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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!
SoHo News & 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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