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Hey Procurement, Speak to Startups!

19 February, 2020 | By Matthias Gutzmann

In 2016, I joined a startup that helps large organizations work more collaboratively with their strategic suppliers and ultimately drive more “value beyond savings”, I was skeptical as to how we can catch the eye of these giant companies. Apart from having a timely and relevant product I came with a strong network of procurement professionals, which helped. Other unknown startups out there don’t have that network and are having a very hard time even getting a foot in the door of those companies. 

“Big only deals with big” is the mindset of many companies and based on concerns that only large organisations have the capacity to meet the needs of other large companies. On top of that, most organisations have risk mitigating procurement policies in place around team size and insurance that limit their ability to engage with smaller businesses. Don’t get me wrong, some organizations have opened up and are already working with startups and, according to consulting firm Oliver Wyman, investments in auto-focused startups ballooned to $16.3 billion in the first half of 2016 from $16.1 billion in all of 2015. In a sign of the rising stakes for startups, General Motors last year snapped up Cruise Automation, a 40-person autonomous driving software firm, for $1 billion. However, according to Gartner’s annual CIO survey, only “the top performing organisations are much more likely to engage with startups and source from them. The trailing performers distinguish themselves by mostly ignoring them.”

Diversify your supply base with more startups and small suppliers. I urge more companies to look beyond their traditional suppliers and engage more with startups simply because that is where unconventional ideas are coming from. In addition, startups are often faster, more flexible and more cost-effective than larger suppliers. Even if 90% of their ideas or products are irrelevant to your business, the 10% could be crucial to your company’s competitive advantage. Make them part of your sourcing strategy and innovation agenda. Sell the benefits of working with startups to your stakeholders and explain why they offer something unique which you can’t get elsewhere. I believe that procurement or any company can’t afford to limit their supply base to large suppliers only if they want to drive innovation. Sure, there are risks of working with startups and their easy-going culture and you will have to convince some your risk-averse stakeholders of the benefits of working with startups and their disruptive ideas – but this can be managed.

Startups and innovation go together like peanut butter and jelly. Or Mark Zuckerberg and his hoodie. Embrace them!

Matthias Gutzmann is the founder of Digital Procurement World

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