Small Companies Can Beat a Bigger Rival

Sometimes a sure thing isn't so sure.

Take the bad news that hit Boeing(BA Quote) this week. Widely expected to win a $35 billion contract to build refueling tankers for the Air Force, the company found itself beat out by Northrop Grumman(NOC Quote) and its partner, the European Aeronautic Defense and Space Co., or EADS, (which makes Airbus planes).

What can a small business learn from this high-profile air war?

Sometimes it pays to take on a larger, more entrenched rival. Just make sure you've got the product to back up your challenge.

There were plenty of reasons Boeing should have won the contract. First, there's the company's long history with the military. Boeing has been supplying tankers -- which refuel fighter jets in midair -- to the Air Force for almost 50 years.

Then there's the patriotism factor. Given the current state of the economy, there's strong political pressure to produce "American" jobs. Although the Northrop/EADS planes will be assembled at a plant in Mobile, Ala., most of the components will be built in Europe.

The Air Force -- admirably -- put politics aside, and pressure to add American manufacturing jobs wasn't enough to close the deal.

"This is the biggest Pentagon contract to go to a Continental European company," says Richard Aboulafia, vice president of analysis at Teal Group, an aerospace and defense consulting firm based in Fairfax, Va. "It's a nice public-relations victory for Northrop, but a major breakthrough for EADS."

Even if you're fighting for a contract valued far less than $35 billion, you can learn a few lessons from this deal.

1. The Client's Needs Come First

"The Air Force did a good job of saying exactly what they wanted and why," says Aboulafia. "It was a very transparent process. Northrop Grumman produced the best plane for their needs at the best price."

According to defense industry analysts, the Northrop/EADS proposal outshone Boeing in almost every way. Their proposed planes were bigger, which would allow them to carry more passengers and fuel. Their tankers were capable of refueling at farther range and performed better in simulated wartime scenarios.

Ultimately, the numbers were clear: Funding the Northrop Grumman proposal would give the Air Force 49 new tankers by 2013, whereas the Boeing proposal would mean only 19 planes would be ready that year.

2. Highlight Your Track Record

Another factor that helped tip the balance in Northrop's favor was a comparison of the two companies' performance in previous government contracts. Not only did Northrop/EADS get better performance reviews, their subcontractors did, too.

The lesson here: Push your past performance. And remember that your record is only as good as that of the suppliers you work with.

3. Be Upfront on Price

Boeing's caginess about costs was another red flag for the Air Force reviewers, who said the company did not clearly explain its price calculations. That made them doubtful about the entire proposal's cost projections.

Sure, it always helps to be the low bidder. But even if you're not, be upfront and consistent about your pricing. If a client thinks you're fudging the numbers, it puts your entire sales pitch at risk.

4. Think Globally

"Even in national defense, it's a global marketplace," says Guy Ben-Ari, a fellow at the Defense-Industrial Initiatives Group of the Center for Strategic and International Studies. "Having this transatlantic alliance was critical for Northrop Grumman, because it gives them access to EADS' state-of-the-art technology."

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