SaaS negotiation and innovation: An interview with Omar Ghani, Reddit’s procurement leader
In 2020, Reddit’s 700+ person company at the time went through a complex cloud services negotiation. Through a very competitive bid, they saved millions of dollars on just one deal.
Then it set in. Imagine how much we could save if we brought someone in to do this across every single deal, they thought.
Enter Omar Ghani, previously the procurement leader at Lyft and the Director of Strategic Sourcing at TripActions. “I got lucky and the opportunity sort of fell into my lap after conversations with a few Reddit leaders on LinkedIn.”
Rather than a “last straw” moment to bring in procurement, Reddit viewed the new role as a celebration. In the last year, Omar’s built out a brand new function with the goal of creating a team that looks like a Fortune 500 environment of operational excellence in a world-class procurement org.
To highlight his forward-thinking approach when it comes to empathy in negotiations, procurement innovation, and more, we (virtually) sat down with Omar to dig in firsthand.
Don't feel like reading? Listen to our conversation with Omar in our podcast, The Buy Side, on Spotify.
1. What do you think are the biggest misconceptions associated with negotiating software?
Many times, internal stakeholders feel that buying a SaaS product is like buying a new car. You go to the car dealership and feel you can only negotiate between say five and 15% max. The perception is: if I can’t afford it, it’s not possible.
It’s a similar experience in software. SaaS negotiations are what I call the Wild Wild West in the world of procurement. Most people who study supply chain management and procurement are taught that you can only negotiate so much from a materials perspective.
Let's say I'm buying pipes for an oil and gas company. There's only so much margin you can negotiate before the vendor can no longer fund the cost of the material. There's a certain margin that the vendor needs to make in order to run their plant or business.
That's not how SaaS works. SaaS is such an incredible arena where you have funding and R&D available, but once that R&D pays off much faster than a capital asset, margins can skyrocket to 70% to 80%. This means the opportunity set for discounts can also increase by 70% to 80%.
Understanding this is critical. When procurement leaders and stakeholders are asking for aggressive discounts, salespeople get frustrated and say they can’t meet those requests. I’ve learned it takes a little bit of education to tell them why they actually can.
At the end of the day, if you want to earn the business, these are the things stakeholders feel strongly about. And oftentimes getting to an agreement on price can feel like a dance based on inflated profit margins or sales commission. If I’m interested in something, I want a transparent idea about how I’m being quoted rather than being based on subjective measures like company size or how terrible our pains are.
Starting from a healthy playing field can change the tone of a negotiation and long-term relationship rather than just focusing on getting a quick sale.
2. What are the biggest challenges you face in SaaS negotiations and how do you try and avoid them?
The first is the challenge of deadlines. If a renewal is due two weeks from today, you've already lost a lot of negotiation leverage.
The second is the amount of time it takes to figure out the value of something. As procurement leaders, we often go through benchmarks, competitive analysis about direct competitors, how a supplier quotes renewals, why they’re quoting them in a certain way, etc. Sometimes it can feel like a black box.
We're trained as financial experts to dissect the P&L of an organization. We even go so far as to understand how much they're investing in R&D so we can make an assumption on their profit margin. If we can make an assumption on the profit margin, we know how much we have to negotiate with.
At the end of the day, we have certain expectations going into negotiations. Sales might quote us at 2.5x what we expected and when they try to meet us in the middle, we might not be happy with it. The biggest challenge is figuring out what the right benchmark even is.
As a procurement leader, you're handling 500 different things in a day. Are you going to contact 10 procurement people in your network to get that benchmark? No, you're probably only going to contact one to two max. So, how credible even is that benchmark?
We use other metrics to determine this but at the end of the day, there's never a clear picture about what the true value of a product should be.
3. What role does empathy play in SaaS negotiations?
Empathy plays a role in every aspect of life where negotiation presents itself. When you got in trouble as a kid, were you going to listen when your parents yelled at you or were going to rebel? Most likely the latter.
On the other hand, if your parents sit you down and explain and help course correct, you’re more willing to listen.
