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Getting an edge on selling your services: here's what it really takes to snag a lucrative corporate contract.

Here's what it really takes to snag a lucrative corporate contract.

Pick a corporation--any corporation--and chances are that it has fallen victim to restructuring. From boardrooms on Wall Street to Silicon Valley, CEOs can be heard bellowing, "Isn't there a cheaper way?"

Well, there is. It's called "outsourcing." Faced with the gargantuan challenge of cutting costs and boosting profits, corporate decision-makers are increasingly shifting specialized tasks once performed in-house to smaller outside companies that can do the jobs quicker, better and cheaper.

A 1991 survey of the nation's 1,005 largest companies by Wyatt Co., an international human resources and consulting organization, found that 86% had cut back operations over the previous five years, and 35% were making greater use of outside vendors. John J. Parkington, Wyatt's director of organization research and development, says those numbers are steadily rising.

In some cases, major companies have eliminated entire departments, such as accounting, for example, choosing to outsource the work instead. But in most cases, companies are targeting specific functions--clerical work, building maintenance, transcribing and printing services, payroll functions, catering and anything considered high-tech.

The potential benefit to corporations is obvious: a smaller work force, lower personnel costs, less administrative work and possibly even less office space and equipment to pay for. The list of companies buying into outsourcing's benefits reads like a "Who's Who in Corporate America": American Telephone & Telegraph Co., Eastman Kodak Co., Mobil Corp. and United Airlines.

In fact, after laying off 239 of its own skycap personnel in March, United outsourced those functions to 13 airports. (United had already used skycap vendor companies at 82 airports.) The airline, which lost a staggering $1.2 billion in the last two years, believes the move will help return the nation's No. 2 carrier to profitability. "This is all part of our $400 million cost-reduction plan," says Joseph Hopkins, a United spokesman. "Farming out more skycap vendor functions should result in several millions of dollars in savings for us."

But the risk is significant too. In outsourcing, corporations are not just letting go of certain functions, they are relinquishing the direct management of those functions. Thus, the success of such ventures depends entirely on choosing the right vendors. The factors that make up such choices are hardly cut and dry.

Therein lies the major challenge for small business owners who hope to capitalize on the outsourcing trend. While the opportunity for profit is tremendous, services are a tough sell. Yes, price and a proven track record remain weighty factors. But services are intangible--the ability to convey their quality and effectiveness depends almost entirely on you. (See sidebar, "How to Sell Your Service.") Pitching a service is worlds away from pitching a product. Understanding the distinction can mean the difference between landing a contract and walking away empty-handed.

Although outsourcing can be a win-win situation for corporations and suppliers, it does have some major drawbacks. The biggest one? The margin for error is razor-thin for small businesses. In quantifying it, Maye Foster-Thompson, executive director of the Chicago Regional Purchasing Council, is blunt: "In outsourcing, you only get one shot to screw up."

Malcolm Wilkins, director of purchasing for Chicago-based Ameritech Corp., a $11.2 billion telecommunications company, agrees. Ameritech began outsourcing various functions in January to the tune of more than $3 million a year in savings. "If a supplier fails to deliver on a contract, it can be fatal," Wilkins says.

To avoid falling down on the job, Foster-Thompson, whose group matches corporations with minority vendors, says it is critical that small business owners establish a solid support base before pursuing corporate contracts. Chances are, you'll need additional working capital and management and technical assistance early in the game.

Relationship Building Is Key

In service businesses, more than any other, who you know and what they think of you is all important. "Service contracts are built more on relationships than on price," notes Foster-Thompson. "And black business owners have difficulty getting to those places where those relationships are made--the country clubs and trade associations."

Joining not-for-profit boards, local trade and community-based groups, will enable more black business owners to rub elbows with corporate decision-makers. Baruti Artharee, president of Coast Industries Inc., a $6 million Portland, Ore., company that has taken advantage of the outsourcing trend, says he joined several organizations, including his local Chamber of Commerce, for that reason. "We're in the people business," explains Artharee, whose building maintenance, security and contract management services company landed a six-figure security services contract in February. "We have to develop a rapport with our clients since we don't have a product they can touch and feel."

Thus, whenever possible, show, don't tell.

Strut Your Stuff

Artharee s did just that when he approached Oregon Steel Mills Inc., a Portland manufacturer of steel plates and pipes, that was looking to switch vendors. Steve Myhre, Oregon Steel's employee resources administrator, says the company had some problems with vendors in the past. So, Artharee's hurdles were significant, but he was determined. "We set up an introductory meeting with the company's security manager and gave them our company brochure and a reprint of a magazine article that talked about our company history," recalls Artharee, who was named president of 36-year-old Coast Industries three years ago.

In the second meeting, which included Oregon Steel's safety, operations and administrative managers, Artharee made sure he was going to seal the deal. He brought with him his operations manager and site supervisor, in full starched blue uniform. "They looked very dapper," says Artharee. "At a certain point in the sale, and in front of the right people, you have to bring your people in and show them off."

