This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in September 2014 and is posted here by their kind permission
Should you tender or stay away? Some basic rules
Tenders are used by all levels of government and many companies to buy goods and services and issue contracts. The total value of tender business is enormous, so an immediate reaction is to get involved. There is a downside as many small businesses and start-ups have experienced. It is entirely possible to submit many, many tenders without success. The direct cost of preparing a tender is high, but the opportunity cost of conventional sales you could have made instead is higher.
I call these ‘me too’ tender submissions, where you have nothing special to offer, and the company never heard of you. Among the bidders will be existing suppliers, those having specialist skills in the area and those bidding the lowest price because they can. Your chances of success are almost zero. Instead of wasting your time, develop a specific niche expertise or technology then tell potential buyers about it. Your chances of winning subsequent tenders increases dramatically.
Before you even get to tender stage you may have to register as a potential supplier. Government departments, municipalities and corporates frequently publish invitations for suppliers to list their companies in particular categories. If you have a highly competitive attribute or niche and are listed you may become one of a handful, or the only company invited to bid when the company needs your speciality.
If you are going to tender at least get the basics right. Follow the tender instructions. This sounds ridiculously simple and yet non-compliance with the tender rules sees thousands of tenders discarded because of silly mistakes like not providing certificates or late submission. Read a rules carefully and follow them slavishly. If in doubt ask. Please keep an exact copy of the tender as submitted. Contract negotiations where you do not remember what you bid can be interesting….
When you tender you make an irrevocable offer to supply a set quantity and quality of goods at a stated price and under terms and conditions. If you win you will be held to that offer, sometimes even if it drives your company into insolvency. Make sure you can supply, that you can make money at the price tendered including exchange rate fluctuations and that you can manage the cash flow. You will usually need to pay for goods long before you get paid. The bigger the tender the greater the risk.
Tenders differ in their complexity and cost of preparation. Simple commodity tenders are usually won on price and the ability to deliver at low margins. In contrast a more complex tender like an IT system or a building may require large volumes of information. Price will probably not be the sole or even a major decider in these, technology, supplier reputation and previous experience will be crucial.
It is widely believed that corruption, favouritism and political influence affect many tender awards. It may not be productive to bid against politically connected tendepreneurs. Even without dodgy practices a tender will often be written to favour a particular supplier and those are extremely difficult for anyone else to win. Moral: talk to potential customers and make them aware of your unique advantages, before they go to tender.
A good BBBEE rating or black ownership will inevitably give additional points or may be a requirement. Black entrepreneurs must make sure their BBBEE documentation submission is immaculate to gain this advantage. As with all the issues above if you cannot see a reasonable prospect of winning then the effort is unlikely to be worthwhile. Rather put the time and energy into different sales opportunities.
With all the negatives, tendering allows hundreds of SMEs to make profitable sales. Really successful businesses pick their marketing niches, know their strengths and weaknesses, play to their strengths and know the rules of the game intimately.
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