It can be an intimidating process for a small company to win business from a powerful, hard-nosed corporate. But this David-and-Goliath scenario does not have to be as one-sided as it appears. Small and medium-sized enterprises (SME) can defend their ground and still get the “big client” if they have the right negotiating armoury, as these examples illustrate.
Dale Parmenter, managing director of event and communication consultancy DRP Group, recalls the prospect from hell. Parmenter was pitching for new business and had sent in his quotation but the client—a large mortgage provider—came back time and again, trying to beat down the £50,000 price tag for the job. Sound familiar?
Parmenter’s reaction was to walk away. “We just told them to go and get it elsewhere,” he says. It was a brave decision for a director running a company with a modest £3m turnover—even though it has other big name clients such as Thomas Cook. The decision highlights a growing trend: that SMEs aren’t prepared to be beaten down by their large corporate clients.
Naturally, the big beasts in the corporate jungle continue to try it on. Broadcaster and journalist Richard Ingrams used his weekly column in The Independent to rage against high-street newsagent WH Smith when the firm demanded £2,000 in order to continue stocking Ingrams’ The Oldie magazine. “It reminds you a bit of a protection racket,” fumed Ingrams. But fulminating against your corporate tormentors in a national newspaper is not an option open to most. In any event, a growing number of directors in small firms have found that, when it comes to dealing with the large corporates, there’s a lot of truth in the old adage: don’t get mad, get even.
One way to do this is by standing firm in negotiations over price. “We try to make sure that price doesn’t become the focus of discussions,” says Parmenter. If a corporate tries to turn the screw, Parmenter may use fear as a defence mechanism. His company arranges major events where senior directors from the client firm make speeches or give presentations. “I point out that they’re the ones going on stage and that they won’t want the arrangements to fail—we guarantee they won’t if they spend the money and trust us,” says Parmenter.
Not all SMEs can use fear as a lever, but those that successfully deal with price pressure from corporates usually wield a trump card they can use in negotiations. “The best way to protect interests as a small business in the face of larger entities is to have a genuine unique selling point,” says Nicole Debson, managing director of Appointments Bi-Language, a recruitment agency that specialises in multilingual staff with sales of £4m.
“Having an area of specialisation is not a guarantee that larger companies will not squeeze on price, but it goes some way in allowing SMEs to defend their position more effectively,” says Debson, who counts Barclays Bank, Goldman Sachs International and L’Oreal among her large corporate clients.
In the staff recruitment world, the best talent goes to the best clients claims Debson. “In a marketplace where there is a limited availability of good talent, it is not in the best interests of companies to slice margins too finely,” she says. “They risk the recruiter putting them on their second-tier list of clients. Making them aware of this is also a good idea.”
Heather Westgate, managing director of £4.5m-turnover direct marketing agency TDA, is not afraid to lay it on the line to penny-pinching corporate clients. “If they want to bring the price down, we have to put more junior staff on the project,” she says. “We joke about it to clients, telling them they can bring the price down as low as they like, but they’ll end up with the office cleaner doing their work.”
More seriously, Westgate advises: “We will never take on a piece of work if we don’t discuss the pricing upfront. Some agencies are quite fearful about discussing money but it’s something that you have got to be very brave and open about.” She recalls a prospect that came back and said they had a rival quote at half the price Westgate had proposed. She says: “They wanted us to deliver our proposal at the rival agency’s price. But we told them the reason they liked us was because of the quality of the work. If they wanted us to work at the rival’s prices, they’d get the rival’s quality.”
Gayna Hart, managing director of Quicksilva, a £3.4m-turnover healthcare services supplier, agrees money is a tricky subject. Hart, who numbers retailer Boots The Chemist among her corporate customers, says: “Many managers of smaller companies are squeamish about talking money upfront because they think that if they want the business they should take what they’re given.
“No matter how much bigger the company you’re dealing with is, compared to your organisation, it’s in your best interests to discuss financial issues at the beginning. We make sure that well-qualified ballpark figures are discussed at the outset.” She adds: “Leaving it until the last minute has disaster written all over it.”
One way to avoid price becoming the sticking point is to start with a clear rate-card. At team-building consultancy, Catalyst, whose corporate clients include BT and ICI and which has sales of £2m, managing director John Bird says that his company has a standard pricing tariff with flexibility built in. “It allows us to have a certain degree of movement when it comes to making allowances based on the scale and scope of a programme, or if price is presented as a deal-breaker,” he claims.
But even small firms that develop a strong USP and are prepared to play hardball with big clients will sometimes come up against one that won’t budge on price. Guy Hepplewhite, founder partner of £3m-turnover marketing consultancy Space, has a novel way of dealing with that. “We say, ‘OK, if you don’t want to pay for this, tell us what you will pay, and we’ll tell you what we can do for it’.”
Hepplewhite, whose bigger clients include Eurostar and Wrigleys, adds: “We use that approach all the time in conversations with procurement staff.” The tactic helped win a three-year contract from a regional development agency that didn’t have enough funds in its coffers to pay the pitched fee. “They told us what they could pay in fees and we told them what service we could offer for the price,” recalls Hepplewhite.
An altogether more risky, if conciliatory, proposition is giving the client free range to set a fee. Philip Feibusch, managing partner at asset taxation specialist Bourne Business Consulting, which has a turnover of £3m, once did this years ago when he arranged for the client to pay him at the end of the assignment. He says: “I told them ‘You decide what our work is worth,’ and they came up with a figure that was fair. I don’t think most clients want to beat you up.”
Maybe not, but the tactic is not a part of Feibusch’s negotiating armoury these days. He’s built Bourne into a growing force in taxation consultancy by adopting a patient approach with the FTSE-100 companies that are the core of the firm’s clients. “We take a lot of time upfront understanding our potential clients and that helps us later, both with pricing and other terms of the contract,” he says.
Feibusch advises: “A lot of small firms don’t realise how sophisticated buyers are in big firms. They don’t understand the politics that are at play. If you rush in, you can end up getting a really nice, big-name client on your list, but on the wrong terms.”
Price is, by far, the biggest bone of contention for SMEs when dealing with corporates, but it’s not the only one. A range of other issues, including payment terms, warranties, liabilities, insurance cover and a host of specialist areas, can develop into unwelcome pressure points if they’re not managed well.
When it comes to agreeing terms and conditions with a corporate client, Feibusch has a particular way of handling the issue. “We always present our own contract terms,” he says. “We don’t wait for the client to impose theirs.” Feibusch finds that doesn’t usually cause a problem. “The legal departments of large companies are prepared to listen to reasoned arguments about, for example, what the level of liability should be.”
Quicksilva’s Hart adopts a similar tactic: “As a smaller company, a good move is to get in with your standard contract first,” she says. “So long as it is a solid, professional contract, many corporates find it easier to get it approved by their legal department than make changes to their own contract. This is somewhat ironic, but definitely useful.”
The SMEs that score any meaningful successes with corporates are those that learn how their big customers like to operate. They put in the effort to get under their skin in order to understand fully the methods and procedures the bigger companies use. Then they simply apply this knowledge to build more effective partnerships.
SMEs that are successful with this approach often report that much of their new work comes as a result of recommendations from existing customers. “That’s a very good position to be in,” says TDA’s Westgate. “Price is then not an issue because other people are telling them we are worth what they pay.”
Yet it will always be difficult for SMEs to create a balance between winning those big corporate contracts and doing it under the terms and conditions it wants. “As an SME, protecting our interests is not as easy when a contract is on the line,” admits Quicksilva’s Hart. “It is a fine balance between insisting on specific terms but still getting the business.”
