Spend Management for Startups
I started my procurement career working in the automotive, aerospace, and biotech industries. These are highly regulated industries with tight controls around spend and vendor management. **For those unsure of what exactly procurement does—the function oversees purchasing software, goods, and services on behalf of an organization.**
When I decided to make the leap into tech, I was impressed by the freedom employees undertook in how they worked. But I was equally stunned by what I saw with procurement and spend management practices (or the lack thereof). There seemed to be an allergy to any sort of process in purchasing goods and services; people wanted what they wanted, and they wanted it now. Anything short of this was “too corporate” or “slowed them down”. While I intellectually understood the justification of prioritizing growth (ie, land-grab opportunity, or open/closing funding windows) it was very clear to me that these decisions were creating cultural norms that would be hard to overcome as a company matures.
It’s one thing to deal with an engineer who wants to choose their own software suppliers, but what was worse was a systematic disdain for policy creation all the way up to the leadership level. There is really no excuse for this. A common directive I saw at too many startups to count was “spend money like it's your own.” (This is probably a good time to point out one of my coworkers would regularly fly business class to Paris for long weekends because he liked a few restaurants there). In short, ‘spend money like it's your own’ is not a policy—it’s just lazy. It’s explicitly choosing to outsource your capital allocation decisions in a distributed fashion, across your employee base.
Hopefully this is beginning to change, given the current zeitgeist, but my guess is Silicon Valley is going to have a harder time building cultures around spend management than they suspect. This isn’t a ‘switch’ you can choose to flip. Just like any part of your culture, spend management should be deeply ingrained from day one. Not doing this is a choice that will have trade-offs for the entirety of the time you are in business.
I often get asked what early-stage startups should focus on re: procurement and spend management, so I pulled a few simple thoughts together, below:
1.) 3 Bids Before a Buy:
This is a standard policy at mature companies that is not applied often enough at startups (there is usually a spend threshold where this policy kicks in). A common refrain from the startup end-user is “I know who I want to use already” (as in a certain software service). Even if that is the case, require multiple bids anyway. Making a supplier enter a competitive situation will help you save money.
2.) Put someone (or a group) in charge of spend management:
You don’t need a procurement department in order to focus on spend management. It could be as simple as each department head deputizing someone (or themselves) to be accountable for the departments’ spend. Giving this responsibility to an employee can result in greater buy-in and awareness of the trade-offs a business is making. It also helps you create advocates within a department so that the next time someone says “Why can’t we have X,” it’s not just one person who can help them understand what the actual costs (direct or indirect) of that are.
3.) Pick a tool, any tool…
You probably don’t need 3 task management tools or 2 content management tools, yet this is often what happens when individual teams do what is best for them and decisions are not centralized or made visible to others. Trust me that every company eventually hits a point where software sprawl is an issue. No one, (especially the procurement team) wants to “take a tool away” from their teams who are accustomed to them or have built core workflows around these services. However, even if sprawling costs, training, or vendor management don’t drive a company to streamline their stack, eventually security concerns will. The obvious answer here is don’t allow teams to run multiple software solutions that accomplish the same thing. There will be rare cases where this is necessary, but the good rule of thumb here is to make a decision and pick a tool. This is a place where the saying “disagree and commit” is especially helpful.
These are pretty general rules and there will always be edge cases that fly in the face of these. That said, following these three rules should begin to signal to your organization that spend management is a key part of your company’s culture.