Digital Strategy & Innovation

Startup and purchasing: it can be done!

Companies are facing the question of how to collaborate with startups, as innovative providers or as partners in innovation projects. Contamination between these worlds is in fact the right way to stimulate innovation in the business world and to learn more about the inputs that can come from the startup ecosystem.

Among the issues that these collaborations must face, those related to the Purchasing process structure that is most commonly found within companies, cannot be ignored.
It’s not only cultural differences between startups and companies that make the relation complex, there are also some objective process factors that get in the way. The first is the scouting activity, that cannot be conducted through traditional channels but requires knowledge about the startup ecosystem (incubators, venture capitalists, specific databases, community) and the activation and management of new investigation areas. This is followed by the inability to actually supply and deliver goods, or the absence of product/service specifications since startups mainly bring ideas and concepts. In addition, there is the objective impossibility of applying traditional evaluation criteria, tools such as professional registers and qualifications typical of Purchasing Departments to which, due to their nature, startups have trouble adjusting. Startups have no history or financial statement and are therefore beyond any economic-financial strength assessment, often they don’t have any clients yet (these are sometimes the most interesting ones) nor references. Not to mention the difficulty of applying a normal negotiation phase based on RFP, tenders and orders. Other critical points are drawing up contacts and company reaction times: it is in fact necessary to think of more flexible conditions and shorter payment terms to avoid jeopardizing startups’ life, as well as intellectual property terms, exclusives, marketing.

Many companies have already launched startup collaboration courses. From an analysis based on Startup Intelligence Observatory work, it has been possible to highlight some reference models existing today.

Some companies, though they haven’t taken any measures to change their purchasing process, have identified some workarounds to speed it up, for example by using their own suppliers as intermediaries or adopting spending thresholds that don’t require qualifications or vendor ratings. Other companies have made some progress on methodology changes, through pilot projects or Proof of Concept, making them an alternative to provision processes.

Then there are companies that have already activated Fast Track systems in which the qualification phase overcomes traditional criteria, evaluating the innovation value of an idea and the entrepreneur’s reliability first of all rather than the startup’s financial robustness. These include Enel and Poste Italiane. In these cases, the selection and accreditation phases are preferably shifted to the Innovation area, removed from Purchasing, to grant access to appropriate channels and manage experimental phases. Accrediting a startup is very similar to what happens when a business incubator selects a startup based on parameters such as business innovation, synergies with the business model, quality of managers, the potential of the initiative. Additionally, some invoicing and payment constraints are issued to speed times up so as to not jeopardize the startup’s survival.

Alessandra Luksch

Alessandra Luksch

Digital Transformation Academy Observatory Director
Alessandra Luksch

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