Our latest edition of the Digital Procurement Club was all about "New kids in procurement". Our guest Lukas Wawrla, Co-founder of Archlet, joined Lhotse’s Co-founder Henning Hatje to share their insights into the founding days of ProcureTech start-ups. Big Thanks to Gundula Ullah (Chief Procurement Officer at FUNKE Mediengruppe) and Sebastian Lücke (Head of Supply Chain Innovation & IT Landscape at E.ON) for leading this exciting discussion!
Building foundations for ProcureTech start-ups
About 15 years ago, the procurement sector was relatively static. Companies knew the best-in-class providers on the market and the choice of procurement solutions was limited. This has changed drastically in recent years. In the last 5 years alone, over 200 start-ups have been founded in the procurement sector, offering new solutions and opportunities to the market. But how are the right foundations built, from idea generation and financing to product and team growth?
Lukas Wawrla, Co-founder of Archlet, and Henning Hatje, Co-founder of Lhotse, share their "behind the scenes" experiences and learnings from their start-up journey.
"Looking for a problem to solve rather than looking for an idea"
It is an illusion that all you need to start a new business is an exciting, unique idea which will automatically scale your business. Instead, it is much more sustainable to find a common problem for which there is no solution on the market yet. This can be validated, for example, through stakeholder conversations to find out if the problem is common enough that it could affect many potential future clients.
Choosing an investor is "like a marriage"
Once the solution has been validated, there are several ways to start scaling a start-up. Particularly common in the procurement space is funding from universities, as well as self-funding or funding from external investors. But before bringing in investors, it's important to determine what the company wants to achieve and whether the product is scalable. Why? Because at a certain point, investors want to see a return on their investment.
In order to avoid being pressured to deliver and grow too quickly (while often the product quality suffers), investors need to be chosen carefully. Here, it makes sense to find investors who are "founder-friendly". This means that the focus is not immediately on the financial business model, but rather that they have confidence in the solution and the development of the start-up. These investors should be open and willing to support the company with advice, so that the company and product can develop. After all, finding investors is like getting married. You stay together for many years and have to overcome countless ups and downs together.
Why should corporate procurement work with start-ups?
Changes in the market imply changes for large corporations as well. Big corporates have to be willing to compromise on new solutions, just as much as start-ups compromise and adapt their product to their customers' requirements. In doing so, it is a question of focus in order to really move forward. After all, not every customer is ideally suited to the start-up's solutions, even if it is hard to say 'no' to customers at the beginning. The wish of many start-ups is therefore an honest and open interaction. Otherwise, it remains to be seen whether or not the solution makes sense for the customer and really solves their specific pain points.
But even if the cooperation between a corporation and a start-up does not work, it is still an exciting experience. Start-ups try to solve a certain problem for which there is no solution yet with the greatest possible effort. In this way, they offer corporations the chance to develop new ideas or try out new approaches with young teams. It is similar to investing in innovation training for the corporate teams.
Collective starting points
In addition to financial health, the question of the technical health of start-ups should also be considered. Large corporations usually already use well-known procurement solutions such as SAP Ariba, Coupa or Jaggaer, and start-ups can form vertical best-in-class add-ons to these and be integrated into existing systems. Therefore, the question of the start-up’s technical integration capabilities often arises.
However, for clients it is just as important to know what exactly they want to achieve with an integration. This is because companies themselves are often not yet aware of what the final process should look like and what goals are to be achieved with the integration. Likewise, questions about the duration of discovery to deployment or release periods can be used to estimate how suitable the solution is for the company.
Through intensive exchange with customers, start-ups can learn which product ideas are desired or which further solution approaches are needed. These discussed topics can then be included in future roadmaps or be quickly built into the next development cycles. One of the biggest advantages of start-ups is speed.
Finding the right solution
Finally, there is the question of how companies can find the right solution to their problems among the more than 200 start-ups out there and get to know the founders and their approaches. There are many opportunities to meet new companies through webinars, market maps or networking.
However, events are the clear winner as the most popular recommendation. They offer the opportunity to get to know new solutions and start-ups in person and to educate yourself about problems you might not have considered before (e.g. Consequences of maverick buying). Event organizers often summarize the main procurement problems and the right start-ups which offer suitable solutions.
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