That’s empathy. It’s attention to care for the betterment of people. In the world of negotiation, there’s a dance between how assertive you need to be while always wearing your empathy hat. If I’m a buyer working with sales, it’s important to frame the conversation by saying, “I’m not here to steal your commission and squeeze you dry. I’m here because I want my organization to be successful, but I need it in such a way that’s in line with the expectations of my outcome. I need your support and ability as a sales leader to get me there.”
When you display empathy in this regard, you’re now giving the responsibility to that individual with positive intent. When you create a tone of positive intent, everything changes. It's like anything in life. Empathy psychologically helps both parties and it’s healthier for you in the long run.
The truth is that we can all go through December 31st or January 31st negotiations until 11:59 PM to get a contract signed. We can get the greatest deal of the century. But, how sustainable is that for you, for your organization, and for the relationship?
4. How do you approach new negotiations with empathy in mind?
There are two different types of negotiations that come to mind: one with a stakeholder requesting a new tool and one with sales on the supplier side.
When a stakeholder comes to me requesting a new program, I always welcome the conversation by first saying that this is exciting. I then ask how is this going to make their job better and how is it going to impact Reddit and the company’s long-term goals.
Once they highlight that, I ask if we have a budget approved. Sometimes the answer is no and that’s what they’re looking to me to figure out. I pull finance in to determine the budget and maybe it’s 60% versus the 100% the stakeholder was hoping for, in which case you need to bring that into the negotiation.
Oftentimes when you go into the initial conversation with sales, the response is typically, “my quota is $100, you’re asking for $60. It’s not going to happen.”
I like to change the course of the conversation by saying, “First of all, we'd like to thank you for coming back on this call knowing that we’re asking for $60. I want to recognize that this is a tough ask. This is such an incredible time for us and we're looking to do something really interesting. We're evaluating more companies like yourself to reach a budget that makes sense for us but with that being said, we really like your product and would love your support to the best of your ability to get us there.”
It’s also important to always consider what your brand offers. What does it mean for this organization to have Reddit as a customer? Even if you’re not at Reddit, you need to display what this deal and relationship could mean for the other side.
If after a few conversations and the price doesn’t work, I’ll typically respond with, “No hard feelings. I’m very appreciative of your offer but it's just something that I simply cannot do. I will figure this out elsewhere but would like to say, thank you for trying.”
The moment that tinge of failure creeps in, they often come back with positive intent wanting to do the best they can to help us reach our goals. If they can, great. If not, there are other options. It’s all about knowing how much you can play with.
The moment you display positive intent is the moment you receive positive intent in return. When you’re transparent about your outcomes, you almost always become sales’ first priority because they recognize you’re a good person looking to close the deal quickly.
5. What is your philosophy on procurement innovation and the future of procurement?
Don't be resistant to change. Embrace any changes that are happening in the industry or else you will fall behind. It's like anything in the world of technology. Are you going to continue using a dial up phone from 2001 or are you going to embrace the latest 5G device? It's the same principle here.
If you're identifying new trends in the industry, it’s your responsibility as a leader to study them and determine what’s right for your organization. You can be one of the early stage people and take the risk right away, or you can wait and join down the line. There's nothing wrong with either approach, it just depends on the right risk level for your organization and the outcomes you’re looking to drive.
Vendr is a great example of this. The risk made sense to me because Vendr is new and it's amazing that you’re now a Series A company. In the procurement world we’re always asking ourselves, how can we improve systems? How do we get a PO or invoice submitted faster?
We haven't talked much about this in the buying world. It’s traditional to just hire a staff to do that work, but what I'm excited about is trying this model and seeing if it works for Reddit. I feel very optimistic that it will.
A procurement operation system will never take away the need for a procurement operations department. A Vendr program will never take away the need for strategic sourcing. Having a partnership or program run together to make the organization more effective and run faster is exactly what I’m looking to do with Vendr.
6. When you started looking into Vendr, what were you looking to solve?
I'm deeply passionate about strategic sourcing. I'm passionate about ensuring that an organization gets the best investment at a really great rate of return and economic value. Everything costs money to make an organization successful.
With Vendr’s great sample data and the bandwidth and tactical energy to negotiate, then as a strategic sourcing leader building out a sourcing department, I can now focus on building my strategy, commodities, and portfolio to prepare for when Reddit grows our software stack. As a result, our ability to focus and drive results accelerates because Vendr is taking away the noise of everyday deadlines.