As enterprises look for ways to out-innovate the competition, they often seek to partner with emerging software startups. These relationships can deliver powerful advantages for both sides. The enterprise provides scale, while the startup provides agility, velocity, and fresh thinking.
But there is also risk involved for the enterprise—the potential for wasted time, resources, and executive attention if the new technology or product doesn’t pan out. The key is to eliminate as much of that risk as possible during the evaluation process. However, evaluating startups requires more than understanding their offerings. At Traction Technology, we’ve identified six key traits to look for when deciding whether the latest tech startup is worth your time. These are based on our work helping Fortune 500 companies build effective technology scouting programs through both our software and services. Ask these 6 questions before you decide to partner with an enterprise startup.
When it comes to technology performance, scalability matters. The cloud has taken the brakes off the growth potential for even the smallest companies. However, just because you can auto-deploy a thousand virtual machines doesn’t mean your solution is resilient under enterprise workloads. It’s appropriate to ask at the outset whether a new technology company has served businesses similar in size to yours. There are some cases where it makes sense to be a startup’s first enterprise client, but only if you are willing to be a guinea pig.
If they’ve only worked with retail clients and you’re a healthcare organization, they might have along road before they can meet your basic industry standards. Finding a company that understands—or better yet, specializes in—your vertical market can mean amore relevant feature set, faster onboarding and fewer headaches.
Security and compliance are bedrock concerns, especially if you’re a publicly traded company. If you have to walk a startup through their first security audit , you want to know that up front. Are they SOC-2 compliant? (If not, do they have any plans to get there)? Startups build up their security posture over time, but if there’s any question about their basic security capabilities, we advise clients to walk away. Very few technology innovations can compensate for a data breach. If they want your partnership, they need to prove—not just claim—that they can meet your standards.
Many early-stage technology startups lack the infrastructure to comply with the enterprise software procurement process. If the spend is small, this might not be an issue. Get out your company credit card. However, once procurement gets involved, the company needs to be able to negotiate contracts, perform necessary legal wrangling, prove they have the right business insurance policies, and work with your billing systems. A willingness to collaborate with your procurement team is also a sign of their business maturity and commitment to growth.
If you adopt anew technology across your core business and the vendor goes belly-up, you’ll be left holding the bag. Not every partner has to be clearing a profit—most VC-backed companies are expected to operate at a loss and pour the millions they raise into growth—but it’s in your interest to dig into their numbers—funding, employee growth, revenues. It can tell you a lot about their maturity and what the future looks like for their offerings. Keep in mind that a change of ownership, an acquisition, or a major investment from outside can also shift the startup’s direction. Quiz the company on their business plan, cash position and product roadmap to learn more.
In many cases, working with a smaller company is more like a partnership than a purchase. Although it’s tough to measure, most successful partnerships have a certain amount of chemistry. Do you like working with them? Are they responsive? Knowledgeable? Passionate about solving the same problems you are? Do they work to understand and meet your unique needs? Intuition plays a role in successful technology scouting, so don’t ignore your gut.
If a vendor passes all six of these tests, they’re likely to be enterprise ready. That can mean lower risks, faster time to market, and higher ROI. There are cases when the potential value of a partnership is so high that you can overlook some deficits in one or more of these areas. In that case, it’s all the more important to know exactly what you’re getting into and plan accordingly.
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