This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in October 2014 and is posted here by their kind permission
Sales to huge organisations can be wonderful, but there are risks
Making a breakthrough into a giant corporate or a part of government is like finding the pot of gold for many entrepreneurs. If you have secured a contract rather than a single sale the excitement is even greater; the long-term profit generated allows the business to fund growth and regulates the cash flow. Beware though, this kind of business comes with some risks, and entrepreneurs should be aware that such contracts have destroyed businesses, and cost entrepreneurs everything they owned.
Making the sale
Large organisations, from government departments to mines are required to buy from small businesses, especially black empowered ones. We expect them to seek out entrepreneurial companies as suppliers, but it does not work that way. Little businesses have to fight hard to become suppliers. Large organisations are driven by budgets and the key performance objectives (KPIs) of the business unit which needs the product or service, so they will buy the products that fit the specification they prepared to suit those needs. This may not be the best product offered to them. Giants are risk averse and bureaucratic.
To win their trust you need to be aware of their style and needs and prepare your company and products to meet those. Pitch your sale in a way that will help the end users to do their job better. If there is ever a case of selling to the customer needs then this is it – you want to stand out from competitors and show why your company should become the supplier. Once you make the sale you must execute flawlessly all the time, and be instantly available to them at all hours.
Managing the account
To become a regular supplier and trusted advisor you need to make sure you can provide everything they want and do so at a competitive price, staying within their budget. Do everything you can to help them improve their KPIs. This may mean doing irrational things like providing them with products on loan to get around budget cycles, and going far beyond your contract to fix problems. You also should prepare to be bullied – this is a very unequal business relationship. They hold all the power and will follow their own rules.
Develop your relationship beyond the individual champion(s) who favoured your company. Do not bypass them but use them to expand into other divisions and branches and cultivate a network of supporters. Individuals and whole departments may leave, be retrenched or transferred and their replacements often have their own favoured suppliers. Develop customers outside the giant as well, you must spread your risk.
Government and corporates are notoriously slow payers, make sure you have the cash to manage this. It gets worse if your paperwork is not right; payment can be delayed for months or years. A fixed price contract is dangerous; an increase in costs may see you being forced to supply the customer at a loss. Do not expect the customer to be sympathetic to any desperate situation you get into.
The effect on your company
So is it a good or bad idea to go after corporate and government business? It is a bad idea if you are careless with paperwork, complacent, too lazy to reduce risk via additional opportunities, want to do things your way or have insufficient working capital. It can be fatal if you are dependent on a single individual or department or are selling on a fixed price contract with variable input costs.
It is a great idea if you manage the relationship. Large organisations have insatiable demands, growth can be explosive. The reputation effect on your company is huge – if you are a supplier to one of the giants, then other giants and little companies will be comfortable talking to you. It provides profit and cash to drive further expansion. Enjoy it.
© copyright Entrepreneur Media SA (Pty) Ltd. All rights reserved. No part of this article may be reproduced, stored in a retrieval system or transmitted in any form without prior permission of Entrepreneur Media (Pty) Ltd. Permission is only deemed valid if approval is in writing.