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

Ricoh's Rothenberger has even talked to venture capital firms on behalf of three of his startup partners. "It's another more intimate way to get engaged. We get into discussions about where they're going for the next rounds of funding, their last six months of financials, strategies to take the company public or sell," he says. "Initially, you're just buying into the technology. But as the relationship evolves, you want to see the company succeed."

But too much guidance from--or customization for--a specific customer can handicap a startup. "My role is not to push them, but to act as mentor," Rothenberger says. "I'm hiring these guys because their product is unique. If I knew how to build it better than them, I would have done it myself."

The End Game

Startups aren't startups forever.

Loura at Clorox knows a CIO whose entire enterprise is now being run by a major ERP player even though he didn't buy a single piece of software directly from them. The big ERP vendor had acquired the smaller companies he was working with.

It happens. A lot. Loura has seen collaboration tools, social listening platforms, systems monitoring solutions, and more snapped up by legacy vendors or competitors. "Sometimes it's business as usual, but often the acquirer will make changes to the prior road map or strategy," he says.

At Pabst, Haines is waiting to see how Microsoft's acquisition of Yammer works out for him in the long run. "I'm a little nervous," Haines admits. "I've talked to them, and they've been open about Yammer remaining separate, which is good."

Contingency plans are key, starting with securing source code escrow and forensic toolkits in the contract. Even the big vendors can discontinue support for their own products. "It's just as easy for an IBM to make a SKU disappear," says Haines.

At Starkey, that source code and forensic toolkit enabled Duchscher to continue to use the test automation software that was shut down--for a time. "But the life of that product had ended. No more fixes, no more enhancements," Duchscher says. "You can live that way for a while, but eventually if the vendor is not moving their product forward, that impacts your ability to move your product forward."

Today, Duchscher is dealing with the aftermath of Compellent's sale to Dell. "We're not seeing the level of responsiveness that we saw when it was just Compellent," he says. "I'm happy for the people of Compellent, but it was not the best move for Starkey. When I had a real problem before, I could pick up the phone and call the president for immediate action. I don't have Michael Dell's number."

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