This week we're diving back into the topic of spend analytics and spend analysis, with a focus on smaller and medium sized businesses. We'll look at the challenges they face, and how smaller businesses can afford a spend analytics solution that works for their unique needs.
We're joined this week by Thomas Siersbæk Heller-Njor, from CostBits – a procurement professional who's entered the procurement tech space, with a unique spend analysis solution for the mid market.
Thomas started working in IT, then moved to working in procurement for the shipping line Maersk, where one of his projects was in spend management.
He found himself living in Cape Town, doing an assessment for the 42 sub-Saharan countries, and realised he had no tool for the job at hand: Gathering PO data, contract data, spend data, etc. So he built a very crude version of his software then, and realised it was a tool that others could benefit from.
He's excited to get to work in this space, and passionate about wanting to make data more accessible, available, and actionable.
I pick up on the word 'actionable' as a key differentiator between CostBits and its competition. What does this mean, and makes CostBits stand out?
There's a range of different factors here. From a user perspective, the main benefit of CostBits (as well as a simple UI), is that most people stop with analytics. Maybe people working in strategy look into analytics once in a while, but his experience is that a good contract doesn't always equal real savings.
So how can he create a spend management platform that gives more? Data. All the data that CostBits get every minute, or even every second, can be mined.
Let's say you agree on a price of a hundred, then you get billed for a hundred and twenty, CostBits can use data to see that and ask “is this a good idea?”. It generates actions and guidance for normal people who can't see through millions of lines of complex data. It notices things: “There's a contract for this category and you're not using it – is that okay?”.
CostBits aims to bridge strategy and day-to-day operations with understandable suggested actions.
That's why CostBits is built entirely on invoices, and if they can get purchase orders, contracts, and catalogue information, that gets added on top. When working with smaller mid-market customers, invoices are where the real useful information lies.
Smaller companies don't have a wealth of resources for data management. They may have maybe one person who does business intelligence, and they don't necessarily know the data. So CostBits simplifies this, by focusing on actions to create real impact.
Data and resourcing are critical here, and that I'd like to come back to that point. But before that, let's get back to basics. How much revenue or spend would a company need to have before they'd see the benefits of what CostBits?
The more spend you have, the more you can get out of it from a pure money perspective. Anything more than 5-10 million euros in spend is going to be more than enough. But he still wants to address folks in the mid-market, so one of the key indicators on whether they'll be able to get anything out of the software is whether or not they have distributed procurement: Not strategic, tactical procurement, but more purchasing and operational.
CostBits can give that structure, so yes – money is an issue, but there are benefits beyond that in terms of structure.
This leads me to ask Thomas to walk us through what he thinks the key differences and problems are, between large and small businesses. Is it misalignment in terms of objectives, is it capability? What are the biggest issues here?
If you're a large multinational company, the issue is that you have a ton of different systems. Maybe growth through acquisition has left things really messy. But you have the budget, training and staff to make sense of it all.
However, in the mid-market you have simpler data, and fewer systems. Structure is simpler, cleaning is simpler, here the brick wall is in terms of capabilities – these companies don't have a procurement department. Your procurement team might even take on that role as a full time job. Small companies simply can't afford the training needed here.
It's the old adage, many companies understand what they sell, but very few truly understand what they buy. And if that's the case - if smaller companies don't have a dedicated procurement department - will they 'get' what he's selling to them.
In this case, what would Thomas's sales strategy be? Would he sell directly to a CFO or managing director?
Yes – this is pretty spot on. He would always engage finance in this instance. They have the budget, so he has to get them on board. In larger medium-sized companies, there may be people more dedicated to procurement so in these cases he can get a phone number and have a conversation.
For smaller companies with no real procurement on their org chart, he goes straight to finance. Because these are the people who know that the cost of goods is super important. They know this, but they just don't know what to do about it. These guys know they need to do something, especially with the chaotic times we're now living in. But they're staring at the data with no real direction. And that's where CostBits comes in.
How would Thomas get around the capabilities gap here? If finance has the data, but they're struggling to implement changes based on that, what does he do there? Does he offer consulting?
But Thomas would rather focus on bringing more companies and clients in, helping them with procurement, and bridging internal and external gaps.
He hooks up with external parties – and doesn't make a dime on it. One of his first clients bought the software, then three weeks later bought catalogue software from someone Thomas knew in the market.
When you're a smaller company, you can get the software from Costbits, and they will see the gaps and point you to solutions, but Thomas doesn't want to solve those problems for anyone, through consulting.
I add that selling consulting isn't half as scalable as selling software!
The focus is on building something that makes a difference to the entire ecosystem, rather than going deep on consulting for a small handful of companies.
My next question is about the lower end of the market. If Thomas is selling CostBits to companies who don't have large dedicated procurement teams, they're going to be predominantly involved in operational, tactical activities – especially given the geopolitical challenges at the moment. So, it's one thing being able to access results from tools quickly in terms of analysis, but what does he do in terms of delivering on the platform's insights?
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