Category Archives: Corporate

Just What Is a Start-Up?

Do you know? I bet you don’t! And based upon what he’s seeing in the market, even the doctor doesn’t know anymore! (While he knows what a start-up has traditionally been defined as, that doesn’t appear to be the definition anymore, but we’ll get to that.)

Investopedia defines a startup as a company in the first stages of operations.

TechTarget defines a startup as a newly formed business with particular momentum behind it based on perceived demand for its product or service.

Wikipedia defines a startup as a company undertaken by an entrepreneur to seek, develop, and validate a scalable business model … intend[ed] to grow large beyond the solo founder.

Forbes defines startups as a young company founded to develop a unique product or service, bring it to market and make it irresistible and irreplaceable for customers. quotes Eric Ries and defines a startup as a human institution designed to create a new product or service under conditions of extreme uncertainty.

You get the point. A startup should be:

  • new
  • innovative (seek, develop and validate; unique product or service)
  • market demand focussed
  • growth focussed beyond the founder / founding team
  • awash in uncertainty

This should mean that a company should no longer be considered a startup when:

  • it’s no longer new (after some reasonable amount of time has passed since product launch)
  • the product has been out long enough to be replicated or surpassed by competition (who figured it out on their own without IP theft)
  • the market demand has evolved based upon the product capability
  • it’s grown beyond the founders (and stabilized)
  • the company has been operating with reasonable stability for a while

And while you might debate whether or not

  • a company is still new after 1, 3, or 5 years
  • a company is no longer innovative when it has been equalled or if it’s when the competitors have stabilized
  • the market demand has grown as a result of initial adoption or if a couple of extra years are required for the market capability to mature
  • the company is large enough when the team is double the size of the founding team or if it needs to be triple, quadruple, or based on industry averages
  • you need 2, 3 or 5 years of stability

the doctor is quite certain the majority of you would agree that a company is NOT a startup

  • if it has been in existence and live with its product for over 5 years
  • any semi-unique capabilities have long been equalled by companies that followed (where some of those followers may even have been acquired for their maturity)
  • the market demand has considerably grown and matured (possibly to the point that even related solutions were started, grew, and were acquired into mainstream suite players)
  • the company has surpassed 10-15 employees or quadrupled in size relative to its founding team, whichever is larger
  • if it has well over 5 years of stability

But yet, on the list of companies being considered for the Demo 2023 start-competition at DPW, you have a company that:

  • has been in business for 13 years with a beta product in testing the year it was formed
  • barely had any unique capabilities on launch (just had a much lower price point and easier UX and added some semi-unique capabilities as it went along, along with stronger back-end processing, but since then new startups have come along that equalled it and one was acquired)
  • the market demand has consistently grown and matured since before the company was founded to the point related solutions were acquired and integrated into suites
  • the company is almost 10X it’s first month size (and over 100 employees)
  • while it had years of stagnation from a growth perspective, it never shrank

WTH? This is simply ridiculous. They basically let a company check a box and call itself a startup without any validation whatsoever (presumably because that company knows its only chance of winning a competition or award is to call itself a startup). It’s sad, and it’s not useful. the doctor has already complained about analyst firms (associations, and conferences) inventing meaningless awards, but if you’re not going to have any requirements or quality control, even the awards and competitions that could be meaningful are now meaningless as well.

And the doctor has to rant about this because it’s not just DPW that are including mature small companies in their startup competitions and startup award categories, it’s the majority of the publications, conference, and analyst firms in the space. DPW is just the latest example the doctor has seen over the last few years (and the one that pushed him over the edge).

(There’s a reason that, at least when he was Lead Consulting Analyst at Spend Matters, the doctor argued for strict limits on length of existence, product availability, customer count, and market size in the Future 5. Without guidelines, requirements, and limits, the designation is meaningless.)

So while the doctor might be calling out DPW as allowing one of the most egregious mischaracterizations of “start-up” that he has seen in quite some time, they should not be singled out, and definitely should not be singularly judged, for this. It doesn’t take more than a little research across the other analysts firms, associations, and award-giving conferences and directories for one to discover DPW is not alone in using a very loose definition of start-up (which sometimes barely qualifies in the “small company” category). Some days it seems that the majority of outfits are allowing any company that wants to be a startup to call itself one as long as it is under some arbitrary revenue number or employee count, even if the company should not have been considered a startup for over five years.

