Procurement teams are being challenged by the business to deliver more value. The function knows it can accomplish this and is searching for ways to do so.
One of those areas that is under close investigation is innovation – specifically, supplier-enabled innovation (SEI). It is an area that the function has been focusing its attention on for several years and has had a great deal of success. But, with the pressure on to deliver more value, procurement is widening its net in the hunt for innovations.
As such, procurement teams have begun looking for ideas outside of their traditional supplier networks and have put a particular focus on startups. These fast-moving and disruptive companies are seen as a source of great potential but successfully engaging with them has proved tricky and procurement functions have encountered a number of challenges along the way.
Having identified those challenges over the course of the last year, we have also discovered solutions that will aid those who are engaging – or considering engaging – with the startup community.
Here are four of those challenges and four solutions:
The CEO of one telecommunications startup tells Procurement Leaders that when their company tried to work with one large multinational corporation (MNC), they found that the contract approval process would take approximately 10 weeks.
In another instance, the CEO says that his company had been waiting for a payment from an MNC that was 180 days past due.
Even more generally, the CEO said that it was almost impossible for his comany to identify the real decision-makers in MNCs.
With this in mind, this startup CEO says that his organisation is targeting mid-market organisations because they are far more agile and responsive to the needs and capabilities of startups. They have a three-week contract approval process, net 30-day payment terms and it is easier to identfy and speak to decision-makers.
For small companies that are operating month-to-month – or even week-to-week – such delays can be fatal, which will ultimately close off this avenue of innovation.
It may sound easy but simplifying processes is the only way forward. Analyse every every step of the engagement process and examine the ways in which it could be eased. This should include everything from contracting all the way through to relationship management.
You also need to bring your stakeholders into that process to ensure that the business is comfortable with any changes made.
On the issue of simplfying, contracts are one area that must be a particular are of focus. Traditional procurement contracts can span into the hundreds of pages and that sheer volume can have a detrimental impact on startups. Unlike larger organisations, startups simply don’t have the resources or capabilities to deal with such contracts. Procurement has to work to strip out as many terms and conditions as it can.
The first step in reviewing the contracting process should be to pull together a cross-functional team. This team should include legal and should work toegther to review contracts and determine what can be removed and what has to be kept. The shorther contracts can be without putting the business at risk is the balance a function should be looking for.
We have already seen some functions make progress here. The team at pharmaceutical giant GSK engaged its legal function to reduce its typical contracting template for startups to four pages and shortened the standard procurement cycle to fewer than eight days.
While there may be a stereotypical idea of what a startup is; what they do and what they look like, in reality, such firms focus on a range of issues and also come in different shapes, sizes and locations. This does not just make it difficult to find the right startups to work with, it also makes it difficult for buyers to understand whether they are already working with startups.
There is also a natural conservatism in the approach to scouting and sourcing within category management. Understandably, most buyers or category managers want to stick with the suppliers they know and trust. But, if functions want to tap into the rich seam of innovation that exists with startups then buyers should begin to look beyond their traditional ecosystems.
Solution – Look for help and incentivise
Encourage your teams to look for startups. Have them scour their networks to find those organisations and incentivise them to do it too.
Outside of that, look towards specialist organisations who are out there who can help connect you with startups. Earlier in 2019, Procurement Leaders heard a presentation from Israel-based venture capital firm Vintage Investments. The company has invested in many of the world’s leading venture funds and has exposure to thousands of technology startups throughout Israel, Europe and the US.
Such organisations tap into their networks to help large organisations identify startups with which they could work based on the specific challenges they face. These organisations also offer to make introductions and facilitate any meetings that are held.
Any engagement with a startup brings with it a degree of risk. They aren’t fully fledged businesses, most likely haven’t fully developed their product offering and don’t tend to have a lot of resources. A business will be naturally very wary of engaging in a relationship with a firm that comes with such risk. Businesses are, understandably, set up in a way to protect against such risk.
As with all risks, however, businesses could reap significant rewards if they can get that relationship right.
Solution: Identify the appetite for risk and build specific safeguards
Most companies will want to work with startups but with little understanding of what that means. Procurement teas have to define the business’s risk appetite and work from there. If the organisation is more risk-averse, the function should look to engage with more mature startups.
Outside of that, the function must develop safeguards to protect the business without stifling engagement.
This is something that Italian energy company Enel has managed to do. Having identified exactly how the business wants to engage with startups, the procurement team worked to build a new lean process for organisations that pass its criteria for a ’new innovative firm’. When those checks are passed, that company runs through a ‘light’ qualification.
If procurement teams are to deliver value, then they must redefine their relationships with startups. Such companies offer substantial potential, but it is only by fixing some of these common issues will buyers be able to harness that potential.