​I seem to have spent most of the last week in various stages of finding suppliers. From formal pitches to writing an initial brief and several points in between. In all cases the companies I was working with were looking for professional services. Or buying in skills and expertise in some similar form.
 
Finding trusted suppliers is another on the long list of hard choices a startup leader has to make. In the early stages you might use external suppliers for anything. From building your product to traditional services like legal and accounting. The wrong choice can cause extensive damage. Getting it right is about looking beyond price to find the right talent. Someone with the skills you need and the courage to tell you what you don’t want to hear.

​Let’s start with the biggest bugbear. Price is a terrible way to choose a supplier of anything. And for services there is no worse measure of value. At least with commodity style goods you can compare like with like. When a service is delivered by a skilled team, this is impossible.
 
Even when a service is described as a commodity (basic accounting or legal for example), the comparison is not so simple. Professional advice is like an insurance policy. When everything goes well it doesn’t matter who you choose. But when a problem (or a claim) arises, the pain caused by having the wrong advisor will be terrible.
 
So price is never the only factor. If you can’t see any other difference between suppliers, you need to look harder.

​The first step in finding the right supplier is making a list that includes the best options. There are two regular ways of doing this:
 

• Put out an open invitation to tender. This route is traditional for bug buyers. It is harder for a small company but in some categories new platforms enable the approach. Think Upward and similar.
• Work on recommendations from those you trust. This can be great. If the trusted advisor has seen the supplier in action. Too often, recommendations flow from people who are known in the network. This leads you into the kakocracy trap. Second rate people recommending other second rate people. And no-one prepared to go out on a limb and recognise that things are not good enough.

 
Both techniques are useful. But someone also needs to do a bit of research. Scan the internet. Think about whether your job is one that needs a local supplier. Don’t be afraid to go global for some things. The test is the skills you need and the quality of communication.
 
Talk to people you know. Especially those who don’t come forward with recommendations. This is an area where the startup ecosystem adds a lot of value. And silence is not golden but red for danger.
 
By all means speak to advisors as well. Only remember there is a lot of back scratching in these networks. Advisors and mentors can be helpful but they are also the prime source of the trap.
 
There is a cost in time to making a good list of suppliers. It will be outweighed by the benefits of making the right choice more often.

​The absolute foundation for buying any type of service is to be clear about the expertise you are buying. Its the precise reflection of the jobs to be done framework for evaluating a startup idea. Before you spend any money, understand the job you need done and the skills it requires. Choose a supplier based on those critical areas of expertise.
 
In some ways its like hiring. You want to find the right talent. The big difference is that you only need this talent for the short term. This means you select a supplier for experience and track record. Whereas you should always hire for potential and fit.
 
However, track record is not the same as finding someone who has done the same project 10 times before. No two projects are the same. When you look at supplier experience focus on the core skills needed for your project. Take up references. And ask about expertise not just the results.
 
Take market research as an illustration. Don’t bother about someone having researched the same market you want to look at. What matters is the ability to reach the right audience. Skills in asking the right questions and probing for the real answers. And an intelligent evaluation of the responses. 
 
Be clear about the things your advisor does that you cannot. And agree a scope of work that is defined by those key areas of skills.

​You are buying an outcome but not a result. A good professional supplier gives you and honest and independent assessment. Often this is not the result you wanted. Get over it. And understand this in advance. Choose a supplier who will give you a great outcome. Don’t try to buy confirmation of your own opinion.
 
The same principle applies to skills outside the traditional professional arena. There is no point in outsourcing software development because you can't code.  And then restricting the developer by your own limited knowledge of the subject. 
 
When you are choosing a supplier, the best test of this is how they set expectations. Look for someone who questions your project objectives. Not just blind agreement. And choose a supplier where communication of changes and new ideas is embedded in their approach.

​Once you get people involved, the psychology of incentives is an inevitable part of success or failure. (I sometimes think Alan Turing over complicated matters. The test of true artificial intelligence will be when a machine offers an emotional reaction to an incentive.) 
 
A key area of incentive when choosing suppliers will be the pricing mechanism. There is no right answer but think about these three things:

• Your supplier is selling time. So price per hour is a good fit for their economics. You are looking for an outcome so it doesn’t matter a jot to you. Only agree to an hourly rate when the time used is outside your supplier’s control. And don’t even bother to ask for rates if you are not going to buy on this basis.
• Success fees are a tempting way to align your interests. On sales or marketing type services it seems like a natural fit. In my experience these incentives never work well. The only slim chance is if the measure of success is precisely the same as it is for your own team. Similar doesn’t cut it.

Paying a regular retainer rather than buying discrete projects is another common approach. This only fits if you are looking for a part time team member rather than a supplier. 

