The procurement process can often seem intimidating but entrepreneurs know this step is critical for laying the groundwork — or should we say paperwork — for a solid partnership.
Working with a big company means having essentially three buyers: Technical (they’ll ask what your product does), Economic (they pay the bills) and Procurement (they’ll say “yes” or “no”).
In large companies, procurement is responsible for putting purchase agreements in place and ensuring that vendors adhere to certain standards. They’re often involved in the payment process too. It’s important to note that most large companies typically have a standardized procurement process so a three-person startup is often treated the same as a Fortune 500 company despite differences in resources. It’s critical for entrepreneurs to understand how procurement works and how to make the process as frictionless as possible.
Here are the four steps that will take you from conversation to purchase order — and important questions to reflect on during the process.
1. The RFP Process
The first step in procurement will be getting through a formal request for proposal (RFP). This can vary based on the partner and the size of the contract. Some companies have public bidding rules for contracts above a certain amount. If a contract costs more than a predetermined threshold (for example, $100,000) the business will publicly release an RFP to see if any other vendors want to bid on the project. This is typically seen when there’s a government or government-funded entity, or with quasi-monopolistic companies like energy and utility companies. If this requirement exists and your contract is beyond the threshold, you may consider reducing your contract to fall below the limit and avoid this step altogether.
2. Review terms and conditions
Next comes the actual contract. Most companies use a standard set of terms and conditions that they’ve developed in-house which includes payment terms, warranties, ownership rights, indemnification, intellectual property, termination, dispute resolution, insurance, severability, taxes, and other clauses. Every company treats these terms a little differently, too. For example, some companies may require a certain level of business insurance, especially if a project entails physical labor, like hardware installation.
Consult a legal professional for advice on the particulars.
3. Get added to the approved vendor system
Just like contracting, the process for becoming an approved vendor is different for everyone. At a minimum, you’ll be asked to complete an IRS W-9. This form asks for taxpayer information and depending on the type of business, there are different instructions for filling this out. The main purpose is just so that the corporation has the official business name and EIN on file.
4. Vendor security audit
A vendor security audit isn’t typically required as part of every deal. But if your startup is working with customer data, or has software running on the company’s networks, an audit will likely be needed. The corporation will be looking for vulnerabilities that could lead to a breach. If your startup’s product is data-heavy and involves sensitive information, it’s worth getting ahead of this step by conducting an audit or engaging an external firm or tool.
Get ahead by thinking through these questions
Ask yourself these additional questions to improve your odds of successfully navigating procurement.
- Is my technical architecture secure?
- Who’s responsible for cybersecurity in my company?
- Do we have a plan that outlines how we’ll respond to threats or breaches?
- Do I have business insurance, and if so, does it cover the right risks?
- How do I handle customer data and privacy regulations like GDPR?
Having strong answers to these questions will help you get ahead of any issues that could be revealed in procurement. For example, GDPR compliance may not be discussed upfront, but it’s certainly something procurement will be looking for.
Remember, the corporate procurement process doesn’t have to be intimidating. Understand the RFP process, carefully review terms and conditions, learn how to get added to the approved vendor list, and have a solid process for securely handling data, and the process can move smoothly. Be patient. Be prepared.