Opinions expressed by Entrepreneur contributors are their own.
If there’s one figure that hangs over the heads of most founders, it’s the fact that nine in 10 startups will fail.
The astonishingly low success rate of new companies proves that most are not launching with the right tools to build and sustain growth. Yet, I’ve seen that the majority of teams continue to overlook crucial business activities like procurement.
Out of all the potential points of failure, I’m convinced that supply chain problems can drag a startup down faster than most. Recent events like the pandemic have demonstrated that redundancy is crucial when facing drastic and unexpected interruptions in the supply chain. But product availability is not the only concern that strategic procurement can remedy.
Why do we need procurement?
Historically, businesses sourced products and services with one goal in mind: Find the best product at the lowest possible price. But startups that fail to consider the complexities in today’s market will struggle to gain a firm footing.
If you’re second-guessing its importance, remember that procurement directly influences your startup’s profitability, ethics and sustainability, and it can directly support (or constrain) your ability to scale. Here are five reasons why procurement should be a top priority for your team.
1. Avoid unnecessary dependencies
The less time you give yourself to handle procurement processes, the fewer options you’ll have. Starting early gives you the chance to create redundancy and avoid becoming dependent on a specific supplier — without compromising on cost.
This leads to flexibility, which is exactly what a startup requires to scale at the rate they’ve based their valuations on. Supplier lock-in is the last thing a startup needs, especially if it’s the first big problem they have to face.
When you’re bound to a single partner, your entire supply chain ends up dependent on their availability and speed of production. If they shut down or face delays for any reason, your startup will be back at square one and rushing to create redundancy where it should have existed all along.
2. Comply with legal policies
I’ve noticed that many startup founders don’t talk to their legal advisor about the procurement process, but ensuring that suppliers comply with company and industry policies is a crucial step in starting a business.
If you’re procuring a service, you have to make sure the providers are handling data appropriately or you could land yourself in hot water over privacy regulations. The same goes for manufacturing, as it’s your responsibility to ensure safe sourcing and handling for everything from raw materials all the way to packaging.
3. Align with consumer values
Every founder understands the importance of building a brand, but it goes beyond marketing lingo. Today’s consumers want to know all they can about your company, including where your supplies are coming from and how your labor is being treated.
The conversation around environmental, social and governance (ESG) is driving consumer decisions, which is why it must be a fundamental consideration in company procurement policies. The sooner you start thinking about these values, the more time you have to flesh out terms of engagement and find suppliers who align with your ethics.
4. Minimize supply chain uncertainty
Simply hitting the baseline of profitability is difficult enough for today’s startups, and it only gets more difficult when a company hasn’t created a strong foundation on which to grow.
As companies continue to face an enormous disruption to the global supply chain, a greater emphasis is being placed on control. While control presents a cost tradeoff, taking steps to reduce risk — like bringing production near-shore — can minimize the impact of global events on your company’s operations.
Ultimately, negotiating the best cost is not as important as ensuring your company can continue operating during unsure times. What counts is that you start early, ensuring that you have more time to compare options and build relationships.
5. Create sustainable success
Scaling your business isn’t just about protecting your supply but also protecting your Intellectual Property Rights (IPR). Before you seek out suppliers for important components, you should have a critical conversation about how your procurement practices might expose proprietary concepts and what you need to do to protect them.
Stepping back and evaluating what you need to buy versus what you are able to make will help you shield and control your IPR to a greater degree. If something needs to be protected, it’s up to your team to decide if a third party should be involved in its production or if you should keep it in-house.
Informed procurement decisions will help your company protect its IPR and preserve the value you have created in the market. The sooner you get started with procurement, the more time you’ll have to assess your options.
Procurement is worth the early investment
There’s no doubt that leading a startup is a massive undertaking. Founders are working with limited capital while being faced with a host of financial responsibilities and opportunities. If you don’t understand its benefits, it’s easy to push procurement aside as you deal with seemingly more urgent activities.
While the discussion of procurement likely isn’t one that most teams plan to jump into head-first, it’s crucial that companies embed it into their strategy from the get-go. By paying more attention to this highly valuable asset, your company can get started on the right foot and have firmer ground on which to grow as you execute your business plan.