Annapolis Institute Overview


Small businesses need the big guys

by Phil Burgess, Unabridged from the Rocky Mountain News, March 7, 1991

Big Business has taken it on the chin in recent years.

There have been tales of huge executive salaries, environmental insensitivities and ham-handled dealings with employees and their families as bloated companies cut costs and restructure.

Small business news, however, is typically positive. We read about job creation, innovation, and successful forays into growing international markets.

Now, some balance is being introduced to the dialogue about big and small businesses and how they work together.

According to a soon-to-be published book by Jana Matthews and Hames Botkin calledThe Next Wave of Entrepreneurship: Partnerships Between Large and Small Companies (John Wiley and Sons, 1991), new mutually supportive and cooperative relationships are developing between big and small businesses.

Big companies purchase products and services from small companies. Several years ago, in their book Manufacturing Matters, John Zysman and Stephen Cohen, professors at University of California at Berkley, argued convincingly that service industries cannot grow and expand without a healthy manufacturing sector.

Why? Manufacturing companies are the major customers of many service industries. Much the same relationship is developing between big and small companies. Big companies are the customers of many small companies, which are often able to produce higher quality products and services in less time and at less cost.

Big companies are an important source of capital for small companies. Rapidly growing, venture capital-financed small companies — once they have proven their product and their market — are often purchased by big companies.

This trend started to accelerate when the market for initial public offerings –called IPO’s– dried up following the 1987 stock market crash. Increasingly, however, big companies invest in small companies.

Why? Because big company executives increasingly understand that the outright purchase and integration of a small company into a bigger one sometimes destroys the very qualities that make it desirable in the first place.

Big companies support small business incubator programs. In return, big companies gain a window on new ideas and innovations.

Many relations between big and small businesses still need to change. For example, big businesses have been notoriously insensitive to the impact on small business of public policies they support in Congress and state legislatures.

For another, many big businesses are involved in health care coalitions that bargain with hospitals and other providers of health care services. The result? They simply shift costs from themselves to small enterprises and their employees. And many big businesses demand tax and other concessions from state and local governments that create added burdens for other taxpayers — including small business.

Though things are beginning to change, we have a long way to go. Big and small businesses will sink or swim together.

Get the Bonus Years column right to your inbox

We take your inbox seriously. No ads. No appeals. No spam. We provide — and seek from you — original and curated items that make life in the Bonus Years easier to understand and easier to navigate.

Something went wrong. Please check your entries and try again.

Other posts from the Annapolis Institute:

More from Phil: