporate customer often constitutes a much more severe blow to a business's health than does the loss of a single retail consumer. Whereas businesses that provide goods or services to the general public will have many customers, establishments that provide their goods or services to corporate clients will in all likelihood have far fewer customers. The loss of even one such client, then, can have a significant impact because of the percentage of total business that the customer represents. Finally, businesses that rely on corporate clients are more likely to encounter higher levels of paperwork and bureaucracy to satisfy the recordkeeping apparatus of their clients.

BIBLIOGRAPHY

Ansary, Mir Tamim, and John De La Mothe. Networks, Alliances and Partnerships in the Innovation Process. Springer, 2002.

Botkin, James W., and Jana B. Matthews. Winning Combinations: The Coming Wave of Entrepreneurial Partnerships Between Large and Small Companies. John Wiley & Sons, 1992.

Buvik, Arnt, and Kjell Gronhaug. "Inter-firm Dependence, Environmental Uncertainty, and Vertical Coordination in Industrial Buyer-Seller Relationships. Omega. August 2000.

Doz, Yvez L., and Gary Hamel. Alliance Advantage: The Art of Creating Value through Partnerships. Harvard Business School Press, 1998.

Gerson, Richard F. Great Customer Service for Your Small Business. Crisp Publications, 1996.

Gould, Myron. "Partnering for Profit—How to Achieve Impressive Cost-Benefit Results." Direct Marketing. February 1997.

Neuborne, Ellen. "Small Business, Big Client: Leveraging your size to snag a mammoth customer." Sales & Marketing Management. October 2003.

"Small Firms Have Big Advantages." Mortgage Strategy. 30 May 2005.

Wilhelm, Wayne, and Bill Rossello. "The Care and Feeding of Customers." Management Review. March 1997.





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