#SMESupplier: can you compete?
Procurement departments are notorious for being hard to impress and making access to opportunities difficult. So as a small company who would like to access tender opportunities, the task seems daunting. Not only may you not be able to supply the breadth of services requested, but also going through a lengthy selection process is consuming resource and you need to figure out how to set yourself apart from your, potentially larger, competitors. Aware of the financial and personnel effort involved, we’d like to talk about when it is worthwhile going in and some of the features of a successful SME Supplier’s offering.
Firstly, it is very tempting for an SME to go for the biggest names in the industry. The potential rewards from a well-branded reference are too attractive to ignore. However, competition for those is also among the fiercest and decisions take a good while. So before tendering for an opportunity, you need to ask yourself a number of questions, including:
- Do you really understand the industry, challenges the company face and are you able to solve it effectively? Can you realistically overcome the hurdle of maybe not having industry references? Can you build credibility with smaller clients in the industry first?
- What investments would you need to make to meet their demands (fixed assets, talent, production capacity, etc.)? What commitments would you need to make those investments? Could you meet them by partnering up with someone else? What is the investment in the tender itself?
- How many competitors participate? Who are the likely contenders? How would you positively differentiate your offering?
- Can you get insights from current suppliers (non-competitors) how they are as a client? E.g. Do they pay on time? Are they switching suppliers often? Are small companies eventually replaced by larger competitors? Do they evaluate cost-benefit and have a good supplier performance management? Or is it just a race to the bottom?
- Do you have quality connections at the company that may support our tender? Do they have a strong Supplier Diversity or SME Supplier program/commitment?
Not all answers may be available, so you need to make an assessment. Maybe the effort to tender is low and no major investment would need to be made if the deal is won, then by all means put your bid in and gain the experience. If however, there are a number of red flags with regards to cost, scope and risks of the tender, it may be wiser to decline or partner up with a larger industry player to submit a joint bid.
Secondly, the chances of winning a tender as a standalone small business heavily depends on the nature of the services/goods that are being sought. And the nature of the market and your offering: “me-too” business, cost-cutter, premium service or unique IP. “Me-too” is a business operating in a space with many competitors in a similar niche without a specific cost or IP advantage. Cost-cutters are able to supply at lower cost than most competitors. Premium service providers are able to provide a better service than large industry players. Unique IP means you have (patented/copyrighted) special intellectual property not available elsewhere in the market.
In order to position your competitive advantage correctly, it's important to understand which one you fit:
- “Me-too” business: Success usually heavily dependent on quality relationships and strong references. Examples are management training or coaching services with a crowded market, low entry barrier, similar offering and relatively standardized price structures. Entry usually through industry connections and building a reputation over time. Content marketing through social and where available traditional media and strong testimonials are important to build a profile beyond initial network.
- Cost-cutter businesses: Win through lower price. Traditionally more easy to achieve in service businesses more achievable through slimmer overheads in SMEs. With new manufacturing technology (e.g. 3D printing), small businesses can gain a cost advantage in product businesses as well. Examples are small accounting or tax service businesses without overheads such as expensive offices. Focus in marketing should be not just on competitive price, but other features such as closeness to local market or high flexibility to eventually move up the value chain.
- Premium service providers: Can win IF the client cares about a superior service or an additional problem is solved. Example is a stationery supplier who also provides automatic ordering and restocking service that previously consumed internal resource. Premium service is often NOT the clients focus and you need to sell it through cost savings or other efficiencies they can make elsewhere. Highlight clearly if the superior service is proven to retain more customers or reduce administrative overhead or have other benefits.
- Unique IP: The company owns a (technologically advanced) unique product which no competitors can supply. Examples are mostly in the technical and IT space (e.g. software). This is a great space to be in obviously - but no place to rest on your laurels. The pace of change and competitors catching up is fast and unless you build a reputation for being an otherwise great business to work with, you will lose business over time. No one likes an arrogant monopoly supplier.
As you see, the ways of gaining business is different depending on which category you fit in and it is important to realistically assess it. We have seen many businesses trying to argue a benefit which is not the relevant one to the client. E.g. we have met owners of Coaching services companies, a very crowded and low-entry barrier market, who argue they have unique IP. Whereas building relationships and authority in a niche of that market is important. One owner successfully branded her coaching business to support introverted female executives and used content marketing (blog) to build authority.
Of course there are many more factors to consider when calculating your chances of winning a contract with a large, reputable business. But making an assessment of a) Chances and risks involved in tendering and b) understanding your position in the market and what your distinguishing strategy are, are important first building blocks. We use those as a starting assessment with our SME clients.
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