Major Leagues

Small businesses score big by teaming up with the giants.

Magazine Contributor

January 1, 1997 14 min read

This story appears in the January 1997 issue of Entrepreneur. Subscribe »

Texas entrepreneur Diva Garza knows that if you slam a door in the face of opportunity, it's not likely to knock again. So when she was approached by a much larger competitor about teaming up as a subcontractor on a project, she pushed aside her reservations and signed on.

"I was pleasantly surprised," remembers the owner of International Team Consultant Inc. Personnel Services. "It turned out to be a great relationship. I found out that when you team up with a competitor, particularly a larger one, there has to be mutual respect, lots of trust and good chemistry."

Garza's decision to join forces with Kelly Temporaries three years ago helped her establish a relationship with a Fortune 500 corporation--Shell Oil Co.--to which she had been trying to sell for almost five years. As the Houston business owner learned, subcontracting and selling to private companies offer lucrative opportunities for small businesses seeking to expand their customer base.

The line between selling and subcontracting is a fine one. Selling directly to corporations as a supplier or vendor typically involves either a onetime sale or an ongoing relationship where goods can be exchanged at any time. Subcontracting usually involves working for a specified time with a company that has a contract for a specific project. Suppliers can easily become subcontractors, and vice versa. What makes both relationships so valuable is that they allow you to get your foot in the door with not only that corporation but also other large companies it does business with.

But before you race down to the nearest big company, there are a few things you should know--not the least of which is the sometimes confusing terminology. Companies selling to big corporations could be called vendors, suppliers or strategic partners; the departments you'll need to contact may be called supplier diversity, supplier development, purchasing, materials management, supplier or supply management, and even sourcing.

Another thing to keep in mind is big corporations are downsizing--not just employees but suppliers and subcontractors as well. "We've been working for the last three to four years on reducing our supplier base," says William Blue, manager of the Supplier Diversity Program at Dupont. In today's marketplace, winning a coveted subcontract or supplier contract with a corporation means you have to work that much harder.

Assess Yourself

Part of that hard work involves planning. Walk into a large corporation with big promises--but little preparation--and you'll quickly be shown the door. Here are some basic guidelines to help determine whether you are ready to sell to the big guys.

Look at your track record. It should be at least five years long because it's tough for a start-up to walk in the door of a Fortune 100 company and sell them something. Your experience should also show a gradual scaling up of the companies you sell to.

Gary Engebretson, president of the Contract Services Association of America, which represents government service contractors, says credentials--a background or track record in the industry--are critical. It's also important that you really are capable of fulfilling the bigger firm's needs at the volume required. If you mess up once, you won't get a second chance--and you could ruin your reputation.

Establish a sound financial background. A weak financial structure diminishes your ability to get business as a new supplier, says Blue.

Determine what product or service you will provide. Many small companies falter by finding out what big companies need and then trying to fit their abilities to those needs. A better approach, Blue says, is to figure out where you excel and then find a company that needs what you are best at. Once you sell them what you're good at, they may consider buying your other products or services.

Gather references. "Do you have clients who will vouch for you?" asks Blue. "The more similar they are to the big company you're approaching, the better." An ideal reference would be a subsidiary of the target corporation, a customer of a subsidiary, or even a business that networks with the purchasing department in your target corporation.

Be professional. Don't expect to go into a meeting, pass out your brochures, then wait for questions. Be ready to control the presentation and answer all the questions before they are even asked. Concisely tell the prospect about your areas of expertise.

Choosing Your Target

Now that you're prepared to take on a subcontract or supplier contract, what's your next move? "First examine who your customer should be," Blue advises.

Setting your sights on big companies that sell to the government may be a smart move because these companies are required to meet federal goals for utilization of small, minority- and women-owned firms. But keep in mind that this does not mean they have to do business with you if your services or products are subpar. You also need to be sure your business can handle the large orders these firms make.

"Many of the companies approaching us are not [equipped] to deal with a Dupont or any of the Fortune 100, but they spend a large amount of resources trying to penetrate that market," says Blue. "Whereas, if they looked at one of our suppliers or even a couple of tiers below that, they might find a better match."

