The corporate procurement department is typically responsible for end-to-end sourcing, from the corporate brief for a product or service, through to tenders, onboarding and relationship management. However, in the case of open innovation, some of these steps have already been taken by the innovation team. This can cause a certain amount of friction in the process and add unnecessary delays. Bear in mind that standard process and onboarding are usually designed for established suppliers—not necessarily younger, innovative companies like startups.
Ask questions that help you to understand the corporate’s procurement process and identify any issues as early as possible. Don’t leave it until the point that you are engaging procurement to move the collaboration forward.
Irrespective of whether a corporate organisation has startup-friendly procedures or not, you will still have to go through a procurement process of some description. Being aware of the process and of the procurement team’s overall mandate will give you an advantage. Bear in mind that procurement departments typically exist to control spending and ensure quality of suppliers, standardise T&Cs, drive consistency and efficiencies, manage risk, liability and reputation and of course, ensure that the organisation complies with relevant regulations. It’s a complex function, but one that cannot be sidestepped.
“In an enterprise, when you get to procurement, somebody wants you to win… you're actually then in a political process to get through the last mile… the internal champion wants you to win.”
James Watters, SVP Product, Pivotal (Source: A16Z Podcast)
Because innovation and procurement departments are typically separate entities, it’s unlikely your procurement contact will be part of the innovation team. As a result, they may not be motivated to help the transaction progress quicker than the normal pace of procurement.
Work with your internal champion or project lead and the procurement department to understand how long the process will take and what is required from you, to help move it forward as quickly as possible.
However onerous it may seem, it’s important to respect the procurement process and cooperate as fully as possible. For instance:
Read any guidance and documents about the process you are given.
Be on time for any meetings.
- Follow the rules wherever possible.
Formal documentation is generally a low priority for startups. But the procurement process will require a number of specific documents, along with details of your company, product and other statutory information. This may include:
Company registration details (Certificate of incorporation, articles, etc)
Cap table or shareholder summary
A company summary (address, contact details, number of employees)
Any statutory accounts (and/or management accounts)
Insurance summary and certificates
Identification documents for founders/directors/major investors
Patent details (if appropriate)
IT architecture (for security and other concerns)
Having this information to hand ahead of time is strongly advised.
If you reach a point in the process where you can’t provide what is being asked of you, explain the situation in clear terms and what you can do or provide as an alternative. If there is no clear path forward, remember that your procurement contact themselves may not have the authority override the particular requirement.
In this circumstance, you may need to escalate the situation. If you experience resistance to an escalation request, remember that this process is generally not designed to work with unusual transactions. Work with procurement as much as you can, asking for an issue to be escalated only when there is no other alternative.
There are a number of areas in a standard procurement procedure that startups sometimes find it hard to comply with. In most cases, however, there is a way to work through it. For example:
Providing 1-3 years accounts (audited accounts are also required sometimes)
Make sure that whatever you do have is available.
Benchmarking against other suppliers
Where your product or service has a unique element, or if there are few other companies that provide anything similar, then this may be difficult. Work with the procurement team to identify similar services, explaining why it’s not a direct comparison and why your service will work better for them. If there are no comparisons, then this requirement may have to be waived.
Total contract value of less than 30% of your turnover
If you can’t fulfil this, the requirement will have to be waived.
Sustainability and diversity requirements
Many corporate organisations manage their supply chain in terms of sustainability and diversity. Try to comply with this reporting requirement as much as possible, but be aware that small startups may not be able to pass all the benchmarks. If that’s the case, work with the procurement team to either bypass the requirement or fall into a de minimis limit (and therefore bypass it).
Typical corporate payment terms are around 60-90 days, occasionally longer. This is generally problematic for early-stage startups. Work with the procurement team to agree credit terms that work for you. If you encounter resistance, be clear that the standard terms could cause considerable cash flow issues and ask your project lead for support. Touchpaper advises corporates to offer startups more realistic payment terms that won’t overstretch your cash flow, ideally 30 days or less.
The Prompt Payment Code exists to help establish fair terms. You can check whether the corporate has already signed up to the initiative—you may want to bring it to their attention if they have not.
