FREE ENTERPRISE, A PIPE DREAM?

[sgafc]

All of us were conditioned to believe that only two economic theories exist. Socialism and Capitalism. A third one comes to mind, Communism? Hmm, I’m also confused… We also hear about the free market and entrepreneurship, which are supposed to be the “babies”, or seeds of capitalism. I beg to differ.

As a small businessperson, I am sure, you wondering why an article like this would be on this site. Its important for you to understand these concepts if you intend starting a small business, or are already in business. PLEASE NOTE, that I am not attempting to convince you of anything, or “poison your minds”, just sharing information, and you don’t have to believe it.

Firstly, in all socialist states some “free” enterprise exists. And a certain amount of “socialism” exists in “capitalist states.
Few, ever dared to question the difference between Capitalism/corporatism and free enterprise.
It is mistakenly assumed that a small business is just a smaller version of a bigger corporation, nothing could be further from the truth.

Historically, most corporations (not all) were created with the assistance of governments. Massive infrastructure and financial support was invested in the CORPORATIONS. To this day, any CORPORATION has guaranteed access to limitless cash from “institutional investors”, read corporate banks, which SME’s don’t have.
CORPORATIONS hate the “free” market, hence they merge and take over, the competition. Smaller companies do not stand a chance against these giants, when they start a price war and manipulate the “markets”. And of course, when CORPORATIONS refer to the “MARKET”, they mean Financial Markets.
If a CORPORATION is a bank, they can rely on government money, read TAXPAYERS money, to bail them out, if they fail in business (yes I know, governments have a responsibility to protect its citizens funds)

A shocking truth is that Government and the CORPORATIONS, DONT want small business to succeed. Despite claims to the contrary, government initiatives, to fund SME’’s etc, I don’t buy their so called commitment to SME’s
Lets explore this further. Many tenders give SME’s first preference. Many contracts are awarded to small businesses, no denying that. Why, then cant most government department’s honour their contracts and pay SME’s timeously. They know very well, that it creates cash flow problems. Oh,.. And don’t tell me its red tape. Government pays their employees on time.

CORPORATIONS are just as guilty when it comes to their small business suppliers.
They prescribe and dictate to their small suppliers, the small suppliers end up being regulated like employees. For fear of loosing their contracts, SME suppliers are then at the mercy of their corporate clients. What is free about free enterprise here.
Many SME’s have ONE corporate or government customer. This is dangerous, let me elaborate.

A single contract can be a good starting point in business. The danger, however, is that many contractors stay at this point. The comfort zone of a guaranteed income or “contract” turns these contractors into lazy people. I understand that no one likes uncertainty, and wants a stable business environment. But A REAL businessperson, markets, generate clients, trades etc. Look at it this way; a business with 100 clients would need to loose all its clients for it to collapse. With government and corporate contracts, it only takes one contract terminated, and the business is in serious trouble.

What about the other argument, that “people don’t pay, so I’ll rather work with government or big companies”. Duh! Big companies also don’t pay. And where do you suppose Government and Big Business get their income? The people, of course!
Someone once said, “everyone wants from government, but the government takes from everybody”.

What about a franchise? Just another scam, oops! scheme to lock your into some form of “employment”. And the franchisee PAYS the franchisor for his business/brand name. The “manager” of a branch pays his holding company. What a con? You cannot start your own brand so buy another companies brand/ franchise and we in business…!

And …and you dare not criticize government or the corporations in any manner, you will certainly loose that contract. Take them to court? Forget it. You will loose big time. Government and corporations love it, when small businesses take them to court. Cut your losses and move on.Your energies are needed somewhere else, not in court.

SO WHAT DO WE DO AS ENTREPRENEURS?

My Collins Concise Dictionary, defines an Entrepreneur, as the OWNER of a business enterprise who, by risk and initiative attempts to make profits.

Real free enterprise is finding an idea or a product that you have a passion for. Sell it to as many people as possible, and make sure they pay you. Create value, if you want people to pay. Set up your business with as little funding as possible (not impossible). No one ever claimed it would be easy, the joy of life, is overcoming its many obstacles, with your drive and resilience. Too many loans and credit will enslave you. The corporate banks want to keep you in debt, until you fail or die.
Believe in yourself, gain self-worth/esteem if you lack it, and trust only yourself. We rely on others, but don’t become dependant, BIG DIFFERENCE!

