Dear Sourcing/Source-to-Pay/Procurement Founder: Please STOP Making These Mistakes! Part 6

In Part 1, we reminded you of the 12 best practices for success that we published last year and noted that, since this obviously wasn’t read enough (or properly) understood, as the doctor is still seeing founders make the same old mistakes year after year, he needed to do more. So, using his 18 years of experience as an (independent) analyst and 20 plus years as a consultant, during which he has researched and/or engaged with over 500 companies, of which 350 were publicly covered on Sourcing Innovation or Spend Matters (between 2016 and 2022), he’s decided to make plain at least 15 of the same mistakes he has seen over and over again, in hopes that maybe he can prevent a few founders from making them again.

Then, we covered the first twelve (12) of the 15+ mistakes the doctor has indicated he has seen over and over again.

  • Assuming that because you were a CPO, you don’t have to do your market research. (Part 1)
  • Assume you can serve any company that shows interest in your product. (Part 2)
  • Assume you can go for disruptive or innovative first. (Part 2)
  • Assume you can take Tech Shortcuts and Fix It Later. (Part 2)
  • Assume that because you could run a Procurement Department that you can run a SaaS company. (Part 3)
  • Assume you know the average process and technology competency in your potential customer base. (Part 3)
  • Assume that you know the messaging because you received the message. (Part 4)
  • Assume if you cut the price to get in the door, you can raise it later. (Part 4)
  • Assume you need a CMO early to get noticed and build demand. (Part 4)
  • Assume that becoming an “influencer” or “thought leader” on LinkedIn will replace proper lead-generation! (Part 5)
  • Assume that you need AI or that jumping on the Gen-AI bandwagon will save you. (Part 5)
  • Assume that you can get a great salesperson or grow your sales team (primarily) on commission (only). (Part 5)

If the mistakes stopped here, we’d be done. But they don’t. So, today we’re going to cover the next three and conclude this initial series.

13. Assume you can hire and do it all in-house!
There’s a reason that best practice #10 was get advice and listen to it and #11 was get the help you need sooner than later, and that’s because, when you are small, you can’t hire the people you need to do it all in house. You need a lot of expertise from a lot of senior people, all of whom will be on the higher end of the salary scale. And while these people are worth every penny they demand, that is only the case for the role(s) in their skill set, and you will need a lot more roles than you can hire for.

You will need to not only listen to the analysts that will talk to you, but get one or more expert analysts / consultants to help you tackle key challenges you don’t need a full time person for and/or can’t justify hiring at the current stage in your journey. The best people are not only great at what they do, but willing to admit where they aren’t great and could use the help.

14. Assuming you can barter for what you need when you finally realize you can’t do it all in-house.

A lot of founders are extremely cash-conscious, and while the doctor respects that, you can’t barter for everything you need to keep costs down. And when the doctor says barter for what they need, he means some will try to barter for anything:

  • for a while they would try to barter for rent reductions with stock options, even after the first IT crash … but most landlords are pretty shrewd when they have fixed assets on which to make their money and followed the “fool me once, shame on you, fool me twice …” philosophy and either politely said no or just laughed
  • when print marketing was big, he’s seen software and services companies try to barter for content, editing, design/layout, and even overhead/margin with free software / consulting / marketing services (though newsletter inclusion, promotion at an event, free consulting, etc.); this didn’t work very often
  • when they couldn’t get good trade in value on IT equipment that needed to be upgraded (with the IT vendor), all of a sudden it was hard-ware for services; that didn’t work well either

He sees (much) less of the above today, but the following is still too common:

  • speak for free at our event for exposure
  • write for us and we’ll send your article to 10,000 subscribers
  • advise us on our roadmap and we’ll give you a recommendation to our partners/customers
  • help us with our marketing and we’ll give you referral fees

Sometimes these deals happen, but, despite what the founders think, they don’t work out that well (for the founder).

