CIOs can benefit from connecting with innovative B2B startup companies developing products specifically for the corporate market. But as more and more startups emerge on the technology scene, it is becoming increasingly difficult to separate the wheat from the chaff.
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A number of organisations have sprung up to support tech startups, while helping them communicate with the corporate world. These organisations are creating clusters which open up communication channels between business and small suppliers.
We talked to several of these organisations to find out why there has been a boom in startup clusters and programmes, and how they can help CIOs.
A starting point for finding startups
There are two types of initiatives which specialise in supporting the startup community - incubators and network organisations, which connect companies in the very early stages to share advice and knowledge; and accelerator programmes which help push startups further by connecting them with investment and bringing them closer to finding their first customers.
A startup’s view on how CIOs should work with startups
Huddle, a cloud collaboration provider, is a UK startup success story. Founded by Alastair Mitchell and Andy McLoughlin in 2006, the pair wanted to create cloud-based software to allow enterprises to collaborate and share documents.
The company secured over $40m funding and now has offices in London, San Francisco and New York. The software is used by more than 100,000 organisations worldwide including UK and US governments, Sega, Procter & Gamble and Nasa.
Mitchell identified three important steps CIOs can follow to make the most of working with startups.
Find innovation through employees
Mitchell said that CIOs should look at the technology employees are using inside the business.
“People are very innovative and they will find the best technology,” he said, using the iPhone as an example.
“They weren’t originally the enterprise phone of choice. But you and I were using them in our personal life and bringing them to work.”
Mitchell said the best innovation comes from people using these tools personally, which are then used at work. CIOs should keep an eye on what technologies staff are adopting and decide whether they are appropriate for the business.
Mitchell believes that internal innovation hubs can be too inwardly focused, and sometimes the innovation is already inside the company waiting to be utilised.
Give backing from the top
Mitchell said that businesses which are most successful in innovation and dealing with startups are those with the CIO involved at an early stage.
He talks about “senior-level innovation” which looks for new ways of doing things from the top-down, permeating attitudes through the business.
Mitchell said that when there is no “top-level culture of innovation and taking risks”, staff in the middle layers of business are “more risk averse because they have a day job to do, and are often tasked with maintaining the status quo rather than taking risks.”
Dealing with risk-averse decision makers makes it very difficult for startups to form business relationships. Mitchell said the best way to introduce innovation in an enterprise and make a small supplier successful is by buying and piloting new technology, a decision which often carries an element of risk.
Understand startups have different needs
Mitchell admits that as a startup entrepreneur, he made the classic mistake of not understanding the business purchasing cycle. Startups don’t always understand that it is not just the CIO’s decision, but a range of individuals who can veto a product.
“You think it’s because your product isn’t good enough or your sponsor didn’t like it, but it’s actually nothing to do with that, it’s because the process didn’t work - you didn’t get the purchase order or they haven’t had the budget, or you haven’t spent time with the procurement manager, or one line in the contract wasn’t right,” he said.
Big businesses are equally not used to buying from small suppliers, and should recognise this through more innovative processes. In particular, recognise that the typical 90-day payment terms of purchasing departments are no help for startups.
“If you’re a small business where your cash flow is key, that can kill you,” said Mitchell.
Giving newly formed companies investment opportunities as well as access to some of their dream customers is key to the success of these programmes, but companies and investors also benefit from access to handpicked products which could potentially change their way of working.
“I don’t see it as a threat, but as an inevitable evolution,” said Alistair Grant, CIO for Europe, Miidle East and Africa at banking group Citi.
Accelerators have the advantage of giving IT leaders access to technology that they need, but may not be able to create in-house.
“Young companies tend to make new products fairly easily, when they see a gap in the market, whereas a larger company has to go through various committees to do so,” said Manoj Ranaweera, who runs an organisation called Techcelerate which connects companies in the north of England.
“Companies like IBM are really keen to work with small companies and want to be associated with them at the early stage.”
A sea of opportunity
The UK government identified the sudden push in the startup community and in November 2011 launched Tech City. Since then, the initiative has bought a lot of attention to the East of London.
“There were some organisations before Tech City happened, and Tech City was a good way of pulling together those initiatives,” said Jon Bradford, managing director of Tech Stars London, and founder of Europe’s first tech startup accelerator programme, The Difference Engine.
“Tech City has done an exceptionally good job, and created a strong brand known outside the UK,” he said. “The reason Tech Stars London exists today is because of the success of Tech City and everything that exists around it.”
