Procurement 101


In the corporate world, startups have a reputation of being too naive about the procurement processes of larger companies. Startups should learn about these processes and how they work before hand, in order to have a better chance of getting a deal with one.

Procurements are demand led, which means that someone within the corporation has requested a product or a service. The need for a product or service may not come directly from the procurement team, but that's in most cases the team that you're pitching to. Timing is also key when it comes to procurement. For example, the corporation has a real need for business development, but it's not a current priority in their procurement plan. This doesn't mean that it's not a priority in the next purchasing cycle. For their own sake, startups should follow-up to all come back encouragements.

Mutual understanding and the ability to step into the other party's shoes are key factors in a successful procurement process. The role of the buyer isn't to get the cheapest deal possible, but to consider over all suitability, quality, lifetime costs, and think about ethical, environmental and sustainability requirements and factors. Understanding the motivation behind the decision-making process is essential in good negotiating. Never focus on your vision or how you can help the other party but communicate what you can and will do for them.

Corporations want to carefully manage risks to avoid failures, so they have to assess the risks that working with a startup may bring forth, whether these risks are financial or reputational and finally, how to manage these risks.

It is important that startups communicate their understanding of these concerns and how they can meet them - without forgetting to reflect whether they can afford compensatory agreements. A corporation might be willing to pay a premium if they are treated like an important customer but startups shouldn't give away exclusivity for nothing. Both parties should be very clear about what they will and will not deliver. These limits need to be set clearly, otherwise the collaboration will end up in disputes and the startup will most likely be on the losing end because of the corporation's legal power.