Startups and Suppliers

Sometime or another, every startup needs to engage suppliers.  Lawyers, accountants, PR companies, design agencies, consultants – everyone needs them.  I have to admit that I’ve found selecting and managing supply partners to be a real challenge over the years.  When you get it right, expert partners can add huge value to your company by contributing ideas and solutions you had never dreamed of, but when you get it wrong, relationships can dissolve into a mess of unfinished, often unusable work and skyrocketing bills you can’t afford to pay.  The selection and management of suppliers sounds like a dry topic but it’s not.  It’s an art.  I’m working hard to perfect this art, and here are some of the lessons I’ve learnt along the way.

In preparing this blog, I read a bunch of other posts on the topic.  The advice offered by almost every business expert is: look for a supplier who’s reliable (which you discern by the list of big brand name clients) and who’s stable (they’ve been in business a long time).  This makes sense if you’re working for a big corporation and your #1 objective is to hang on to your job if things go pear-shaped.  But this approach won’t obtain the best results if you’re a startup and your primary objective is to do something awesome and groundbreaking.

Here are two examples of how we recently selected suppliers:

1. Design agency: We’re preparing for a big overhaul of our brand and design in preparation for Posse’s US launch next March.  To find a design agency to work with, I started by asking a bunch of friends who work in the creative industries for references.  I checked out about twelve agencies online, then met with four.  We ended up selecting an upcoming local agency called ‘Universal Favourite‘ for a few reasons.  Firstly, we love their work and they have a good mix of groundbreaking creative style and digital experience.  Other factors were: the amount of effort they’d applied to the pitching process so we knew they were hungry for the project; they were at a similar stage to us in their business – small, passionate and keen to make a name for themselves; they were highly recommended by people I trust (very important); their office is within three minutes walk of ours, and we had good chemistry.  Their culture is similar to ours and they’re the kind of people we’d like to hang out with.

2. Accountant: I recently had to find a new accountant, and the criteria here were a bit different.  I chose David Kenny at ‘Hall Chadwick‘ because: he came highly recommended from Matt at’ Freelancer’ and Pip at ‘The Loop’; he knew a lot about the startup world, how to structure an employee share plan, structuring fundraising documents and suchlike; he understood another key part of the startup world – we can’t afford to pay much at this stage.  And I liked and trusted him as a person.

So, these are some of the considerations I bear in mind when choosing a supplier.  The next challenge is how best to manage a supplier – this is where the real art happens.  From the fiery lessons of trial and error, here are my top three tips for startups that need to manage suppliers.

1. Agree a quote upfront.  This should include a table of dates and deliverables.  Be clear that any diversions from the agreed quote must be agreed in writing before anyone incurs additional expenses.  I’s also important to make sure you’ve got a way out or to pause the agreement if your circumstances change (as they often do in startups) or if you’re not happy with the supplier’s work. This sounds simple, but it’s amazing how often the best managers fail to do this and end up in all kinds of messes.  Once you’ve decided on a supplier it’s easy to be excited, start work, and never firm up and sign off on an agreement.

In my first six months of Posse, I engaged a lawyer who seemed really passionate about our project.   He was always at the office taking meetings, introducing me to people and offering to help in many ways above and beyond what a lawyer would normally do.  I thought this was wonderful until I got bills that added up to more than $110K along with a proposal to exchange a chunk of the debt for a massive amount of equity in my new company!  At the time, I couldn’t believe I had been so stupid, but I’ve met lots of other founders with the same stories or worse.

2. Deal with issues head on.  When you sense a problem with dates, a budget, or if the work isn’t good then deal with it straight away.  Sit down with the partner, try to understand the root causes of the problem and come up with a solution together.  It’s important to be polite and always try to keep the relationship intact.  It’s likely you’ve committed to a budget, so if you want to exit gracefully without being stung for the entire bill, you’ll need to be friendly.  And it’s unhelpful to have people spreading bad stories about you around town.  Bad karma too!

I dealt with my lawyer dilemma in the worst possible way.  I sat on the bills and hoped they would go away.  They didn’t, and a year later we went to court.  The whole mess took 18 months to clear up before we settled.  It cost legal bills, time and energy that would have been better directed toward building our product.  I’ll never make that mistake again!

3. Treat suppliers like team members – they need love too.  You’ll get more out of your suppliers if you focus on what motivates them.  Make sure they feel part of something exciting and important.  Invite them into your office as much as possible and try to get their office to feel like an extension of your brand.  Supply partners love public credit because it helps them win more clients – try to promote their involvement in your success as much as you can through your website, presentations and so on.

We recently started outsourcing our sales calls to a company in Sydney called ‘Inform Connect‘.  We work so closely with them that they really have become an extension of our own team.  We present the company’s vision and values to their people just as we do with our own.  They’re regularly at Posse’s offices and Friday demo sessions, and their office walls are covered with our stickers and posters.  Inform have lots of other clients, but everyone there wants to work on the Posse account and we get awesome results.

Selecting and managing external suppliers is challenging, but everyone needs them.  It’s so important to get this right.  I only now feel like I have a handle on how to choose and work with the best people. When you find an amazing partner and everything works seamlessly, the results can be magic!