This is a problem that plagues enterprise software, and one, as professionals, we need to demand be fixed. Words and classifications have meaning, and the minute an organization that should be verifying that the words and classifications are used correctly stops doing so and allows anything to be anything, those words and classifications no longer have meaning and any evaluations (or awards) based on those words and classification lose all meaning.

As with an illogical insistence on undefined “AI” or maps that mesh 6 different, barely related, subjective factors into a single dimensional score, these categorizations are unhelpful, and may even cause harm when a company is misclassified as a startup. Some organizations are so risk averse that they will not deal with any company that has wrongly been called a start-up, and others will choose that startup assuming it’s in early stages and going to get bigger and bigger over time (and they should contract with the winner before it gets big and its prices go up, assuming it will fill in the missing functionality that they want over time as more employees are added). But how big a company gets is not just a function of (more) time, it’s a function of what it offers, how much of the market can use what it offers, and how much the company can sell it for. Some companies with niche offerings will never reach an arbitrary revenue threshold, and some with ultra efficient operations will never reach an arbitrary employee threshold, which means neither of these metrics (which are not part of the definition of startup) are an acceptable measure.

And it’s time for us independent analysts and consultants to say enough is enough — Procurement may not be the island of misfit toys anymore, but that doesn’t mean it’s still not relegated to the basement with the IT Crowd in many companies. Procurement’s not going to get its due, and the CPO is not going to have a seat at the big table, until we collectively start treating it with the professionalism it deserves.

Economic Sustentation 06: Preparing for the Corporate Takeover

As per our economic damnation post, sometimes it is not only the case that bigger is not better, but also that bigger takes a bigger bite out of the limited pot that you have to work with.

To point this out, we reviewed two of the big examples of anti-scale that are often mistaken for economies of scale: energy and short-term contingent labour. Since most energy plants still rely on coal, oil, and natural gas, energy costs are ultimately dependent on the unpredictable prices for these natural resources, which depend on factors that very few governments or corporations can even influence. Similarly, if the resource skill-sets that are required are scarce, in high-demand, and there are only a few providers to choose from to begin with, the last thing you want is them consolidating and holding the power to charge as much as any one client can be convinced to pay.

But if economies of anti-scale were the only thing one had to worry about when Mega-Corps entered the picture, all would be manageable, but Mega-Corps take you out of the frying pan and dump you in the lava pit when negotiation time comes and categories that were once in your favour all of a sudden shift very fast to their favour.

So, since Corporations Will Soon Rule the World thanks to the likes of politicians like the Harperman (who made Chicago politicians look good), and bring a whole new level of damnation to your Procurement world, we need to be ready. What can you do?

1. Make sure contracts have a key survivability clause.
The contract must be enforced regardless of a change in ownership structure or assignee. Make sure that your supplier can’t have it’s contracts null and voided the date it is acquired.

2. If a M or A is expected, lock in critical supply with a long term contract.
Mergers and acquisitions increase cost, increase chaos, or increase timelines — none are good for critical, time-sensitive, sourcing projects. Be sure that if an M & A is in the works, that will affect one or more key or strategic suppliers that you depend on, that you close critical sourcing projects (well) in advance of the closing date.

3. Become a customer of choice.
Supplier sales teams fight for their customers of choice. When push comes to shove and there is not enough supply to go around, you will get it. When the parent company wants to push prices up to cover the costs of the acquisition, the sales team will look elsewhere. When you need access to innovation, they will fight to give it. But, despite many contractual claims to the contrary, very few clients are actually customers of choice.

Fortunately, it’s not that hard to be one if you really want to. Start by:

  • Paying on Time
    In an age when many organizations are trying to continually delay payments, paying on time sends a strong message.
  • Solving Problems Constructively
    Everyone has problems, including your suppliers, and everyone screws up – but if you approach seeking a solution, versus a penalty and retribution, they will favour you over others.
  • Improving Their Efficiency
    Help them help you, and do it in a way that helps them help everyone, and they will fight to keep you as you deliver value, versus just revenue.
  • Helping Them Innovate
    We all want innovative suppliers, but have you ever thought about what your suppliers want? The smart ones want innovative customers who will help them innovate, and not worry about whether they own the rights or not. A supplier that sees you as a customer of choice will always give you first access.

