The risks and rewards of using startups

CIOs say that partnering with no-name vendors can lead to a big payoff (more innovation) or a total bust. Here's how to manage the relationship.

By Stephanie Overby, CIO |  IT Management, startups

"It takes time and direct involvement. But if you're truly getting a unique value proposition that you can't get elsewhere, you have to be willing to invest in this stuff," says Tracey Rothenberger, CIO of Ricoh, the $23 billion maker of copiers, supplies and document-management technology. "We're not [working with startups] for parts of the business that are small or insignificant. We're doing this with vendors that will have the ability to truly be transformative for us." (See "Ten Questions to Ask Before Using a Startup.")

The Upside of Startups

"Startups are a good way to experiment at the edges of your priorities and position your company as an innovator," says William Hsu, co-founder of startup accelerator MuckerLabs.

But a carefully selected startup operating at the core of the business can make an even bigger bang, as Rothenberger found out. "We're trying to get an advantage for our business by moving into progressive technology much faster," he says.

Nine years ago, Rothenberger needed a mobile solution for Ricoh's service force--something that would give it access to parts inventory, schematics and dispatched calls in the field. At the time, the market was ill-defined--many players and even more technologies. Rothenberger teamed up with a new vendor that had a handful of employees. "They had some incredibly good technology, and it gave us a good couple of years with that solution before our competitors had it," Rothenberger explains. "We did it because it was pivotal to our business."

Increased responsiveness and influence over product design are also among the perks of working with a budding vendor. Clorox CIO Ralph Loura works with startups when he's looking for what he calls "systems of engagement"--those tools that take a new, often social approach to a business problem. Young vendors are noticeably more nimble and responsive to his needs as a customer. When Loura asked one startup partner for integration support for a legacy platform, the company got to work immediately. "In an established vendor, it may take 18 to 24 months to make such a request, have it filtered from the field through product management, have it approved for the product road map, and make it into a release," says Loura. "This startup vendor was able to accomplish the same in under four months. [It's] a much flatter organization and the focus is more on being agile than on product lifecycle management."

Duchscher likes the attentiveness. "When you're working with one of the behemoths, you might get a quarterly visit or someone asking you at the end of the fiscal year what they can do for you. That drives me crazy," he says. "With a startup, there's a much tighter interaction. You know the engineers and the owners, and they're actively involved in how things are going."

Originally published on CIO |  Click here to read the original story.
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