Charles Orton-Jones has written about small businesses and entrepreneurs for titles including Real Business and EuroBusiness, and is the former editor of LondonLovesBusiness.com. He is a PPA Business Journalist of the Year and can be found online at www.charlesortonjones.com, or via @charlesoj. Here he looks at why big businesses should be working with SMEs.
Large firms are often wary of working with smaller firms. There might be a culture clash, the nuisance of adding a new supplier to the PO system…and a thousand other feeble reasons to stay isolated. If you are have historically shunned the fellowship of small firms, here are eight golden reasons to actively seek out and woo start-ups and minnows.
1. You can create an eco-system
Apple is a classic closed-system company. It makes the hardware and the software. Even controls distribution through Apple Stores. So how did it become the #1 smartphone brand? By opening up its walled garden to small firms through the app store. In truth, Steve Jobs took some persuading. Board member Art Levinson is quoted in Walter Isaacson’s biography of Jobs as saying “I called him a half dozen times to lobby for the potential of the apps” before the iPhone in 2007. After protracted obstinacy Jobs gave way. The app store – and innovation brought by tens of thousands of cottage-industry app writers – proved to be the game-changer.
2. Adam Smith’s principle of specialisation
It’s an idea so good it’s on the back of the £10 note. By focusing on what we are good at, and allowing others to focus on what they are good at, we improve overall productivity. Adam Smith pointed this out in 1776, and it’s used to great effect by firms both large and small. It’s why McLaren Mercedes Formula 1 team rely on Sparco for fireproof overalls. The overalls are vital for drivers and pit-crew, but they aren’t in McLaren or Mercedes core area of specialisation. Hence the two-decade relationship between the two firms.
3. Access to expertise
Big firms need to innovate, and a core part of this is scouting for ideas in the wild. For example, US defence contractor Lockheed Martin has a $46.5 billion budget, yet still has time to sign Memorandums of Understanding with the London Centre for Nanotechnology. The academics and researchers at the joint UCL and Imperial venture, based near the Euston Road in London, is world leading in areas such as graphene and quantum computing. Lockheed Martin has already developed products such as night-sight goggles through its collaboration with the Centre.
4. Parallel development
You can’t pit one in-house team against another. They’ll revolt. But small independent contractors accept they are in constant competition with their peers. Which is why big firms can make the most of shopping around. Take design projects: by using a crowdsourcing such as Talenthouse.com or 99Designs.co.uk.you can pick from competing entries submitted by designers to your brief.
5. Cross-pollinate cultures
Need some credibility? HTC needed youth appeal for its smartphones, so it turned to Dr Dre’s new software and hardware start-ups Beats Audio to pimp its handsets. The cultural match up was pretty odd – a Taiwanese electronics firm and West Coast G-funk pioneer – but the impact on sales was huge. Just one example of how matching up with an unlikely firm can pay big dividends.
6. Tackle mighty projects
When it comes to handling major infrastructure projects the only firms in with a chance are those who can work with firms of all sizes. Take Crossrail. It’s a vast project with two dozen lead firms, and a dizzying network of sub-contractors. If this environment gives you vertigo, precisely none of the £16 billion Crossrail budget will be hitting your topline.
7. Avoid Hayekian overload
Friedrich Hayek won the Nobel prize for economics in 1974 for his work on why socialist economies function so poorly. He pinpointed the unmanageable abundance of data which is sent to central planners. Too much information! Big firms face the same problem. Which is one of the hidden dividends of partnering with small firms: not only can you reap the benefits of their skills and culture, but your partners will handle much of the time consuming nitty-gritty too. Leaving you free to concentrate on the stuff that matters.
8. I, Pencil
Photo Credit: Jamiesrabbits
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