Having built new procurement departments at three technology companies over a short period of time, this is a subject that’s close to my heart. The term “startup” can be used broadly. I currently work at Flexport which I would consider an “established startup” even at 500MM in revenue and 1000 employees. For this article, we’ll consider a startup to be 500MM or less in revenue, which will generally translate to 100MM or less in indirect spend to be managed by procurement.

It’s never too soon to implement procurement best practices. It doesn’t matter if you are in your garage or prime office space in the middle of Silicon Valley. Procurement’s role, at its core, is to maximize the impact of dollars spent. Spend under management is a popular KPI for Procurement. Every business owner should ask themselves how much spend was impacted in a positive way by a procurement activity.

I’ll suggest three core steps needed to create a procurement strategy at startups.

First is a mental step - toss out the idea that procurement slows things down. There is a false notion in business that advanced procurement controls will slow down operations. As startups enjoy rapid growth, stakeholders don’t want anything to limit opportunity. The reality is that if the stakeholders understand procurement’s process and are willing to be involved in planning, nothing needs to slow down. If executives could see the risks their company takes on and the money that could be lost without formal procurement processes in place, procurement would absolutely be a focus. Procurement also has a responsibility to buck the classic rigid finance role and become a flexible, value adding partner.. Best in class procurement departments play a middleman role between business units and finance, helping both sides keep business moving.

Second, build a core group of decision makers and decide what the procurement group will look like. Some companies operate best with a centralized procurement function; this model is probably most effective if procurement is on the scene from day one. In an established startup, a “center-led” procurement environment may be the most effective. Leveraging the knowledge of the stakeholder’s means substantial spend can be managed with limited procurement headcount. Stakeholders must be involved in the process.  It’s critical that everyone understands their role and is willing to take part or the whole system fails.

What is the main goal of procurement at your company, and what resources will be required to reach that goal? The longer a business remains under one procurement operating method (centralized vs. center-led) the harder it is to change later on.

Third, after 3-6 months in a new environment, create a detailed set of OKR (objectives and key results) and KPI (key performance indicators). If you don’t know the difference between the two, I would strongly recommend you research the terms and become familiar with great companies that leverage these ideas. OKR’s are essential and hold yourself and others accountable to aggressive goals; face up to failure and celebrate success together! KPI’s track specific reportable measures and allow effort to be focused on critical issues. Avoid benchmarking your company against other companies that do not have similar operating environments. Benchmark your company against itself and always be ready to explain your procurement strategy to stakeholders in a clear way that highlights their potential involvement.

Business objective goals and specific KPI are vital parts of a procurement strategy.

To close, procurement at startups is a learning game. You must be flexible and willing to think outside the box. Success and failure will be measured differently at each startup. Build with the long game in mind, fight for the “right way” to do things and be a valued friend and assistant to everyone who comes to you for help.

Happy Procurement!