Startups often hit a wall when procurement steps in. How to navigate tenders, delays, and value destruction—and survive corporate procurement.

Doing sales in a startup is an emotional rollercoaster. In my 5+ years as the Founder & CEO of Yonder, a B2B SaaS company serving enterprise customers, I have gone from feeling invincible to Armageddon within seconds many times. Here is a sure way to trigger a neurotic meltdown: a prospect tells me that they like our product (I’m invincible!!), but that as a next step, their corporate procurement would get in touch with us (ouch).

What happens between the spelling of these words and the signature of the contract is usually a horror trip lasting anything from two months to several years, during which nothing productive happens to either solve the pains of our customers or to improve our bottom line and cash flow.

For the protection of sources, I won’t be giving any names — although I could give references covering all letters of the alphabet. Instead, I will start by outlining what corporate procurements do to destroy values on both the supplier and customer side. To recover from the valley of tears, I will share my experience on how startups serving the enterprise world can outmaneuver the deepest pitfalls in working with corporate procurements.

Where there is shadow, there is light. Read to the end of this article to learn about the only exception I’ve encountered in my entire sales career…

Two Sides of the Coin

Before entering startup land, I worked for several large organizations in various business roles, so I had my fair share of interaction with procurement. Procurement was the place to go to evaluate several providers for a certain product or service, and I confidently left the negotiation of favorable conditions for the company to them.

Procurement would then ask me for detailed information about my business case, realized savings, and IRRs. This information needed to be submitted in lengthy spreadsheet templates. These templates seemed to change constantly, so copy-paste was not an option, and each new case required lengthy discussions with procurement. Once these discussions were through, waiting for the next procurement board meeting for formal clearing was next.

Even though I had to endure many administrative attacks from procurement during that time, I didn’t think too much about procurement inefficiencies, and what harm they could do to both suppliers and customers.

Enter startup land. Suddenly I was a supplier and not a customer anymore, getting to know procurement from a different side. Summarizing my 5+ years of sales experience in startups serving enterprise customers, here is what procurements really do: Wasting time, and thereby destroying value for both the customer and the supplier.

That’s a bit simple, I agree. Nevertheless, I am a big fan of simple models. Now let us break down my thesis into two cases to evaluate how precious time is wasted.

Case 1: Tender

This one is the easier case. Tenders are good things, as long as they are run professionally and fairly. However, more often than not, tenders are huge time-wasters: They aren’t launched for ages because formalities like budget ownership, sign-off authority, etc. need to be cleared before the formal tender process can start. The formal tender process is then kicked off with the requirement phase, which usually takes lots of time for both business and procurement, as requirements are typically technical and administrative. There is also the danger that requirements are getting too complex because too many stakeholders are involved. Both these problems often lead to delays or cancellations of a tender.

Case 2: Direct Procurement

This one is the uglier case. Whilst direct procurements might seem faster than a tender at first sight, more often than not they aren’t. The archetypal time waster is a mutation from Case 2 to Case 1, i.e. when a customer starts with a direct procurement and after months of discussion concludes that they need to tender before they can proceed.

If you think that this sounds silly, I would like to emphasize that it has happened to me on multiple occasions, with well-known enterprise clients all over the world.

Here is what such a case might look like:

Getting somebody from procurement on the phone is often a challenge of its own. Contrary to business, procurement seems to be permanently out of office, or nowadays, in technical unemployment due to COVID-19.

Finally reaching that person on the phone, I usually hear complaints that the business has not involved them early enough, and that work is super-difficult for them when the business has already requested and negotiated a proposal before involving procurement. From a supplier perspective, of course, I have to negotiate prices with business — I could never get them to pass our proposal to procurement by offering list prices!

Next, procurement asks functional questions about our solution (remember: business hasn’t involved them early enough). I then try to give the same answers I gave to business before, just in case procurement wants to test that I am consistent in my sales pitch. I don’t think it ever was a test; it’s just “for them to understand the project better”.

