We include small vendors in our system selection projects but only when we believe that they have a good client base, are really good for a specific industry and are using recent technology. A small company can also be a successful company and there are benefits to being a bigger fish in a smaller pond. You will see lots of small/unknown companies on our ERP portal at http://www.180systems.com/portals/erp/.
But what about the concern that a small vendor will be acquired or if the small vendor is facing financial difficulties? Financial problems may be temporary – for example the vendor might have just rewritten their software to support multi-tenant architecture which is a big change supporting cloud computing. As a consequence, development costs may have gone up and their revenues have gone down as they are recognizing revenue over a longer period of time. However even if the small vendor is ripe for acquisition, it would be a big mistake for the acquiring company to abandon the system when there are many happy clients and the system has a strong/current underling technology.