This article has been contributed by Bronwyn Reid | Entrepreneur Insights Series
Almost every small business owner starts their business venture with the hope of eventually landing a big-name company as a client. Instead of constantly chasing leads and having a “feast or famine” bank account, your new contract will provide you with a steady and certain income. You also know just how much it will mean to be able to put the logo of your new customer on your website and marketing materials — especially if it is a well-known brand.
But before you start chasing this particular rainbow, it is extremely important to understand that big companies are different. If you are used to dealing with other small and medium businesses, you will have to adjust to a whole new way of doing business. Understanding this at the outset will save you a lot of time and angst – and possibly money as well.
There is a lot to know about dealing with big organisations, so this post will point out just some of the things you will have to start thinking about before you pursue your target customer.
1. Understand supply chains
The first concept that you will need to understand is that you become a link in their “supply chain”. By their very nature, large organisations have many suppliers – maybe hundreds of thousands of them. Each of those suppliers, including your small business, has their own suppliers, forming a “supply chain”. Even if you are supplying directly to the big company, you are still considered to be a part of the supply chain.
As with any chain, if one link breaks, the entire chain fails. The big company doesn’t get their required products or services so they can’t supply their customers, who in turn become very, very unhappy.
2. Don’t be the weak link.
The scenario above illustrates the one, underlying principle that you need to understand if you’re going to be successful as a supplier to large organisations. They hate risk.
You must be able to demonstrate convincingly that your small business is not going to be the weak link in their supply chain. If you can do that, you will be well ahead of your competitor who hasn’t been able to give them the same level of comfort.
3. DIFOTQ
Your potential customer is also worried that you won’t be able to supply on time —when they need it. They also lose sleep over whether you will be able to supply the same product or service, to the same standard, every time.
All these concerns come together in an acronym that you will hear when you deal with large organisations: DIFOTQ – Delivered In Full On Time and Quality. The “Q” in DIFOTQ doesn’t mean the best available. It means fit for purpose and consistent, and this is how your larger competitors often win contracts. Their larger size and capacity allows them to supply the consistency that supply chains demand. It may be consistently lower quality than your small business can provide, but it is consistent, and they can deliver every time.
4. Your financial health
If a supplier collapses due to financial distress, a large organisation’s supply chain will be interrupted. As well as the threat of non-supply, they will have to find an alternative, reliable supplier. Consequently, most big companies will ask you for your company’s past financials so they can assess its financial health.
Interestingly, prior to the coronavirus pandemic, large organisations often looked upon small companies as a financial risk, and preferred B2B (as in Big Company to Big Company) relationships. COVID 19 showed where the risk in supply chains really resided: in long and opaque supply chains spanning many companies and continents.
Watch out for more local procurement in the future.
5. Their financial policies
The odd thing about your potential big customer wanting to forensically examine your financials is that their payment policies sometimes seem to be designed to make your finances worse! Australia has long held the world record for late payments (23 days for FY 2018-2019), and big companies lead the pack, with up to 90 days a common occurrence.
For the small business owner, this means that while there are huge rewards to be had from having a big-name customer, you must carefully consider the impact on your cash flow.
6. Be prepared
Attracting a well-known brand as a customer for your small business can certainly be a game-changer, but before you start to prepare your pitch you will need to understand that these organisations don’t work like your other customers. Dealing with them is whole new ball game for most small business owners, so be aware of the potential pitfalls, along with the potential rewards.
Author: Bronwyn Reid
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Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built, and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder and CEO of MBH Corporation PLC. He is the author of three best-selling books ‘Progressive Partnerships’, ‘Agglomerate’, and ‘Entrepreneurial Investing’.
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