A proud entrepreneur hangs out his shingle and launches a new business. He’s smart, energetic, and customer-focused, quickly gaining a rep for top-notch service. Content with just one major client, he learns a brutal math lesson within the first few years of operation. His prime customer shifts accounts to a larger entity, forcing that small business owner to close shop. One minus one equals zero.
I’ve come to witness that tragic scenario play out many times. The cold, hard facts are that too often small business owners tend to subsist with just one product, service, or client. When revenues flow into company coffers, they see no reason to adjust the business model. Limited in size and scope, these doomed micro-companies eventually wind up among the heap of business failures. Over several decades that has been the sad history of many black-owned companies that once dominated targeted segments of hair care, entertainment, advertising, and financial services, among others.
Don’t get me wrong, I’m not here to bash small business. When my father started Black Enterprise, it was a husband and wife with an office and a vision. Over the course of 42 years, BE has championed such ventures, providing them with information and services so they can realize their full potential. We don’t want any African American enterprise to be stuck forever operating on the margins of the business mainstream.
To compete and thrive today you must make your business scalable. For corporate America, less is more. Why? Major corporations no longer
dole out a series of contracts to a collection of small vendors. For greater efficiency, they have bundled contracts, shrinking their supplier base and mandating corporate procurement offices identify long-term partners.For your company to achieve that status, it’s imperative that you embrace the same mindset. By developing the right strategic alliances or joint ventures, your company can, in many cases, increase market share, as well as gain additional financial and human resources to meet client demands. Keep in mind that the major reason large companies grow while small firms often fail–according to the Small Business Administration, more than 50% in the first five years–is that big businesses have deep pockets and powerful relationships that bring opportunities, contacts, and support. You must realize that partnership has such privileges and adopt the new business math: One plus one equals three.
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This is not the first time I’ve advocated such arrangements as a means of growth, especially for black entrepreneurs. Such advice, however, has often been met with resistance. For example, a founder of a black-owned investment bank–one of the sharpest business minds I’ve ever come across–could not bring himself to merge with another black financial services firm for well over a decade, even though the union would have brought new market opportunities, executive talent, lucrative contracts, and increased profitability. The reason was simple: ego. Now that company is fighting for its life in an industry in which even the biggest players join forces. Conversely, two black tech companies merged a few years ago and the result was eventually bought out by a major competitor. Its CEO used the proceeds to start an even larger business.
I’m not saying one should enter into such partnerships lightly. You must establish whether the collaboration presents a stronger value proposition than your company as a solo act. For example, will such a partnership provide cost savings through eliminating duplication of resources? If orchestrated correctly, these partnerships offer myriad benefits: financial stability, scalability and longevity.
I urge us all to adapt, take calculated risks, and, most importantly, check our egos at the negotiation table. It’s far better to own 50% of a $50 million juggernaut than 100% of a $500,000 mom-and-pop. Forging such alliances is a matter of simple arithmetic.