Given all of the daily demands on funders and entrepreneurs, the need to develop a procurement strategy can seem like a thankless task. There are a dizzying number of options available today in the SaaS market for handling core functions such as payroll or inventory. Defaulting to the cheapest or most famous choice may result in a bad match that will drain your start-up of money and time and potentially harm your reputation.
Specialized start-ups in areas such as pharmaceuticals, construction, or aerospace may also need to find the most relevant and experienced suppliers. Yet doing so can be difficult for someone outside the industry who has not had time to build professional networks.
Vendor management done the old-fashioned way can ultimately lead to ongoing rounds of pitching and upselling and a relentless focus on reducing costs (if you are the start-up) or cutting corners on support and training (if you are the vendor). The constant hard sell can grind down even the best procurement managers.
Using a vendor management platform (VMP) which aggregates data about all of the quality vendors in your sector and makes that data accessible and transparent is a powerful way to maximize return-on-investment and prevent headaches down the road. Taking the time to find the best vendors for your niche is a smart investment.
Here are three ways in which focusing your vendor management strategy on high-quality vendors will help your business to thrive.
The third-party services that a business may need can vary greatly across the lifetime of a company. Early-stage start-ups will need to find suppliers for everything from inventory to paychecks. Middle-stage companies will likely need specialized legal advice, as well as marketing and accounting services. Late-stage companies will need all of this as well as reliable access to lawyers, mergers and acquisitions experts, and specialists in reputation management and branding.
Vendor management is rarely a one-off process. There are reputable providers in the global marketplace who are constantly innovating to improve their products and services. A vendor management platform, by aggregating all of the pertinent data and putting it within easy reach on your laptop, allows you to evaluate high-quality vendors continuously to ensure the best fit.
While you may find third-party providers that will be with you for the long-haul, it is highly likely that distinct types of products and services will be needed at various stages of the start-up journey. Proven allows you to compare offers from high-quality vendors and also see the vendor stacks that have worked well for other companies in your sector.
Cash-strapped start-ups may be tempted to skimp on vendor management and focus simply on the cheapest deal. However, while any business needs to stay focused on the bottom-line, the cost side of the ledger not only includes operating costs, but can also include time, reputation, and staff morale. PWC argues that “the key priority in strategic cost reduction is targeting resources where they can earn the best return, rather than just cutting costs in itself.”
Partnering with high-quality vendors is one way to drive strategic cost reduction. Rather than approaching procurement as an adversarial process, think of vendors as allies in your company’s success. Vendors should collaborate with you to ensure that staff receive proper training for the product or service and that support is available when you need it.
The best vendors also have specialized knowledge and a wide range of contacts within your sector that can prove invaluable to future success. They should also be aware of key trends and innovations that can improve your strategic planning. Overall, treating vendors as a resource is more likely to generate win-win outcomes than treating them as an adversary.
Vendors are those external entities that are necessary to support and scale your business. Today these include not only traditional services, but also websites hosts, SaaS platforms, cloud computing, and even social media consultants.
In this litigious world, where information moves around the globe in seconds and disgruntled customers can easily escalate conflict publicly, it is essential to find vendors who have documented due diligence procedures and understand the value of your reputation and brand. In the European Union, for example, regulation requires companies both to assess how third-party vendors manage privacy risks and to ensure third-party compliance.
Collaborating with high-quality vendors who have a proven record and transparent processes is one important way to mitigate risk.
Venture capital firms want to ensure that their portfolio companies succeed in an economic climate characterized by stock market volatility, global risks, and political uncertainty. The financial and personal stakes are high. Successfully taking a company from the idea or prototype stage through an initial public offering (IPO) requires commitment and long-term planning.
Investing in a good vendor management platform is a powerful way to maximize return-on-investment (ROI) and save valuable time. As McKinsey notes, “procurement’s tactical potential as a cost killer is not a secret.” Custom Market Insights estimates that the global spend analytics market, which focuses on how clients can reduce procurement costs and improve strategic resourcing, was valued at 1.5 billion USD in 2021 and is on track to reach approximately 5.7 USD by 2030, with a compound annual growth rate of 17.5 percent.
Clearly, vendor management—a key component of an overall procurement strategy—is now vital to business success and should be included in every company’s strategic plan from the start. With a vendor management platform in place, procurement can shift from an adversarial process to one in which high quality vendors become allies in helping your business to scale and exceed customer and investor expectations.
Proven is an invite-only vendor management platform that supplies immediate access to pre-vetted vendors and bids across a wide range of suppliers and industries. Proven has worked with over 70 percent of the Tier 1 VC clients in Silicon Valley, over three thousand vendors, and more than 5600 portfolio companies. Let Proven help your business excel at vendor management and procurement.
In spite of these challenges, and regardless of what the 2024 economic temperature and marketplace volatility have in store for the business world, your firm can take proactive steps to address them and greatly improve the overall efficiency, compliance, and cost-effectiveness of the vendor relationships your firm and portfolio companies deal with.
There are many ways your private equity firm can improve vendor relationships. From setting clear KPIs to implementing vendor management software, the right strategies can help you make informed decisions and rise above the competition in a changing market.