by Kim S. Nash

How To Choose the Right Tech Startup Partner

May 29, 20123 mins
InnovationRisk Management

CIOs look to IT startups for competitive advantage but finding the right newbie vendor is harder than you think.

I’ve written before about the competitive advantage CIOs can gain by working with technology startups. Since then, I’ve talked to IT leaders to find out what they like and don’t like about working with young companies. Many have indicated that the most challenging part of the process comes at the very beginning: Finding an IT startup with the right technology, business plan and outlook to work well with your company takes a sharp eye for discerning the new from the noise.

Tech Startups

Greg Fittinghoff, senior vice president of IT, corporate systems and infrastructure at Home Box Office, a unit of Time Warner, is pretty savvy on the subject. He predicts that a big part of a successful CIO’s job in the future will be working in deep partnerships with strategic emerging vendors. He’s worked with several technology startups and recently shared his game plan with me.

Scout for startups. Without big marketing budgets (yet) or name recognition (yet), the right startups are hard to find. You can research the scene in Austin, Denver and othertop cities for IT startups. The demo area at industry conferences might reveal some likely prospects. People on your staff active in industry events and professional groups often hear from their peers about up-and-comers, Fittinghoff says.

He also advises getting good at social media. LinkedIn communities are a good source for early buzz. “These startups are very good at leveraging social media to get the word out and make connections.” They’re also good at search engine optimization, he says, which means some astute Google searches on your part may turn up good candidates.

Practice deep due diligence. The risks of doing business with a fledgling company go beyond the obvious considerations of whether the startup has enough funding to stay alive. The first test should be whether the startup’s technology is truly innovative – something you can’t do yourself or get from a more established company, Fittinghoff says. Don’t be swayed by “pretty” marketing materials. “Focus on what, exactly, is different about the technology.” Then look at the barriers to entry for that product. If another company can easily replicate it, the technology is not as valuable, he says. HBO partners with just 10 percent to 15 percent of the startup vendors it checks out.

Show — and maybe give — the money. A financial examination comes next. Look past the amount of money the company has in the bank or any big-name investors it boasts. Instead, look at how quickly the company spends money, and on what, he says. Your company may even want to invest in the startup to help it grow, keep it strong and exert influence over product development. Time Warner has an investment group for such purposes that Fittinghoff has enlisted recently in relationships with startups. He is now evaluating three startup vendors whose products HBO uses for possible investments. 

Drink from the glass half-full. Working with a startup often means side-by-side collaboration with its passionate founders. “There’s this completely different sense of pride and energy associated with how you’re building your company and servicing the customer,” Fittinghoff marvels. The positive vibe goes two ways, he says, when a CIO or other experienced IT leader can help those founders understand enterprise issues and ways to make the product or service more valuable. That’s rare when working with established vendors. “A startup is iterating in real time. They take great ideas and try them,” he says. “It’s a very different experience.”