This is the first in a series of pieces about “unsexy innovation”: from my time working on in-house M&A to startup partnerships and into Innovation Consulting, it’s the misalignment of processes that kills deals. This series will dive into the areas gurus have never experienced and arm you with tangible lessons for your work.

The problem:

Most corporate procurement processes are not traditionally designed to work at pace with startups or niche suppliers, the engagement can often mean unclear next steps and timelines leading to frustrations and blockers on both sides.

Then, the invoice hits the procurement department and a confusing dance begins.

Tell me if this sounds familiar, you are a startup / services provider selling into a corporate or a corporate sponsor. Everything is going great, the two companies are getting on, you’ve had a few meetings, talked a lot, you’re both itching to get a deal going.

Then, the invoice / contract / proposal hits a department no one has been talking about — procurement — and a confusing dance begins.

On one late-stage M&A sourcing deal, we got to this point and I was told: “I’m sorry but it’s a 3-month process to get this supplier onto our system, can you please have them fill out this form and we will process it”. We had seen procurement as a bit of an annoyance and hadn’t built it into our process. It resulted in delaying our ability to engage with the target in an open competitive process, and with a procurement team based in a different country we had very little internal political clout to speed up the process.

This resulted in us having frayed relationships with the sourcing partner, less deal flow for us, being too late to the party on the deal opportunity and delayed payments to the supplier. A lose-lose for all parties and an unsustainable way of working that taught us many lessons.

In another example, of an early startup partnership we pursued, we handed a startup a full-fat procurement contract designed for an SAP scale partner that required checks over a time period longer than the startup had existed… I asked the in-house legal team to rework a lighter contract but with no precedents in the organisation, the risk flags shot up.

When doing deals with startups, you’re working in dog years. Three months is a year of lost time.

Particularly difficult was the fact that when working in global organisations, across geographies, group contracts bring every risk-averse (albeit they’re doing their job to protect the organisation) administrator to the party. This resulted in a zombie-like state where the contract shuffled from legal review to procurement review to stakeholders covering holiday saying: “we’ll have to wait until John is back…”. For us it was frustrating. For the startup it was abusive, they were bled on time and attention when they could have been focusing on more tangible revenue opportunities. This is a story I’ve since seen repeat itself regularly.

The big problem is that every company has a different procurement process and most companies designed their process for large, stable supplier agreements, where both parties have the luxury of time and a bit of wrangling.

Even worse, when you do get onto a supplier system, incorrect onboarding or the need to create bespoke documents to satisfy their requests can block payments leading to up to 100 days+ for a company to pay a supplier.

When doing deals with startups, you’re working in dog years if not shorter. Three months is a year of lost time.

Companies that succeed here have open declarations of what they need, transparent procurement processes and easily accessible templates or checklists.

Equally, for corporates, startups and innovation projects represent very volatile opportunities that could go under or cause harm to the end customer. No one is at fault here for wanting to do proper due diligence, but most companies could be more transparent on what the hurdles are.

Companies that succeed here have open (internally agreed) declarations of what they need or are trying to do, paired with transparent procurement processes and easily accessible templates or checklists. These make the process, and most critically timelines, transparent from day one.

Google is a good example of an onboarding process with the key requirements and ways of working.

Top tips for startups:

  • Ask about procurement as early as possible and ask the company what the process is and the timelines (if they don’t know, take it as a warning sign).
  • Understand that whenever working with a big company you have three buyers: Technical (they’ll want to know what the product can do), Economic (they’ll be paying) and Procurement (they’ll be saying yes or no) — make sure to spread your time across all three.

Top tips for corporates:

  • Make sure you have a process for working with startups and make sure it’s quick so not to abuse the startup.
  • Understand where you are open to accepting some risk and weight your diligence to areas that are the most sensitive (e.g. customer service, reputation).
  • Publish your procurement requirements on your website so partners/ suppliers can come armed with all the documents and speed up how quickly you both do deals!

We’d like to hear from you

  • Have you been through a great procurement process with a corporate? Who were they? What has worked for your company?
  • What are other areas of unsexy innovation you would like to know more about or recommend we cover?

Join the procurement challenge

  • Could companies standardise their procurement across their sectors and publish it? For example, three-quarters of fintech procurement is the same process no matter which bank you deal with, so large parts of procurement could simply be standardised.
  • Sifted could host these lists so startups know what they need when they work with a corporate — and what that last quarter of bespoke documentation is that is needed.

 

 

Oliver Graham-Yooll is deep tech and R&D commercialisation lead at Sia Partners. 

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Andrew Tanner-Smith
Andrew Tanner-Smith

This is an interesting article that resonates with me. My former employer recognised this a few years ago when it acquired innovation labs as part of a take-over of a competitor. I worked with the relevant sourcing managers to find out how we could partner with suppliers who might be start-ups, one-man bands with fresh engineering ideas, maybe even two kids in a garage with a couple of lines of code. These suppliers wouldn’t even know what to do with a PO. We had been working for years to reduce the lead time from need identification to 1st PO, but… Read more »

Krissi
Krissi

ould companies standardise their procurement across their sectors and publish it? For example, three-quarters of fintech procurement is the same process no matter which bank you deal with, so large parts of procurement could simply be standardised. Yes yes and yes again. The public sector procument process is extremely fragmented. Each organisation or local authority, there should be standardised processes, especially within these times. Their pool of existing suppliers will potentially no longer trade, however the on boarding process for new companies is extremely disjointed, the terms differ across the country. It’s alot to get one’s head round. However, it’s… Read more »

Andrew Tanner-Smith
Andrew Tanner-Smith

Standardised procurement processes in the public sector I would agree would be beneficial. If the author is asking private sector companies to follow a standardised procurement process I’d say that will never ever happen. Whilst there is a logical sequence of events – Need identification, supplier selection, negotiation/contract, PO – there will be sectoral differences (legal, internal process reqs etc). Thats before you even factor in that procurement process efficiencies can be a competitive advantage, especially in sectors such as FMCG etc.