Myhre was sold. "I was impressed when they brought in the people we would be working with. In fact, one of their people is now our site manager," he says. Coast now has an open-ended contract to employ 15 full-time security guards at Oregon Steel's 650-employee plant. The savings to Oregon Steel runs about $100,000 a year, Myhre says.

Having an established track record, as Coast did, makes a big impact. Bert N. Mitchell, chairman and CEO of Mitchell/Titus & Co., a New York-based CPA and management consulting firm, says his 20-year-old company has used its longevity to its advantage in snagging outsourcing contracts with Fortune 500 companies.

"We've developed some inventory control systems for General Foods and done some audit work for Eastman Kodak, Bristol-Myers and Time Warner," says Mitchell, whose company is the nation's largest minority CPA firm. That done, the firm is now preparing itself to take over a portion of several companies' accounting departments. That, says Mitchell," can be a major chunk of our business."

So far, Mitchell says he's identified at least two promising prospects. His strategy? "We're selling ourselves as a company that has a track record and one that has worked with Fortune 500 companies more than most small companies," says Mitchell. "We're also building a firm that has a high concentration of seasoned people. Over the last year and a half, we hired more than 20 people (most of whom are CPAs) with at least 10 years of experience."

Cold Calls Can Capture Contracts

Many times, small business owners, particularly the neophytes, are overwhelmed at the prospect of pitching their services to large corporations. Being the new kid on the block doesn't preclude you from taking full advantage of the outsourcing opportunity. It does mean you may have to work a little harder to get your foot in the door. You may also have to be creative.

A good example is the owner of a janitorial service company who recently sent white gloves and a letter to 75 companies he identified as potential clients. The letter said, "Wipe this glove over your desk and if it comes up dirty, call me for a bid." He got 15 contracts.

Cleverness isn't always a requirement, however. What worked for James Austin, president of Austin Telecommunications & Electrical Inc. (ATE), was plain old dogged persistence. When Austin, whose 6-year-old Meriden, Conn., company installs and maintains telephone systems, identified IBM as a potential customer, he did what most entrepreneurs do--he called them cold.

"I made over 50 calls in a week and spoke to secretaries, vice presidents, customer service reps and marketing managers," Austin recalls. "I was bounced around from Connecticut to New York to New Jersey and finally wound up with the name of someone in Rockville, Md. I finally got in touch with the vendor administrator and received a vendor's application."

After filling out the application, which asked for a company profile, revenues and five references, Austin met with IBM's subcontracting manager and financial analyst for planning and controls at the company's New York City office. "They asked me a series of questions," Austin remembers. "They wanted to know how I would service their customers and where my staff trained."

Raphael S. Prato, an IBM project manager in Harrison, N.Y., was impressed. "James knows his business and our cabling system very well," he says. "Our criteria is rigid, but I could talk to him in very technical terms."

About two weeks after the meeting--and 60 days after his first call to IBM--Austin nabbed his first job. That contract called for ATE, which grossed $4.8 million in revenue last year, to install and maintain IBM's local area networks (LANs) and telephone cables. Austin says ATE has completed close to 20 projects, totaling $1 million, for IBM since 1990.

His advice for other small business owners? "Go for the throat when you're looking for work," he suggests. "Go directly to the source that can offer you the contract. The key is to build relationships with the people who make the decisions."

Teaming Up For Success

Small businesses that can adapt quickly to changing market conditions and offer unrivaled services often have a leg--or two--up on competitors. Sometimes that means joining forces to make a deal.

Equality Industries Inc. and Darter Inc., two janitorial supplies distributors based outside Chicago, recently formed Alcon Industries to handle all purchasing needs for Ameritech's building and janitorial supplies.

The five-year, $3 million deal works like this: Darter, a majority-owned company that has been doing business with Ameritech for seven years, will handle the bulk of the contract. Equality, a 21-year-old distributorship that sells such janitorial supplies as mops, brooms, buckets and boots will serve as Darter's protege.

The contract will be split 50-50 over five years, says Robert G. Butler, president of Equality. "Forming this partnership is an excellent way for us to capture a larger share of the business in our area and for us to bring other black companies into joint ventures," says Butler, whose firm was named one of the top 25 vendors by The Chicago Tribune last year.

Recognizing that outsourcing will remain a key component of how corporate America does business, Butler is looking for other opportunities to grab his share of the pie. But you don't have to be a top vendor in a major city to do so. The opportunities are everywhere, and new chances are emerging every day.

Says Foster-Thompson of Chicago's Purchasing Council: "Outsourcing is going to touch every single major corporation in the country. It's the here and now." And the future.
COPYRIGHT 1993 Earl G. Graves Publishing Co., Inc.
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Title Annotation:includes related article
Author:Thompson, Kevin D.
Publication:Black Enterprise
Date:Jun 1, 1993
Previous Article:Can black radio survive an industry shakeout?
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