The resulting benefits for small companies are considerable. They gain improved access to a steady stream of patient development capital. They gain access to channels of distribution that are often global in scope.
Roberts sits on the board of one such small player, Advanced Magnetics Inc., which develops contrast agents that are used in magnetic-resonance imaging of the body. Annual sales total a little more than $12 million, yet "much of the board's time is spent discussing alliances with large companies,' Roberts notes. For good reason. Advanced Magnetics currently has strategic alliances with six major pharmaceutical companies on three continents.
Big companies search out small ones for one basic reason, believes Advanced Magnetics CEO Jerry Goldstein: they are more innovative. Beyond that, the leverage for big companies is huge. Last year Bristol-Myers Squibb Co. entered into an $11-million transaction with Advanced Magnetics, developing products targeted at billion-dollar markets. "Bristol-Myers is a $10-billion company,' says Goldstein. "To it, $10 million is inventory breakage.' For these reasons, Goldstein sees strategic partnering as "absolutely increasing' in the years ahead. As an example, he cites Sandoz Corp., the Swiss pharmaceutical giant, which budgeted $1 billion for strategic alliances with small biotechnology companies.
A network of strategic alliances will also proliferate in all industries and for more down-to-earth reasons, asserts Paul Reynolds of Marquette University. Some of those reasons include the improvement in communication systems, the rebuilding of the infrastructure, and the institutionalization of just-in-time manufacturing. "All those factors make it easier for large companies to create linkages with outside suppliers.'
That jibes with the model that James Womack envisions. Womack is an MIT researcher and coauthor of The Machine That Changed the World, a book that chronicled the rise of the top Japanese car companies through their use of lean manufacturing techniques. Large, vertically integrated companies such as GM have failed, Womack asserts, "because you can't replicate the market's discipline inside a bureaucracy.' By the same token, Womack considers the vision of the lone entrepreneur trying to compete in a global economy as "naïve and romantic.' Womack argues for a "shared destiny' between large U.S. companies and their small suppliers in which information -- particularly concerning costs and technical know-how -- is exchanged more freely. That will result in greater trust and sense of mutual dependence -- critical factors in a world where the United States, in the aftermath of the Cold War, must now project economic, not military, power. "We're now living in a commercial world, not a geopolitical one,' says Womack. "Big and small companies need to work together in a more dynamic fashion.'
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The Entrepreneurial Alternative
Starting your own company is becoming a more viable career path
Between 1980 and 1990 the Fortune 500 companies shed some 3.5 million jobs. Yet the economy in that time created some 23 million jobs. "In the United States there's a real driving force for people to get started in their own businesses,' says Bruce Kirchhoff, who studies business formation at Fairleigh Dickinson University. In fact, even during the depths of the 1981-82 recession U.S. businesspeople were starting companies at a healthy clip. "Americans seem to form businesses no matter what,' Kirchhoff says. "People chug along. The human driving force is stronger than the economy.'
In the years ahead economic reality may well hasten the need for people to keep on chugging. As Paul Reynolds points out, "For large companies now, their biggest fixed investment is not plant but people.' Translation: big companies will continue to shed jobs.
And the people who lose those jobs will consider becoming entrepreneurs more seriously than ever. Rick Burnes, a venture capitalist who sees entrepreneurs coming out of larger companies, adds, "People are more willing to take risks because so many theoretically stable companies are now not so stable. Going out on your own and starting a company is becoming a more viable career path.'
Meanwhile, Paul Reynolds notes, "about one in five U.S. businesses is created or destroyed every year. That's one in eight jobs offered by private-sector employers. The evidence shows that is just part of life in a dynamic economy.'
A healthful by-product of dynamic growth, however, is more than just new jobs and vibrant companies. It is also a fresh perspective. As old contracts -- lifetime corporate employment, say -- wither away, new ones are forged.
Dick Morley, the angel investor, sees a return to investing at the grass-roots level as more than evidence of the economic principle of money chasing the highest return. It also reflects an increased awareness of where that money is going. "Venture capital has historically failed when it becomes a totally financial game,' says Morley, who believes the game is changing for the good. "What we do is return some funds to the community. A union pension fund that ends up investing in a small start-up wants to create jobs, not just move them around.'
Then he adds one last thought: "Besides, this is also fun.' -- Edward O. Welles n
