A Few Tips For Getting Through Procurement as an AI Startup
Before we get into the 10, an opening thought…
Working with procurement is a far more creative process than many credit to. Your job is to educate Procurement just like you educated your Buyer, helping them categorize and define you internally - and ensuring they focus on the right components versus assuming aspects irrelevant to how you’ll engage with their organization.
The market dynamics regarding AI are changing fast, and buyer maturity is early and evolving, leading to an often lower willingness to commit. Many are asking for 6-month VS 12-month contracts. This is OK and normal. Don’t fret, because once you're in, you’ll gain multi-million-dollar intel on where things are working (or not), intel that others outside the organization won’t have access to.
It also helps you assess if they are the right partner for you on a shorter timeline, but project management over the next six months will be critical.
Note: The suggestions below reflect where the buy-side is today as it navigates a new paradigm of procuring value…
1. Procurement is your quarterback between Finance, IT, Legal, and the Business Unit. The more educated they are, the better they can assist. Spend time with them and make things easy for them. Explain what you learned from the buy-side to warrant this experiment AND keep it focused on solving buy-side problems.
The more confident they feel in your understanding of them and their situation, the faster you build trust.
2. The legal team will not use your paper (i.e., MSA/SOW), but the Procurement lead will ask for it to understand how to categorize you as a vendor. Ensure you have a lawyer on your side to navigate their contract. Do not try to do this alone or leverage ChatGPT; much nuance is involved.
Assume everything you shared in SOW will be reviewed closely, including pricing.
3. IT is likely holding up most of the procurement process. It is a shared resource spread thin across other areas, especially if the organization is undergoing M&A activity and larger AI-focused projects.
Ask upfront what the timeline is to get IT’s review. This will help you assess and set expectations with the team and board. If it’s incredibly long, you may try to truncate contracts and get in early as a ‘service’ vendor to get involved in strategy/design while the product is parallel-tracked — this increases the odds of making it through the other end knowing more time can kill deals.
4. Ensure the buyer/champion is involved in procurement calls, especially the first few. You must project manage both the buyer and procurement; don't expect them to sort it out themselves. Procurement is a shared resource with many other obligations, and their job is even harder as they help their business navigate a changing environment.
Make sure you have the Buyer’s cell number to stay ahead of any urgent needs. Most deals are closed via text first. Also, don’t be afraid to use your buyer/champion to support building a case to win over Legal, Finance, or IT. They likely have far more intel than you and can help best position.
5. They want to know your revenue as a risk assessment to understand their impact on you if they churn. It's a bit of the inverse of what most think, which is ‘startup runway/longevity’; while important, it also balances each party's impact on the other. A friend educated me on this.
I've seen clauses where the deal value can't exceed 20% of the sell-side’s yearly revenue. You’ll need to educate and negotiate; address this early to understand if it’s a non-negotiable. You’ll want to know ASAP. In many cases, it’s often not a non-negotiable but will require defending how your business will not be jeopardized if they leave (i.e., churn).
Hint: You don’t need to show them your financials as a private company (they might ask), BUT, if not, they may also ask for legal/accountant for a letter confirming — be honest and upfront.
6. For you to get paid, procurement needs to sign off. Your buyer can't pay you directly (though it comes from their budget). Be careful not to do too much work before signing.
In many cases, it’s not the budget holder but the Finance team.
7. Buyers are trying to understand how to procure ai-led business model — outcomes VS seats, ownership around training models, usage-based VS fixed pricing, etc. It's not unusual right now for them to seek a sub-12-month contract (i.e., ~6 months) with how much things in the market are changing so fast, but it's important to ensure the language helps it roll forward if they're satisfied. The enterprise wants to ensure your promises can be delivered, as many startups often fail here. So, 6 months is less about the money and more about time to value and ensure they get the most out of you as quickly as possible. Lower commits often allow you to charge a bit more. Keep this in mind, but don’t be silly.
It’s also important to remember that time to value is now shorter, so it might not be a bad idea to introduce ‘service revenue’ to hand-hold and ensure engagement is tightly project-managed. See the sub-bullet regarding point #6.
8. Specializing in something specific, pointed, and contained is important. Enterprises are very familiar with buying subject matter expertise. They want to know you can help navigate nuance and know the problem at least 5% better than they do. Not to mention, it's certainly a lower risk for them to engage. Many corporates have thousands of preferred vendors, and procurement typically suggests that business units work directly with them rather than onboarding someone new. In short, you need to make yourself defensible.
Most preferred vendors are now trying to reintroduce themselves as AI partners.
9. Hard Costs vs. Soft Costs: Finance departments, a leg in the procurement process, often reject or have a hard time accepting soft costs. They typically seek proof of hard cost savings, like the cancellation of another contract or reduction of 3rd-party staff augmentation. This is a win for them versus the abstract nature of saved time/efficiency gains.
In short, build an ROI model that aligns directly with a hard cost. Leverage your buyer to co-create and help you think through this, too. Otherwise, you can expect Procurement to push here, as many are incentivized on contract cost-savings and/or cost-avoidance.
10. Lastly, be cautious if you receive an RFP but are not involved in 'co-writing' it. You likely are a checkbox in their buying process.
A leading indicator is they rush you through the sales process with low patience. You may likely be a “shortlist of other vendors” necessary in their formal evaluation process.
To wrap this up, buying is just as hard as selling. You will need to do a lot of the lifting to maintain momentum. You are leveraging a shared resource who has a plate full of other corporate engagements. The easier you make it for them, the faster the sales cycle.
There is a lot of nuance in every Procurement department. You need to understand their actions and ask for clarity to support them best. Knowing how to get creative and flexible by understanding their side is the fastest way to negotiate towards a yes.
Note: Deals can also go to die in procurement - this is why having your buyer in sync with you is critical — the moment your champion removes themself/becomes less responsive, this is when you know there is a problem and trouble ahead.