There have been many initiatives which have also seen success thanks to the noise that Tech City has created. Additional hubs such as Web Mission,Telefonica’s Wayra, Tech Hub Manchester, Cardiff Start, and Ignite100 (formally the Difference Engine) all exist to give startups the boost they need early on in their development.
Some organisations provide office space for startups, such as Level 39, a programme aimed at financial services technology (FinTech) startups. It claims to be Europe’s largest accelerator space for FinTech, and its location in Canary Wharf puts entrepreneurs at the doorstep of the City’s biggest banks and investors.
At Level 39 a startup can rent a hot-desk space, or just pay a small membership to hang out in the social areas, providing small companies with networking opportunities in the queue for the coffee machine.
An Innovation Lab sponsored by Accenture, which came to an end of its 12 week programme earlier this year, also focused on the FinTech sector, and bought together early stage companies and executives from financial services, venture capital (VC) and angel investment firms.
The Accenture programme allowed large banks to become involved as mentors, taking corporate involvement a step further.
Four banks mentored startup Digital Shadows during the Accenture Lab. The firm acquired two years’ worth of product innovation and feedback in just 10 weeks. The company rapidly improved its product, winning innovation awards from Swift and Cisco and is now in commercial negotiations with five of the banks in the programme.
The big businesses involved in mentoring understand that the role comes with a great opportunity, not only to get close to startups that could benefit them, but also so they have an influence in that company’s very early stages.
Many options to choose from
Not all accelerators work in the same way. Bradford explained that his Tech Stars London programme works differently from Accenture’s initiative by not relying on corporate involvement, preferring investors, VCs, angels and entrepreneurs as its mentors.
Doug Ward, CEO of Tech Hub Manchester, said corporations can’t always go into programmes expecting to receive startups on a plate - they must provide something in return. “There needs to be a change in perception from ‘what can I get out of startups?’ to ‘what can I do to help?’” he said.
Programmes such as Wyra, Accenture’s hub and KPMG’s Tech Group, are internal accelerators, aimed at helping the corporates as much as the startups. Other hubs such as Tech Stars and Tech Hub, concentrate first and foremost on the startups, so CIOs would benefit more from looking at the supplier-backed organisations, or even perhaps starting their own programme.
Bradford suggests that running a hackathon is a great way for IT leaders to get hands on with startups.
“You can challenge companies by launching competitions,” he said. “Most startups won’t change their plan to fit within a corporate, because there is the chance the corporate might not buy the product, or it might not go anywhere. I have seen these things called Hack Weekends which set challenges, and then the startup spends a weekend to come up with a potential solution. It allows the corporates to start to understand how they might tackle those problems.”
Ward’s view on corporate involvement differs. He believes that businesses can be involved, but there needs to be a relationship about sharing knowledge and actually wanting to help the entrepreneurial community. “Companies we see succeeding are approaching community leaders in startup areas and pledging commitments of a long-term nature and they see a return,” he said.
One example of this type of relationship is Barclays. The bank approached Tech Hub Manchester a few months ago. “Our first instinct was ‘hell, no’” said Ward, but when the bank said that it wanted to form a long-term relationship, he gave the company a chance.
“If they said, ‘We want to get access to latest innovation and talent’, we would have told them to go away,” said Ward.
There are 20,000 technology staff at Barclays, which has been consistent in its approach to innovation in the financial sector. Through this give-and-take partnership, Tech Hub Manchester now has access to the bank’s technical talent, and young developers have access to Barclays developers and can share what they learn.
UK startups: Essential Guide
This article is part of a series where Computer Weekly aims to connect CIOs with technology startups.
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Staff at Barclays also learn from going along to the hub to feed off its environment and knowledge sharing. Ward said that from just four months of Barclays working with Tech Hub, the bank is now exclusively trialling products with new technology found from the Hub.
“Companies like Google are doing so well because they’re open sourcing their technology, sharing learning lessons and speeding up process of innovation,” said Ward.
“I never thought I’d be saying this, but Barclays has started a journey that’s not only admirable, but they’re teaching young technologists what to do – that’s never happened before. I want to help Barclays by the way they’ve approached us.”
Startups can be seen as slightly rebellious - they don’t always wear suits, and speak a different language to the traditional corporate world, and are becoming a real threat to incumbent IT suppliers.
“These kids working in startups are shunning corporate life,” said Ward. “Big tech companies in the US are doing all these techniques to keep staff happy such as free food and holidays. People are disillusioned by these big companies, we see them dead in the water already, they’re going to have to completely change or be out of business.”