by Board Member Lillian Rafii
In July, I represented SBUA in the annual PG&E Small Business Consultation and Feedback Forum. PG&E hosts this meeting to generate ideas and hear from small businesses, their representatives, local chambers of commerce, and other related organizations on diverse and small business inclusion in PG&E’s spending. Wells Fargo also participated, brought members of their small business and diverse business team to the meeting, and presented features they have developed in servicing small businesses. The discussion was vibrant, energetic, and at times bracingly honest. It was fantastic being around passionate small and diverse business representatives and it is exciting to continue SBUA’s involvement in advocating for small businesses in the utility world. I was also impressed at PG&E’s dedication to representing small businesses in their contracting budget and the work they have done so far. In the past year, they have allocated over 30% of their supplier budget to small and diverse businesses.
We divided into three groups to discuss one of the following main issues facing small businesses: 1) access to capital and cash flow, 2) competing for contracting opportunities and critical supplier requirements, and 3) technical assistance and capacitybuilding training for small business community. I was in group #2 discussing contracting opportunities and supplier requirements so I have the most detail from that discussion, however, we all returned to the main group for a final discussion after our breakout session to share ideas. The following are issues that were discussed in each group. As a full disclaimer, this post is entirely my recollection and opinion of the meeting and does not reflect the opinions of the organizations involved.
Topic #1: Access to Capital and Cashflow.
Conflict Between Short Term and Long Term Needs for Capital. As with personal lending, small businesses can face the tough decision of choosing between a short term need for capital that may come with punitive terms or a taking a longterm view with slower access to capital.
Technical Assistance in Getting Paid. A key issue in small business contracting today is getting paid faster and more efficiently. Many contracting companies operate on small profit margins, so if a bank is charging a few percentages to process payments faster, it could eat up close to half of their profit.
Line of Credit for Contracts. Are banks offering services and products for small businesses who need to take out a line of credit in anticipation for a contract? Here, Wells Fargo stepped in to discuss many options they have cultivated to cater to small and diverse businesses. One feature I found most interesting was a free consultation for when a small business was denied a loan. Many diverseowned small businesses admitted in a related Gallup poll that they did not apply for another line of credit after being denied once. The purpose of the consultation postdenial was to evaluate factors that could be improved on the next loan application.
Topic #2: Competing for Contracting Opportunities and Critical Supplier Requirements.
Adaptation and Economics of Scale. How does a small business compete with larger businesses and decrease costs? How do they reduce the health, safety, and financial risks of contracting requirements? This is an ever present challenge for many small and diverse businesses and one that can require creativity and an awareness of industry trend. Mentorship by the source company and afterhours trainings, further discussed below, can help a company implement new solutions.
Transparency between PG&E Expectations and Small Business Performance. Transparency came up in two ways. First, in PG&E setting expectations for doing the job. Second, in the ability of the small business to perform the job. A solution that came up in multiple topics was a scorecard tracking system. Many companies already use a scorecard to track metrics and this was agreed upon by most as an effective way to both set expectations and give and receive effective feedback.
The “Brand Name” Advantage and Leveling the Playing Field. Many small businesses in the utility contracting world compete with larger and more established companies. We discussed the unspoken “brand name” advantage of a utility company choosing to go with a larger and industryvetted company because of the unpleasant truth that it could be easier to justify the choice if something went wrong. While small businesses are known for their innovation and nimbleness and so offer many advantages, they could be considered a riskier choice in the eyes of a supply chain decision maker. Two primary solutions were proposed to combat the instinct of the decisionmakers who choose who to assign the contract to. In the shortterm, a supplier company can track their features with an objective “scorecard” of sorts, also mentioned above. Many companies, including PG&E, already use their own scorecards to evaluate suppliers. Here, instead of asking a company to take a leap of faith on choosing a business, small businesses can present previous scorecards or one they keep themselves to track objective metrics. A decision maker may be more swayed by clear criteria and more willing to hire smaller company if they present clear and objective metrics.
The second idea was geared toward longterm changing of perceptions, and that is promoting contracting success stories with small and diverse businesses. By spreading the word of the success of small business contracts, decision makers may evolve their instincts to include small businesses in more contracts.
Topic #3: Technical Assistance and CapacityBuilding Training for the Small BusinessCommunity.
Strategic Alliances Between Small and Small. PG&E representatives described that they would often vouch for successful suppliers to growing technology companies in the bay area that were looking for similar suppliers. Another innovative idea that came up, in contrast to the traditional strategic alliances between large and small businesses, was having small businesses build their own strategic appliance with each other. This way, two smaller businesses could accept a contracting job by expanding their capacity on their own. It allows small businesses to help each other instead of having a larger company step in.
Another common theme of the day was that: networking still helps! Ultimately, it seems that being involved in the business community, community service organizations, and of course making a great impression on the job comes back to help a business’ visibility in landing future jobs.
Staying Up to Date on Industry Trends. All business, large and small, simply must be aware of industry trends, especially in the utility and energy world. Government subsidies, regulation, and Governor Brown’s energy goals all affect California businesses within the supply chain. Industry groups, trainings, and community service organizations all publicize and hold industry events that detail updates in the law, business, and the market.
Final Takeaways
Mentorship. Mentorship is something I often associate on an individual level. However this meeting opened my eyes to the high rate of mentorship from company to company. Ultimately, the relationships are personally developed and people are involved every step of the way. The mentorship could come from the larger company supplier, and as unusual as this may sound, many participants mentioned success stories in having a larger company help a small business adapt to the different financial, procurement, and production issues to keep them as a partner as the small business grew. PG&E and other source companies offer opportunities for offsite business training to help successful small business suppliers refine and augment their own business growth. Others would send members of their own team to the supplier company to help them refine their practices.
Regulations. Small businesses can be severely affected by the burden of state and federal regulations as they grow. Many resources are available for small businesses from banks, including free seminars on tax liability and financial repercussions as business add to their payroll.
The Reality of Of Contracting with a Large Company Like PG&E. Many threads of the discussion centered around the realities of contracting with a large company. PG&E is an interested supplier, aware of the issues in contracting, and is actively learning more about how to optimize their relationships, however, still subject to the reality of minimizing financial, health, and safety risks. In marketing the business for contracts, PG&E representatives emphasized multiple times the importance of an effective “pitch,” again suggesting a scorecard coming in handy. Another real issue in contracting with a large company like PG&E is being careful of accepting production increases and the potential pitfall of scaling up too quickly. None of the above issues had onesize fits all solution and much of the progress in the discussion was partially geared toward identifying key concerns and to develop methods to address them.