This is the second in our “Pathway to Your Success” series where we walk you through issues such as: corporate contracts versus government contracts; how do you use corporate contracts for legacy business growth, and what does that mean; what do large companies buy; w the time is now for small business owners to get into this game, and how to go about financing your business so that you can play to win.
What is the opportunity that corporate procurement versus government procurement presents? What really is the smartest choice for you to sell your products right now? Corporate procurement; government procurement; retail; or direct to customer now that you’re thinking about a legacy business, sustainable growth, and something that will sell for a good multiple of earnings or profit. The biggest challenge that small business owners have is that you build these businesses, but they never sell for what you think they should sell for.
You probably have an idea in mind of what you're going to sell your business for, and you're going to be lucky if you get 50% of that value. So, the question becomes are there things you can do that help you to get 100% of what you think you can sell it for? A large part of that has to do with which markets you're in and how consistent is your business, so let's talk about corporate versus government contracts. I want you to think of it as you making the decision you want to fly. For those of you that are afraid of getting on airplanes, just bear with the analogy here.
Imagine you want to fly, and right now you can buy any mode of transportation to accomplish that goal. You could buy a helium balloon. You know the helium balloon requires much work and it's not going to get you someplace any faster or that fast at all. It's not going to take you that high and there are a lot of risks associated with it. Then you say, well, maybe I could learn how to fly a helicopter. A helicopter will only take you up so high though, and it's only going to take you so far before you need to refill it and you can't really put a lot in it. Then you might say, wow, maybe I need a jet.
Now you're left with “private jet or commercial jet”? They can fly for a lot of hours, and five or 10 times faster than a helicopter, probably 200 times faster than a hot air balloon. If you are trying to go across the ocean, if you're trying to go from one end of the country to the other end of the country, you're talking about doing it in three-and-a-half to four hours, whereas anything else could take days.
So think of your choice between corporate procurement and government procurement as almost like the difference between riding in a helicopter versus a jet that can take you to 40 and 50,000 feet and travel upwards of 600 miles per hour.
A number of
people will go with government contracting. You may choose government
procurement because the rules are pretty much the same for everyone. Let's talk about what's really geared for you -
the small business owner - with government procurement. We're not going to talk
about the exceptions in this episode because there are exceptions, but they're
not going to apply as much to your business right now.
The thing to keep in mind with government procurement is that the rules are pretty much the same for everybody. The government has set aside some money for small businesses, so government contracting actually makes a lot of sense if you're just starting your business.
If you go for US government 8A certification, then you are limited on how many years you can maintain an 8A certification, in which case you then have to compete for government business like the bigger companies, which can be a good thing. The government’s procurement process is 100% transparent. They'll tell you who all bid. They'll tell you the prices of the bids, they'll tell you the price of the winning bid. So, they pretty much have detailed requirements. The requirements are exactly the same for everybody. If somebody comes in with a better idea, they'll send that back out and share with everybody and have everybody quote again so the playing field is even.
The key is knowing how to successfully execute against the contract so that you can get contract number two, three, four, five, etc. and just keep it going like an engine. Government contracts may actually be the smart thing to do if you're looking to cut your teeth or just get your business going to a point where it's repeatable and it's sustainable.
look at the opportunities with corporate procurement -- specifically supply
chain contracts. There is no limit to how many years you can have the contracts,
and depending on what commodity you're offering or what product or service
you're selling, there is no limit to how big you can grow with the company.
There is also no limit to how many different companies to which you can sell. So, government and corporate are two different games. Corporate procurement however is not the same degree of transparency. I want you to think about it this way. If you're the government and your income is paid by taxpayers, then you need to have a system that is accountable to the taxpayers and in which case anybody pays taxes should be able to see what's going on so that they can say, Hey, you know, my business got a fair shot. My neighbor's business got a fair shot. My son, my daughter, my wife's business, my husband's business, you know, my brother’s, my sister’s and uncle’s business, they all got a fair shot and anybody can look at that. You know, we talked about it being transparent. If you're a corporation, then it only needs to be transparent to your shareholders and stakeholders. It's typically internal, but it does not need to be transparent to your competitors, and it's simply for this reason: you're trying to maintain a competitive advantage. Each corporation hopes they buy better than their competitors.
Corporations set up systems and processes that they think make them more competitive, including what they buy, the goods and services that they buy, I. E. their supply chain. And they believe that the way they do it gives them an advantage over the way others do it, so they don't want to give away their secrets or confidential information. You as a seller have to know what the market is for your product, because if you're walking up to one of the big boys, you actually need to know the price that's out in the market for what you do -- the value of what you're selling to their company.
Here is why
this is important in the context of government versus corporate: the vast
majority of the Fortune 500 companies purchase on value. They don't purchase on
price. When you look at a bid, the
company that got the bid has a higher value. They may have a higher cost, but
they also have a higher value - or lower total cost. The government has some
concerns around best value, but given their rules around transparency, more
often than not they go with the lowest price. When procuring the vast majority
of products and services offered by your company or other small businesses,
clearly they have standardized their processes and their procedures to try and
make sure there's a level playing field so that everybody is bidding on the
exact same thing. Thus, the opportunity for them to do best value is probably
not as great.
There are times though when the government buys on best value, and in their case, best value could be other considerations like the winning bidder may have been closer to their location (lower transportation costs), or they may have actually had more inventory and were able to put together a configuration that cost the government less money. More often than not though, they really and truly look at the price, take the lowest price, and call it a day. Some of the exotic things that they get into are the no-bid contracts, or the single source or sole source contracts. Those are unique situations which you're not going to run into at this point in your business. So, the big thing to keep in mind -- which is great for small business owners because we're all about innovation and seeing the world from a totally different perspective -- is to understand lowest total costs or best value, then you actually can design business models around that.
You can design products around that, you can apply your innovation to adapt to that specific scenario, and you can take this commercial jet called your business to the highest heights at the fastest speeds and go the farthest distance. That is part and parcel to why corporate procurement makes for a great opportunity. It's the number one way to build legacy for small business owners.
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