More than a handshake

Formal partnerships open small doors to large firms, lend power to smaller ones

Small companies and large businesses have always worked together to win and fulfill government contracts. That relationship has become more structured lately, as companies move past handshake deals and opt for formal partnerships, with large businesses often putting small companies through a selection process to ensure that only the most promising firms get chosen.

The trend reflects the reality that small businesses and large companies need one another to succeed in contracting. Small firms bring skills that are often deep but not wide. They sometimes occupy a niche and, in some cases, are masters of that niche. They offer access to small-business set-aside contracts, a practice that some large firms are making part of their business strategy.

Large companies bring their muscle, deep pockets, brand-name recognition and substantial personnel teams. Many small-business officials see partnerships with larger firms as the key to their success.

Several companies have taken steps in the past month to strengthen such partnerships programs. CDW Government received proposals from small businesses hoping to become partners as the reseller's Small Business Partner Consortium enters its third year. Dell officials created a formal partnership program to structure the kinds of relationships they have been conducting informally for some time.

And the American Small Business Coalition, a Maryland-based membership organization, created its own partnership program and signed reseller GTSI as a partner.

No learners permitted

The CDW-G consortium, which officials formed in 2003, has 17 members, but company officials are now evaluating proposals from prospective new members. Companies in the consortium get a one-year contract with two one-year options.

Each year, some members drop out and new ones join, said Kevin Adams, vice president of program management at CDW-G.

"Sometimes consortium members don't work out, or sometimes they decide that after a year, they don't want to participate," he said. "So we're always looking for new blood."

The program is not a mentor/protégé arrangement, Adams said. It is designed for active small businesses that have been around for at least three years and have some government contracts already.

The program started with 12 companies and, through two years of turnover, has grown to 17. After the new members are selected by the end of May, membership could reach 20, but Adams said he has not set a target.

CDW-G officials have not determined how many of the 17 will stay on another year. They evaluate partners based on various factors, including how well they work with the reseller's salespeople, how responsive they are to needs as they arise and how much the small business benefits from the relationship.

Adams requires prospective partners to respond to CDW-G's request for proposals partly to evaluate how well they handle such solicitations.

Choosing a final group to offer partnerships is not always easy, he said. Once they join, small firms generally begin making use of the relationship immediately.

"It's separating the wheat from the chaff — bringing them in, giving them some best practices, having the existing companies talk to the new companies," Adams said. "It usually starts slow for the new companies in the first three months. But because it's busy season when we start, usually they'll get some business."

Bob Collins, president and chief executive officer of Collins Consulting in Schaumburg, Ill., is a partner whose company needs no hand-holding. When CDW-G officials offered him a spot in the program, he jumped at the opportunity.

His firm resells computer hardware, as CDW-G does. But because Collins Consulting is a small business, he has access to contracts that CDW-G would be barred from bidding on directly.

"One of the challenges that small businesses always have is finding access to equipment to sell at a reasonable price," he said. Joining the consortium gave him that access, he said, and made him a partner of a firm he could never compete against head-to-head.

"The large businesses in the prime [contractor] space, in general, are not warm to small business," he said. "Any small business that's been involved in this consortium, that uses it, will find it to be valuable."

The relationship has helped Collins' company grow from 70 people two years ago to 180 now, he said. Without disclosing his revenue, he said his company's hardware sales grew 400 percent in 2004. He believes he can hit his 500 percent target this year.

CDW-G doesn't generate the business, Collins said. Instead, the relationship allows him to develop his own business, drawing on the larger firm as a resource.

"Last year we were awarded our first two federal contracts on our own," he said, adding that the consortium is a model other firms should follow.

From the other end of the telescope

Large companies aren't the only ones that can invite partners in. The American Small Business Coalition, a for-profit membership organization supporting small firms, recently made GTSI its newest partner under a newly formalized program. The coalition already had other partners, including CNA and Perot Systems, before creating a structured program.

Guy Timberlake, co-founder and chief visionary officer, said the coalition began as a consulting firm in 2003 and became a membership organization in April 2004. It has 92 small-business members in 14 states.

"When we started, we had not considered what our relationship would be with larger companies," he said.

Under the new program, the coalition gives such partners access to information about and relationships with small firms, Timberlake said.

"If we do what we do well, we're going to save companies money, small and large, in helping them to utilize networking," he said. Government agencies offer programs that go some distance toward that same goal, but their government nature makes them subject to conflict-of-interest rules that don't affect private groups such as the coalition, he said.

Dissenters

Although the partnership programs are popular, not all small companies want to participate. Valerie Perlowitz, president of Reliable Integration Services, said she has avoided such programs for several reasons.

The primary reason is that she believes the selection process that CDW-G, Dell and others use is invasive and undermines trust between partners.

"They're pretty nosy," Perlowitz said. "They're looking for financial information, tax returns. It's none of their business. It's pretty intrusive, the kinds of information that they're asking for."

Keeping honest business relationships

Partnerships between small firms and large companies can be beneficial for both, but the potential for abuse exists. Large companies, for example, can use small firms to win small-business set-aside work and then take over the work. Partnership program advocates say that with care and vigilance, however, such problems can largely be avoided.

"We don't believe in 'pass-throughs,'" in which small companies win contracts and pass the work through to large companies, said Guy Timberlake, co-founder and chief visionary officer of the American Small Business Coalition, which has some large-business partners that work with small-business members. "If we detect that someone is trying to facilitate a pass-through, we'll nix it. And because we're a private organization, we don't have to let anyone be a member. We can say, 'Your membership is terminated. Have a nice day.'"

Vish Varma, vice president of corporate development at AlphaInsight, a small integrator, has worked for large and small companies. He said business leaders must insist on integrity, for themselves and their partners.

"One cannot go through life fearing that one will be exploited by larger, more powerful entities," Varma said. "I choose to believe that most companies are professional, ethical and competent. Every good businessperson has an obligation to be an effective competitor. At the same time, integrity in business is nonnegotiable. I have always been treated professionally by partners and prospective partners. Maybe that is because I expect to be treated as such."

— Michael Hardy

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