Economic circumstances, interest rates, skills, political stability and many other excuses don’t deter the enthusiastic Entrepreneur. It doesn’t stop the corporations.
The corporates grow their turnovers, year-on-year by 80 to 100%, in economies that supposedly grows at 4 to 6%. Do they know something we don’t know?

We need more entrepreneurs, not employment. What holds many people back is fear and doubt. Free enterprise will only thrive, if more businesses are established.

[Dave A]

Sean, I agree with lots of your points here, but I have to disagree with one aspect and left unchallenged this particular myth will continue.

It's not that corporate business want small business to fail - they just don't care one way or the other.

This is because a corporate business is a system executed by people. The system has no emotion; it has processes. This is its strength and properly understood it is also its weakness.

I have a fair number of corporate clients and to be honest they give me very little trouble. In fact handled correctly they make great clients, oddly enough for the very reason most people are suspicious of them; they are system driven. Understand the system and you can start using it to your advantage.

I think the problem for many small businesses is they don't manage their corporate clients - they let themselves get handled.

Hmm. The whole topic has given me an idea. Would a tips guide about dealing with corporate clients be useful?

[garthu]

Would a tips guide about dealing with corporate clients be useful?

Ah a sucker for hard work.... Seriously i think an awesome idea. That would be really useful info for all

[Marq]

Would a tips guide about dealing with corporate clients be useful?

Ok - I'll help out with the one and only tip you need here.

1. Avoid Corporate clients - they only give you headaches and and leave you to pick up the tab.
2. Read rule number one.

[sgafc]

Ok - I'll help out with the one and only tip you need here.

1. Avoid Corporate clients - they only give you headaches and and leave you to pick up the tab.
2. Read rule number one.

With few exceptions, corporate clients invariably turns out disastrous.90% of my clients with Corporate customers went out of business. These "corporates", downsized or cut expenditure(GFC?), but in the sad cases 2, 3 or 5 year contracts were simply cancelled. No recourse for the beleagured client. They dont stand a chance in court, as explained before.

We dont have to teach the business people the corporate "system". Corporates simply have to honour contracts. Corporates need a lesson on "Business Ethics".

[IanF]

Corporate Clients

Hi Guys
From my perspective Corporate clients are the best.
Why

• Consistency they don't change from order to order.
• It is hard to get in that means it is hard for your competitors to get in.
• Offer a good service you will get a good payment.
• Regular Jobs

There are other reasons and pitfalls I like corporates.

[sgafc]

Also depends on what you sell to the corporate client. If its a straightforward product like catering, the corporate may very well turn out to be your best client. But if it is a regular service/product, like security, cleaning, transport etc, you inevitably get mired in the "red tape" of the corporate.
I am sympathetic to many SME's who have no choice but to contract with Corporates and government, ie Arctitecture, engineering. In these industries, big contracts are the only way to go.

But for many other SME's the general market, remains untapped.

[Marq]

Here's our experience:-

Consistency they don't change from order to order

Never know what they want, change timetables and chairs on their titanic regularly. Cancel orders at any time and do not realise consequence's. Will not accept cancellation fees and threaten with legal action and reputation stuff every time there is a problem.

It is hard to get in that means it is hard for your competitors to get in.

I have no problem with the competitors taking the strain. Rather them than us.

Offer a good service you will get a good payment.

Good payment equals on their terms usually 30 - 60 days but could be longer. Service received is usually a different department to the accounts department who could not give a toss how good the service was. If the company is BEE aligned we run even faster as their terms are usually as long as possible to never.

Regular Jobs

Check out the titanic note. They are also fickle depending on the turnover of staff, who's who in the zoo running the place and who their 'connections' are.

Sure there are exceptions to the general rule and a couple of large companies do perform well for you. This is often a factor of well meaning staff and management with integrity - a hard thing thing to find these days. There are also certain industries and types of business that we avoid as a result of past experience. For example - labour broking companies - always a hassle somewhere - so rather say no thanks.

[IanF]

Marq
I have had good luck then with the corporates. Only once have I handed over a big cell company to a lawyer. He got the money within 2 days and a promise to pay within 30 minutes of sending a fax. The rest I don't even phone for payment. This I see is because for some companies I will work until 9-10 at night to get out analyst presentations and deliver at 7 AM the next morning. Then in 2 weeks I have payment. That is one example, but I seem to find the sweet spot where payment is not a problem. I do steer clear of buying departments.
The small guys 75% are terrible, an example. A print broker asked if we can do business cards today. It was double sided which sometimes causes hassles, so we print out 1 sheet for him to show his client. Our minimum number of cards we print digitally is 100. Now his customer comes in and says the board is too thin can we just do 50. I explain to him it is a minimum of 100 and once cut they are smaller and stiffer. He doesn't want to know this and says Jetline will do it for him. So told him to go to them. I don't need to fight over a R200 job. Corporates if they say the colour is slightly off I reprint no questions as the loss on one job is quickly made up with the next job. But they know they are responsible for checking the proofs. So willingly pay when they don't check properly.
So Marq my advise would be to find the right corporate.

