ProCuring the Virus
Implications for tech start-ups in procurement-land 🩺🔭
We are just two decades in — but so far March 2020 is economically shaping up to be the most miserable month of the millennium. As a VC that fell in love with procurement, of course, I am trying to paint a picture on the consequences this historical crisis might have on start-ups in procurement-land. So, I reached out to several founders and industry professionals to gather their perspectives and insights (credits below 🤜🤛). Open-sourcing the results of this mini-survey felt like the right thing to do. No question: Winter is coming and it will be a cold one. For many procurement technologies, however, winter might turn out to be just the right time of the year.
Of course: In the short term, procurement ventures are not exempt from the business challenges & liquidity risks applying to all start-ups 📉
Immediate & more general advice to navigate the current crisis can be found in various sources, such as for example within this compendium of the German Start-Up Association. In a nutshell: As a founder you should keep all eyes on cash, prepare for revenue delay/cancellation due to frozen or cut budgets and actively manage your cost base. Tom Tunguz’ analogy to the 2008 fundraising environment suggests that round sizes and start-up valuations will decrease while deal count might be less affected (which — one can argue — would be a healthy development looking at recent valuation levels).
This post, however, will explore the more specific mid- to long-term implications on procurement as a technology vertical. Spoiler alert: I see three crisis-driven trends that seem to play in favor of procurement founders.
1| Exposure of painfully slow procurement reactivity
If you feel under-stressed, picture being a CPO in the midst of the Corona crisis.🤯 To name just a few, the following questions might be on your mind:
- Which of my Tier one, two, three (…) suppliers are affected? What impact on my suppliers’ production facilities (in which countries) should be expected?
- What implications on the financial health of my supply base must be expected? Which partners will run into financial distress?
- Where is my cargo? Which logistic routes are affected right now?
- What are my contractual obligations towards my suppliers? Are there any penalties in place for not reaching my minimum order thresholds?
In order to answer at least some of these questions, Procurement professionals often start calling their suppliers, take notes in Word & Excel that are then again shared via mail across the organisation. It comes without saying that such processes are neither efficient nor effective.
There is a range of procurement tech solutions that are ready-made to help tackle such challenges. They range from Vendor & Risk Management suites to Supplier Intelligence or Supply Chain transparency solutions. To give just a few examples here: Brooklyn Vendor Assurance, Prewave or Riskmethods were designed to manage & mitigate the impact of a crisis like this. As procurement departments are struggling to cope with immense challenges, the awareness to adopt state-of-the-art technology is going to rise dramatically. So: If you are a procurement-founder with the right solution, urgency 🚨 is developing in your favor!
2| Sudden & weighty pressure on cost
CFOs will be forced to identify cost levers. Specifically, CFOs will be running towards those levers that have a possibly large impact in a possibly short time frame. Surprise ✨: CFOs will be running after CPOs. This creates a tremendous opportunity for technology start-ups that can build a compelling & transparent ROI case.
Why? Again: Urgency 🚨 — one of the major, major (major) challenges in enterprise sales — suddenly is at a record high. If a CPO has reason to believe that your tech offering could have a meaningful impact on his procurement spend or efficiency — say sourcing automation (e.g. Keelvar or Archlet), pricing intelligence (e.g. Costforce or Makersite), actionable analytics (e.g. GenLots or Scalue), you name it: Decision makers will be accessible, budgets will be available, POCs will start faster and sales cycles will be shorter than it was the case before Corona hit the economy.
3| Reassessment of supply chain resilience
Post-mortem analyses of the current crisis are going to reveal the yet unpriced cost of globalized and fragmented, multi-tier supply chains. As the time has come to rethink global supply chains, discussions around Glocalization, Single- vs. Multi-Sourcing and higher product-mix flexibility of factories will intensify further. Correspondingly, the following questions are about to climb up even higher on the CPO’s Agenda:
- How do I identify new suppliers in yet untapped regions to diversify my supply chain footprint and resilience?
- How do I rapidly and rigorously qualify new suppliers based on specific requirements?
- How do I allocate demand across several supply options to optimize supply chain assurance (Single Sourcing vs. Muli-Sourcing?)?
As you might suspect by now, I am optimistic that pressing questions like these will accelerate the adoption of Supplier Scouting and Evaluation suites.🚀 Unsurprisingly, companies such as Scoutbee are indispensable in supporting governments, companies and NGOs with supplier scouting needs for urgent medical equipment and supplies today already.
While I do not intend to downplay the negative effects this crisis will have on the economy and start-up community, I do believe that history hast proven repeatedly how crises act as a catalyst for (the adoption) of innovation: Significant opportunities are going to accompany the challenges ahead. I am convinced that the Procurement Tech market is going to emerge from this crisis stronger and more attractive than it is today. 📈
The world of Procurement is rapidly evolving and we want to support those who are making a difference in this process. Are you building an exciting start-up that has the potential of becoming a billion dollar company in the Procurement space? Get in touch!! I would love to chat with you and get to know more. Also, if you know anyone embarking on a Start-Up journey in the Procurement space, feel free to reach out.
📞→ felix@pauaventures.com ←📞
Thanks for the input and/or valuable feedback to Jan-Henner Theissen, Christian Heinrich, Samir Kharkan, Jesse Lee, Alan Hoffman, Fabian Heinrich, Matthias Häussler and Peter Hagenow!🙏 Thanks to You for sharing your thoughts, sharing this post or just providing a (couple) Claps on this one! :-)
