Supplier Diversity Trends: New challenges for minority companies
Small business owners and suppliers have felt the encroachment of big competition and business conglomerates for some time. The days of so-called mom-and-pop businesses are all but over, replaced by mega-warehouses and one-stop strip malls where convenience fattens our rears, depletes our wallets and kills one small business after another.
Or so cries the natural cynic in us all.
The reality is that just as our habits of consumption have changed, the way corporate America is doing business has changed. As consumers, we one-stop shop because it’s easier, cheaper, saves time and reduces the anxiety of adding up a pile of receipts at the end of the day. A corporation may be a faceless entity, but people do work there. Like us, they one-stop shop because a deficit in convenience equals lost revenue, wasted opportunities and increased busywork.
“The overall corporate trend,” explains John Robinson, president and CEO of the National Minority Business Council Inc. (NMBC), “is to reduce the supplier base and the number of companies that corporations do business with.”
In effect, shrinking the pool of suppliers saves large corporations money, time, paperwork and bureaucracy. Unfortunately for many suppliers, this streamlined market is increasingly forcing them out of the race, and, sometimes, out of business. If we listen to our inner optimist, however, it also creates an abundance of opportunities for enterprising suppliers and minority business owners.
To address the trend of limiting a supplier base to just one or two companies, many suppliers and minority business owners are forming temporary partnerships—consortiums, if you will—to bid on large-scale contracts. Let’s say a new stadium complex is going up in Brooklyn. Instead of 10 or 15 distinct companies submitting individual bids—for example, Joe Brick and Co. bidding on the cement component; the Laborly Bros. on staffing; Peter Pipe’s Plumbing on plumbing—it is far more advantageous for Joe, the Laborlys and Peter to merge, if only temporarily, and go after a so-called bundled contract that requires all the capabilities that the newly merged company now has.
“It’s all about economies of scale and less paperwork," says Robinson. “If you have one company that can handle a $10 million contract, as opposed to breaking it up, you’re going to go with the one vendor who can do one big contract [under] one purchase order,” he notes.
The concept may seem simple enough, but forming a temporary business alliance to bid on a large contract is not without challenge. “Be it partnering with a majority firm [i.e., a corporation], [doing a] buyout or joint venture, or merging with each other—all are options,” explains Harriet Michel, president of the National Minority Supplier Development Council (NMSDC). “But before any firm decides to [exercise] these options, [it] should spend an incredible amount of time researching, using the Internet, and using [its] professional associations to find the talent that [it] needs to get these things done,” she says.
Merging Is Tricky
Merging, especially when done on a project-by-project basis, can be tricky. To guard against contractual snafus, it is essential to employ the most talented legal and accounting consultants available. Moreover, as a business owner, the key to winning bids is to know as much about the market and your industry as possible. That might go without saying, but as large firms acquire small firms, new ideas and innovations get sucked into a monopoly of sorts where the scales are tipped in the big guy’s favor. And the big guy is sure to outbid and outmaneuver the small guy.
“For example,” Michel says, “there used to be a lot of minority companies in office supplies, but now we have Staples. It’s impossible to compete. The solution is to manufacture something these [larger] firms might buy.”
The same is true even in new industries like information technology. “Unless you’re in a small town, it’s very difficult for a small company to compete. [Instead,] try to identify what you think your customer needs,” Michel reasons. While the tendency might be to reinvent the wheel, suppliers must remember that all corporations really want is a new set of tires, perhaps with a fancy pair of rims thrown into the mix. “You can’t walk in with something a company doesn’t even buy. You’ve got to sell products, not [just] solutions,” Michel says.
Longevity Through Growth
While outwitting the competition is great for winning the race, longevity will win the marathon and ultimately keep a minority company in the game. “While shorter mergers, acquisitions and strategic alliances are fine for the short term, it is difficult to grow [these companies] to scale,” says Heyward Davenport, New York regional director for the U.S. Department of Commerce’s Minority Business Development Agency (MBDA).
If corporations continue the trend of relying on fewer companies, which they most assuredly will, Davenport says, minority suppliers should shift their focus from brief alliances to one that promotes and maintains growth capacity. He says, “[Many] minority-owned companies are lacking in size and scale [but] are competing in a much tighter, fiercely competitive pool of companies.” To combat this, minority companies must grow their revenues to match not only the economic tide, but the steady demographic shift as well.
According to the Hudson Institute’s landmark study, Workforce 2020, African-Americans and Latinos will make up 12.9 percent and 16 percent, respectively, of the total U.S. population by 2020. That’s a powerful one-third of the economic constituency, a figure that will continue to grow from one generation to the next. Yet, minority-owned businesses make up only 13 percent of the nation’s gross revenue, and only 3 percent of the Black-owned businesses boast revenues of more than $1 million. If we are to live in a socially and economically balanced society, experts like Davenport contend, Black-owned companies, and minority businesses as a whole, must think about growth in the long term. If they do not, as the color dynamic changes, future generations stand to inherit a deficit in economic empowerment, creative capital and financial autonomy.
Attracting and retaining the right talent to assure that much-needed competitive edge is a major challenge for minority business owners. To do so, they must tap into the same labor pool as their larger competitors. Statistics show that the average American switches jobs about seven times in his or her lifetime, some even averaging a new job every two to three years. However, luring potential employees away from, say, an IBM or a Wells Fargo with their considerable name cachet and benefits packages is a formidable task for a small company. Still, if growth is the answer to increasing the economic viability of minority businesses, employee retention must be part of that same formula.
“[Minorities] will not be able to depend upon historical preferences, but will have to be able to compete. That’s the real dilemma and the challenge,” Davenport says. He argues that the best strategy for minority business owners is to tap young talent and develop these people as potential entrepreneurs well before they emerge into the labor market.
For a competitive advantage over companies with greater technical, labor and resource capacity, temporary mergers, small-business consortiums and joint ventures are all attractive and practical options. “The contracts are not getting smaller and minority companies will need to rise to the challenge," Davenport warns. But the one-stop shoppers are always looking for a better bargain. As long as there are deals to be made, there will always be another supplier in line to outbid and outmaneuver the little guy. The surest way to win is with efficiency, productivity and sustainability.
total U.S. population by 2020. That’s a powerful one-third of the economic constituency, a figure that will continue to grow from one generation to the next. Yet, minority-owned businesses make up only 13 percent of the nation’s gross revenue, and only 3 percent of the Black-owned businesses boast revenues of more than $1 million. If we are to live in a socially and economically balanced society, experts like Davenport contend, Black-owned companies, and minority businesses as a whole, must think about growth in the long term. If they do not, as the color dynamic changes, future generations stand to inherit a deficit in economic empowerment, creative capital and financial autonomy.