Selling to large enterprises: What to know as a small business

Bigger companies want to do things on their own terms and this can often mean taking advantage of their small suppliers. Phil Rothwell reveals how a small business can stand its ground in the face of corporate muscle.

A good friend of mine once told me that you typically find two types of people working in small businesses; those who have never worked for large companies and hate them, and those who used to work for large companies and hate them.

It’s a good joke, but I don’t hate large enterprises myself, perhaps because over the course of my career and after some difficult experiences I’ve learnt to manage some of their behaviours. These days I don’t usually end up pulling my hair out, I deploy some basic survival strategies, which I hope you will find interesting.

Invitation to Tender

We all like to believe that our suppliers are the luckiest people on earth. Big companies are no exception and tend to expect a business relationship that can be summarised as, when we say ‘jump’, you say ‘how high’. This is the expectation that is usually formed by the time you receive an Invitation to Tender, or ITT for short.

If you haven’t seen one, an ITT is a document that typically outlines a business requirement and describes the procurement process. Typically, the bigger the company and the more subject it is to external scrutiny, the more detailed it will be. In many ways an ITT is an excellent document, because it gives you a sense of the scope of a project, but it can also flatter to deceive.

The problem for small businesses responding to ITTs is this is costly and, as I will cover later, big companies can waste a huge amount of your time. While it’s tempting to go in with all guns blazing, I’d recommend that you take a step back and ask yourself the following questions before choosing to make a bid:

Will the sales costs wipe out my profit?

I once received a tender document from a high street brand that was probably designed to manage the procurement of refrigeration systems for a nation state. However, the total sales value was going to be less than £2,000. Needless to say we ignored the document and moved on. Three months later the same company approached us again asking for a simple quotation; no doubt other suppliers had come to the same conclusion as we had.

Are they being serious?

I worked in another company that quoted for a project, the value of which was more than half of their annual turnover. It failed for the obvious reason that the risk to the client would have been far too substantial to make the proposal credible. Don’t assume that because a large company has requested a quotation from you they believe you are potential suppliers. Buyers like to get a range of quotations, so they have more power in the subsequent negotiations.

Will I be in control?

When you respond to a tender document it’s important to ensure you retain power in the subsequent relationship. If the corporate does not specify the terms and conditions it wishes to contract business under, make sure you specify that the terms being applied will be your own. Lengthy discussions about legal documents can easily turn a profitable transaction into a loss maker, so state very clearly that your pricing is based on their acceptance of your terms. This will provide a handy tool in later negotiations and encourages the buyer to do business on your terms.

Read the small print

Unfortunately, negotiating terms and conditions of sale is something you will certainly encounter at some point when you sell to big companies. Turn your purchase order over and you are likely to find a detailed legal document that covers everything the lawyers can imagine going wrong with the transaction. Read these extremely carefully as they can be balanced too much in the buyer’s favour and may even be completely inappropriate for the transaction.

It’s useful to get a lawyer to take a look through these kinds of documents, particularly when you start out. However, here are a few of the things I look out for:

Business liability and consequential loss: Your business liability needs to be limited to a sensible level, which might be to limit of your insurance or the value of the goods being supplied. Avoid taking any responsibility for any consequential loss, because as a small company you can’t effectively insure the business of a large enterprise.

Intellectual property: As a software vendor we routinely see terms that, if accepted, effectively transfer the ownership of our software (and effectively our business) to the customer, even when we sell third party products! These clauses are unacceptable and have to go.

Payment terms: All big companies say they can’t vary these, but when pushed they sometimes do. Whatever the payment terms are, make sure you can live with them and the possibility of a payment slipping. Getting money out of big companies can be very difficult. Make sure you know exactly what the process is and follow it to the letter.

Don’t paper over the cracks: Big companies sometimes see small businesses as objects more worthy of pity than respect. Beware of statements like, ‘this clause isn’t important’ or ‘it will never happen’. If that’s true then there is no reason for them to be covered by the contract at all. If you think the terms of business are unfair push for what you want and if they are ruinous, be prepared to walk away from the deal.

Some companies will force you to sign up as an authorised supplier. This involved submitting some kind of form that takes forever to complete. Some of these systems, especially the online ones, are a nightmare to negotiate. Make sure it’s worth the effort before you start and you cover the costs in your proposal.

Patience is a virtue

It’s easy to make the assumption that people are the same wherever you find them. And this is broadly true even when it comes to selling to larger companies. The big difference is that while relationships can be friendly and positive, in corporates decisions tend to be made by teams of people with the result that decision making tends to be more objective (and slower). The person fighting your corner in a procurement meeting will need hard facts at their disposal.

All of this requires patience and close attention. When you deal with big business, play by their rules where it can’t be avoided, but never allow yourself to be forced into a position where you become beholden to them. Remember you have to charge them more for the extra work involved and the additional risk of doing business with them. Doing so is as likely to convince them you are credible as put them off. The good news is that they don’t enjoy this any more than we do, which is why, once a supplier is in place, they are reluctant to switch. The gain can be well worth the pain.

Further reading on large companies

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