Now we’re finally getting to the core: commercials. Contract negotiations typically start by debating which contract template to use: the customer’s or the supplier’s. More often than not, we end up with the customer’s contract template — which is fine, as long as the document is a template: When I’m spotting our competitor’s names in the customer’s “standard contract”, I’m starting to doubt whether it was a good idea to agree on the customer’s contract template.

Normally, it’s too late now to switch templates, so we’re trying to make the best of the situation and enter all the corrections in track change, trying not to embarrass anybody. When the contract has gone back and forth repeatedly and there are more track changes on the side of the document than your screen can hold, procurement suddenly agrees to finalize and execute the contract. Of course, under the condition that legal clears it first. Correct, they pass it on yet to another entity who wasn’t involved before and who hasn’t any knowledge about the project.

How Value is Destroyed

Time is money. This is especially true for startups serving enterprise customers, as startups are more sensitive to liquidity planning than enterprise customers. So delaying earnings and cashflows by several months is a severe issue for a startup.

During the time waste induced by procurement, often the business would like to push ahead with the implementation because they are convinced of our solution and would like to reap the benefits of it. On several occasions, I was asked if we could move ahead with the implementation works without any form of security to get paid for our services. In one extreme case, we agreed to do so, and then we oscillated between direct procurement, tender, and integrator procurement for more than a year. During which we didn’t see a single dollar, of course.

It’s not just the suppliers losing value, but also the customers themselves. In our field of business (enterprise SaaS), business cases are 3–5 years. Losing several months to procurement discussions destroys massive value.

Last but not least, the time wastes described above force suppliers to factor in procurement delays in their pricing. This is counterintuitive as to why a company has a procurement department!

Turn the Tide

We won’t change the corporate procurement world by my statements. As entrepreneurs, we have to take the initiative and turn the tide ourselves.

Whilst the points below surely aren’t one-size-fits-all, here are my learnings and best practices that have grown over time:

Don’t be afraid of tenders, embrace them.

Tenders are good things, as long as they are run professionally and fairly. They also protect suppliers from customers requesting quotes without transparency — quotes are often requested directly to apply pressure on a competitor or even worse, an internal provider.

The key is to shape a tender before it is published. We have created a neutral 2-page requirements document, which is intended to help our customers formulate their requirements. As long as this document doesn’t contain solution-specific wording and names, this is perfectly fine. If the requirements are too detailed and a customer copy-pastes them straight into the tender documents, a tender might end up not being awarded because there are too few bids. Knowing how much blood, sweat, and tears it takes to answer a tender I would certainly recommend not to go too far with the requirements document!

Once the tender is published, the first thing I do is to check if the tender is shaped for our solution, neutral, or shaped for any competitor’s solution. The second thing I then check is if the tender documents contain a draft contract on which suppliers can comment — if it does, this helps speed up the decision process and potentially avoids the ugly contract discussions described above. If the tender documents do not contain a draft contract — why not submit your standard contract?

Last but not least, we have received numerous feedback from our customers that the quality of our tender answer and tender presentation stood out, and that this was part of the reason why we won these tenders.

Focus on the essential contract clauses.

In the case of direct procurement, things are usually messier than in the case of a tender. In my experience, a lot of time is lost when haggling about contract clauses that aren’t dealbreakers (project organization, feature set, place of jurisdiction, etc.). I normally give in to these clauses just for the sake of speed and the soothing of my nerves.

Speed against discount.

Time is money, so we use “speed discounts” in direct procurements. It reverses the roles by defining a timeline for decision, contract signature, and payment from the supplier side, and defining the budget from the customer side. Whilst this approach does not always work and usually needs strong nerves, it has worked with very large customers repeatedly — if a discount suddenly disappears just because Saturday is the first day of the new month, procurement will be happy to rush through a purchase order on a Friday night.

Conclusion

Calling things what they are helps foster learning, so this article wasn’t about extending compliments to positive procurement experiences. Quite honestly — there haven’t been many in my career so far.

There is one exception though. Let’s call him Mel. He accompanied us through a very complex tender process, always acting professionally and reliably. And more importantly: he kept the timeline from day one.

The world of business would be so much better with more brave procurement hearts out there.