The success of a high-growth startup relies on its ability to scale quickly. Due to the intense pressure to grow, little (if any), attention is given to procurement during the growth stage. When the focus is on influencing key metrics “up and to the right,” it’s easy to forget how important it is to keep tabs on your spend.
After all procurement just slows things down, right? Growing teams may also feel a certain way about introducing a “Big Brother” culture, where someone’s overseeing every purchase. Why have one more person, or process, in the way of getting things done?
The reality is that procurement is growth’s secret weapon. Healthy procurement practices unlock better margins, which unlock bigger rounds (and eventually, IPOs). Failure to prioritize procurement may be hurting your growth. Let’s take a look at why.
Have you ever watched HBO’s wildly popular series, Silicon Valley? In one of its episodes, Dinesh, a staff coder, becomes the CEO of Pied Piper (a fictitious compression and video chat app). And just as everything seems to be going well, the worst happens—a lawsuit. The app is nearly bankrupted after being sued for $21 billion because it doesn’t have any terms and conditions.
Imagine something as simple as this disrupting your startup’s success. This is an extreme example, but this starts to illustrate the costs of failing to implement compliance measures. Let’s be fair—staying on top of all the rules and regulations in business is daunting.
This is where procurement comes to the rescue.
Whenever you enter into a contract with a vendor, you’re at risk of compliance problems. For example, let’s say you purchase a new CRM by swiping a credit card online, and you don’t read the fine print. You come to find out, the platform doesn’t comply with privacy laws, and you end up in legal hot water because customer data isn’t properly secured.
It falls on your business to ensure the software you use is in compliance with all rules and regulations. Unfortunately, business leaders don’t always know how to ensure this. And if you’re not careful, it could take years before you realize there’s an issue with compliance, putting you in a position of losing customers and damaging your reputation.
With a procurement team (internal or external), you have experts who consider the cost alongside compliance concerns and sustainability when selecting products to purchase. This facilitates growth, which is vital for startups trying to attract additional funding from VCs.
Now, if you have a procurement team and it’s spread too thin, or you’re not ready to have a procurement department, you can use external help like Tropic to implement a turnkey process and outsource your SaaS spend entirely. This way, your procurement team focuses on strategic spend, while we handle the time-consuming negotiation and SaaS renewal processes.
Growing Teams and Maverick Spend
Most startup teams change quickly as they scale up, which isn’t unusual for any business once they have some funding in place. While massive growth brings you a step closer to achieving your vision, it can be stressful handling the growing pains that come with it.
Fast growth is particularly tough on the initial team who see the business evolve into something different almost overnight.
In the early days, when the business is still made up of a small unit, everyone feels involved in most, if not all, aspects of the company and knows what the others are up to. Teams typically have permission to buy any tools that will make their work easier. But this also means there’s no process to monitor them to ensure compliance issues don’t arise.
As the team grows, that feeling goes away little by little until new characters and personalities enter the business and the culture evolves. The tools evolve, too, and there’s often an overlap where they tend to do the same thing. Who needs Basecamp when you already have Asana (or vice versa)?
Then you wind up with multiple departments siloing their data, making it difficult to keep teams on the same page.
By the time you get a procurement department to govern the buying and negotiation process, the business processes are completely out of control. Putting time and money aside to consult with an expert like Tropic is a great way to prevent potential issues before they happen. Plus, it promotes sustainable growth, ultimately influencing revenue.
Tips to Set up Procurement at Each Stage of Your Growing Organization
While startups could use help with the SaaS buying process, setting up a procurement team is frequently deprioritized. So, it’s up to the CFO, CTO, or someone in the C-suite to handle each deal or renewal, which may keep spending in check, but comes with several hidden costs.
Some startups may have fewer complex needs, but as the organization chart deepens, the work of procurement grows. At this point, C-levels no longer handle vendor evaluation and negotiation of contracts, but instances of tail spend and “shadow IT” begin to flourish.
Procurement demands compete with high-priority work as the company evolves and expands while SaaS complexity and necessity increase. The procurement process becomes a team lift between finance, legal, and security in an attempt to control spend.
Then it’s not until the company scales up to the 1000-employee mark when they decide to finally bring a procurement expert aboard to manage the tech stack. This may ease the burden on the controller, finance manager, and other internal roles, but it’s not a cure-all for the overall SaaS buying process.
To ease the burden on the internal departments and make the procurement process easier, here are six things your startup can do to drive innovation and growth:
1. Identify and recognize when new items and vendors are needed. Find items and suppliers (big or small) that are flexible with your growing team and needs while monitoring spend.
2. Research new items that will be most useful to your company and vendors that save you money. Consider issues like taxability for your SaaS; for example, if you have a team in Illinois and a team in Florida and everyone needs Adobe, consider purchasing the software from your Florida office.
3. Create a standardized buying process that’s constantly refined and tweaked to ensure your growing team doesn’t overspend on any tool that they need. While this helps purchasing to scale efficiently, it may come with lots of bureaucracies and bottlenecks, which Tropic could easily eliminate by taking such tedious tasks off of procurement’s plate.
4. Ensure all data is collected after each purchase. Procurement’s time is best spent in refining processes and strategy—not going back and forth on contract details or numbers, tracking invoices, purchase orders, and other renewal information. Plus, manual entry of such items can cause problems down the road owing to data entry errors, duplicate data, and more, all of which are a headache to manage. Tropic takes these tedious tasks and acts as your central contact point for vendor sales reps, security, and legal to save time and enjoy better efficiency.
5. Monitor for renewals and end of vendor terms. It’s in the best interest of every vendor not to give you the opportunity to meaningfully scrutinize your expenditure with them and figure out if it’s the best investment for your company. Be proactive during negotiation and get at least 90 days ahead of the end of the contract date. This way, you have enough time to understand future costs and evaluate other vendors if it’s necessary.
6. Monitor your new procurement process for opportunities to improve. It’s natural for startups to change, and procurement may need to be adjusted as you go just as much as regular day-to-day operations.
Ready to see how data will optimize your SaaS spend?
Tropic enables high-growth companies the ability to scale without the hassle and wasted time of dealing with SaaS vendors. Our proprietary data set means we compare your needs to hundreds of similar transactions to get you the best price every time.
Get in touch to find out how we drive better outcomes on SaaS negotiations for the world’s highest growth companies.