Why procurement teams struggle to work with startups

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Over the past few months, I’ve spent a bit of time talking to procurement chiefs about startups. I’ve been trying to understand how they identify the ones they want to work with, how they onboard them and subsequently manage the relationship.

 

Those conversations have revealed an almost universal desire among CPOs to work with startups, as well as their frustration that they continue to find it challenging to bring these types of firms into their supply chains.

 

Since moving to Denver as part of Procurement Leaders’ Global Mobility Programme, I’ve been lucky enough to get the chance to speak to a couple of startup founders.

 

These conversations on both sides of the coin have been illuminating. Not just in terms of those challenges, they have also highlighted the potential solutions.

 

Change is overdue

The CEO of one startup in the telecommunications sector told me that when his company tried to work with a large corporate, he was told the contract approval process would take approximately 10 weeks.

 

In another instance, he told me he was waiting for a payment that was 180 days past due.

 

Another bugbear with large corporates, this CEO said, was the fact that when he did have conversations with them, it was almost impossible to identify the decision-makers in those organisations.

 

All of these combined to slow the whole process down, which can be fatal for startups.

 

With this in mind, this CEO told me his organisation was targeting mid-market organisations. He said they were far more agile and responsive to the needs and capabilities of his organisation, with a three-week contract approval process, net 30-day payment terms and conversations with real decision-makers.

 

From my conversations with CPOs, they know these problems exist. They know their contracting process and payment terms are too long. They know they have to streamline the onboarding process and they know they have to make it clear who decision-makers are.

 

Lighter options

Some are making progress. Earlier this year, Italian energy company Enel talked to Procurement Leaders about how it had rolled out a lean and simplified onboarding process for startups. The New Innovative Firms initiative combines ‘light’ versions of both its standard supplier qualification procedure and its contracts.

 

GSK is another. Wanting to tap into new and innovative solutions being developed by startups, the pharmaceutical giant looked at ways to simplify its contracting and payment processes.

 

Working in-house legal counsel, the team at GSK managed to reduce its typical contracting template for startups to just four pages while it also shortened the standard procurement cycle to below eight days. By working with finance, the team was able to put in place a process of paying startups for pilot projects by using purchasing cards, which reduced payment terms significantly.

 

Change is possible and the areas in which large corporates need to change are clear. Streamline your contracts, implement more flexible payment terms and make it clear who has decision-making power when it comes to startups. Although this requires procurement professionals to develop close working relationships with colleagues in finance and legal, these changes are vital if you want your business to benefit from the new ideas and innovations startups can bring. If not, they will continue working with your mid-market rivals who will quickly become even fiercer competitors.


Procurement Leaders is also working on a startup ready assessment to help its members assess whether they are ready to engage with startups.


For those who aren’t members but are interested in learning more about any of this, please contact me.


Image: Lewis Tse Pui Lung / Shutterstock.com

Tim Burt
Posted by Tim Burt

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