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How small businesses can land big contracts

by Anna Maria Andriotis
Publication: Wall Street Journal

November 2, 2007

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Sandra Westlund-Deenihan takes pride in the fact that some of the largest corporations in the world depend on her pint-sized company's obscure products. She's the president of Quality Float Works, a Schaumburg, Ill.-based maker of metal float balls that measure liquid levels in everything from Federal Mogul's vacuum trucks (the floats help measure when the tanks have reached maximum capacity) to Dover Co.'s fuel nozzles, which are sold to gas stations like Mobil and BP. Quality Float even claims the Navy as a client.

Thanks to its laundry list of large clientele, Quality Float, which was founded by Westlund-Deenihan's grandfather in 1915, raked in $2.2 million in revenue last year, a 45% jump from 2003, says vice president Jason Speer. Not bad for an operation that claims a mere 21 full-time employees.

As Westlund-Deenihan discovered, transitioning from a small, unknown business into one that deals with the big guns of the corporate world isn't an easy feat. The stakes are higher and so are the standards. A small business not only needs to guarantee the safety and reliability of all its products, but must also prove it can handle the demands of large orders. On top of that, it needs to offer a product or service that's unique and can ultimately add to the client's bottom line. "If you want to attract big business today, it's all about proving your value to them," says University of Notre Dame associate professor of marketing John Weber.

While it may seem like a monumental task, not all hope is lost. Consider this: The federal government bought $138.4 billion worth of goods and services from small businesses in 2006, a 16.4% increase from 2004, according to the Small Business Administration. Just last week, the House of Representatives Committee on Small Business passed two bills aimed at improving contracting opportunities for women- and veteran-owned small businesses.

However, before a small-business owner starts pitching his or her company to potential customers, there's a lot of legwork to do. Here are some tips on how to prepare for landing that major deal.

Keep a tight rein on quality control

No matter what, potential clients want to see that you have a reliable track record. So making sure your facilities are in tip-top shape and your products (or services) are as flawless as possible is priority No. 1. (This also means taking care of any customer complaints, or, God forbid, legal issues).

Be duly warned: Before signing a contract with a small business, many large companies will send over their own inspection team to assess whether the smaller company can meet high production volumes without sacrificing quality, says Monty Dickinson, president of SCORE's San Diego chapter, a nonprofit organization that counsels small businesses. And you don't want to be caught unprepared.

Start at the source. You should inspect your products throughout the manufacturing process. Westlund-Deenihan suggests that each employee be required to sign off on his or her operation. If that's not enough, then hire your own inspector from an independent agency such as Intertek or Bureau. These companies can even conduct lab tests to confirm product safety. Prices vary depending on the service and the type and number of products tested.

Make sure your product makes them money

The best way to attract a large customer is with cold hard cash. We don't mean bribe 'em. Instead, offer a product that creates cost savings or boosts revenue for your client. Large companies typically want to see at least a 40% return on investment before they even consider an offer from a small business, says Weber. Clients will also want to know how long it will take for the product to "break even," meaning when it will start paying for itself. Typically, a payback range of six to 18 months is common, says Weber. But if you're in a dynamic industry, like computers, payback is expected right away, he says.

A helpful tip: If you don't know which numbers to present, then try putting your own expected costs and profits on an Excel sheet and extrapolate the figures from there, suggests Weber. Also, find out what your competitors are charging, says Dickinson. Even consider reverse engineering — basically taking apart a competitor's product — to determine how and at what cost it was made, he says.

Get certified

Getting an endorsement from a respected industry organization can help give a small business more credibility, as well as visibility. The ISO 9001:2000 certification, for example, applies to all small businesses and is one of the most common certifications. To meet the ISO 9001 criteria, small businesses must keep detailed records of their objectives, their quality control procedures, performance reviews and evidence that the business is working toward correcting any problems, says Chuck Howell, president and CEO of AQA International, an international certification body based in Columbia, S.C., that issues this certification.

There are also certifications geared to businesses run by underserved groups, such as women and minorities. If a company is at least 51% owned, operated and controlled by one or more women or by minorities, including Blacks, Hispanics, Asians and Native Americans, it's eligible for certification by the Women's Business Enterprise National Council or the National Minority Supplier Development Council, respectively.

Want to work with the government? Keep in mind that certifications from these two organizations are only accepted by some state and local agencies and aren't accepted at the federal level, says NMSDC president Harriet Michel. (Contact the Small Business Administration for details on how to certify your small business for federal contracting opportunities.)

See what's out there

Before you start preparing to meet potential clients, you need to figure out what types of opportunities exist.

This task is a lot easier when you're trying to land a contract with the government. Federal agencies, such as the Department of Defense, offer contracts that businesses of all sizes can bid on. Better yet, you can find them online. Prime contracts are posted on fedbizopps.gov, which along with the umbrella web site for federal contracting Acquisition Central, offer small businesses insight into contracting opportunities (when a business is hired by the business that won the contract), says director of government contracting Arthur Collins.

One trick is to approach companies that regularly win prime contracts before a new award is about to be granted, says Collins. That way, you'll be on the company's radar as a potential subcontractor when they do land the deal. To see a listing of large business prime federal contractors, check out the SBA's Subcontracting Opportunities Directory. Subcontracting opportunities can be found on the Small Business Administration's SUB-Net.

Finding contract opportunities in the corporate sector isn't as straightforward. Having an affiliation with a particular industry organization or group can help, though. Small businesses that are certified with WBENC or NMSDC, for example, can visit the respective organization's web site to view the corporations that are interested in hiring women- or minority-owned small businesses.

Shake some hands

Cold calls are a no-no. "People buy from people they know and from referrals," says Adrian Ott, CEO of Palo Alto, Calif.-based Exponential Edge, a consultancy.

Join an industry or trade association, and attend national and local conferences where you can exchange business cards and showcase your skills. "A lot of times people are gathering [there] because they're lacking a product or a skill that they need," she says. Ideally, you want to speak with company buyers, executives who have decision-making and budgeting powers, or their associates, says Ott.

Of course, small-business owners should do their research before going in for the pitch. You should understand how that company functions and what it needs, says Ott. Start by reading the company's web site; see what products they make and try to get a sense of its corporate culture.

No matter what happens, don't get discouraged. "If you really think that you have something unique or efficient, if you keep knocking on that door long enough, someone will open it," says Dickinson.

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