Author Archives: thedoctor

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.

Another Supply Chain Misconception That Should Be Cleared Up Now

Yesterday we discussed one supply chain misconception that should be cleared up now because, despite all of the misconceptions mentioned in an Inbound Logistics Article, it was not addressed. However, there is a second misconception that is almost as critical that was not addressed either, so today we will address it. And while, there are, dozens of common misconceptions (including the 22+ mentioned in the article), these are the two that are the most critical to understand, as they are two that pose the most risk in most of today’s Procurement organizations.

 

THE SECOND BIGGEST SUPPLY CHAIN MISCONCEPTION

Supply Chains Have Reached (A New) Normal

Supply chains have never been, and will never be, normal as they will always be in flux due to perturbations, delays, and disruptions that happen daily. You may not see all the trial and tribulations a third tier supplier goes through every day, but trust the doctor when he says they have just as much turmoil as you do. Nothing is predictable in supply chains. When you accept this misconception in conjunction with the first misconception, it’s easy to see how almost all of the others are also misconceptions (that highlight slices of the bigger misconceptions).

For example:

  • cost becomes much less important than supply assurance due to the unpredictable nature of supply chains
  • since it’s not a linear, closed, model, zero-sum doesn’t apply
  • we made up the stages of planning, buying, transportation, and warehousing silos to fit a theoretical definition of normal that doesn’t exist
  • there is at least a hand-off at every stage, so the process is not disconnected but linked, if not intertwined
  • etc. etc. etc.

When you accept the reality, Supply Chain Management, as well as Source-to-Pay, will become a lot easier to manage because you will realize that

  1. only human expertise can adapt to new situations and find real-world solutions to the new challenges that arise
  2. technology will allow you to automate the tactical / semi-normal operations and instead focus on the exceptions and challenges, making you more productive as you focus the majority of your effort on strategy and thinking vs (e-) paper pushing and thunking which is the only thing the machine is good at (and, based on current technological understanding, ever be good at — which is exactly why we can limit it to the thunking because it can do over 3 Billion calculations a second flawlessly [if we ditch the “AI”] while we struggle to do 3)

In other words, only intelligent, adaptable, humans can manage constantly changing supply chains. Good technology can alert them and give them the intelligence they need to make good decisions, but technology cannot make those decisions for them.

(And the doctor, who dreaded saying Bye, Bye to Monochrome UIs can’t wait for the day he can say bye, bye Gen-AI.)

Dear Sourcing/Source-to-Pay/Procurement Founder: Please STOP Making These Mistakes! Part 5

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 nine (9) of the 15+ mistakes we promised you, namely:

  • 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)

If the mistakes stopped here, we’d be done. But they don’t. So, today we’re going to cover three more.

10. Assume that becoming an “influencer” or “thought leader” on LinkedIn will replace proper lead-generation!

If you pay attention to LinkedIn, you’ll see that the strategy of a number of founders is to post daily, if not twice daily, content in the form of short segments, videos, articles, and write paper excerpts in an effort to establish themselves as a thought leader under the assumption that will bring their start up more leads.

There are many flaws with this assumption:

  • just because you establish credibility doesn’t mean that it transfers to your company — you’re establishing credibility in yourself, so unless you are marketing yourself as a speaker, consultant, or potential employee, your effort is likely not achieving the goal you think it is
  • the credibility you are building will hit a substantial amount of your target customers — depending on the stories you choose to tell, how you choose to tell them, who your network is, and who they share it with, the people you reach may be a very small set of your target customer base (or at least the target customer base you should be trying to serve)
  • you’re getting enough of your unique product messaging through — often the content that attracts the most attention is the content with the least unique or valuable information about the product or platform you are trying to sell

Putting this all together, while you can generate interest in you, unless you can get those potential users to come and talk to you at a (pricey) trade show or local association event, where you can then talk about your product, the return on this effort is quite low, if there is any noticeable return at all. Furthermore, this still doesn’t address the most important assumption:

  • that doing this is a good use of your time

Presumably you are the only one who knows what the tech needs to do and how it needs to do it, the only one who understands key parts of the service that are required, the only one that has an idea on what is missing in the message, and, hopefully, the only one who can do one of the key CXO jobs at your company well. While someone needs to do the LinkedIn etc. marketing and influencing, it’s likely not a good use of your time when, especially in the early days when you need to work closely and consistently with product, marketing, sales, and the rest of the management team.

