This week, CIO.com published an article by Jonathan Hassell called “What CIOs Need to Know Before Relying on Startups“. The article lays out the list of pros of working with startups: disruptive technology and extreme flexibility to work with you. Additionally, startups usually have a focus around solving a single problem which can translate to solving that problem better than vendors who address multiple problems. Hassell also list the cons of working with startups: the risk of going out of business, the risk of the startup changing business focus and the risk that your competitors will access the same technology. Further, in a recent Wall Street Journal article by Clint Boulton, Land o Lakes CIO Barry Libenson was quoted as saying “I don’t get rewarded for taking a huge risk and having it pay off, but I get heavily penalized if we take a risk and screw something up”. So how can a CIO take advantage of the speed, flexibility and focus of a start-up without putting his company at undue risk. Here are my tips for CIOs looking to work with startups.
Understand the differences
There are several ways that working with startups differs from working with more established companies. The first difference that CIOs may encounter is the sales process. Technology startups are generally product focused, especially with the advent of the Lean Startup where companies iterate their way to product/market fit. As such, the expense of enterprise sales people is ofter a priority for a later date. You may find that you need to chase startups for information rather than the other way around. Startups may need a little education in the vernacular and processes of a larger organization. Similarly, the customer relationship pieces of a startup are likely less mature which may mean that you need to drive the communication frequency and content with a startups vendor (unless you become their biggest customer which may have the benefit of tilting the startup’s focus to you).
Evaluate up close, not just on paper
Hiring startups requires a different set of assessment tools. Many times enterprise vendors may be selling commoditized technology. Evaluating these vendors often comes down to price, customer service skill or who has the best sales team. The process is often a matter of eliminating potential vendors. Startups lack the market history to compare head to head with more established players and often offer new solutions to problems that a company is trying to solve. As such, their sales materials and support offering may pale in comparison to their more established competitors and they also may lack the track record to rely on for evaluation. If you find a startup that you believe can solve a technical problem for your company, it’s important to get to know the company closely. Visit them if possible. Get to know the key players in a personal way to understand where the company sees itself going. While familiarity does not prevent a startup from changing direction or going away, knowing the people (and people make a disproportionate impact at a startup vs a larger organization) can go a long way to understanding whether or not the startup vendor will be a good fit for your business.
One of the benefits of working with a startup is that they may have more flexible contract terms that their larger competitors. Look for a small engagement to work together as an experiment. Set clear metrics for success and make sure that the startup understands exactly what you are looking to achieve with their product. Set regular review periods with the startup to review progress. If things don’t go well, you can always move on to other vendors without much switching cost and if they go well, you can increase your contract.
Startups are increasingly grabbing market share from more established IT vendors. And while they may carry more risk in certain situations, the increasingly rapid pace of technology change means that new solutions are being created every day. These new solutions may be right for your company so keep and open mind when considering IT vendors. The startups might just have the answers.