Selling artificial intelligence (AI) solutions to large corporations can be a formidable challenge for startups. While companies are eager to harness the power of AI, the procurement process can pose significant barriers. In this article, we explore the hurdles faced by AI-powered software-as-a-service (SaaS) startups when selling to big tech companies and provide insights from investors and founders on how to navigate these challenges.
The procurement roadblock
Samir Kumar, a former Microsoft and Qualcomm executive who now invests in AI-powered startups, acknowledges the allure of AI use cases. Still, he points out that progress in integrating AI into large companies has been slower than expected. The primary roadblock for startups is often the procurement team, responsible for sourcing and pricing the services the company acquires. These teams can introduce obstacles related to data concerns, price sensitivities, and a lack of familiarity with AI.
Influencing the decision-makers
To navigate the complex procurement process, startups can draw inspiration from unlikely sources, such as former President Barack Obama’s battle to keep his BlackBerry despite security concerns. Kumar suggests finding internal champions and advocates who can influence cautious IT and procurement teams. Identifying key stakeholders who control the budget is crucial. In regulated industries like finance and healthcare, R&D teams can be valuable allies in advocating for AI solutions.
Patience pays off
Negotiating deals with enterprise customers takes time. According to a survey by SAAS financing startup Capchase, enterprise software deals are taking longer to close compared to the previous year. Procurement teams are increasingly focused on the value that software delivers. AI products, in particular, face challenges in demonstrating return on investment and differentiation. Open-source AI models have made it easier to create competitive products, but this also adds complexity to the sales process.
Addressing data and cloud concerns
Startups that rely on cloud-based infrastructure must consider their potential customers’ existing contracts with providers like AWS and Azure. Customers want to know if the AI product is approved by their cloud providers and seamlessly integrated into billing. This consideration becomes a hurdle after the proof-of-value stage but is not necessarily a deal-breaker.
Mapping out the sales process
Sheila Gulati of Tola Capital, another Microsoft veteran, emphasizes the importance of mapping out the sales process before investing in a software startup. Creating a framework helps portfolio companies identify various parties involved in the procurement process, including buyers, procurement teams, and end-users. In some cases, procurement teams are already familiar with AI-enabled products, while others may require sellers to educate them.
Data concerns in focus
Procurement teams are increasingly concerned about data-related issues when it comes to AI. This includes considerations of privacy, explainability, and adherence to regulations. The use of non-deterministic AI systems is relatively new in enterprise settings, prompting procurement teams to seek guidance on potential unexpected outcomes.
Educating procurement teams
Rachael Nemeth, co-founder and CEO of Opus, an AI-enabled training platform, emphasizes the importance of preparation. Her startup has successfully secured deals with diverse clients, including Vanderbilt University and Wagamama. When dealing with procurement teams, Nemeth notes that they often have fundamental questions about AI rather than diving into technical specifics. Procurement teams are eager to learn and contribute to successful deal closures.
An opportunity for SAAS companies
The questions raised by procurement teams are often centered around AI functionality and its impact on various aspects of a company’s operations. While the level of sophistication in these questions may vary, the overall trend is positive. Procurement teams are not necessarily skeptical of AI; instead, they seek a better understanding of its capabilities and limitations. This presents an opportunity for SAAS companies to educate and collaborate with procurement teams effectively.
Selling AI to large corporations requires startups to navigate the intricate world of procurement. By identifying internal advocates, demonstrating patience, addressing data and cloud concerns, and actively educating procurement teams, startups can overcome these challenges and unlock opportunities to integrate AI solutions into the enterprise landscape. As the demand for AI continues to grow, startups that successfully navigate the procurement process stand to benefit from partnerships with major corporations eager to harness the potential of artificial intelligence.