Let’s consider each of these example cases:

  • if the speaker you want normally makes 10K+ a day for speaking at an event, they don’t need your exposure; this means that if they do agree, they are likely doing it because a) they aren’t as big a draw as you think they are b) they have a vested interest in your company (through an investment, through referral fees, or through projects they get associated with it) … i.e. unless they have a vested interest, you’re not getting the value you think you are
  • they know the open rates and the actual read rates and then the percentage of people who will ACTUALLY notice their name, so if they have any reputation at all, they are just going to work for a paying client instead (now, you might luck out on a newbie who’s really great, but do you really want to roll the bones on critical messaging?)
  • if they’re good, they can make their own recommendation to your partners/customers
  • IF they are willing to accept referral fees (because the minute they do their potential clients will know they are biased towards your solution), why would they want to strike a deal with your company when they could get 10 times the fee with a big company that will sell platforms at 10X what you will get for your module?

In other words, you get what you pay for, and if you pay nothing, you get nothing. this doesn’t mean you have to spend top dollar, as many analysts and consultants (or at least those NOT at the biggest firms) will sometimes offer lower rates to startups willing to accept a limited, but well-defined, set of services offered on the analysts’/consultants’ schedule (to fill gaps between big client projects). In other words, it’s not necessary to pay top dollar to get top value.

But do NOT push referral or commissions on analysts or consultants who say they don’t accept commissions or referrals. You need to remember that some analysts or consultants can only maintain their reputation and make a living IF they are unbiased. And while unbiased doesn’t mean that such an individual cannot have a preferred solution of a given type (which could even be your solution), it does mean that such an individual CANNOT accept a fee for recommending it, because then the buyer would have no way of knowing if the recommendation was truly because the individual believed it was the right solution or if it was because it was the solution that, in the given situation, would lead to the individual getting cut the biggest check from the provider.

(However, if you want the doctor to stop talking to you, it’s one of the fastest ways to make this happen. If you’re curious, another fast way is to waste his time, but, honestly, if you don’t want a check-up from the doctor, he’d just prefer you tell him you only do commission deals as he’d prefer you not waste his time.)

15. Assume that you can take less than your forecast in a raise and still be successful!

the doctor has seen too many companies fail (to meet potential) by

  1. over aggressively estimating the minimum amount of money they need to reach profitability
  2. then taking only 70% to 80% of that to close a VC round

The #1 rule of a startup is: it will ALWAYS cost more than you think.

  • getting to MVP will take at least 30% more effort than your development team thinks; halfway in they’ll discover that the data model isn’t enough; the out of the box workflow won’t quite cut it; the algorithm isn’t fast enough; there are scalability issues with the current architecture configurations; the stack has a few bug/known issues that have to be worked around (when it’s too late to swap it out); etc.
  • you’ll always discover core functionality that you missed (possibly due to a lack of market research) you need to have to close those first few customers (without deviating from the core you should be focussed on)
  • cloud costs will be more than expected (as providers raise prices, you need replication and backup, and your beta/demo customers drive the system hard)
  • you won’t be able to do as much virtual and sales / support will have to do more travellng than you budgeted for
  • you may be able to get away without that office, but you will still need to bring the team in to a central location a couple of times and rent workspaces, pay hotels, etc.
  • you will not be able to rely on consulting partners as much as you think and will need to hire more implementation managers than was in the budget
  • you will need to bring in more demand gen / pre sales / sales earlier than you would like under pressure to show eventual profit
  • etc. etc. etc.

In other words, if you want to stand a reasonable chance of success, you have to inflate all of your numbers 20% AND not settle for less than that, because, without any flux (to weather these increased costs and unexpected events like epidemics, the loss of a key resource, etc.), you just won’t survive.

Now, are these all the mistakes the doctor has seen? Most certainly not, but these are among the most common and NOT making these would a great first 15 steps to ensuring your startup gets on the path to success. So, read them closely, then re-read the best practices, and start your journey with the knowledge of what you know and, more importantly, what you don’t so you can find the help (via partners, analysts, consultants, and appropriate beta customers) you need to make your startup a smashing success.