A corporate coup: entrepreneurs are turning to big businesses for contracts.

Author:Townes, Glenn
Position: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...

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