I recently spotted a tweet from Chris Bakke, an entrepreneur with a number of significant exits under his belt, that got me thinking. Why is procurement still such a challenging beast?
Large companies want to purchase and benefit from innovation to improve and enhance their businesses and startups and scaleups desperately want to sell to this market. Having founded an enterprise software business, this is an issue close to my heart and one I believe should be at the top of the corporate agenda.
Bakke’s tweet kicked off a debate about heroes in large companies who bet on small business… then swiftly moved to tales of horror, mostly shared offline, about how small businesses are drowned by huge teams, months of grilling and complex testing.
Legal bills for SMEs working with in-house counsels who run aggressive processes were a common source of distress. SMEs often feel they must agree to harsh terms in order to close deals. It takes a robust SME to stand firm on key commercial terms when a large customer steadfastly refuses to be flexible.
Of course this is not a case of big corporations wanting to get in the way of progress. Companies are under such scrutiny for anti-corruption, anti-bribery, regulatory compliance, human rights goals, climate commitments, gender balance (often trying to make a difference where governments can’t) and so much more, that it results in hugely complex sourcing and contracting processes. How can they vet tiny businesses to protect themselves from reputational and financial risk?
Robyn Dittrich, vice president of technology and innovation procurement at BHP told me that “with our supply chain spanning 60 countries, 10,000 partners with an annual spend of more than $30bn and sourcing 215,000 different types of materials for our Australian operations alone, doing business with integrity matters.” Managing that risk is a challenge they bear. “Corruption misallocates resources, reinforces poverty, undermines the integrity of government and community decision making, and results in waste of the opportunities that arise from resource development.” She told me: “At BHP, we have robust systems and controls to ensure we know who we’re doing business with, and that we are operating ethically.” They offer fair payment terms and procurement initiatives specifically designed to work with smaller businesses.
Steve Jarrett, former entrepreneur, now senior vice president of data and AI at Orange Group, added: “Large companies often overlook smaller, specialist vendors in procurement processes. Large RFI/RFP often favour the large vendors who can cover the many requirements and have the resources to engage with so many opportunities. I have found that identifying the focus areas that require significant and deep expertise and having less broad requirements on the secondary points allows smaller vendors to compete. I often find the combination of a large provider and a few smaller experts in those key areas works well.”
And so I wondered… what can be done to make this easier? Why is it all so hard?
What are large companies doing? Innovation teams exist in many large companies to help SMEs navigate and find the right buyer. Whilst these teams are not always the ideal entry point for SMEs, those who do manage to secure a deal often benefit from being guided through procurement with internal support.
Many large companies offer generous payment terms as one way to support small businesses, including Net 10 payments in some cases (but require a two percent discount to do so). This is a win for the big customer with cash on deposit and a win for the small supplier needing it. That said, if a deal has taken 3-6-9 months of procurement to get to that point, the vendor being desperate for money and having to chip money off their price to get paid may not feel entirely fair!
What are governments doing? Some governmental bodies do have programmes to prioritise procurement from minorities to try and address vendor imbalances. In the USA, Industrial Strategy payments to large enterprises mandate income sharing with small and entrepreneurial businesses in their supply chain. And in Australia, Supply Nation works to connect over 2,500 verified indigenous businesses on Indigenous Business Direct with more than 450 paid corporate, government and not-for-profit members to enhance supplier diversity. These are positive steps but prioritising smaller organisations in procurement doesn’t necessarily make the process to win business any easier once there.
In the UK, an independent review of the Small Business Research Initiative in 2017 found that different government departments procured services from small businesses in different ways, resulting in a real terms decrease in the amount of public funds being spent on small businesses.
Darren Jones MP, currently chair of BEIS (department for business, energy and industrial strategy) told me that “to secure innovation based economic growth, and a broader distribution of opportunities across the country, the government has to use the power of public procurement to support small and entrepreneurial businesses right across the UK. As the government reviews the industrial strategy – and the role of Innovate UK and the Small Business Research Initiative – my committee and I want to see a much stronger emphasis on supporting innovative SMEs in the delivery of our industrial missions.”
At the very least, it is on the agenda.
What can SMEs do? Where possible, find a senior sponsor or advocate for advice and help navigating the procurement process. If you come up against what feels like an insurmountable challenge, ask your champion.
Take a leaf out of Uri Adoni’s book on the importance of chutzpah. In The Unstoppable Startup, the VC and former CEO of Microsoft Networks Israel reveals how Israeli chutzpah – a bold, can-do, audacious attitude – is what accounts for the nation’s incredible track record of success. That sort of attitude can help here too. If a contract term is too onerous, hold your nerve. If a process is impossible to manage, question whether it is vital and flag it if it’s suffocating your organisation.
Harriet Minter, author of WFH (Working From Home): How to build a career you love when you’re not in the office told me that working from home without a team around for support means small businesses might find it difficult to pump up their chest and stand firm against a Fortune 1000 legal team right now. Saying no to something vital when you can’t see the whites of someone’s eyes and get a sense of how much a certain point is non-negotiable can be nerve wracking.
That said, she told me: “The advantage of not being in the same room as the people you’re negotiating with is that you can have your notes to hand. Put your key points and desired outcome on one piece of paper and your bottom line on another, so you can refer to them easily and have a constant reminder of what you’re not going beyond. Whatever you do, don’t write out a full script, you’ll sound like you’re reading it and instantly lose any sense of authority.”
There is a procurement problem but no roadmap to a proper solution. Only the seeds of change, select independently organised initiatives (in governments and the private sector) and tools and tricks to help companies navigate appear to exist for now.
Can governments incentivise companies with tax breaks to buy from SMEs? Can companies run light versions of procurement processes expressly designed for small companies? Can large companies with chief procurement officers ensure they also have an SME procurement officer?
With SMEs representing about 90 percent of businesses and more than 50 percent of employment worldwide (World Bank SME Finance), unlocking this process and making it easier means boosting productivity, customer experience, employee satisfaction, tax revenue, employment and more in almost every corner of every country. It is in all of our interests to make procurement better.
Emma Sinclair MBE, co-founder of EnterpriseAlumni