Procurement is a Growth Lever for Startups

David Campbell
March 21, 2022
6 min read

In the startup world, first movers (and fast movers) are richly rewarded.

But unlocking startup growth isn’t just about streamlining customer-facing areas. It’s also about optimizing internal processes. One of the most overlooked, but most important, processes for startups to implement is procurement.

That’s right: procurement isn’t just a back office, backburner item.

Efficient procurement is a growth lever because it helps team members access the tools and resources they need in a timely and consistent manner.

Where a lackluster procurement strategy can bog down key decision-makers and stifle startups starving for growth, good procurement can even be a competitive advantage. As software itself swells in complexity, startups can remove several links from the procurement chain by getting smarter on their acquisition processes.

Let’s take a look at how.

Procurement Saves Leaders Time

Why should most startups reevaluate their approach to procurement?

The purpose of any core business tactic is to reduce drag on either time or money, or expand bottom-line revenue through growth.

When procurement is ineffective, opportunities to generate actual bottom-line savings are left untapped. But executives tend to inherently distrust tactics promising “cost-savings” writ large. There may be an even more compelling argument in favor of optimizing your procurement processes—and it’s nothing less than time itself.

When the right procurement plan is in place, your processes save company leaders time. That’s because structured procurement allows top stakeholders to zero in on what moves the needle most on the revenue side, instead of spending 20–30% of their time on procurement.

We’ve found that companies spend an average of four hours on a contract. Now imagine company top brass is spending 400 hours annually on contract negotiation alone. What would getting that time back mean for growth, revenue, and your team?

Streamlining procurement frees top decision-makers from the time-suck caused by protracted contract negotiations and complex approval flows.

Good Procurement Optimizes Your Tools, Licensing, Team Member Happiness

Once software is integrated into your company’s workflows, it’s a nightmare to uproot—even if it represents a clear stumbling block to software value capture. This sunk cost effect is of even greater concern in vendor-client relationships involving bespoke or proprietary software solutions.

But switching costs go far beyond just the financial investment made in the wrong tool: there are other factors, including:

Convenience Costs

Switching can cause blows to team morale when the perceived convenience of staying with a software is greater than the immediate perceived value prop of alternatives.

Emotional Costs

In terms of B2B SaaS, the sunk cost fallacy describes the positive correlation between the amount of time invested in learning/training on a tool and reluctance to make a change.

Time-Based Costs

To the above psychological stumbling blocks, we can add the inherent learning curve that comes with a new tool’s adoption. In other words: training on a new solution takes time, no matter what type of tool it is.

Bad licensing

Challenges can also be exacerbated by unfavorable licensing. When companies buy the wrong mix of licenses, perpetual licensing over subscription-based, for example, sunk cost can become an even more onerous barrier to transformation.

Duplicate and overlapping tools

This is another consequence of ill-conceived software procurement. When significant software overlap exists, the number of tools your company uses exceeds your team’s capacity to effectively deploy them. They can also reduce collaboration. Spreading projects across platforms encumbers stakeholders’ ability to set and reach goals.

Empowering your team to make decisions makes workers happier.

After all, employees are the end-users in a company’s software stack—not IT departments or CTOs. Good procurement removes friction for these people with easy workflows. If the lift to follow a purchasing process is too heavy, employees will circumvent the process anyway.

There’s also evidence to suggest granting team members autonomy to decide on the tools they need for the job can increase productivity.

Shifting Procurement from an Anchor to a Lever

So, how do you turn procurement into a well-oiled machine?

Like anything else, it involves optimizing your processes. But any company moving from ineffective procurement to a proactive, managed procurement process can start with the basics.

Here are a couple of core areas that any business looking to streamline its procurement process should keep in mind:

Optimizing the Approval Process

Does the CFO really need to review every deal?

If we’re being honest, probably not. Agile procurement teams shouldn’t have to rely on the input of someone from the C-suite for every purchasing decision.

In the case of small companies, this is often a necessity. But growth for a fast-moving startup in a competitive category is contingent on its ability to scale internal processes. Procurement is one of these processes that should require a dedicated team.

So how should the approval process in procurement look?

While this depends on the nature of your company, approval is often hampered by a lack of information and permissions. The person assessing bids and negotiating contracts might not have all the information the financial or legal department does. They also might be required to seek approval directly from executives before submitting a purchase order.

With an optimized approval workflow in place, both team members and key decision makers can rest assured that bottlenecks are being minimized and that the approval process is unified for stakeholders company-wide. Learn more how about Tropic helps its customers streamline approval processes and save countless hours in the process.

Introduce Visibility into Your Procurement

Reaching full visibility in your procurement process not only makes the procurement process easier to understand: it ensures that every dollar spent on bringing new tools into the fold, as well as renewing current software, is being maximized.

So what does full visibility in the procurement process look like?

Some of the most important ideas include:

  • Centralized data—Bringing information related to contracts, vendors, and other data points related to the procurement process into one place ensures that all departments have access to the same information at the same time.
  • Clear and transparent communication—Keeping an open and unimpeded flow of communication is vital in the procurement process. For as automated as you want procurement to be, the ability for any stakeholder to pop in and check on the status of a vendor or contract is paramount.
  • Open categorizing—Categorizing during the request and approval flow can help prevent the purchase of duplicate tools.

Bringing Discovery, Negotiation, Approval, and Optimization Under One Roof

Consolidating key processes in one place is perhaps the biggest growth hack for procurement.

From identifying needs to discovery and negotiation, all the way through to approving internal purchase requisitions to maintaining records, the more intentional and strategic your procurement process and team, the more effective they can be as a vessel for growth.

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David Campbell
David Campbell is the CEO and Co-Founder of Tropic.

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