When Governments Kick Small Businesses to the Curb

Supplies SuppliesA month ago their small business was humming along. Today, Carl and BJ Streko, husband and wife owners of Supplies-Supplies Inc., are faced with the crisis of their business lives. They are worried about their business surviving – due to one decision by the State of New Jersey.

Their business is one of 17 small suppliers of office products to state and local governmental agencies, schools, libraries and other public institutions.  Yet, without so much as a ‘thank you but we’ve decided not to renew your contract,’ the state has awarded all the office supply business to a single company – a very large corporation.

Now here’s where it gets interesting:  there was no competitive bidding process that Supplies Supplies Inc was notified of to participate in.  Even though Supplies-Supplies has had a state contract since 1984, they started hearing rumors that the state was not going to renew, but to date have never received official notice of nonrenewal.  Then on August 17, 2009 the State of New Jersey issued a press release (PDF) announcing the new arrangement.

By their action, the State of New Jersey is substituting one large vendor in place of 17 smaller local businesses.   The National Office Products Alliance, a trade group representing independent office suppliers, cried foul, issuing a statement saying that the “New Jersey Treasury Abandons Small Business.”  A State Assemblyman also criticized the move.

New Jersey law requires competitive bidding on public contracts.  The bidding, if you can call it that, took place outside the state, in Minnesota, a number of years ago.  Sound strange?  It is.

New Jersey is acting under a state law that it says allows them to enter into joint purchasing agreements with other governments. This is one of six such cost-saving cooperatives entered into by New Jersey.

This is the first I’ve heard of such joint cooperative purchasing agreements, and for all I know my state of Ohio may be part of them.  But the whole idea is troubling. Today it’s office supplies.  Tomorrow it could be YOUR industry.  All contracts get handed by one official to a single large entity in each industry – potentially that could be one nationwide contract for all government buyers.  Think about the implications of that for a while.

But Can These Small Businesses Really Compete?

There’s a twist in this story I wasn’t expecting.  Initially when I set up the interview with the owners of Supplies-Supplies Inc., I was afraid this would turn out to be another case of a small business not being able to compete on price against a large company with more buying power.  Regrettable — but a reality in retail today.

But that is not the case, according to the business owners.

When I asked point blank (perhaps with a little skepticism poking through), “Do you really think you can compete on price with that large vendor?” Carl Streko replied: “Yes, we can compete. We have in the past.  We have been up against the big companies and beat their prices.”

“Some time ago we joined a buying group, with 2,000-3000 dealers in the buying group.  We buy wholesale at the same prices as the big companies.  We start off on a level playing field with the big competitors.”

Carl went on, “Another point of interest: there’s another giant office supply company headquartered in Boston.  They originally won the contract for the office supplies back in 2004 as one of the suppliers, but in November backed out of it because they could not make a profit.  We picked up business from them, by competing head to head.”

“But we don’t know what discount is being offered, because we were never given a chance to bid. So how can the state say they are saving money over renewing with existing vendors?”

Adds BJ:  “Seventeen vendors have the state contracts today.  We all have the ability to purchase through 2  wholesalers and also buy direct from manufacturers.  We believe and also have been told by our customers that we have a larger selection of products than Staples.  Therefore, our prices are competitive, our range of products that this type of customer needs is better, our ability to service the customer is without question better.  So who does the State think is really to benefit in this change?”

The reality of owning a small business is that losing big customers, as the state and local agencies are to these 17 suppliers, can be disastrous to the small business.

BJ says:  “It’s very scary.  We will definitely have to eliminate positions to try to stay in business.  It will hurt our company.  All we want is a fair chance to bid head to head.”

Governments: Learn to Walk the Talk

State and local government officials often say:  “We support small businesses.”  Or, “We want to attract small businesses.”

Too bad some of them don’t walk the talk.  Even while they loudly profess their “love” of small businesses, they heap on taxes, regulations and red tape.  They make policy decisions that cost small businesses their profit, or drive them out of business.  Then officials pat themselves on the backs as they issue a press release about some program or other designed to “attract” more businesses to their area.

It doesn’t seem to occur to them that they should just treat the businesses already there a little better.

16 Comments ▼

Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

16 Reactions

  1. This is an interesting story for me as an experienced purchaser. Don’t you have so called “public procurement” in the United States? Here in Sweden you have to theoretically open up the bid to all the European Union countries.

    I am interested to learn more about the “buying group, with 2,000-3000 dealers.”

    A purchaser doesn’t look only on price. You have to take quality and leadtime (delivery time) into the consideration too. Are the suppliers adding some value to the business exchange. Could you develop the business relationship to a higher level with “open books,” Just-In-Time deliveries, mutual research & development, joint-venture projects, etc.

  2. This sort of thing is done for one reason: it’s convenient for bureaucroids. Consider:

    The NJ purchasing honcho didn’t have to do any work. The one in MN did it all years ago. The NJ guy doesn’t have to deal with 17 suppliers, he can deal with just one. Convenient for him, and screw everyone else.

