Friday, January 10, 2014

Suppliers: A boon that could be a pain...

Entrepreneurs starting their ventures often try to build a complete solution themselves. This approach of building the complete product/solution by yourself, has been increasingly debated. While it provides a completely proprietary platform on which you could build your product, it could not just delaying the launch of the product into the market but also potentially distract the entrepreneur from what is to be necessarily pursued. A good search in our surrounding would help us identify many aspects of such an approach might not be needed. 

With the increasing availability of technology or readymade components/products/services, the need to engineering a technology solution for a market gets be reduced to an intelligent assembly of the available components as a solution that could be taken to the market, and validated for its utility. The focus thus could be more on the business generation dimension than on the technology.

This necessitates today’s entrepreneurs to work with a numerous of vendors/suppliers and choosing the right supplier/vendor definitely would be essential. It would be important to note that the term vendor/supplier is not only being limited to those who provide goods/services in the traditional sense alone, in the context of a start-up world, I would also add in players like incubators, accelerators etc who come in as a bundle of offerings.
Here is an example using the incubator/accelerator services that would help set the context better for the points made later on:
Incubators and Accelerators are an important player in the startup ecosystems (especially in the context of developing countries), in that they provide an isolated ecosystem that offer number of benefits. In addition to the access to physical infrastructure including office furniture, meeting/discussion rooms, they could also make available a lot of tacit benefits like – a peer group of companies, mentoring, legal and accounting services etc. In short, the isolated ecosystem is like nursery where plants are built to be effectively transferred to a new environment later on at growth stage.

Assuming that incubators/accelerators only provide a basic office set up that could help the entrepreneurs and their team focus on the work rather than being distracted by the daily pressures of utility services, could blind entrepreneurs to look beyond this. Many incubators/accelerators constantly hold reviews about the progress you have made on your idea - this could be a double edges sword. Frequent reviews could give rise to a very precarious situation.

Entrepreneurs often choose their start ups as a representation of their independence/identity - often to do what they intend to do, and being closely monitoring might push the entrepreneur off comfort of working at a steady pace. Alternatively, there are some other incubators/accelerators that allow the entrepreneurs only access to the resources and it is up to the entrepreneur to make the use of these. 

The choices made by an entrepreneur would have to be defined by what suits the expected direction of the product/service and the entrepreneurs’ personal working style. Here are some caveats for an entrepreneur when thinking of vendors/suppliers for your firm:
  • What do I want from the vendor's product/service? 
A clear understanding of the client space is generally hard when one is starting his/her venture and this emerges only over a period of time. Thus, keeping a tab on the large number of vendor products and choosing one from these would be difficult if an entrepreneur isn’t in a position to identify his/her needs clearly.
While the clarity of the client is difficult, the entrepreneur would benefit from being specific about the requirements from the product/service that is to be tested in the market, and yet note that flexibility of replacement is important. If the direction of the product development has been positively validated, then tying up with your vendor for a long term commitment would be best – till then, tying up with a supplier deeply could prove a difficult proposition.

[Note here: Deeply embedding oneself to the vendor product could be a potential pitfall in case you want to revisit the hypothesis of choosing to acquire than build the solution.]

  • Do you think the solution from the vendor has the features I am looking for?
The outcome of the first question could be a list of features that the product/service could have – the next act is to validate if the vendor/supplier has the components or whole of features that could help build the product/service. In addition finding a vendor who comes in with not just the features but a willingness to work closely with the start up is important. The apt question thus is:
Is the vendor open to working with you on towards co-creating your product?
Having a vendor who doesn't just offer you a set of features that was requested but really adds value in multiple ways would clearly be preferred [yes, the size of the supplier could play an important role here]. In addition to the above, would (s)he support your venture at a minimum with the following:
  • Commitment towards the agreed terms of delivery
  • Technical expertise to extend the current product offering
  • Insights from personal experience that could benefit my start up
In some exceptional cases, there are instances of vendors who have moved beyond the contractual requirements to not just bear the delays in payment, but also support the entrepreneurs through some sorts of funding.

[Note: Often, the transactional nature of the vendor could limit the growth of your start ups.]
  • Am I the only client for the vendor?
If one is to look out for such a vendor, the most common responses would be from people who think they have a spare capacity. The spare capacity could arise from not having anything else to be occupied with rather than the spare capacity being available through an efficient process of management. Thus, there are many people who would try to build their businesses in a necessity oriented manner completely dependent on your business, and not expanding it to include others.

This aspect in my opinion would be a paramount factor for the entrepreneur to consider. If there is one thing that start-ups need to remember at all times, it is that the vendor whom you engage with is not building his/her business completely on your expectations (you would better hire a full time employee or consultant in such scenarios!).
The risk that your company takes in such scenario is not limited to that of your business but also compounds with the risk of your vendors’ business, and this could be extremely catastrophic! [Imagine: A contractual vendor breathing down your neck and waiting at your doors step pressing for the payment on the deadline, when you know that waiting for a 2-3 day could ease the complete cash crunch!]

Past successes of entrepreneurs engaging with a vendor, word of mouth recommendations etc are important indicators that could help choose the right vendor/supplier. Start ups are a risky game - If the choice of the vendor/supplier is not carefully thought through - this could very well increase the odds against you.

Reading the above points again, it becomes clearer that the entrepreneur would benefit better from calling the supplier/vendor as a partner in the progress and not really be known as a "supplier" or "vendor" in the classical interpretation of the word.  In many ways, an employee too is a vendor isn't it? How about the investor! I guess looking at all the stakeholders from this perspective of being a partner could be the subject of another blog!

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