Finding and buying services from suppliers is a bit of monster. Big corporations devote entire departments to getting it right. And still make mistakes every day. Its an important job for a startup leader. Yet its not critical. For me I want to see a CEO who contains the risk. I don’t expect you to get it right every time. 

So think about:

• Take a broad view when listing potential suppliers. Trusted recommendations are valuable but don’t fall into the kakocracy trap.
• Scoping and defining projects in small boxes. Allow yourself the opportunity to get out of supplier relationships that are not working. (Success fess are terrible on this measure).
• Select for quality ahead of price every time.

Have a robust process of challenge in both directions. You will gain the most value from having a supplier stand up to you. And you need to be prepared to push back if you are not satisfied.

​I am going to continue my current theme of selling to the enterprise. (See my posts on SaaS Sales and SaaS for the Enterprise). By definition this is a subject for B2B SaaS companies. And this makes it important because SaaS has the potential to disrupt big business for the better.
 
This disruption comes in two forms. Replacing the traditional business software model with a cheaper, better and more flexible approach. Or driving change by enabling more efficient and effective business. In both cases, many B2B SaaS companies offer a proposition based on cost reduction.
 
It is straightforward to make the business case for such cost reduction. Yet the proposition suffers from a simple structural disadvantage. Cost reduction is a tough sell. Always.
 
There are two reasons for this. Cost reduction is an uncomfortable and challenging subject for any business leader. And radical cost reduction strategies carry genuine risks. Your chances B2B SaaS success will be better if you are aware of this backdrop. And address these concerns by designing a patient and more subtle sales culture.

At various times in my career I have found myself sitting opposite a leader from a business in genuine trouble. Perhaps in a struggle for survival. Or enmeshed in the legal process of administration or insolvency. In these circumstances, eliminating costs is an absolute imperative. Yet there is still resistance.
 
There is some obvious psychology at work here. Costs are not a fun or sexy subject. Growth and making money have far more appeal. Remember this in any sales conversation. You may be excited about the opportunity. But you are talking to someone who is facing a bill. Not the same mindset.
 
That mindset runs a bit deeper. Suppose you present clear evidence that your SaaS will save money at a rate 10X the purchase price. (Please don't with the “no brainer’ cliche.) In the mind of your customer you are laying down three other challenges. Sending these messages to your potential customer:
 

• Message 1 - You are not running your business as well as you could.
• Message 2 - You or someone in your team is missing an obvious opportunity.
• Message 3 - There is a great benefit available if you make some hard choices.

​Any buyer is likely to be in defensive mode. Framed by the list above, their arguments may seem unreasonable. And a good sales pitch will set out to counter. Presenting rational analysis of real benefits. 
 
You need this in your armoury. But don’t allow the emotional to disguise the true business risk your customer faces. Adopting any B2B SaaS requires business change. When the objectives involve cost reduction, there will be losers from business change.
 
It could be your competitor products. Or it might be people of power and influence within the customer organisation. At the lower end of the scale, an innovative SaaS might eliminate information barriers. The type that protect silos within large businesses. Scale up the impact and budgets, departments and jobs come under threat.
 
The result is that change is harder for business to implement. And it brings downside risks of negative disruption or reputation damage. A responsible customer will want to weigh these risks before buying your SaaS. You need to respect that view and help. Not just challenge it hard.

​None of this means cost reduction is not a great value proposition. An essential function of innovation is to improve the efficiency of existing businesses. And the Fortune 500 is full of stagnating companies. Struggling to make good returns in a world of flat revenues. Entrepreneurs will build some great B2B SaaS businesses on the back of this opportunity.
 
But you need to understand that this is a difficult and sensitive sales process. At the extreme end you will be offering your customer a live grenade to blow up their existing business processes. This requires more subtle culture and content for your sales proposition:
 

• Winning with cost reduction depends on attitude. You must be sensitive to the challenges your customer will face. And be patient as they work through the internal hurdles that follow. Long sales cycles are one of the frustrations of enterprise sales. Trying to rush your fences is not the right answer.
• Too many cost reduction propositions focus solely on the numbers. Figures are not a whole business case. Extend your proposition. Explain why your customer’s business will benefit beyond the hard cash. Whose job will be easier? Which process will be less painful? How will their competitive position improve?
• Both the decision to reduce costs and the execution are tough. If your onboarding and customer services teams can help then make that offer. Or think about which other organisations might work through this with your customers. This helps the buyer and could also point you towards some lucrative partnership opportunities.
• Paint a picture of what success looks like and be honest about the pain. Selling the whole experience may seem like a hard road. But it will pay off in customer loyalty and expanding revenues once the first sale is made.

 
Enterprise sales are a long process. When the main customer benefit is cost reduction, the path is both longer and tougher. You can fight this. Or you can understand the psychology and the business risk. And build a sales process that leads to long term success.