[Dave A]

I see the list of advantages and challenges is coming along nicely.

I was thinking of a structured approach when I got the chance, but this discussion is going so well let me cherry-pick some bits and pieces for quick responses:

With few exceptions, corporate clients invariably turns out disastrous.90% of my clients with Corporate customers went out of business. These "corporates", downsized or cut expenditure(GFC?), but in the sad cases 2, 3 or 5 year contracts were simply cancelled. No recourse for the beleagured client. They dont stand a chance in court, as explained before.

True. The corporate world is built on intimidation and aggression, which also means it is full of bluster. However, good corporate citizens are also fearful of being noticed by the system for the wrong reasons. As indicated by Ian, getting serious stops the BS dead in its tracks. And corporates are wonderful to sue because you don't have to worry about finding they don't have the money to pay once you have won the case.

The two big reasons small businesses get screwed is they don't have their own ducks in a row and they are too easily intimidated.

We dont have to teach the business people the corporate "system". Corporates simply have to honour contracts. Corporates need a lesson on "Business Ethics".

How do you teach a machine ethics? The system has no conscience. Remove this expectation and you are already far better prepared to commence battle.

you inevitably get mired in the "red tape" of the corporate.

True. You must master red tape, and it can be mastered. There is good business to be had in helping the corporate circumvent their self-created Gordian knot of red tape.

Never know what they want, change timetables and chairs on their titanic regularly. Cancel orders at any time and do not realise consequence's.

Get an order number before you do anything. Confirm all variances in writing/email and require response to confirm acceptance of the variation.

Will not accept cancellation fees and threaten with legal action and reputation stuff every time there is a problem.

See note on intimidation above.

Good payment equals on their terms usually 30 - 60 days but could be longer.

When you register as a vendor make sure you indicate or add that your terms are payment upon presentation of invoice and the system will record you as such. Practically, these payments are made weekly and as Ian points out you'll tend to get paid within one to two weeks.

Service received is usually a different department to the accounts department who could not give a toss how good the service was.

Exactly, and vice versa. You cannot stop at building a relationship with the order side of the beast. You must also build a separate relationship with the paying side.

They are also fickle depending on the turnover of staff, who's who in the zoo running the place and who their 'connections' are.

True, but changing staff also presents opportunities to improve your position too. It is also why corporates have such a terrible memory and rely so heavily on systems.

There are also certain industries and types of business that we avoid as a result of past experience. For example - labour broking companies - always a hassle somewhere - so rather say no thanks.

Absolutely agree. You have to be as comfortable and courteous in saying no as you are in saying yes.

[Marq]

Perhaps somewhere in this discussion on 'corporates' we should define what is meant by corporate and sme - where are the cut offs in terms of bureaucracy, size, number of people one is dealing with etc.

When should one expect an order up front as an example - any company (no matter the size) should operate on some sort of order system, but we find that an email seems to be the order of the day for sme business.

The big corporates, have designated powers setting out levels of sign off etc. Now in our 'old' world an order still had to be produced within the overall purchasing system - I used to see an order for an order to be produced by the buying department.The small guy mainly produces and services on the peripheral side of large business and the buying department, if one exists, is set up to deal with trading items only. So the general management and senior staff deal with small businesses in a more informal manner, operating within designated powers. They also see small business as not tolerating their bureaucracy and an order etc as a potential risk to not receiving timeous adequate service.

We need the electrician around here now to fix the lights - we do not have time to organise orders and go through the buying department and all that stuff - just get the guy here and we will sort him out later. So he arrives and says you need whole rewiring scenario to fix this problem. Just do what it takes ........The electrician puts in his invoice and it is paid via the cash system and all settles down with no problem. The next week he is called in to fix the geyser - same paperwork chase or lack thereof, only this time his invoice goes to the creditors clerk for processing - well he is now a regular supplier isn't he? We need to recognise him for his efforts and put him into our system. So the creditors clerk files the invoice and waits for the balance of documentation to come through........say what....theres outstanding stuff.

