Startup IT vendors are worth the risk

Computerworld - Information technology professionals say companies can gain a competitive advantage by buying products and services from startup tech vendors, but they stress that doing business with a young company involves risks.

If CIOs choose to partner with startups, they must acknowledge that risk, have a plan to manage it and keep their expectations reasonable, said IT executives at the Demo Fall 2012 conference in Santa Clara, Calif., earlier this month.

"I love startups, but you have to look at what you're doing and understand who you're working with," said Cynthia McKenzie, senior vice president of enterprise application services at Fox Entertainment Group, in an interview at the conference. "I've had issues with startups going out of business. At one, the founder of the company died and they walked away from us."

Fox has also had to deal with startups being acquired -- and with new owners retiring the products that Fox was using, said McKenzie.

Sasan Goodarzi, CIO of Intuit, said his company "[looks] at the startup's technology, the [needs] we have internally and whether it will be a cultural fit. But you just have to lean forward and play offense. Be thoughtful and manage risk, but don't spend too much time on it."

Tom Soderstrom, CTO at NASA's Jet Propulsion Laboratory, said startups can provide access to leading-edge technology with the potential to solve business problems more quickly than internal developers can.

"You can go to a startup and see how we'll be doing IT in two years," he said.

However, McKenzie warned that IT executives should "do due diligence" if they're hoping to use a startup's technology to get to market faster.

"There are a lot of things they may not know how to do -- a contract, for example," she said. "Everything can be more cumbersome" because it's uncharted territory for a new company. A lack of formal processes may be among the characteristics that make startups so nimble, but most larger organizations require such processes, she noted.

Even so, McKenzie said, the risk of working with startups has been worth the reward for Fox.

Soderstrom said IT leaders may find that they need to give startup personnel guidance on how best to work with their companies.

"I can't tell you how many times I get an email saying, 'I'd like to show you my product -- are you free for an hour next week?' " he said. "There's no way I can do that. I'm already triple-booked."

Soderstrom said a better approach, for him anyway, is for the vendor to request a 15-minute Skype video chat session.

IT leaders participating in panel discussions at Demo said they are especially interested in working with startups in the emerging big data market.

Ricardo Angel, senior vice president of General Electric Energy Financial Services, said his company wants to mine data to learn how to use mobile devices to maintain IT equipment, especially in locations "where it's difficult for people to go."

Fox is also using big data tools -- including sentiment analysis and Hadoop products -- as it launches an initiative to track the studio's top 5,000 customers, McKenzie said.

This version of this story was originally published in Computerworld's print edition. It was adapted from an article that appeared earlier on Computerworld.com.

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