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

There's also some risk in startup success. "These startups can become big players themselves--not necessarily becoming behemoths, but really owning their space," says Ross of Forrester. "And the vendors can start to take on the characteristics [that CIOs] were trying to avoid in the first place."

Then there are the startup failures. "I've been involved in a couple, and they're always tragic," says Rothenberger. "It's never about the technical aspects of the product. Those things can be fixed. It always comes down to the human element--individuals who make poor decisions or don't communicate well and end up creating a big mess."

Working with startup vendors isn't for everyone. Joe Fuller once started his own a point-of-sale software company for specialty retailers. His employer, Dominion Enterprises, has invested in a startup accelerator program called Hatch. And Fuller has served as judge for Start Norfolk, startup event and competition in Virginia. Yet as CIO of Dominion Enterprises, he doesn't purchase any products or services from startups.

"We are typically dealing with large vendors for our expensive services and products such as disk storage and Internet connectivity," Fuller explains. "These are capital-intensive businesses that small startups really can't compete with."

Fuller wouldn't rule it out entirely. But, he says, "Most startups...are under-capitalized and they can't survive any setbacks. As CIO, I can't afford to go with an innovative company that offers a neat product at a great price if I'm afraid they will go out of business."


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