Recently, I asked the CEO of a large semiconductor company, “How important are small companies as partners and suppliers of your firm?” His response was immediate and unequivocal: “Extremely important. By definition, small companies are more innovative and quicker than large ones. We need to harness that for our success.”
I suspect that nearly all big-company CEOs would say the same thing. As Daniel Isenberg, professor of management practice at Babson College said in a recent edition of the Harvard Business Review Ideacast: “Small and growing enterprises… disproportionately contribute to innovation.”
And yet, as the CEO of a small business supplying products and services to large semiconductor companies, the impression I get on a daily basis is that big chip companies really don’t want to work with small businesses at all.
As one example of what I’m talking about, let’s take the simple matter of paying bills.
Suppose I provide some services to ChipCo in January. I submit my invoice at the end of the month. ChipCo’s lawyers have insisted on an “acceptance period” of one month, which is supposed to allow the company time to determine whether it got what it asked for. In practice, the company already knows this at the time the services are provided, but nevermind: my invoice can’t be approved for payment until the end of February. Upon approval, the invoice goes to the Accounts Payable department. Here, the finance people have insisted on “net 60 days” payment terms, meaning they have two months to pay. In reality, they often glibly stretch those 60 days to 70 or 80, simply because they can. The story they tell us at this juncture is usually something along the lines of “Oh yes, we’re ready to pay your invoice, but we only issue checks every other Thursday.” Internally, I suspect what they’re saying is, “Look at the money we’re saving by getting interest-free loans from our suppliers!”
If everything goes smoothly, the money arrives in our account in May. For services delivered in January. In the meantime, I am required to pay my employees at the end of the month for services they provided during that month. I am required to pay my landlord at the beginning of the month for use of its building during the following month. And all of my other suppliers demand payment for their goods and services with 30 days of delivery.
Come on, folks! We all know that managing cash flow in a small business is a challenge. If I get paid in May for work done in January, I’m not a supplier, I’m a bank—making interest-free loans. If I’d wanted to be a banker, I wouldn’t have bothered with all those engineering courses. (And if I were a banker, I’m quite sure I wouldn’t be loaning out money with a zero interest rate.)
Another ridiculous example is purchase orders. A purchase order is nothing more than the buyer’s written confirmation of a purchase. Typically, big-company contracts specify that goods and services cannot be delivered until the company issues a purchase order. How long would you guess it takes for such a purchase order to be issued, once the person in charge of the budget decides they want to buy something? One large chip company used to be able to issue P.O.s in hours. The responsible manager would simply enter the information into an internal system, and the P.O. would be emailed a few hours later. Just like that. Then the company decided to outsource the issuing of P.O.s. Now they have several outside companies performing this service. And now, instead of hours, issuing P.O.s often takes months. Yes, months. In the meantime, we’re unable to deliver what we’ve been asked to deliver. It’s enough to turn your hair gray.
So, on the one hand, big companies recognize that small suppliers are invaluable sources of innovation, and that small companies, because they’re nimble, can get things done quickly. On the other hand, big companies’ operational practices undermine that speed advantage, and in general make it very difficult for small firms to provide their products and services.
Here’s an idea: If you’re a CEO of a big company, how about empowering one senior person to drive streamlining of your business practices to make working with small business faster and easier? Have him or her give me a call, and I’ll be happy to explain what needs to be done. It’s not rocket science. And think of all the money you'll make by getting more innovative products to market more quickly—the result of partnering with innovative small companies!
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