How to build a procurement process from startup to Fortune 1000
In some respects, the differences between a startup and an enterprise company are worlds apart. The vibe of a scrappy, bootstrap startup belies its potential to become a powerhouse. But even the world's largest companies were born in a garage.
The path from small stakes to major stakeholders is different for every company. Growth can be steady or rapid, and the roads can diverge. But there's one area where roads converge for every company: SaaS spending.
Investors have been hip to this evolution for a long time. Marc Andreessen saw it coming, proclaiming, "software is eating the world" over a decade ago. The statement is more relevant today than ever. In 2020 the public cloud market reached $1 trillion, beating the earlier $500m predictions according to Bessemer Venture Partners. With SaaS growing at this rate, controlling and contextualizing spend is vital.
What does a world class procurement process look like through each stage of your business? We outlined procurement and SaaS buying practices, along with the tools available to help, from startup to Fortune 1000.
Building your procurement process at every stage
Startup: Under 150 employees
Young companies tend to take a "roll up your sleeves" approach to procurement in business. While they could use help with the SaaS buying process, a procurement team is far on the horizon. So it's up to someone in the C-suite (usually a CEO or CFO) to get things done. This person is in the weeds on each deal, net-new or renewal. Doing things this way may keep spending in line, but there is a hidden cost associated with this approach.
While these companies have less complex needs, the executive's sunk time quickly escalates. Even small companies spend $200k+ on SaaS and an average of 102 apps with 600+ connections. Even for lean, agile companies, that's a heavy time investment for a key contributor.
There are other side effects of C-suite involvement. With the CEO or CFO in the weeds, process development may hit the back burner in favor of "getting things done." After all, the path between the stakeholder requesting software and the decision-maker is short. It's a straightforward arrangement, but not scalable. As the company grows, that CEO or CFO must hand it off (and the sooner, the better).
Medium-sized company: 150 - 300 employees
After the first 150 or so employees, the org chart begins to deepen and the work of purchasing grows. These companies average $2.7m spent on SaaS services – or $8,500/employee. Connection complexity grows as well, with over 4,000 app-to-person connections to an average of 185 apps.
At this stage, your C-levels no longer conduct vendor evaluations or negotiate contracts. Those details often fall to the Director of Finance. The CFO can maintain visibility into overall spend, but complexity and volume increase. This is where instances of tail spend and so-called "shadow IT" start to flourish.
As smaller companies, the cadence of new contracts and renewals requires a time investment. As companies evolve and expand, the Director owning the SaaS buying process now arrives at a similar crossroads. Contracts are important, but those demands compete with other high-priority work. The strategic value your Director could be adding becomes lost in the minutia.
Medium to large-sized companies: 500 - 1000 employees
On the road to enterprise status, SaaS complexity and necessity continue to increase, with an average of 5,600+ connections between employees and apps. Granular tracking becomes imperative to controlling spending. The purchasing process becomes a team lift between finance, security, and legal.
At this point, many companies hire their first procurement role to take control of the tech stack. Though this eases the burden on internal roles (finance manager or controller) it's not a cure-all for the overall SaaS buying process.
Procurement is complex, serving as the interface between vendors and internal clients. It employs communications, strategy, and relationship management to improve the SaaS buying process. Much of a procurement professional's time goes to process improvement and systems development. In medium to large organizations, this doesn't leave time for the low-hanging fruit.
Beyond the 1,000-employee mark, procurement expands. The team can now grow in step with business demands and headcount. But the size and impact of those transactions grow, too. Even with a fully-developed team, they may field one in 10 projects, focusing on big-ticket items.
Growth challenges in SaaS buying
Companies of all sizes face a core challenge: How to empower teams without losing control. Several factors influence the amount of spend and level of risk. Good process and clear communication is the best starting point. Depending on size and stage, automation can play an increasing role in easing the burden.
These are a few key areas to address for controlling spend and reducing liability. They work at any stage and have an immediate impact on efficiency, security, and the bottom line.
Undefined process leading to shadow IT
When a team is small, surfacing needs and getting solutions is simpler. It may be as easy as a Google form or an expense report. But as companies grow, process complexity naturally grows with it. Without a process in place, expensing and card-based procurement can create budgeting chaos.
Duplicate apps or contracts
Another consequence of informal purchasing is duplication. Siloed processes make it difficult to see spend across departments, leading to duplication and unused software. There are two outcomes to this issue. First, redundant contracts may include separate maintenance or annual administrative fees. Second, the silos obscure license volume, which could affect pricing.
Abandoned or orphaned subscriptions
As headcount evolves and companies experience employee turnover, app abandonment can become costly. Without a system for managing licenses and subscriptions, shadow spend can continue unchanged. This is especially true when software is set to auto-renew as a way to reduce work.
Canceling or moving vendors can become costly over time. On average, companies experience 58-63% app turnover in a two-year period. Financially speaking, this leads to waste and reduced capital efficiency. The adoption/abandonment cycle reduces visibility, increases risk, and strains IT management.
Improving procurement in business at every stage
Visibility and leverage are two powerful tools for balancing growth with spend. Handling contracts, users, business needs, and the renewal process is a full-time job.
For startups and growth-stage companies, establishing a process now can smooth the way. It allows your organization to establish best practices and avoid spending pitfalls. Automating with procurement software at this stage may seem premature, but it’s proven to save time and money. For C-level execs, stepping away from those tasks earlier to focus on company strategy is key.
For midsize companies, automation and systematization results in big cost savings. The ability to visualize your tech stack and utilization helps planning and negotiation. It can also curb tail-spend that creeps up during this stage.
Even with a full procurement team at your disposal, automation and data to back every deal negotiation makes life easier. Instead of putting out fires, your team can tackle big-ticket items that move the needle. Freed from redundant tasks, the team's value becomes fully realized.