Consumer Damnation 72: Corporations

In consumer damnation 71, we talked about governments and how government customers can not only be very demanding, but how they can be quick to pass on the blame to your company when something goes wrong even if it’s not your company’s fault. In addition, they generally mandate that you provide bill of material data, shipping manifests, country of origin determinations, quality inspections, and other information with every product that you provide the government so they can meet their accountability mandates — a paperwork nightmare, especially if all you are selling is office supplies. And if that’s not enough, if the government runs out of budget and can’t get agreement to run a deficit, there can be an indefinite spending freeze while the situation is resolved — and if you are waiting on a few million dollars for products and/or services delivered, you could be waiting quite a long time. They can be your organization’s best and worst customer.

That is, until your corporate customers are taken into account. Government customers will always give you headaches, but corporate clients will often give you nightmares. But that’s partially a story for different post. In this post, we are going to talk about specifically how they can be a nightmare for your Procurement organizations.

They can demand the SLAs be met — or penalties be applied.

If a big corporation knows that a good chunk of your organization’s revenue needs are dependent upon getting their contract, they will be very demanding in their negotiations and your sales team might end up agreeing to rather unfair SLAs that Procurement will be expected to deliver on. For example, there might be a penalty for every day a shipment is late, which could be something out of your control if a port closes, a primary transportation company’s drivers go on strike, or the supplier’s source of raw material dries up due to a mine collapse and there is no way to get a new shipment of the product produced on time to transport from the new supplier’s factory in Shanghai to the distribution facility in San Francisco, but yet Procurement will be held accountable when the shipment is late and penalties are applied to the invoice.

They can not only insist on extreme corporate responsibility requirements and demand not only end-to-end supply chain transparency, but that every supply chain participant be one that has been vetted by an accepted third party audit in the past two years.

This can make complying with the documentary requirements that the local government will insist on a walk in the park. As a good corporate citizen, you would have mapped your supply chain and vetted all of your tier 1 and critical tier 2 and tier 3 suppliers, but considering there could be over ten thousand suppliers in your corporate supply chains when you consider every purchase from the 50M you spend on your primary electronics retail products to the 50K you spend on miscellaneous office suppliers, its an almost insurmountable task to identify every organization in the chain and map them against a list of audited suppliers. If your choices are do your best to comply or lose a third of your revenue (because you are CPG and they are the biggest of your big box retailer clients), it might be the case that you really don’t have a choice.

They can be a real pain in the backside.

If they are a big customer, in addition to the huge discounts they negotiated during the sales process, they might expect free service, warranty support beyond the warranty period, and the ability to make additional purchases at a moment’s notice. And who has to arrange that free service, deal with the manufacturer to try and negotiate additional warranty support, convince the supplier to add a second shift, or find an additional source of supply at 7 pm on a Friday night? That’s right, Procurement.

Corporate customers don’t just make hell for Sales, they often make hell for Procurement too. And when they decide to spread the damnation, Procurement is the organization that really feels the burn.

Economic Damnation #6: Mega Global Corps & the continued M&A Frenzy

While the general consensus from a sourcing perspective is bigger is better as it allows for volume discounts from economies of scale, this is not always the case, as recently pointed out in our post on Economies of Anti-Scale. Sometimes it is not only the case that bigger is not better, but also that bigger takes a bigger bite out of the limited butt that you have to work with.

Let’s start by going back to two of the big examples of anti-scale in our post from a couple of weeks back: Energy and Short-Term Contingent Labour.

With respect to energy, as per our post, most energy platens still rely on coal, oil, and natural gas, and, as a result, energy costs are dependent on the somewhat unpredictable prices for these limited natural resources. And since the energy companies can always extract the maximum prices for their energy produced from these limited resources from consumers and small businesses with no negotiation power, they are not overly interested in negotiating with you unless they are not close to their maximum production potential and you will guarantee enough annual usage that it’s worth their time to even talk to you. And even then, unless you have a couple of other energy companies that are also willing to talk, they aren’t going to give you great deals. In any given area, there aren’t that many energy companies, so if a merger or acquisition happens and your options drop to 2, or 1, you are, as they say, up the creek without a paddle and your prices will go from bad to worse.

The situation is similar in contingent labour. If the resources you need are scarce, in demand, and their are only a few providers, the last thing you want is a merger or acquisition. This gives the provider all the power, and your cost is as much as any competitor is willing to pay. Don’t even bother to negotiate. Just sign the offer, thank them endlessly for even thinking of you, kiss the ring, and go on your way. The best you’re going to get is a bit of spit on the pitchfork.

