Higher number of nascent businesses than auction participants

Higher number of nascent businesses than auction participants

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In the competitive world of business, young companies often struggle to gain a foothold. However, one area that offers immense potential is public procurement, according to economist Bastian Krieger, head of the Co-Creation junior research group at the Center for European Economic Research (ZEW) in Mannheim, Germany.

Public procurement provides stable demand and access to new customer groups for these budding enterprises. But to succeed in these tenders, young companies need to navigate complex procurement processes, demonstrate product maturity, build strategic partnerships, and align with customer needs and policy timing.

Key Factors for Success

1. Risk Tolerance and Product Maturity: Startups should engage with customers once their products reach certain Technology Readiness Levels (TRL 4-6 for initial engagement; TRL 7 for pilots) to better position themselves for contracts.
2. Strategic Customer Targeting: Prioritise initial sales to smaller or mid-sized customers who are typically more open to innovation and have shorter sales cycles, allowing startups to refine products before approaching larger clients.
3. Partnerships and Teamwork: Collaborating with established firms through government programs can reduce concerns about scaling and contract delivery capacity, benefiting both startups and large contractors.
4. Deep Understanding of the Procurement Environment: Understanding the multiplicity of stakeholders, budget processes, policy shifts, and maintaining connections to industry experts, former military, and legal advisors improves the chances of success, particularly in complex sectors like defense.

To favour innovative startups, procurement procedures should be designed with clear, transparent policies, risk tolerance for early-stage technologies, and mechanisms to support collaboration with established contractors.

Designing Procurement Procedures for Startups

1. Define Clear Procurement Policies: Transparent rules about approvals, allowable purchases, supplier selection, and exceptions help startups understand and navigate procurement requirements more effectively.
2. Implement Technology and Automation: Using procurement software centralises processes such as requests, approvals, purchase orders, and invoice matching, improving efficiency and reducing errors.
3. Incorporate Solicitation Plans Attentive to Innovation: Develop procurement plans that include phased solicitations or pilot contracts to allow startups to prove concepts before full-scale procurement.
4. Encourage Diversity and Inclusion of Startups via Set-asides: Tailor procurement opportunities to encourage startup participation and reduce barriers from large incumbent suppliers.
5. Support Relationship Building: Procurement procedures can include support for networking, customer introductions, and engagement opportunities with entities experienced in working with startups.

By adopting these practices, public tenders can act as a gateway for young companies to expand their customer base, providing them with stable demand and access to new markets. In tenders with additional quality or innovation criteria, young companies can succeed with their unique profiles. In demanding tenders, understandable criteria and more room for new solutions are needed.

The Ministry of Economic Affairs in Baden-Württemberg has already taken steps to simplify and accelerate procurement procedures for startups and small companies, allowing state authorities to use direct awards, restricted procedures without competition, and negotiated procedures with or without competition for startups more easily.

In conclusion, a combination of technical maturity assessment, strategic partnership facilitation, clear and accessible procurement policies, and use of digital procurement tools creates an environment where innovative startups can better compete in public tenders. This approach is particularly important in sectors with long sales cycles and complex requirements such as defense and technology.

Economic and social policy can be improved by designing procurement procedures that are transparent, supportive of early-stage technologies, and encourage collaboration with established contractors, especially in sectors like defense and technology.

For young companies to succeed in public tenders, they need to navigate complex procurement processes, demonstrate product maturity, build strategic partnerships, and align with customer needs and policy timing, leveraging technology to streamline and centralize procurement processes.

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