The most important business skill in the next hundred years is the ability to select and manage vendors. This is in contrast to the most important business skill from the last 100 years: the ability to recruit, manage, retain, and grow talent. Once you have a good strategy, vendor selection and management is how you will develop your product and get it to market.
99% of companies and organizations have more vendors than employees.
And while spend on employees still trumps spend on vendors (in many cases), that is changing rapidly too. Think of how much you spend on AWS, office rent, law firm, Stripe, Facebook ads, Google CPC, etc.
In the future, most companies will also spend more on vendors than on employees.
Stitching together the right vendors is really, really hard. Researching vendors and getting them to work together is really hard. Figuring out the right ones is hard. Getting the most out of them is hard. Getting a great return on your investment is hard.
More vendors means the ability to have fewer employees.
Imagine if someone told you you needed half as many employees to run your business. Even if the cost was the same (no money savings), would you do it? Of course you would. Coordinating lots of people is really hard and takes a lot of time. Recruiting takes a crazy amount of time (imagine if you needed to only hire half the number of people you are planing on hiring).
If you had fewer people you could spend more time investing in the employees you have, upgrading their skills, and paying them more. You’d be able to give them much more satisfaction while increasing communication in your organization.
Not only is it possible to have half as many employees, it is very accomplishable. Most companies have 100% – 300% more employees than they should have. Some companies have over 1000% more employees than they should have.
Companies are increasingly replacing employees with APIs
It is much easier to grow faster when you have APIs. If the API if not doing a great job, you can replace it with another API company. If you have a 50-person department that is underperforming, it is really hard to replace.
Most companies understand this. Fortune 500 companies have increased the number of vendors they have by 10x in the last 10 years. But during the last ten years, most of them increased headcount by less than 15%. So companies are managing their growth via technology rather than throwing people at it.
Using vendors can increase employment (and job satisfaction).
If you have thousands of vendors rather than thousands of employees you are not decreasing the country’s employment. Those vendors still need to hire people. And the people working at all these companies are going to be happier because the companies will each be smaller which means that each employee will be more core to efforts of each firm.
Someone with an accounting background is more important to an accounting software firm than they are to a dentist practice.
Vendor management is THE SKILL … yet no one is talking about it
Not only is vendor management and selection the most important skill … it is also the skill least likely to appear when you poll business people about “what is the most important skill?” It likely won’t even appear in the top 50 skills from a poll from top business people.
That is going to change … and fast.
There are no good books written on vendor selection and management.
Outside of procurement, very few functions focus on understanding vendors. There are a million books, trainings, and more about selling … but very few on buying.
There are almost no business school classes on buying, selecting, and managing vendors. Yet there are a ton of classes on recruiting and managing people.
Change in the zeitgeist is coming.
Coordinating vendors effectively is THE PATH to success. Of course, you still need a great strategy. But coordinating vendors is a much faster and more scalable path to success than scaling people.
Vizio (the TV company) got to $2 billion in revenue (in 2017) with just 80 people. Now these were 80 super-talented people. But how how many other under-100 employee companies do you know were doing over $2 billion in revenues?
Kylie Jenner’s super successful cosmetic company has just 7 employees. Now you might be thinking … I could do that if I was as popular as a Kardashian. But you CAN do that. In today’s world, relying on vendor management is the gateway to success.
Who is actually good at vendor selection and management?
From what I see, it is a secret skill that only a small number of product-oriented entrepreneurs understand. They do not teach it in business school. There are no good books on it. It is a secret. But it still something you can observe and learn.
This is especially true at venture-funded tech companies where (1) you need to move quickly; (2) money is not as much of a barrier; (3) hiring is really hard; and (4) need to be nimble so you can change as the market changes.
Vendor are the DNA of an organization.
Vendor lists are also a good way to determine the health of a company. For companies over $10 million revenues, I bet you could predict the growth of these companies by just looking at their vendor fingerprint. In fact, one likely could make a lot of money by just understanding the vendor DNA of a company and investing in companies that are making smart choices.
Getting leverage – $ per employee.
The best measure of how well you are using vendors is the leverage (or the scalability) of your business. A good metric is revenue per employee. And while that particular metric (revenues/employees) should be different for each type of business … the important thing is that (after about $10 revenue) it is improving over time.
If you see a company that has flat revenues/employees over years (which is the case in many SaaS companies), it could mean that the company is not run very well and does not have a ton of leverage.
Summation: The most important business skill in the next hundred years is the ability to select and manage vendors.