    It has nothing to do with saving taxpayers money; the will of the dully (sic) elected legislators; local economic development; the means of survival for the people who pay the bureaucroid’s wages; or anything else except but his personal selfish, lazy pleasure.

    The bureaucroids in all States that sign up for these joint purchasing agreements are exactly like him.

    These bureaucroids do whatever they please while the dully (sic) elected are off chasing votes. The bureaucroids are accountable to no one. Even if you can get one fired, he’ll get himself re-instated with back wages and make taxpayers pay his legal fees too.

    Doing business with government is a losing proposition, anyway. Government squeezes your profit margin as small as possible and then TAXES you on the pittance that’s left! I wouldn’t do business with government unless it paid twice the private-sector price.

  3. Very interesting story. When it’s not the customers, or the everyday challenges of Businesses, the government also gets in the way. It’s always something.

  4. I hope the government saved enough money to pay the unemployment, welfare, food stamps and mortgage bailout of the small business employees that will lose their jobs because of this. Isn’t the government supposed to be protecting jobs?

  5. Mind boggling.

    I’m not being comical here, but maybe Carl & BJ need to do what Dave Carroll did. I realize they have not had the same experience that he did with United and there probably is no “New Jersey State Customer Service and Satisfaction Department”…

    http://smallbiztrends.com/2009/07/youtube-customer-complaints.html

    Or play off of it in some way.
    http://smallbiztrends.com/2009/07/youtube-sensation-spurs-entrepreneurs-videos.html

    I’ve spent a fair number of years living in New Jersey (as a kid and young adult) and they are a passionate lot. They might be able to raise a bit more noise if people knew how small biz owners were being treated.

  6. What a shame to have the rug pulled right out from underneath you. It just goes to show you that your business is never 100% secure and always expect the unexpected.

  7. Hi Martin,

    Public bidding is required. And there’s something squirrely with this whole thing.

    Supposedly the New Jersey State Treasurer can determine that there would be a cost savings and go with one of these joint contracts.

    But here’s the problem: that can all be done behind the scenes, and then the Treasurer says “do not question my authority — I have made my determination.” That’s EXACTLY the kind of situation that public bidding laws are designed to prevent…. where everything is done behind closed doors and not made visible to the populace and one official feels free to do whatever he or she likes.

    Maybe the joint cooperative contract would have turned out to be the lowest bid. But how would Joe or Josette Citizen in New Jersey know that for sure, if other parties were never given chance to bid and a decision is arbitrarily made and sprung on the public, like this one?

    It sounds like it undermines the public bidding laws, as well as confidence in public officials. I think the Attorney General in New Jersey should be investigating this. Or the Governor should step in and show some leadership. My opinion.

    - Anita

  8. It’s Big siding against Little, seems to me. Big Business sides with Big Beauro against the SME. The rich get richer… I suspect it’s a further example of the polarisation of wealth that’s happening all across the Western world. Something similar happened in the Roman Empire shortly before it collapsed under its own unsustainable weight. When you have too much polarisation, the Big Guys get so isolated from the little guys they need they just can’t function any more and the society as a whole collapses. None of th is bodes well for the future…

    BB

  9. While it is a sad story for the couple who owned this business, one of the new rules of the new economy is to keep concentration of sales as low as possible. Banks consider 10% high while others consider 20% high. When you only have one customer like Wall-Mart or a state government you risk a lot by putting all of your eggs in one basket.

    Sam Thacker
    http://www.lesliethacker.com52

  10. Small business in the USDA created 75% of the jobs in 2001-2007. But it was BIG BUSINESS who received 100% of the bailout money.

  11. Study after study tell us that small business, not large, are hotbeds of innovation, nimble competitors and generators of most of new jobs in our economy. Governments should be, and in a few cases are, doing all they can to promote the small business.

    When American businesses are hurt by their governments’ failures to really study situation with the result that Americans lose jobs, nobody wins.

  12. Anita,

    It’s even a bigger problem than government. Small biz has never been so isolated. Yesterday the WSJ ran the following article http://online.wsj.com/article/SB125150649639668499.html about how small business cannot get credit while big biz is getting bargain interest rates.

    You are right in saying that it used to be that small biz can’t compete on price but must differentiate to survive against larger biz.

    But now, without credit, small biz must be twice as smart to survive. It cannot compete by carrying inventories for customers or providing free deliveries. While it used to give away service and expertise to compete, now it must charge for value and sell everything else “as is” on-line or not at all.

    The successful small business of the future is one that’s learned to grow profitably without a credit line. Fortunately big corporate and government customers will continue to be needy. Small biz must must learn to fully charge their big customers instead of subsidizing them with costly credit or unpaid service.

    Live Free (of credit) or Die!

  13. Anita, I really appreciate how you continue to shine a spotlight on the impact legislation and poor bureaucratic decisions are having on small business right now. I find myself amazed at how much our representatives try to sell their new programs as being pro-business while simultaneously making such anti-business decisions as you reported here. My prayers are with Carl and BJ Streko and others like them who are asking for a level playing field.

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