Thousands of smaller, privately held companies spend billions on purchasing each year. According to a 1996 survey of 3,000 members by the National Association of Purchasing Management, 54 percent said their purchasing dollars were between $1 million and $10 million, 23.9 percent spent $10 million to $25 million, 11.4 percent had purchasing dollars of $25 million to $50 million, and 10.4 percent pegged their budget at more than $50 million.

Selling to smaller entities requires understanding their businesses, stresses Rene Yates, materials manager at jewelry manufacturer B.A. Ballou & Co. Inc. and former president of the National Association of Purchasing Management. "[Suppliers and subcontractors] have to come to us and shown how they can add value to our process--and that's not just price," he says. "It's quality and even far beyond quality." Adding value means showing how your business can help reduce costs or streamline an administrative process.

Both large corporations and smaller firms want quality and consistency of products and services. They also need suppliers who are proactive and will take time to offer solutions to current or potential problems, says Yates.

How do you find companies to target? There is no one national organization dedicated to helping small firms navigate the waters of private-sector purchasing. However, individual chambers of commerce, Small Business Development Centers, and Service Corps of Retired Executives offices nationwide are good sources of local help.

In addition, the U.S. Department of Defense through its Defense Logistics Agency funds procurement assistance centers. While they primarily help entrepreneurs learn the ins and outs of selling to the government, these centers can also help you target the private sector. According to Morris Hudson at the Missouri Procurement Assistance Centers, assistance varies among states, but in general, entrepreneurs can get how-to counseling, client referrals and a directory of the names and contacts of all the prime contractors working with Uncle Sam.

The government also operates the computerized Procurement Automated Source System (PASS) registration program. This free online listing enables small firms to put their companies' names before corporations selling to the government.

The Buying Game

Once you know whom to sell to, find out how the company buys. Are supplies bought nationally, regionally or both? One way to find out is to get a copy of the company's annual report, which usually provides substantial information about what and how the corporation buys.

Another avenue is contacting the company directly. "If companies want to do business with Sprint, they start by calling the Supplier Diversity program, and based on their product, commodity or service, they are referred to a supplier diversity administrator," explains Terry Smelcer, manager of supplier diversity at the telecommunications giant. The administrator will make a determination about suitability by phone or, if necessary, ask the entrepreneur to send more information.

Some companies use The Thomas Register of American Manufacturers (Thomas Publishing Co.) to find suppliers. Being listed in The Thomas Register could give your firm an edge because the directory allows companies to search for suppliers by name, product type or geographic location. While manufacturers, wholesalers, distributors, exporters and importers must operate on a national or global scale to be featured in TheThomas Register, firms selling statewide or locally can be listed in the Register's sister publication, the Regional Industrial Buying Guide.

While all this research may help put your company in front of contractors--or at least get your name in a few databases--it might not necessarily net you an order because of the sheer volume of suppliers you are likely to be competing against. Sprint, for instance, has 13,000 to 20,000 companies in its database. Of course, smaller companies have a smaller pool of suppliers and subcontractors, but it still takes a lot of work to get on the A list.

So how do you stand out in a crowd and get the attention of buyers and people who make the subcontracting decisions? Dupont's Blue says one key is learning to succinctly describe your company so that when buyers read your literature, they know immediately what you do. "Come up with some key descriptive words so that if it goes in our database and we do a key-word search, we could find your description," he advises.

Persistence is also crucial. If the company doesn't buy your product or doesn't need it when you first approach it, contacting the buyer every three months or so will keep you in his or her mind.

Perhaps most important is your attitude. "You've got to be willing to invest a lot of time and be committed to the process," says Gasper Mir, co-founder of Mir Fox & Rodriguez, a Houston-based company that provides accounting, tax, consulting, strategic planning and training services to government and the private sector. "You have to communicate how committed you are to promoting your community, developing your staff, and providing opportunities to others."

In addition to his commitment to helping others, Mir is active in the Houston business community and serves on the boards of various private and nonprofit organizations. This brings him in contact with Fortune 500 CEOs and gives them a chance to get to know his personal capabilities, which may pique their interest in hearing or seeing what he can do professionally.

