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

Customer service can often be an issue. "Startups don't have a lot of processes in place, and they haven't worked with 1,000 customers," says Hsu of MuckerLabs, who founded BuildPoint, a construction bidding system, at the age of 23. "Support and issue resolution from post-sale to implementation is something you have to work out before the contracts are signed."

Startup employees are often playing multiple roles: product development, project implementation, customer support. "On the plus side, the startup organization is far less bureaucratic," says Settle of BMC. "On the negative side, those same technical resources may already be dedicated to support another customer or to get the next product release out the door, and access to those individuals may be walled off altogether."

If you're a Fortune 500 company used to working with big vendors, you're accustomed to strong vendor account management. "Smaller players have focused so much on their product that that is something they haven't developed yet," Ross says. "The relationship management pieces aren't there." The customer has to take the reins and set expectations for communication.

While the speed of startup rollouts and updates can be a boon, they also require more technical oversight. "We allocate more testing time to the releases," says Rothenberger. "Smaller vendors have fewer controls, so more issues pop up."

There can also be internal resistance in IT to the startup partnership. "The ultimate paradox in most IT shops is that the staff complains that they spend all their time maintaining legacy technologies and that there's no innovation going on," says Settle of BMC. "But when efforts are made to evaluate or prototype new startup products, everyone complains that they already have too much work to do."

CIOs always talk about vendor engagements as partnerships, but that's often just lip service. When working with a startup, parternships are a requirement.

"You can't just make the purchase and go away. It's not like working with Microsoft or Oracle, where you ultimately get a product that works, with a few bugs here and there," says Duchscher. With startups, "things are fluid, decisions are made quickly, and you need to stay on top of that."

At Pabst, Haines is working with some very early stage players--a data integration company that hasn't even entered Round A funding and an enterprise performance management provider going into general release sometime this fall. "It becomes a mini external R&D group for us," Haines explains. "They're giving us a lot, and we're there on the ground level helping them to shape the products."


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