Large enterprises and startup ventures are seldom uttered in the same breath. But there are some excellent reasons for enterprises to consider using a startup.
Companies like the feeling that they have influence over the projects and technologies their vendors develop. Startups offer their customers a golden opportunity for this because in early startup phases, their customers are their lifeblood. They do everything possible to satisfy their early customers' business needs. In this environment, an enterprise can often get projects completed faster and more efficiently than if it were to do the projects itself.
2: Opportunity to acquire
If the startup looks promising and an enterprise sees an opportunity to monetize the startup's product across a broader customer base, it can invest in the startup and participate on the board. Often, enterprises opt for this type of participation in startups because they have also have an inside track to acquiring the startup if acquisition aligns with their longer term business strategies.
3: Great pricing
At the onset, most startups are strapped for cash and will develop technology solutions "for free" for a sponsoring company that can offer it free office space, or "borrowed" personnel from IT. The startup delivers critical technology that the enterprise wants, and the enterprise gets the technology for next to nothing.
4: Monetization of new technology ideas
Enterprise IT often discovers technology breakthroughs that it uses internally but that could also be used by other companies. Because internal IT is committed to the support of the day-to-day business, it usually doesn't have the time to monetize a solution and to sell and support it in the marketplace. An agreement with (or the creation of) a startup solves this. The startup can focus on developing and supporting the solution for an outside market while internal IT remains focused on the enterprise.
5: A way to fund R&D
It is difficult for CIOs to get CFOs and CEOs to sign off on internal "skunk works" and sandbox projects that undertake R&D but may or may not deliver end business results. By contracting with a startup, the company can often get the startup to do this R&D work. For the enterprise, there is reduced risk in experimentation and a way to address R&D work that otherwise might not get done. For the startup, there is economic opportunity with the sponsoring enterprise if the technology concept works.
6: Opportunities for collaboration with other investors
Enterprises in the same (and sometimes in different) industries often have a common need that they all must address, but each has limited resources. A startup that is jointly sponsored by several participating enterprises offers an opportunity to pool resources for the resolution of common problems.
7: Flexibility and agility with projects
Because they are in early stages of establishing their businesses, startups are often willing to take on special projects that corporate IT lacks the bandwidth to address. Having a startup on hand for special projects can be a lifesaver for IT departments that are inundated with projects. The outside startup gives IT extra flexibility and agility to respond to these special (and sometimes unforeseen) projects.
8: Reinvented and improved relationships with vendors
When there is enough common ground in a startup to warrant investments and active participation by both enterprises and IT vendors, the participating enterprises also cultivate a "new" cooperative technology relationship with their existing vendors through the startup, which in turn can benefit overall cooperation and communications between enterprise IT and key vendors.
9: Access to unique expertise
Startups often include individuals who have unique technology and business know-how that enterprises themselves do not have on staff. It's important for enterprises to remember that when they sign up with a startup that has a unique solution, they get not only the technology but the knowledge behind it.
10: Social responsibility
Some enterprises have used startups as vehicles to initiate jobs creation in the communities in which they operate. This strategy builds good will for the company and enhances the likelihood of more revenue, because customers like the idea of an enterprise that actively gives back to the communities in which it operates.
- Enterprise Startups: Risk vs. Reward (ZDNet special feature page)
- Founder's guide to launching a startup (free ebook)
Is your organization working with enterprise startups? If so, what benefits and shortcomings have you encountered?
Mary E. Shacklett is president of Transworld Data, a technology research and market development firm. Prior to founding the company, Mary was Senior Vice President of Marketing and Technology at TCCU, Inc., a financial services firm; Vice President of Product Research and Software Development for Summit Information Systems, a computer software company; and Vice President of Strategic Planning and Technology at FSI International, a multinational manufacturing company in the semiconductor industry. Mary is a keynote speaker and has more than 1,000 articles, research studies, and technology publications in print.