THE SECRET SAUCE
Corporations were interested in giving a helping hand to minority-owned companies - not a hand-out - in the early years of supplier diversity. They were willing to help them get in the door and to reach a certain level, but they were not guaranteeing a contract for life. In order to get a contract for life, your company had to out-perform everybody else that was performing the same service. Once the helping hand had been extended and you took it, you had to quickly transition to leveraging that helping hand to get new business with new customers.
Large
companies are very judicious when awarding contracts to minority-owned and/or
woman-owned businesses because of what is known as a “pass through” or “front
business”. Majority owned companies would find someone diverse – it could be a
woman, a Hispanic, African American, an Asian, etc., or in today’s world, a
gay, lesbian, or veteran and use that person as a “front” to have their company
qualify as a minority-owned business. The person whose name the company was in,
in some cases, did not contribute to the company in any form or fashion as the
majority-owned contract provided operational and back-office support for the
entire effort. Large companies
recognized that these arrangements did not meet the intent of growing
operational and financial capacity of the business controlled and operated by
the minority/woman. Corporations began
to implement procedures to discourage these arrangements. They were not going
to support people gaming the system, thus they began to carefully vet the
companies to whom they award contracts. It is therefore imperative that you are
transparent and above-board in your dealings with them, and you have a genuine
desire to build a legitimate, standalone business even if you partner or team
with a majority-owned business to help get you started..
When
going after a multi-million-dollar-contract with a large company, a Strategic
Alliance can help you simplify the process and navigate the maze. Here I will
discuss how to utilize what I’m calling “the secret sauce” in this type of
transaction. I will use an illustration of a situation that a prospective client
encountered. It is one of the trickiest ones but, if you do it right, you will
never look back.
My
client has a woman-owned business and she has been presented a fantastic
opportunity by a major tech company. They love what she has been doing and have
offered her company a substantial multi-year contract - anywhere from
5-to-20-million dollars. Her company alone isn’t able to handle the large
contract but she has a strategic partner/supplier – a much larger company -
with whom she has a relationship that can help her fulfill the contract. They
actually are able to provide the operational support that she needs because her
company just isn’t big enough. Her ability to tap into their staff, their
processes and their people just makes a lot of sense as part of her
go-to-market strategy. In this illustration, the tech company wanted to make
sure that my client was not being taken advantage of by the larger company who
incidentally, would be willing to
sacrifice 10 or 15% of the contract margin and just pay her company and thereby get the bulk of the
contract without paying my client any real money.
The
tech company wanted to guarantee that her company would materially benefit for
the purpose of creating a viable business that could stay in the market for the
long term.. They didn’t want to give her a 5, 10 or 15-million-dollar contract
and she only got 5, 10 or 15% revenue from it and yet her company was not set
up to succeed after the contract ended.
There
were several things that my client needed to understand about her own company
before she considered getting into a supplier partnership with the other
company.
The
first thing was the relationship that she needed to have with the supplier
partner in order to make this work. She had mentioned that her company supplied
a lot of the same services as the supplier solution partner. That’s tricky
because the risk you run in this situation is that your supplier solution
partner can potentially do an “end-run” around you. Their sales people can walk
into the client’s office and tell them that “Hey, you’re paying her company a
10, 15, 20%, etc . markup for something we can do cheaper”. The tech company therefore would reconsider
paying that extra money to my client if they could get the exact same thing for
less. That’s a really difficult issue to
navigate if you find your company in that situation. Additionally, what my
client had to do was to establish upfront with the solution partner that her
company would handle and manage the project – that she would be the primary
interface and serve as liaison and project manager with the tech company. She
also needed to stipulate that her company was the face of the contract. Her
solution partner’s business development people would not need to talk with the
tech company about this contract for any reason if they did not otherwise have
business with the tech company.
If
her solution partner does have other business with the tech company, she must
make it clear what the rules of
engagement are regarding the contract, and they must understand that the
contract allows for penalties should the solution partner attempt to do an
end-around or violate the confidentiality agreement.
She
must establish primary control over the contract. Additionally, what she needs
to do is to look over the entire portfolio of products and services and pick
out three-to-six that her company can perform in-house. She then needs to build a staff around these
products/service offerings, so that when an invoice goes in for that particular
line item she gets 100% credit for it because her company performed 100% of the
effort. For the other line items, she must negotiate with the solution/supplier
partner that they will cover overhead plus a small overhead fee and a small
profit because her company is doing cost of sales, invoicing, customer service
& follow-up, and will expect to get the products/services at cost.
Following
this approach for the business model allows you to position your company to
continue to function in the project role and as the chief technical person for
the entire contract. As your employees become more proficient, there are more
tasks they can perform, and after six months, a year, or two she will actually
have a very good business. Another consideration is whether her company is
taking the most profitable parts of the contract, because in this example the
tech company specifically wants her company to grow in profitability.
Finally,
how you and your supplier partner will be paid by the tech company needs to be
decided. The tech company wants to be sure that her company is actually getting
the benefit from this contract, and your supplier partner wants to be sure that
they are being paid too. The better way to handle this is to have the tech
company issue the check in both companies’ names. This satisfies the tech
company‘s auditors as to whether the funds are actually being paid to a
minority/diverse/woman-owned business. It also enables her records to show that
the funds were indeed paid to her company. How cashflow is going to be handled
between her company and the supplier partner also needs to be ironed out. Some
supplier partners will front you your portion of the revenue when the invoice
is generated, and some may not pay you until the check actually hits the lock
box at the bank.
When
you negotiate all of the aforementioned issues and have a solid contract with
the tech company, and an agreement with your supplier partner, then you have
designed the contract so that you actually use it to set your company up for
long-term success.
In
summary, look at the entire portfolio of products and services covered in the
contract, select the ones that you can do better than the competition and keep
that portion of the contract in-house. Your people perform against that, and
the remainder you outsource or subcontract to your solution partner.
Remember
that YOU must manage the contract; YOU must be the project manager and “the
face” of all activities; and YOU must be on top of what is being done at all
times by anybody performing under the contract.
Once
you have all of these ingredients in place, you will have the “secret sauce”.
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