If economies of anti-scale were the only thing one had to worry about when Mega-Corps entered the picture, all would be manageable, but Mega-Corps take you out of the frying pan and dump you in the lava pit when negotiation time comes and categories that were once in your favour all of a sudden shift very fast to their favour.

Buyer power depends on a number of things, but always depends on two critical market conditions being in the buyer’s favour:

  1. Supply exceeding demand.
  2. Multiple vendors competing for the business.

When a Mega-Corp swoops in and buys up one or more suppliers in a category which only had a few suppliers to start with, or multiple supplies merge into a Mega-Corp, the number of vendors competing for your business decreases, and with the smaller guys only being able to support a smaller customer base, more and more companies are forced to go the big guys, like it or not, and these big guys can essentially dictate the prices across the critical goods and services you need for your supply chain. Previously low cost electronics, CPG, MRO, and services categories in some regions can jump double digit percentages overnight and there’s nothing you can do.

But this isn’t the worth. Let’s say two suppliers merge, and one had an exclusive mega deal with your direct competitor which became null and void if that company serviced you. Guess what? Your contract is getting dropped faster than a hot potato covered in scalding oil. And your primary supply source goes up in smoke.

Besides the fact that these Corporations Will Soon Rule the World thanks to the likes of politicians like the Harperman (who makes Chicago politicians look good!), which will bring with it a new level of damnation to the entire world, they are a damnation unto themselves and generally hurt our supply chains at least as much as they help.

Procurement Trend 04. Control Tower Model / Omni Channel Approach

Only one anti-trend remains. Once we finish this post, we complete our formidable burden, and hope that the sour taste in our mouths will soon depart now that we have shown those fictionally-focussed futurists in fine detail that the snake-oil trends they have been selling have no worth. We want to abash them for their apathy, but we will leave it up to LOLCat to decide their fate. While LOLCat thinks on it, he would like to point out to these Rip van Winkles that when it comes to sleeping through life, No One Out-sleeps a Cat!

So why do these analyst catfish keep churning out the same lousy predictions year after year? Besides the fact that light rarely penetrates down to where they are, it’s probably because they look around, see the laggard organizations still struggling with the best way to organize its operations, and assume they can still sell last decade’s playbook in this decade’s marketplace. Thus, if most organizations are still fighting to get beyond the de-centralized model, then the control tower model sounds quite futurish. Plus, we have the situation where its

  • different strokes benefit different folks
    as different models work well in different circumstances
  • integrated channels result in integrated data feeds
    and more data results in better decisions
  • regional differences not only provide opportunities,
    but can hinder success with the wrong model/approach

So what does this mean?

Understand the Primary Models

There are three traditional models of Supply Management: decentralized, centralized, and center-led. In the decentralized model, there is a Supply Management team in each organizational unit responsible for purchasing for that unit. This model has advantages, primarily along deep knowledge of supply market and needs, and deep disadvantages, primarily with respect to the inability to exploit organizational spend. In the centralized model, all spend is centralized through one Supply Management team. This model has its own set of advantages and disadvantages, many of them diametrically opposite to the decentralized model. In the center-led model, there is a central Supply Management team which defines the categories, identifies the best sourcing methods, executes the contracts, and guides each department on how to procure against the contract. It is supposed to combine the best features of each model.

Understand where Each Model Fits

Each model has its uses. In an organization where most buys don’t cross organizational units (with respect to product needs or supply base), decentralized can work. In an organization which has primarily indirect spend that is common across the organization with a strongly overlapping supply base, for example, a centralized model is a best. In an organization with a mix of common and uncommon categories and suppliers, a center-led model where some spend is centralized and some spend is left up to the individual organizational units is often the way to go.

Understand Centre-Led vs. Center of Excellence vs. Control Tower

They are all similar, but they are not the same. Center-led is where a central organization centralizes some spend but leaves other spend up to the individual departments. A Center of Excellence may do the same thing, but it centralizes sourcing knowledge and best practices and, where appropriate, works with and guides the organizational units on decentralized spend to make sure they always apply best practices and get the best results. A Control Tower is a next generation Center of Excellence that not only manages both centralized and decentralized spend, but continually re-evaluates centralization and sourcing strategy and adapts the model with the market to generate the maximum impact for the organization.

Pick the Model that is Right for Your Organization

Arguably, the Control Tower model is best in theory, but pick the model that best fits your organizational needs based on where it is with respect to Supply Maturity.