Everyone loves an underdog. Tonight at 9:21 pm ET at Lucas Oil Stadium in downtown Indianapolis, Butler University tips off against Duke University in the NCAA Men’s Basketball National Championship Game. The majority of fans (outside of the Research Triangle, anyway) tuning in tonight will, no doubt, be cheering for the Number Five-seeded Bulldogs of Broad Ripple instead of the Top-seeded and perennial ACC powerhouse Blue Devils. It’s David versus Goliath. Rocky versus Apollo Creed. A ‘kid’ named Daniel-san versus Cobra Kai. Butler Coach Brad Stevens was three years old when Mike Krzyzewski became head coach at Duke. In the thirty years since, all Coach K has done is win three national titles, go to eleven Final Fours, and coach an Olympic gold medal team on his way to the Hall of Fame. Coach Stevens is in his third-year coaching a Division I team. Duke’s pedigree and tournament experience are legendary; precedent is also on their side (number one seeds have won 15 of the past 20 tournaments). I plan to watch. I hope it is close.
In sports, everyone loves an underdog. In sourcing and supply management, not so much. Incumbents retain far more business than they lose (and despite my arguments against #5 and #6 on this list, often do so without real competition). The phrase “no one was ever fired for hiring IBM” (i.e. sticking with the big, well-known company is the safest bet) still resonates within the enterprise and across many categories of spend.
I recently spoke with the procurement leadership team at a multi-billion dollar revenue Hi-tech company about IT sourcing. When our discussion turned to software as a service (“SaaS”), they told me about a software project that they ran about three years ago. The procurement team began working with a group that had been living in a fully-manual world with little exposure to what solutions were available in the market to meet its needs. After an initial survey of the market, the sourcing team determined that the project budget would not support the full implementation of the preferred software package. The group could either request a budget increase or reset its expectations. The VP of Procurement explained, “Our client was facing very significant pressure to start doing something within the allotted budget or risk a broad departmental overhaul. The department head pushed us to find a creative solution, fast. So we started looking at the newer, smaller companies in the space to see what capabilities they provided and at what cost.”
One of the first companies that they met with was a new start-up begun by a few executives who had worked for years at the “IBM” of their space but were now pouring their efforts, energies, and personal savings into the development of their first product release. While the initial demos of the version 1.0 product were not stellar, the sourcing team came away very impressed with the leaders of the company and their vision, commitment, and understanding of the marketplace. It did not hurt that the company offered its solutions in a SaaS model with very low up-front costs and was desperate for its first large enterprise customer. Discussions continued and ultimately an agreement was struck.
Three years later, both sides are pleased with the decision – the supplier which releases a new product update every quarter is now venture funded and has almost 50 customers while the internal team is largely intact and has seen good adoption of and good results from the solution. Both groups apparently share the view that the current product release is the most advanced available on the market today.
The sourcing director on the project made a summary comment that ultimately triggered this article, “In normal circumstances, our team never would have selected that company [because it was based mostly upon vision and roadmap instead of upon how it met current requirements i.e. its feature/functionality set in this case]…. Our experiences with this company really woke us up to the speed of innovation in certain markets and changed how we look at certain sourcing decisions.” The company took a risk on an underdog, in large part because it had no choice. But, it was a risk that it understood and one that ultimately paid off nicely. Good for them and their supplier.
I am not suggesting that you should never hire “IBM/Goliath/Safe Co.” These companies are big because they are good at something or more likely, many things. I am suggesting that supplier development and innovation should be part of the sourcing decision-making criteria for many commodity groups and that targeted bets on some smaller suppliers can help enterprises find that next big (or key incremental) innovation. Sometimes the little guy doesn’t make it very far out of the garage, but sometimes, the little guy just needs a little time (and coaching) to build that better mousetrap. Sometimes the little guy who gets that shot can play like Jimmy Chitwood.
Postscript:
Quick Quiz: ALL of the answers below describe which team: Duke or Butler?
- Was a Preseason Top 10 pick AND
- Has two players that led the US to win the FIBA Under-19 World Championship AND
- Currently has a 25-game winning streak AND
- Was the only team that was undefeated in its conference this year AND
- Has the Coach who holds the NCAA record for most wins in his first three year seasons
Do I really need to tell you?
First, re: game, best in years. Credit to Butler, and of course, Duke as well, who had tremendous pressure on them representing the “major conferences”. Most enjoyable final in years (since UConn last won it!)
Re: the post, as someone who also went from a goliath to running a startup (and competing against the goliaths), I always told my clients, two things when they told me how much better my offering was, but the risk of working with a startup was holding them back…
1) The reason my team and I left the “goliath” is we feel we can do better…better products, better services, more innovation…which will give you better results. And we’re willing to put our professional reputations and bank accounts where our mouths are to prove it, which brings me to…
2) …we can’t afford to fail! To take even a single step forward, we need references. One mistake and we’re done in the market! Your success is our success. The IBM-type company has many implementations, many clients, many references…not meeting your expectations really has little impact in them, but could have a big impact on you.
That being said, I give alot of credit to companies that forgo the risk and sign up to be an early client of a startup (clients after the first few have those references, so their risk is much less).
Gary –
Thanks for the comment and perspective. First, it really was a great game. Tough, tough loss for the Bulldogs.
When it comes to innovation, no one has cornered the market. And, when it comes to smaller suppliers, hungry can be better, but there can be trade-offs, they just need to be understood and weighed.
I’d follow Warren Buffet’s investment strategy of investing in leaders (more so than in their companies) when determining which small suppliers to develop. I’m sure that customer rationale played a major role in how your ‘David’ company won its early business.
BTW, Butler is the answer to the Quiz above