'Sure' she says - wheres the order and the delivery note and the service departments sign off and the building inspectors report. So the job happened in the middle of the month. She may have pulled it at the end of the month for payment processing but put it back because theres 'no paperwork'. A while later the electrician phones in and asks when he is getting paid. 'When its authorised and ready, probably by the end of the month'. At the end of the month he phones in - 'did you send a statement through cause we only pay on statement'. Say what.....statement? I dont do statements I do invoices and I get paid after I do the job. Yeah well if we get a statement I can process your payment at the end of the next month. This months over. And so it degenerates.......Does the small guy need this? Can you see this electrician, waiting for an order, running around to get sign off on reports. Then at the end of the month send out statements and then following up on outstanding debtors. He suddenly needs a whole accounts department because the corporate did him a favour.

corporate citizens are also fearful of being noticed by the system for the wrong reasons

Maybe so....but thats why there are many citizens to blame and they can go round a few times before even 'the supervisor' puts in an appearance. Thats one of the problems when dealing with 'corporates' - the small guy in the small business don't get to speak to the big guy in the big business. Its called Protecting the Corporate hierarchy. Sort of like piercing the veil. Its designed to keep you away and your money at bay.

you don't have to worry about finding they don't have the money to pay once you have won the case.

This of course assumes you have enough money to run the case. A game they play all too often at your expense. The legal system is designed for the corporate not for the sme. You are stuffed before you start. Also the corporate may turn out to have no money and leave a big trail of destruction in its wake. Big name does not necessarily mean big money.

The two big reasons small businesses get screwed is they don't have their own ducks in a row and they are too easily intimidated.

Agreed....but then I must tell you that I have been around in business and businesses for 30 years specialising in systems and business processes. My ducks are usually so straight they don't have time to look around. I dont recall being scared of anyone especially these big cheese types who melt when they have to attempt stuff called work.... So why do I still get screwed with no KY stuff to soften the blows? Cause thats the animal in the corporate way....sort of like that story of the scorpion on the frogs back crossing the river. Its in their nature.

The system has no conscience.

Good lesson point.

master red tape, and it can be mastered

Maybe.......but one needs to spend time doing the corporate weasels work for them and requires patience. This time could be spent hunting better clients. Sure there are bigger clients and the time spent with them can be beneficial, but thats the trade off - probably a Pareto thing. Watch the eggs in a basket principle.

terms are payment upon presentation of invoice and the system will record you as such

You must also build a separate relationship with the paying side.

mmmmmm........True - one can try.

corporates have such a terrible memory and rely so heavily on systems.

One thing guaranteed with change of guard. New systems and methods will be introduced at some stage to make life 'better' and employee noticeable. Better for them that is. Consequences are irrelevant as is your sme invoice in this process.

So still a bunch of negatives on this side - Dave & Ian can write the - Yes you can Book - and the rest of us can do the - No you cannot Book. Haha

[Dave A]

We need the electrician around here now to fix the lights - we do not have time to organise orders and go through the buying department and all that stuff - just get the guy here and we will sort him out later. So he arrives and says you need whole rewiring scenario to fix this problem. Just do what it takes ........The electrician puts in his invoice and it is paid via the cash system and all settles down with no problem. The next week he is called in to fix the geyser - same paperwork chase or lack thereof, only this time his invoice goes to the creditors clerk for processing - well he is now a regular supplier isn't he? We need to recognise him for his efforts and put him into our system. So the creditors clerk files the invoice and waits for the balance of documentation to come through........say what....theres outstanding stuff.

'Sure' she says - wheres the order and the delivery note and the service departments sign off and the building inspectors report. So the job happened in the middle of the month. She may have pulled it at the end of the month for payment processing but put it back because theres 'no paperwork'. A while later the electrician phones in and asks when he is getting paid. 'When its authorised and ready, probably by the end of the month'. At the end of the month he phones in - 'did you send a statement through cause we only pay on statement'. Say what.....statement? I dont do statements I do invoices and I get paid after I do the job. Yeah well if we get a statement I can process your payment at the end of the next month. This months over. And so it degenerates.......Does the small guy need this? Can you see this electrician, waiting for an order, running around to get sign off on reports. Then at the end of the month send out statements and then following up on outstanding debtors. He suddenly needs a whole accounts department because the corporate did him a favour.

Exactly! In fact so true I'm reading it to my management meeting tomorrow.

Can I make a disclaimer from the "Yes you can" camp here...
I never said it is easy. It does take attention to detail.

[Dave A]

They wet themselves