Why should CIOs look at startup technology companies?

There is a blossoming environment for B2B tech startups with products that could bring benefits to corporate IT departments

The UK technology startup scene has seen a growth spurt in recent years, providing innovative ideas in emerging sectors, such as cloud, mobile, social media and IT consumerisation.

There has been plenty of publicity for consumer-focused startups developing apps for mobile or social networks, but there is also a blossoming environment for business-to-business tech startups with products that could bring benefits to corporate IT departments.

CIOs are constantly looking for innovation to solve their IT problems and enhance their business, but with so many startup companies entering the market, IT leaders often find it difficult to sift through all the options, with not enough time to research and learn about potential suppliers.

Additionally, while many startups are known for their great ideas, they are not always known for being great at sales and marketing. Many startups hit roadblocks when trying to approach big companies with often complex procurement processes.

Why CIOs should look to startups

Startup companies tend to have a specialised expertise which can make them appropriate for large organisations.

One of the benefits of choosing to work with a young company is that businesses may be able to mould and help develop a solution to fit their problems. Startups are flexible with their concepts as they are not set in stone like many traditional IT suppliers.

Ollie Ross, head of research at IT leadership group The Corporate IT Forum, said: “A small startup specialist company is more willing to look at a problem or challenge and develop a specific solution to meet an organisation’s needs. With larger established suppliers, sometimes it is the case that they see an opportunity to fit the user problem to an existing solution.”

Connecting companies

While a small firm might hold the answer to corporate IT challenges, finding the right companies to work with is a challenge in itself.

“It’s challenging [for startups] to get visibility and access,” said Alistair Grant, CIO for Europe, Middle East and Africa at financial services giant Citi. “I get so many calls a week, most of which don’t even reach me, under my instructions.”

The UK government has recognised this, and backed London’s Tech City Investment Organisation - a marketing initiative which aims to bring new companies and investors to the east of the capital, while providing support to local startups seeking to expand.

There are many innovation hubs and accelerator programmes in the UK which support the startup community. Some concentrate on connecting startups to money, investment, venture capitalists (VCs) and entrepreneurs, and hence are less interested in connecting startups with potential customers.

However, there are also other initiatives that are run by large firms, such as Accenture’s Innovation Lab, Telefonica/O2’s Wyra Hub and KPMG’s Tech Group, that are a means to expose their corporate clients to the ideas of technology startups.

These hubs provide corporations with the opportunity to meet small suppliers with a possible solution in a neutral environment. Some of these small firms may have spent time trying to arrange meetings with big businesses, but have been unable to gain their attention.

“[Being involved with a hub] plants both feet firmly inside the door, when previously you struggled to get a toenail in,” said Rich Newton from startup Calltrunk, which was part of the Accenture Innovation Lab. “You then leverage that to build commercial relationships.”

Giving newly formed companies direct access to some of their dream clients is key to the success of such programmes, but companies and investors equally benefit from access to hand-picked products which could potentially change their way of working.

“Investigating in technology and startups is absolutely essential,” said Citi’s Grant. “It keeps our own people aware of what’s going on, on their toes and developing in a more agile way.”

Alessandro Hatami, COO of digital banking at Lloyds Banking Group said: What’s very useful is that the system has to filter these companies, which makes them more appropriate to what we’re doing.”

Speaking the same language

Once a potential startup has been found and the initial meeting agreed, both corporate and startup companies need to bring an open mind to the table.

Startups are at the beginning of a potentially exciting and profitable business. The majority of startups are run by smart people, but they often lack experience of the protocols of large corporations.

KPMG’s Tech Group helps connect existing corporate clients with startups. Tech Group lead Tim Kay prepares his clients not to expect proposals from startups to be as polished as they are used to. 

“There’s a language barrier when they’re in a room together, that’s why we like to be involved, because we can prime big corporations not to expect an IBM-type pitch. The startups are probably four people trying desperately to sell a product the business probably needs,” he said.

Kay warns IT leaders that the sales pitch will be an “iterative and interactive process” and that they will probably need to put different resources behind it.

Ross said that cultural differences are both a barrier and an opportunity.

“The comfort factor is not there, they’re not necessarily speaking the same language,” she said.

“We’ve had quite a few decades where large IT users and supplier organisations have got used to working together, with processes for meeting and measuring targets. However great the startup idea, it’s a complete culture shock, you have to completely rethink how to manage that relationship.”

Ross said that while corporations speak in terms of business trends and strategies, startup companies tend to talk about the specific technology they are developing.

Part of Kay’s role at KPMG is to act as a translator for each side. “Startups also need to understand how a corporation buys. They think businesses are slow to react and bureaucratic, but corporations just have a lot of hoops to jump through. Just because a VC says ‘that is a really good idea’ doesn’t mean he’ll write you a cheque. It’s a process,” he said.

While a sales process can take 18 months to complete, Kay says they can halve this time by helping communicate each company’s needs.

“It won’t happen overnight. Go in with your eyes wide open, knowing it’s not going to be quick,” he said.

Working with startups can be a refreshing change of pace and can lead to corporations approaching contracts differently, stepping away from the idea of a major deal for a large project. “If you’re looking for a small, fast quickly delivered solution, you have an opportunity to break these things down to small manageable chunks in terms of cost and size,” said Ross.

While there may be hundreds of startups in the UK for a CIO to choose from, the task of connecting with a potential startup supplier can be a minefield. As long as corporates go into a conversation with the right expectations, it is much more likely to proceed to fruitful conversations. 

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