(Of course, this entire mistake assumes you are starting a SaaS company, as per the premise of this series. If you are starting a consulting company, then, yes, you need credibility and this could be a great use of your time.)

11. Assume that you need AI or that jumping on the Gen-AI bandwagon will save you.

Our last bonus best practice was don’t mention AI until asked. Not even once. Not even if you are using proper AI. Many people are starting to realize the huge disconnect between the marketing hype, especially around Gen-AI, and the reality that, for the majority of problems it just doesn’t work, and sometimes you’re lucky if just doesn’t work is the outcome as it has been found that Gen-AI is gender/race-biased, hallucinatory (which should be no surprise as Gen standars for Generative which literally means make sh!t up), harmful/hateful, murderous, thieving, and sometimes even contains unknown sleeper behaviour that won’t materialize until months or years into the future.

Your customers are looking for solutions, not buzzwords. If AI is part of that solution, great. If it’s not, also great. At the end of the day, they want to solve their problems and see a solution that solves their problem. And while the cool factor will make it easier to open the door, it won’t help you make the sale if it doesn’t solve the organization’s core problems.

12. Assume that you can get a great salesperson or grow your sales team (primarily) on commission.

While it’s true a top sales person will work commission only in a large software vendor who will give the sales person a 30% commission on every sale, that’s only true for a large vendor. This is because, in tech, a sale takes the same amount of time and effort whether it is a seven-figure (1,000,000) enterprise sale or a five figure (50,000) single module sale. And if a salesperson can only expect to close 4 deals a year because of the effort involved (and the typical success rate of 33%), that means the sales person would make at most 60K in commission at your company (if you gave them the same percentage, and less if you didn’t), and they probably couldn’t live off of that. And why would they want to when they could go to a big company and make 20 times that?

If you want a good sales person, you’re going to have to pay a VP level salary in the first couple of years because they know they’re not going to see much commission. The only way they’ll take less is if they see a bright future for your company, did very well at their last few jobs, can afford to make less for a couple of years, AND you give them a sizeable percentage of your company so they can make up their lack of pay on the back end when the company starts growing and you get a big valuation on an investment of acquisition down the road.

And while we still have a few mistakes to go, we’ll end here for today and then conclude our initial series in Part 6.

One Supply Chain Misconception That Should Be Cleared Up Now

Not that long ago, Inbound Logistics ran a similarly titled article that quoted a large number of CXOs that made some really good observations on common misconceptions that included, and are not necessarily limited to (and you should check out the article in full as a number of the respondents made some very good points on the observations):

The misconceptions included statements that supply chains should:

  • reduce cost and/or track the most important metric of cost savings
  • accept negotiations as a zero-sum game
  • model supply chains as linear (progression from raw materials to finished goods)
  • … and made up of planning, buying, transportation, and warehousing silos
  • … and each step is independent of the one that proceeds and follows
  • accept they will continue to be male dominated
  • become more resilient by shifting production out of countries to friendly countries
  • expect major delays in transportation
  • … even though traditional networks are the best, even for last-mile delivery
  • accept truck driver shortage as a systemic issue
  • accept the blame when anything in them goes wrong
  • only involve supply chain experts
  • run on complex / resource intensive processes
  • … and only be optimal in big companies
  • … which can be optimized one aspect at a time
  • press pause on innovation or redesign or growth in a down market
  • be unique to a company and pose unique challenges only to that company
  • not be sustainable as that is still cost-prohibitive
  • see disruption as an aberration
  • return to (the new) normal
  • use technology to fix everything
  • digitalize as people will become less important with increasing automation and AI in the supply chain

And these are all very good points, as these are all common misconceptions that the doctor hears too much (and if you go through enough of the Sourcing Innovation archives, it should become clear as to why), but not the biggest, although the last one gets pretty close.

