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Pros and cons of contracting with small companies

Dan Bobinski

If you want faster response time, personalized attention and people willing to adapt to your changing needs, then you will probably benefit by contracting with a small business. An increasing number of major corporations are seeking small businesses as vendors, mainly for the reasons just stated.

If you’re a small business, you may want to take notice of this trend. If you’re a mid-sized or large business, you may want to give more credence to small businesses and the value they provide.

Naturally, every option has its pros and cons, so to investigate this trend further, I checked with a broad spectrum of colleagues – some from large firms, some from smaller ones – to get their opinions. Many of their thoughts are included below.

The Pros

1. Faster response time. Smaller companies tend to have fewer layers of bureaucracy so they tend to respond faster to customer requests. One of my colleagues referenced a local company that takes care of all the problems with his organization’s copier and printers, which happen to be networked. When network problems arise and my colleague’s (larger) organization can’t seem to identify the problem, they call the local company, and a service tech is literally on site within 10 minutes.

My colleague made a special emphasis that it was not a few days or even a few hours for response time, but literally a few minutes. This keeps him very happy, and that small business enjoys many referrals as a result.

2. Easier to deal with. Contracting with a small company –especially one that’s close by – is usually a whole lot easier than dealing with a global conglomerate via telephone, faxes, and/or e-mail. Another colleague told me about a situation in which he needed to reconfigure one of his offices. The budget for the project was about $6,000, and his firm sent out for three competitive bids.

Amazingly, a nationally known company wrote back to tell them they weren’t interested in a job that small. Conversely, a local company not only took great interest in the job, they tactfully made suggestions for how to improve upon the plans. And, after getting the contract, they provided much more value than what was set forth in the original agreement.

My colleague tells me this local company went above and beyond expectations, and all other things being equal, he will use this company for work whenever possible.

Also consider this: If something goes wrong when dealing with a larger company, it’s usually accompanied by a few miles of red tape and long delays before things get fixed. Smaller companies are more agile and can be easier to deal with in terms of getting things resolved.

3. Big companies have leverage when negotiating. This is my least favorite “benefit” for hiring small companies, but the world is what it is, and because smaller companies like putting large companies on their list of clients, they’re often eager to do business with a larger company on the larger company’s terms. For example, one person I know provides services to a very large multi-national corporation, but to do so he must accept their payment policy – which is a tad longer than he likes.

The Cons

1. Large quantities can be a problem. While eager to gain business from larger firms, small companies may be limited in how much they can deliver at any given time. For example, if a large company wants 4,000 widgets delivered within two months to its worldwide staff, they may have to pass over smaller companies that couldn’t produce that quantity and still maintain quality.

2. A little turnover can cause a large hiccup. The loss of a key employee in a larger firm can be absorbed much easier than in a small firm. For instance, if a senior engineer leaves a 10-person company, that’s 10 percent of the work force gone overnight. Worse yet is when that person held substantial knowledge about how services were provided to a large client. Such problems are easier to overcome in large companies, as they can pull from myriad resources to fill a gap.

3. Overall stability can be a factor. Small companies don’t have the cash reserves or credit lines available to larger, multinational firms. Additionally, it’s easier for smaller companies to get distracted by other “large fish” swimming nearby. Unfortunately, some small businesses can lag on fulfilling their commitments to one company when other, seemingly better contracts start nibbling on their line.

Ultimately, small companies can provide an unbeatable value to larger corporations as long as they consistently deliver good customer service. Obviously, larger companies should exercise caution when dealing with brand new small startups, but overall, maintaining a cadre of dedicated small vendors is a pretty smart move for mid-sized and large businesses.

Dan Bobinski is a management trainer, best-selling author and director at the Center for Workplace Excellence. He makes his home in Boise. Reach him at (208) 375-7606 or dan@workplace-excellence.com.

About Dan Bobinski