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As Customers, Big Firms Can Lead to Frustration

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                   SoHo NEWS & TIPS
Helping You Make the Most of Your Small Office/Home Office
        SoHoTIPS.com
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Greetings,

Today's article features real-life stories of the dangers 
of relying too heavily on a big company customer when 
you're a small business. It's important to keep base with 
your smaller customers because it won't be as bad if you 
lose one. Read more about this danger and how to avoid it 
in today's business article.

Best,
Mandi

Be sure to visit the SoHo News and Tips blog!
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As Customers, Big Firms Can Lead to Frustration 
By LAUREL-ANN DOOLEY 

Michele Bolgla had just settled in at her desk 
with a morning cup of coffee and some industry 
publications when a headline caught her eye. She 
and her husband Mitchell had been selling men's 
T-shirts to a large retail chain, which had just 
announced that it was shutting down its men's 
section.

The Bolglas quickly realized they were about to 
lose as much as 50% of their T-shirt design 
business, Halfmoon Productions. "We found out in 
the worst way," says Mr. Bolgla. "We read about 
it in a trade magazine." 

"So that was it -- over," Ms. Bolgla recalls, "I 
remember screaming to Mitchell in the next office 
'Oh my God!' " 

The Bolglas say they learned the hard way the 
perils of relying too heavily on a single big 
company customer. "It had been easy -- big orders 
without any follow-up," says Ms. Bolgla. "But even 
if you get into a groove with a big customer, you 
should keep your base of small ones. It's more 
labor intensive, but not so scary when one drops 
out. And we knew this -- but knowing it and living 
it are very different." Three years later, "we're 
still trying to reorganize ourselves to stay 
afloat."

Their tale demonstrates the dangers of relying too 
heavily on a big company customer when you're a 
small business. A big company can guarantee a 
reliable stream of business, making it attractive 
to a small firm seeking to get established. 

"A supply contract with an established company is
bankable -- the small company can borrow against 
it for short-term financing," says David Bodde, 
Senior Fellow and Professor at the Arthur M. Spiro 
Center for Entrepreneurial Leadership of Clemson 
University. "It offers credibility. And established 
companies add predictability to revenue flows."

Three Don'ts for Small Businesses With Big 
Customers
• Don't rely too heavily on one customer
• Don't always expect speedy payments
• Don't go too far in courting a big firm 
 
But there are drawbacks, mainly differences in 
corporate culture that can stymie small firms.
Larger organizations tend to move slowly and 
follow a set annual calendar, says Mr. Bodde, 
while smaller outfits are reactive and events-
driven. Additionally, what might represent an 
insignificant amount of money to a large company 
can be the equivalent of life or death to a small 
one. So a deal that is vital to a small company 
might not get similar consideration from a big 
customer. 

"I was on the board of a small materials company 
that died while two divisions of a larger firm 
quarreled over who would sign the deal with us," 
says Mr. Bodde. "The investors just ran out of 
patience and the available cash flow was too low."

New York business attorney Nina Kaufman counsels 
start-up companies to look beyond the big players. 
"Many of my small business clients tell me how 
much they want to work with a Fortune 500 company," 
she says. She warns them not to overlook less 
glamorous opportunities. "It's like going on 
American Idol and thinking that's the only way to 
stardom. You can get knocked out pretty quickly."

Ms. Kaufman recalls a client who landed a contract
with Wal-Mart for her handmade purses. Jubilation 
quickly gave way to dismay when the woman realized 
that the giant retailer needed the bags in quanti-
ties she couldn't possibly provide.

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"It sounds like Business Plan 101," says Ms. 
Kaufman, "But a small-business owner needs to 
think hard about who their target market really 
is." Big companies may place large orders, "but 
they want to know that things are going to get 
shipped right away." 

And that kind of fast turnaround does not always 
apply, for the reliability that usually comes with 
being a bigger firm often means a lack of speed 
when it comes to paying the bills to small suppliers.

"If your payment terms are 30 days net, they may 
take 120 days to pay -- and that's huge for a small 
business," says Ms. Kaufman. "If this big ticket 
doesn't come in within your time frame, can you 
withstand the hit?" 

She attributes the frequent habit of late payment 
by large companies to the slowness and power inher-
ent in their size. "They do it because they are not 
as nimble as entrepreneurs -- and because they can." 

John Edwards knows that scenario well. As founder 
of a medical-diagnostics business based in Atlanta, 
he agreed to perform numerous tests at his own 
company's expense in the hopes of getting a 
contract with a big player.

"This was a huge company that was looking for a 
new way to measure hepatitis," says Mr. Edwards. 
"They asked if we could test some of their samples 
and, of course, we did. And then we did it again, 
and again and again. "They never promised they 
would give us business, they just kept making 
encouraging sounds."

The gamble backfired when, after months of costly 
courting, the big company walked. He estimated the 
loss at about $20,000-$30,000 in labor and mater-
ials. Mr. Edwards said he was able to learn from 
the experience to get at least some money upfront. 

"I think the message is if they are serious enough, 
they'll pay you something," says Mr. Edwards. "But 
you get beguiled, you delude yourself, even when 
you know that you are walking down a risky path 
because the potential upside is so great." 

Ms. Kaufman recommends establishing a stream of 
small pieces of business before going after the 
big pay day. "You need to have a lot in the pipe-
line. You need to make sure that every 60 to 90 
days, something is being paid." 

In addition to providing positive cash flow, small-
er customers present try-and-tweak opportunities. 
"Test your business model with them and build your 
reputation, instead of starting out with American 
Express," says Ms. Kaufman. "The strength of your 
reputation will be your leverage with big companies 
-- it's one way of leveling the playing field."


DID YOU KNOW?

Find a quiet place and ask yourself this question: "If I 
don't go out of business, then what will I do in the future?"
Watch the flood of insight that occurs when you stop focus-
ing on just making it. Where should you head next?

So what did you think about this issue? Drop me a line and let 
me know at mailto:mandi@gophercentral.com 

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