Procurement for start-ups: how to make it work?

In this article, we explore the relationship between start-ups and procurement departments, the gate-keepers between large enterprises and its providers.

Collaborating with large corporations as a small business can often feel daunting, unforgiving and downright dangerous for your business. Cash flow issues, the sharing and communication of detailed information and the fear of being outmuscled by the deeper pockets is a real turn-off for many entrepreneurs. Early Metrics give some key lessons to learn to ensure that you can take full advantage of one of the most economically important relationships in the 21st century.

So, what is the problem?

Often, when a start-up and a corporate launch a cooperation, the relationship is established by the innovation departments, who create an environment suitable to test the collaboration. If successful, the technology may then be deployed to other lines of businesses. By then, the innovation department and entrepreneurs face a challenge: going past Procurement! Procurement departments represent gateways that can sometimes be difficult to overcome. Indeed, they follow strict corporate processes designed to secure their businesses when entering a collaboration with third parties, and that can represent an administrative burden for some.

So, how to work with this essential internal stakeholder? Here are three tips that will ease the on-boarding process and help start-ups and corporate work together for a long-term partnership.

Procurement departments : simplify the contracts

When engaging with a young venture, the traditional service provider contract is unlikely to work. Many clauses are irrelevant in the case of a POC or early deployment, and/or create legal obligations – which cannot be upheld by a start-up. Corporates need to think about adapting their procurement contracts to the size of their service providers, as well as the deal size. This does not mean getting rid of essential clauses that will protect each party, but rather, pruning those which are not essential (for instance, a strict code of ethics) – and which corporates know entrepreneurs will not agree to (exclusivity clauses).

Some essential clauses include:

Signing an NDA, or agreeing on IP and data protection
Defining timelines for integration and deployment, costs and leaders
Establishing purchase orders, payment methods, delivery and recurrence

Some non-essentials clauses include:

Following all corporate T&C
Guarantee claims with strict penalties in case of technical defaults
Asking for the support assistance to be solely dedicated to one corporate

Being able to axe unnecessary clauses is not an easy task, especially in certain quality or regulatory-framed industries such as financial services or defence. It is however essential to avoid making the on-boarding process as long, if not longer, than the actual value-added collaboration. Indeed, nothing is worse than a 6-month on-boarding for a 3 month relationship.

Develop framework of collaboration with start-ups

Corporatations who engage with many tech ventures should develop their own procurement contracts, and a set framework applicable at various stages of the collaboration. This will fasten not only the on-boarding process – by defining the essential documents the start-up needs to provide to the procurement department in order to be cleared -, but also the integration. It is important that corporates train key legal and procurement team members as well. Indeed, procurement employees need to have a strong understanding on the following: how an early stage venture operates compared to a traditional service provider, why the integration is important and what are the corporate goals, and therefore, what processes may be flexible, and how to manage it.

Some corporates have started working on start-up-friendly tools: Sanofi for instance, uses an SME Charter which provides a collaboration framework adapted to early stage ventures; the FAST Track by Airbus is also an innovative programme created to put corporate managers at the disposal of interested ventures to design a solution mutually beneficial for the parties involved.

At a more strategic level, corporates need to think beyond contracts and training, and re-assess their whole collaboration model with a shift in understanding: instead of addressing a pure supplier, corporates need to bear in mind they are engaging with a partner with self-needs.

Establish reasonable timelines when negotiating – and delivering

If a POC has already been launched, and be proven successful, the corporate client – through the innovation department – should strive to shorten the internal sales cycle to internal business lines. A deployment negotiation should not last more than two months unless specific clauses are active. An internal sale that lasts longer than 2 months erodes the trust of the entrepreneur who has been delivering well, and prevents the start-up from aligning the right resources to serve the corporate, as they will have been deployed on other projects in-between. More often than not, an internal sale which is dragging does for human reasons rather than financial or legal ones. There is simply no good communication on how the technology can support a line of business, and no internal champion to manage the deployment.

Essentially, it is important for corporates to understand that the value of the collaboration cannot, and will never lie in a POC, but that the POC phase only serves as initial validation. As such, where lies the real stake is in assessing the post-POC phase, which will provide valuable lessons to any corporate now looking to go to the next stage of innovation with a start-up.

These tips are starting points that should encourage any corporate company to re-think some of its processes that represent small but heavy constraints, and prevent a striving culture and implementation of innovation.

Owen Gough

Owen Gough

Owen Gough is a reporter for He has a background in small business marketing strategies and is responsible for writing content on subjects ranging from small business finance to technology...

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