Understanding and meeting a company's needs helped put Salt Lake City-based Galapagos Software Inc. ahead of its competition. Started in November 1995, the three-person firm has a subcontracting agreement with Wave Systems Corp., a 30-employee company in New York City that develops electronic commerce models for firms such as Simon & Schuster and the William Morris Agency. Galapagos is incorporating one of its software designs into technology Wave Systems is creating.

"We approached Wave Systems because we knew they were going to need a better way [for people] to find information," explains Galapagos' president, Scott McCarty. He was able to secure the contract because he had a working relationship with people at Wave Systems who knew his and vice president of technology Shaili Jain's reputations as programmers. "Yes, we knew these people, and that was a foot in the door, but that was secondary," says McCarty. "The most important thing was that we had a solution they really needed."

Good Relations

Building relationships is key to success in the world of suppliers and subcontractors. Indeed, once you get into the supplier system, you're likely to find an entirely different animal from the one you may have heard about. The old relationship between buyers and suppliers was adversarial at best, recalls Rene Yates.

"The old thinking was buyers are out to do you in, and you kept them out of your plant," says Yates. "Now, they're in the plant designing products with you."

Trust is now a major part of any buyer-supplier relationship because corporations realize their suppliers can help them gain a competitive advantage in the marketplace, continues Yates. Entrepreneurs must become comfortable with such closeness if they want to develop a long-term relationship.

These relationships pay off in more ways than one. Some corporations have special supplier development programs aimed at grooming smaller companies. At Dupont, for instance, the Supplier Development Program can provide services including finding someone at Dupont to assist with the supplier's marketing, providing software and technical support to give a company electronic data interchange (EDI) capabilities, and offering training workshops for suppliers on subjects such as strategic cost management.

At Sprint, Smelcer says, "If we find a company that has potential, we work with them to bring them on a little at a time understanding how to do business with Sprint--what level of performance they need to be at and what Sprint's standards are."

Whatever route you take to sell to the private sector, there is one thing to keep in mind: Knowing your market can get you in the door, but providing good quality and top-notch service coupled with competitive pricing will help you win the contract.

Diary Of A Subcontractor

Learning the ropes--and eventually succeeding--in subcontracting takes hard work, persistence and a stomach for rejection. But the payoff may be worth all the effort, as Gasper Mir, co-founder of Mir Fox & Rodriguez, learned. Houston-based Mir Fox & Rodriguez, which provides accounting, tax, consulting, strategic planning and training services to government and the private sector, has gone beyond subcontracting to a level somewhere between that and prime contracting. The 47-employee firm handles private-sector work such as audits of employee benefit plans for Shell Oil and Enron Corp. Its relationship with Shell, which brings in about $100,000 annually, developed seven years ago because of Mir's personal contacts and commitment on the part of two giant corporations to find a way to help minority-owned firms obtain private-sector contracts.

"That's a major challenge, particularly in our line of work. You get major corporations like Shell that have always dealt only with the Big Six [accounting] firms and quite frankly don't know the expertise of a smaller firm," explains Mir. "It's a major risk in many ways for them to hire a smaller company to come in and do their financial reporting."

But as a member of the Houston Business Council (an affiliate of the National Minority Supplier Development Council), Shell was committed to minority business growth. Working with Mir and another member of the council--Price Waterhouse--the oil conglomerate identified areas within the company a small firm like Mir's could handle. Price Waterhouse endorsed the process, which played a big part in boosting Shell's confidence, Mir believes.

"Shell interviewed other firms, but we ended up getting the contract," says Mir, who used the same process to win a contract with Enron, another Houston-based corporation. Mir Fox & Rodriguez has been handling the Shell work for seven years and Enron for four years.

Getting this contract was not a fluke, says Mir. Instead, it was a long process of planting seeds and then harvesting the rewards. Initially, he subcontracted for firms working with the government and handled auditing work for many nonprofit corporations, which put his name in front of many of the city's corporate leaders.

"We benefited greatly by subcontracting with larger firms so we could build our experience and knowledge," says Mir. "We wanted work where we could take responsibility and really get involved."

This management-level subcontracting helped Mir Fox & Rodriguez build a track record and led to an auditing contract with the Houston Housing Authority in 1989--a project that further increased awareness of Mir's firm within the private sector. It also helped pave the way for his eventual contract with Shell, proving that persistence pays off in the world of subcontracting.