We are strong advocates for business expansion through cooperative engagements like business consortiums, clusters and networks. It makes sense for businesses, particularly micro-businesses and small businesses in so many ways.
The benefits of cooperation are that it allows companies to grow through an alignment of mutually beneficial interests (growing the pie) rather than having to invest significantly to grow. A consortium approach to business development is also a great way of spreading risk. When consortiums win a contract, everyone gets paid but the costs of winning the work are distributed across a network of mutual interests. It works a little like hedging a bet.
The business case for consortium driven growth is simple. If you get assistance from third parties (to set one up) or join existing consortiums, clusters or networks, you can achieve business growth for a relatively modest investment. You can use the time this frees up to focus on other things like winning bigger deals.
Consortiums work best when they are targeted and focused. They are additive to business operations rather than a replacement for the core business. In some sectors, consortiums are not permissible but in most circumstances, competition law does not prevent companies from collaborating to win.
Some common barriers to winning large contracts (public or private) that consortiums can help SMEs overcome include:
- Minimum turnover levels – the key figure to get past is between €250,000 and €500,000 in turnover for most businesses – this can be achieved reasonably readily with the right level of effort.
- Relevant experience – when seeking partners, especially for specific customers / target organisations, it is important to ensure you have equivalent, relevant experience. If the target wants three references (for what they are sourcing) with a cumulative value of circa €300,000 each, then the consortium maximises its chances of success by making sure it can fulfil this criterion.
- Bidding / tendering experience – if you do not have it, you may be able to partner with an organisation that does. Alternatively, the costs of buying in top quality support is shared making it more affordable (and outcomes more competitive).
- Governance knowledge – you need to derisk the decision for the buyer. Having a good governance model (i.e. formally capturing how you work together) builds the buyer’s confidence in the consortium.
- Focus – consortiums can bring real focus to breaking through the barrier on specific accounts. If you put yourself in the buyer’s shoes and you become aware of a group of SMEs specifically seeking to develop a solution aimed at meeting your needs (quite possibly better than the “Big Guys”) how would you feel? (Hint: buyers want ambitious, creative suppliers as a sourcing option).
We were invited to present on what it can take to make the breakthrough at a construction network event recently. The Elevation Construction Network is a good example of a cluster of businesses connected to construction that have joined together to help each other grow their businesses. Other examples include the networking events arranged by Chambers, the SFA and ISME. The BNI operates in a similar manner to the Elevation Network but on a national scale. Our presentation is available on the link at the bottom of this article.
These clusters and networking organisations can work well for businesses. To take it to the next level however, deeper cooperation is often needed and that is where consortiums come in.
If you have questions as to how you might be able to set-up a consortium, contact Keystone.