SMALL BUSINESSES SPEAK OUT, CONT’D…. Last week, Jeffrey Leonard, CEO of the Global Environmental Fund, talked to Stephen Colbert about his article in the latest issue of the Washington Monthly. The appearance generated some interesting responses.
If you missed the interview (and the article), Leonard is shining a light on a serious problem small businesses face, but which hasn’t generated much in the way of attention: “Many small firms are handicapped by a new twist on an old parasitic business practice that large corporations are using in the wake of the 2008-09 financial crisis, one that has significantly reduced the cash available to small businesses to invest and hire new employees.”
Leonard has several proposed changes, but the most straightforward is also the most effective: require companies with federal contracts pay their suppliers within 30 days of invoice. The shift would not only improve small business cash-flow, but would also help expand hiring.
After the interview, we heard from more than a few small businesses that could directly relate to what Leonard described. We started publishing some of their responses Tuesday, and we’re keeping the series going today.
Here, for example, is a note we received from Silicon Valley.
I was in the middle of writing my attorney this evening about collecting from our mega-client who owes us about $70K, when Mr. Leonard’s segment on The Colbert Report came on. I was stunned. He is absolutely spot-on with his observation.
I started a small but growing consulting practice in 2009 with some of the best minds in Silicon Valley. I was able to put 30 – 45 folks “back to work” through independent projects and consulting assignments. Most of these folks are former high-level execs who were victims of the recession. We banded together and decided to move forward. We work with companies of varying sizes mostly in the life sciences, medicine, and emerging clean technologies. The work we will do will literally save lives and improve the human condition.
With the exception of one client, ALL of our clients are practicing the strategy described by Mr. Leonard. I am constantly on the phone with the client’s accounting departments, my attorney, or collection agencies. For the most part, nothing works. Our clients are clients who are “flush with cash” — no doubt about it. Our mega-client has never paid on time even though our attorney firm wrote an “iron-clad contract,” the company has consistently violated the terms of the contract. The value of the contract over a two-year period meant about $400K to us. To a small company, that’s a heck of a lot and will keep a lot of folks’ lights on and health insurance paid. Not only is the mega-client now walking away from the contract without penalty, they are offering us .30 cents on the dollar for services already delivered and used. In fact, the work was so good is was to be showcased to their top management in Europe. There’s no problem with the work — they simply decided they won’t pay and are bullying us into accepting less.
Because we work a lot in the intellectual property space, we’re also seeing companies buying up patents and other IP from very small businesses who are selling at bargain-basement prices because they can’t get funding or have to unload the only thing of value they have left — their intellectual property. One company’s VP of Emerging Technologies told me, “We don’t even have to validate the IP or value it since all the entrepreneurs want is to get what they can. We’re accumulating as much IP as we can for almost nothing.” There you have it. Small businesses and start-up companies sitting in the world’s center of innovation who will be forced out of the market by bullying tactics and greedy large companies.
Small businesses have very little recourse — almost none of us can afford to pursue litigation — and, the large companies know it. If you look at some of the names of our team on our website, their resumes are pretty spectacular. These companies get McKinsey and Boston Consulting quality work and either don’t pay, pay way late, or offer vastly reduced amounts for work already produced. The banks won’t lend to small business and the clients won’t pay. So much for economic recovery.
There was also this letter from a businessperson in Elizabethtown, Pennsylvania.
As a small business person, I agree with you that this is a problem. But is this not unfettered capitalism and the “free market” at work? Stephen Colbert made that point rather nicely when you appeared on his show. Most business people are all for large mergers which give companies size and power to do what they want to customers and small vendors. Then, when they decide to use that power on us (as some of us knew they would) we want the hated government to step in!
Businesses like capitalism until they lose and then they like socialism.
And finally there was this letter from Parsippany, New Jersey.
I just saw the Stephen Colbert show and wanted to let Mr. Leonard know that I didn’t realize that this was being done to many small businesses.
I own a small camera store. We deal with all of the major companies and have for about 50 years. Our terms have continuously gotten worse over the past few years, and most recently the norm has become 5 days if we want to get their best cash discount. And because the gross margins have gone down to as little as 5% to 10% on their products, we are almost forced to pay in 5 days just to be able to make any profit.
Even worse, in our industry, is the “Instant rebate”. We “give” the customer a discount, let’s say $50, and then after we do all the bookkeeping, claims filing, proof of advertising ,etc. we get back ( months later) only 80% of what we were basically forced to discount the product. This has become a huge burden on many small business people.
Just thought you might want to know I appreciated that you stood up for the small businesses, we need all the help we can get.