What CIOs need to know before relying on startups

Jonathan Hassell

Pro: Startups Often Ask 'How High?' When You Say 'Jump'
Often in search of those first dollars, but even after finding its footing and starts working on its own, startups court corporate IT departments and offer any number of service customizations, increased support availability, on-site setup, custom integration services with other line of business applications and more, depending on what makes sense. This flexibility means they tend to bring value to you quickly to boot. Typically, when you purchase software or services from established vendors, such accommodations either aren't possible or are very hard on your budget.

In addition, organizations using startups can suggest features or otherwise influence the direction of the product. For midsize and large businesses, startups often offer direct access to developers and test managers to get to the bottom of problems quickly and understand where certain features and capabilities make sense. Larger, more established vendors generally won't offer this kind of access to the actual coders behind a product or service; at best, they'll put your organization on some kind of customer advisory council or similar informal group.

In many respects, working with a startup on these key activities is much like having an application developed in house, specifically for your organization, with a great support staff behind it. The startup becomes a true partner, an extension of your own staff development team.

Con: 'Always-on' Risk of Capitalism May Jeopardize Your Vendor's Existence
Startups, especially IT startups, almost invariably suffer from cash-burn problems from the very beginning. To solve key technical challenges, they hire expensive experts, pay them Silicon Valley wages and grant them numerous options. Increasing headcount is generally seen as the way through problems and progress issues for these startups: "Hire more developers" serves as the mantra, as if just plucking developers from a tree like fruit automatically gives you more juice.

The problem is, most of those employees expect to get paid every two weeks - but they're creating this product or service out of nothing, so there's no revenue to pay them. Usually there's some venture capital firm brave (or stupid) enough to give a startup with a decent idea one to two years' worth of cash burn, accounting for growth.

You see the issue here pretty plainly. Expenses are very high and revenue is almost minimal, making the venture entirely dependent on the ability and appetite for risk that venture capital firms can muster.

Con: A Startup's Sale May Alter Its Business Plan, Hurting Your Organisation
It's a sad fact that big companies vacuum up startups, sometimes only to shut them down. Perhaps the disruptive startup gets purchased by the incumbent in order to stymie the disruption. Or maybe Google or Yahoo buys the startup to eventually add the startup's key functionality or unique value proposition to their own software but, through changes in leadership or simply the march of time, lets the startup languish until it dies. Good talent at the startup leaves. The company's founders vanish. The acquiring company doesn't make a plan clear for the future of the company.

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