A corporate coup: entrepreneurs are turning to big businesses for contracts. (Small Business Trends).

Dwight E. Smith is one of the many entrepreneurs who has shifted focus away from the government in favor of corporate America. Smith, president and CEO of Sophisticated Systems Inc., an integration and software consulting company based in Columbus, Ohio, says most of his business is from corporate contracts.

Currently, Smith, 45, says about 50% to 60% of his company's $25 million in revenues come from large corporate clients compared with 18% from the federal government and about 10% from the state government. Sophisticated Systems' client list includes Bank One Corp.; Nationwide Insurance; The Huntington National Bank; The Limited; Columbus Public Schools; the Columbus Chamber of Commerce; and Ross Products, a division of drugmaker Abbott Laboratories.

A growing number of entrepreneurs are turning to corporate America as increasingly strict guidelines and a plethora of red tape make it less cost-efficient to partner with Uncle Sam. A report titled Small Business: Opportunity Denied, released in May 2002 by the House Small Business Committee Democrats, concluded that while government spending was up 11% in 2001, contracts won by small businesses increased by less than 2%. While dollars earmarked for 8(a) companies increased to $6.28 billion in fiscal 2001 from $5.78 billion in fiscal 2000, actual contracts awarded to these businesses dropped to 2.86% from 2.88% over the same period. By comparison, the National Minority Supplier Development Council Inc. (NMSDC) reports that purchases by member corporations from minority businesses exceeded $54.3 billion in 2000.

Another issue that arises when dealing with government agencies is their ability to rewrite the rules. Case in point: Jerroll Sanders landed a contract to rewrite and revamp taxpayer notices for the Internal Revenue Service (IRS) in 1998 that would have grossed some $100 million (including follow-on contracts--a series of contracts as a result of this contract) for her St. Louis-based company, the Writing Co. However, the agency exercised the "termination for convenience" clause to end the contract in February 1999. Sanders, 47, levied several complaints against the IRS. "Entrepreneurs need to band together to bring about drastic changes in the federal procurement system," she says.

Tom Nesby, 58, is president and CEO of Nesby + Associates Inc., a Renton, Washington-based management and organizational consulting firm that helps facilitate contracts between minority business enterprises and corporations. Nesby says the move of small businesses to subcontract for large firms is more than just a trend; it has become a necessity. Increasing globalization, ever-changing and cumbersome government regulations, and a shrinking number of viable business options have caused minority-owned businesses to expand their focus.

Entrepreneurs wishing to do business with corporate America can tap the NMSDC. The nonprofit organization (www.nmsdcus.org) matches minority-owned firms with corporate procurement opportunities. Its database includes 15,000 vendors and 3,500 corporate sponsors. In addition, the U.S. Small Business Administration plans to host procurement matchmaking events. Such events are designed to allow small business owners seeking contracting access to both corporations and federal agencies. The first event was held May 10 in Washington, D.C. For more information about the SBA'S programs, call the SBA Answer Desk at 800-U-ASK-SBA.

While government procurement projects make a significant contribution to Smith's business, he encourages entrepreneurs to consider 8(a) set-aside programs when shopping for government business. Yet, he says, "A small business should not limit itself to state or federal contracts as the primary source of revenue. Keep your options open and remember that large, private corporations have similar programs and will provide great opportunities for a small business."