 

THE BIGGEST SUPPLY CHAIN MISCONCEPTION

We Can Use Technology to Do That!

the doctor DOES NOT care what “THAT” is, you cannot use technology to do “THAT” 100% of the time in a completely automated way. Never, ever, ever. This is regardless of what the technology is. No technology is perfect and every technology invented to date is governed by a set of parameters that define a state it can operate effectively in. When that state is invalidated, because one or more assumptions or requirements cannot be met, it fails. And a HUMAN has to take over.

Even though really advanced EDI/XML/e-Doc/PDF invoice processing can automate processing of the more-or-less 85% of invoices that come in complete and error free, and automate the completion and correction of the next 10% to 13%, the last 2% to 5% will have to be human corrected (and sometimes even human negotiated) with the supplier. And this is technology we’ve been working on for over three decades! So you can just imagine the typical automation rates you can expect from newer technology that hasn’t had as much development. Especially when you consider the next biggest misconception.

Dear Sourcing/Source-to-Pay/Procurement Founder: Please STOP Making These Mistakes! Part 4

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 six (6) of the 15+ mistakes we promised you, namely:

  • 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)

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

7. Assume that you know the messaging because you received the message.

You know the message you needed to hear, the message that got through to you, and the message that came to you when you had a vision of your future path, but that doesn’t mean you know the message that you need to deliver! There are a few reasons for this:

  • you need to know the standard terminology the big firms are using so you know what terminology you should be using …
  • as well as any adjustments you need to make for the local geography, verticals being targeted, and key companies you want to target …
  • as well as the standard messaging noise you need to cut through …
  • and, most importantly, messaging that will be not only differentiating but meaningful to your customers

And if you don’t know the market, and the messaging currently being used, you won’t be able to get your message right.

8. Assume if you cut the price to get in the door, you can raise it later with an increased value proposition.

Go back to your Procurement days. How often were you willing to accept a price increase that was more than inflation for the same product or platform you bought last year? And be honest in your answer. (Never!).

Furthermore, you know deep down that just adding more functionality is not going to raise the price, as all of your competitors are doing that and it’s a basic market expectation. And while you might be able to charge more when you add new modules, if your first module was 20K/year, you’re not going to all of a sudden get 60K/year for your second module, which is not as extensive or mature as your first module on its launch. While there is a need to be competitive, you still need to price at a point that will be sustainable and support growth, even though it will be hard when you desperately need those early sales.

9. Assume you need a CMO early to get noticed and build demand.

You need leads, but you don’t necessarily need a CMO. In our space, good CMOs are expensive. VERY Expensive. The average CMO in the US is 360K a year (or 30K a month) plus benefits. Then they need a BIG budget to work with, and in-house or outsourced support staff to write the product marketing, run the campaigns, staff the booths at the pricey trade shows they will insist your company be represented at. If you can’t devote at least a Million dollars a year to Marketing, you shouldn’t even think about it. Instead, when you do need to start marketing (which is never as early as you think), use a fractional CMO and/or an expert Marketing Firm. You will still be relatively small and only able to handle so many leads at a time anyway.

You need to invest first in a good salesperson who knows the space and has a lot of connections who can help you find and close those first critical sales at (marquis) reference customers that will help you grow as time goes on. Then you need a good pre-sales person to support her. Then, with those key references, you expand the sales team and when they start to gain traction, and you complete more successful implementations, only then do you look to marketing. Remember the basic formula of Business 101: Profit = Revenue – Expenses, which, for a ProcureTech/FinTech start up equates to Profit = SALES Revenue – DEVELOPMENT Expenses … there’s no marketer in that equation in the early stages.

And while we still have many mistakes to go, we’re past the halfway point, so we’ll stop here for today. Come back for Part 5.