Buying in the right experts to help your SaaS startup

​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.

Its Never just price

​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 Kakocracy Trap

Noun: kakocracy - Rule or government by the worst of the people

​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 jobs to be done mirror

​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.

An outcome not a result

​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.

A word about incentives

​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. 

The Chairman's View

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.