Startups & Corporates – Part 6 : Procurement and Startups, how to make it work?
By Elia Pradel - 28 April 2020
Early Metrics shares some key learnings about the collaboration between large corporates and early stage ventures, arguably one of the most important economic relationships in the 21st century.
In this episode of the Startups & Corporates series, we go deeper and explore the relationship between startups and procurement departments, the gatekeepers between large enterprises and its providers.
So, what is the problem?
Often, when a startup 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 3 tips that will ease the on-boarding process and help startups 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 startup. 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 onboarding process as long, if not longer, than the actual value-added collaboration. Indeed, nothing is worst than a 6-month onboarding for a 3 month relationship.
Develop a framework of collaboration with startups
Corporates 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 startup 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 startup-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 startup 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 startup.
These tips are starting points that should encourage any corporate company to re-think some of its processes that represent small but heavy constrains, and prevent a striving culture and implementation of innovation.