Machine intelligence is permeating into more enterprise functions than ever. It is transforming archaic ways of working, and empowering teams with the means to work smarter than ever. At Mosaic, it's our job to ask "what next?" and "where next?"

We believe that the procurement function is on the cusp of disruption - with new entrants beginning to 'cross the chasm' into widespread adoption.

Being a Chief Procurement Officer is difficult. Controlling an enterprise's spend is no small task - yet procurement teams have to deal with slow, opaque negotiations; outmoded workflow tools from incumbents; and a lack of visibility into their suppliers' performance and risk.

When we invested in Keelvar earlier this year, we were excited by a vision of sourcing as it should be: data-driven, frictionless, and automated such that people can spend their time on what matters most. Since then, we've studied different parts of the source-to-pay process, and met a number of early-stage procurement software founders.

We brought some of the best together in a virtual roundtable to explore the demand from CPOs, and what it takes to scale a procurement startup. Here's a flavour of what we discussed.

CPOs are pursuing more than cost reduction - so startups need to resonate with their incentives

Owing to COVID, procurement teams face a set of acute pressures: supplier risk management, transparency, and short-term cost reduction. But beneath this lie fundamental changes in the role of the CPO.

Conventionally, the role of procurement is about execution: to run tenders at scale in a lean way, and to keep tabs on the supplier base thereafter. Now, it's increasingly about intelligence. Procurement teams are now tasked to model the fundamental cost drivers in the supply chain, to understand the total landed cost of a product or service, to leverage external data sources and benchmark against price indices for goods or services. Neither Excel nor Ariba will be the right tools for this increasingly complex mandate.

There's also the matter of sustainability. Procurement teams are now being given the accountability and budget to create greener, more ethical supply chains. This is an optimisation goal for which they're ill-equipped by their traditional processes, tools, and datasets.

As the role of procurement widens, so does the tendency to adopt best-of-breed tools from the bottom up. The stranglehold of the ERP suite will only weaken as a result, creating new entry points for startups across the source-to-pay process.

Selling to procurement is hard - so startups must optimise for inbound sales and expansion revenue

Procurement teams are the 'gatekeepers' of an organisation's spend, and have a natural incentive to constrain discretionary spending. This means that startups in procurement may find it difficult to drive conversion via outbound marketing.

For many effective procurement startups, the main driver of new sales is inbound. The best form of qualification is when a customer comes with your pitch already in mind, having heard of the RoI enjoyed by a colleague or industry peer.

So how do you get a new customer to reach out to you? First, referrals and word-of-mouth become crucial: can you create a network of suppliers or buyers, by creating a unique dataset that increases in value as the installed base grows?

PR is a second avenue: although often sensitive. It speaks volumes to have a customer to talk openly about their use cases, and make the relationship public. Keelvar and Pactum have done so to great effect, and can see the rate at which this drives new business into the top of the funnel.

Channel partners are a third route - although one to be navigated with great caution to ensure that incentives are aligned. The incumbents (Coupa, SAP, and large professional services firms) hold a significant share of enterprise and mid-market spend, and cannot simply be outflanked. While channel partnerships may offer an avenue to acquiring bigger customers sooner and more scalably, it's vital that startups maintain a high degree of control in the relationship, and own the end customer relationship. Those that strike this balance deftly have a greater chance of success.

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The above only scratches the surface of the opportunity that procurement startups face. Scaling a procurement startup is a very complex task, but with a market sized in the double-digit billions and growing rapidly, those who can navigate it can be big winners.

We're excited to support founders seizing this opportunity. If you're doing so, please reach out.

Chandar and Toby