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The Small Business Guide
to Nearly Everything
Area experts offer solutions from A-Z
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Business New Haven
4/6/1998
By: Susan Banfield
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Not long ago, the conventional wisdom was that large companies did business primarily with other large companies. Big firms turned to national dealers for supplies, and used the services of nationally known advertising agencies, accounting firms and such. To what degree does this pattern still hold?
Today, more and more small companies are successfully landing contracts with large firms, and large companies are increasingly willing to purchase goods and services from small, local operations.
In fact, one small East Haven firm, Accounting Resource Management, reports that, “We don't work with smaller businesses,” according to its vice president, Sandra Glick. Conversely, Rich Fausel, senior sub-contract administrator for one of the area's largest manufacturers, Dresser Industries, says that his company “prefers dealing with local suppliers.”
Has the old conventional wisdom been turned on its head? Yes and no.
Large companies still have significant concerns about the prospect of doing business with smaller suppliers of goods or services. Even though her company, which sells accounting software solutions, is a small operation that sells principally to larger clients, Sandra Glick admits that “size is initially an issue. The concern a larger company has is, Are we really going to be able to meet their needs, service their account properly?” Some of her larger clients, she says, were initially worried that Accounting Resource Management might wind up short-staffed.
Another version of this same basic concern is worry that a smaller supplier's inventory will run out. “Not enough stock or inventory - that has come up,” says Mary Lou Ferranti, a senior buyer for Dictaphone. Ferranti still prefers to do business with larger companies when she can.
Frank Denig, executive director of procurement for Yale University, notes that worries about a small company's ability to meet the needs of larger ones come into play most noticeably when the product or service under consideration is one the company will be dependent on - especially technologically dependent.
“If it's a nominal purchase, I don't think there's any concern,” Denig says. “It's when you're dependent on their technology - you really have to do your homework.”
In such situations, Denig wants to be certain not just of the staffing or material resources of the firm in question, but of its basic financial and managerial integrity as well. “Check on their financial soundness,” he advises. “Cash flow is key - it can put a small business out of business. Check on their management team, get to know them personally.”
The issue of payment is another concern large companies have when doing business with smaller ones. “They either want payment up front or within a day or two,” says Ferranti. “Our usual terms are net 30 [days].”
Denig explains, “The most important thing for a small organization is getting cash when they need it.” He says that when he deals with a small company he makes sure to “lay out the cash requirements very clearly.”
Despite the concerns purchasers for large organizations have, most readily admit that there are definite plusses to doing business with smaller firms. The reason cited most often for turning to a smaller company for a particular type of supply or service is the excellence - or at least unmatched suitability - of the product in question.
Denig tells a story from his days in the purchasing department at Western Electric. His department took a risk and bought an ultrasonic listening device from a small California company. The device could determine, from a car traveling along a road, where there was a hole in a pressurized cable system. The new product turned out to be eminently successful, saving the company tremendous numbers of man-hours over the old, much more laborious methods of testing.
Both Fausel at Dresser and Dictaphone's Ferranti rely on Connecticut's many small machine shops to provide high quality or custom-tooled parts. And small-business owner Sal Annunziato of Data Byte in Branford confirms that the high quality of his product - he sells computer hardware - is an important reason he has been able to attract his larger clients.
Another main reason large companies buy from smaller companies is the ease of doing business with a smaller, often local, firm. Annunziato says his bigger Connecticut customers like the free delivery and quick response time he offers.
“We prefer dealing with local suppliers because of the easier communication, faster delivery and lower transportation costs,” confirms Dresser's Fausel. Denig adds: “A small organization is flexible, easier to deal with - for example, they're able to hold things for you.”
Some smaller companies have found success with larger clients because they make a point of offering superior service. Says Glick, “We're committed to providing a full service.” Annunziato explains that “[Larger companies] get so many people soliciting them, you have to set yourself apart by providing service.”
Jim McLaughlin, president of McLaughlin, Delvecchio & Casey, a New Haven advertising agency, cites service as the main reason a large company will go with a small ad agency.
“What a small agency can provide is more personal attention to the account,” he says. “Sometimes it's difficult to get the attention from a larger agency. You are only going to have a few people working on your account. If it's a small agency, they will be the best people, because they will be the only people.”
Mary Lou Ferranti says that her experience has encouraged her to buy from a small company “not because of service, but because a small company may have something unique.”
Given that small companies are now viewed at least somewhat favorably by purchasing departments at larger firms, what can a small outfit do to overcome the remaining concerns and land that big account?
Alan Hutchings, a principal at Barbeau-Hutchings advertising agency, says he advises smaller companies to concentrate on creating a good and recognized reputation for their business. “In many cases, companies fail because they don't sell their company first. They have to let the marketplace know what the company is all about. Then it's much easier to sell the product.”
One way to build this kind of recognition and reputation is through word of mouth. “Once you get a few good references, it gives you the credibility,” says Annunziato. He says his company, Data Byte, was aided in its attempts to land larger accounts by earlier relationships it had built when selling computer components only.
Annunziato has another piece of advice for fellow small-business owners: Be prepared to be thoroughly checked out by a larger company that is considering doing business with you. “They tend to really investigate your company,” he says. “They ask how long you've been in business, look at your support system, technical knowledge, warranties.”
Glick advises small companies to ask themselves, “Are we really going to be able to meet their needs, service the account properly?” With the larger firms her company does business with, Glick says, “We do have to make sure we're allocating enough time and resources to service their account properly. We maybe don't take on another client.”
Finally, Yale's Denig urges small companies to resist the temptation to put all their eggs in one basket. “Small companies should resist having more than 25 percent of their business with one outfit” he says. “Small organizations can't get into a situation where they're betting on this large organization coming through. You could have a case where a large organization withholds payment legitimately.”
Denig does add, however, that as long as small companies are “wary, take care of themselves,” doing business with a large company “can be a good opportunity.”
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