The Challenges Micro & Small Businesses Must Overcome To Compete
In today’s rapidly evolving business landscape, small and micro-businesses face numerous challenges in securing new contracts, especially when competing with larger companies. The delivery of local and central government contracts is also becoming more difficult to sustain, mainly due to increased operational costs and further investment to ensure the service being delivered is fit for purpose and adds value to the end user.
In this article we aim to highlight the obstacles micro and small businesses encounter when procuring new contracts, and the need for the government to step up in supporting SME’s in the world of training, development and adult skills.
Accreditation Requirements
Micro and small businesses often struggle to secure training and business opportunities due to stringent accreditation requirements imposed by the contract or awarding organisation. While accreditations with awarding bodies may provide some level of credibility for larger companies, they often do not add any value to a small company with limited resources. This puts micro and small businesses at a disadvantage, forcing them to invest time and money into obtaining accreditations that may not benefit their growth or development.
Perception of Higher Costs
Another significant challenge faced by small and micro businesses is the perception of having higher costs, this is an area where smaller companies tend to be more expensive when compared to their larger competitors or counterparts. This can be attributed to the fact that smaller companies often employ specialist trainers and support staff, invest in cutting-edge technology, and develop well-written training programmes.
While these factors contribute to higher quality training, they also drive up costs, making it difficult for small and micro businesses to compete on price. Additionally, these companies may not have physical locations in all the areas they serve, necessitating the sourcing of premises and further increasing costs.
Competing with the Larger Organisation
Competition with larger organisations further exacerbates the problem. Multinational corporations have the resources to offer a broad range of services, making it difficult for micro businesses to stand out in the marketplace. Moreover, the perceived prestige and expertise associated with these firms can sway decision-makers away from considering smaller, local businesses for training and larger government adult skills programmes.
These hurdles often leave small businesses feeling overlooked and not taken seriously as contenders, despite their ability to deliver high-quality services, with a proven track record and excellent financial credit rating.
Lack of Recognition
The lack of recognition of small and micro business expertise and track record is another barrier to securing training contracts. Despite having strong financials and a history of successful training delivery, these smaller businesses are often overlooked in favour of larger established companies with a longer track record, strong branding and competitive pricing.
This can be increasingly frustrating for small or micro business that has invested considerable time and effort into putting together comprehensive training proposals, only to be rejected due to factors such as cost, scoring, perceived risk, experience and location presence.
Why Small and Micro Businesses Struggle to Win Government Contracts
The UK’s public sector offers many commercial opportunities for businesses. Research revealed that gross spending on public sector procurement totaled £357 billion between 2020 and 2021 in the UK. This was a 17% increase on the 2019/20 financial year. With an estimated turnover of £2.1 trillion, SMEs make up 99 percent of UK businesses, yet these companies struggle to secure government contracts. I read an interesting article that was published on the 28th of November 2022 by the Cabinet Office and Baroness Neville-Rolfe, titled it’s time to give smaller companies a bigger slice of the procurement pie, this published article made 3 key recommendations on how Baroness Neville-Rolfe felt the government should improve its procurement process to support more SME’s across the UK.
firstly, she recommended putting contracting authorities in the frame for reducing the challenges for small businesses. Procurement teams will have to make sure there are no unnecessary barriers that might hinder smaller companies in the contract; that bidding timelines are realistic; and that there is a clear timeline so that SMEs can plan accordingly.
Second: accounting. Another burden on smaller suppliers is having to provide audited accounts as a test of their financial standing. We will require contracting authorities to accept alternative evidence where audited accounts are unavailable: this will prevent some businesses being excluded from bidding.
And finally: insurance. A part of the procurement process unfairly penalises businesses that lack the war chests of big corporations. We will make it explicitly clear that contracting authorities must accept evidence that required insurance cover will be in place when a contract is awarded, rather than at the point of bidding. This will save SMEs from having to incur unnecessary upfront costs, a burden they shoulder at present.
Ben Lobel also published an article in May 2018, which looked at why smaller businesses struggle to win government contracts. In his article Ben highlighted that smaller companies often have a regional focus, whereas government projects tend to be on a national scale. It is therefore extremely difficult for a smaller business to find the resources to fulfil large-scale contracts. In addition, the penalty clauses for not delivering are huge and this has the potential to break the company – more risk again! As a result, a lot of small businesses will continue to shy away from competing for public sector contracts. This is a real shame as there is no doubt that these organisations are often more specialised and can provide a better solution. However, the contracts which are suitable for these companies are often contained within a larger tender and given to one primary contractor as it is cheaper than tendering multiple parts of one project. The end result for smaller businesses is often lower margins and higher risk.
Fairness in the process
Ben Lobel made a recommendation in his published article, that the government should have a process which selects smaller businesses on local and national capability. Once they have selected a long list of companies that meet the required standards of service and compliance, the end user can then select from this list to specifically quote for their contract based on a fair commercial and contractual framework.
This will allow the bidding companies to price the work correctly and get the client the best value price, not the cheapest. More importantly it will ensure the providers do not play Russian roulette with blind pricing and any contracts awarded are sustainable for both the client and the contractor.
In conclusion, the government procurement process has developed a polarised market with a limited and stretched supply chain that ultimately cannot deliver what it promises over an extended period. Ben believes that outsourcing in the public sector can be improved by not allowing poor procurement to deliver low standards of service and sustainability.
Encouraging Collaboration
One potential solution to help micro and small businesses overcome these challenges is to encourage collaboration among small training, skills and recruitment companies. By pooling their resources and expertise, these businesses can not only compete more effectively with larger organisations but also provide a wider range of services to their clients. This collaboration can help them gain access to new markets, strengthen their reputation, and increase their overall competitiveness.
Supportive Government Policies
Another approach to supporting small and micro businesses is for local and central government departments to implement policies that prioritise small businesses in the procurement process. This can include setting aside a percentage of contracts for micro businesses or implementing a scoring system that rewards companies for their size, local presence, social impact or added value. Such policies can help level the playing field and create more opportunities for micro businesses to succeed in securing training and adult skills contracts.
Final Thoughts
In conclusion, micro and small businesses in the training and skills sector face numerous challenges when competing with larger companies and securing contracts from local and central government departments. By reevaluating accreditation requirements, recognising the expertise of smaller businesses, supporting local companies, encouraging collaboration among small businesses, and implementing preferential procurement policies, it is possible to create a more equitable business environment that allows micro businesses to thrive and contribute to the development of the training and adult skills industry.
Further support for bidding on public sector contracts can be found on the London Business Hub website. In partnership with the Anchor Institution Network, the London Business Hub has launched a brand-new programme to support small and diverse businesses in London tender for public sector contracts.
For more information about the business training and consultation services we provide as a thriving micro-business, please visit our website.
