What CIOs should know about working with startups

Is partnering with a startup really a risk?

When it comes to signing on the dotted line for a new IT contract, most organisations tend to go with the firms they know or have worked with before. More often than not, they see a large company, equate that with success and blindly do business with them.

But step back from this for a moment and you will soon realise there are other smaller, leaner, newer companies that could be worth considering. While the unknown is precisely that – unknown – it doesn't mean that it is necessarily a risk. Sometimes the reverse is true; bigger firms can be a big risk and by no means a safe bet.

So can working with a startup be a good thing? Why should you even consider working with one – aren't the stakes just too high?

High-stakes

Christopher Haley, head of startups and new technology research at Nesta, says that large companies are increasingly working with startups as part of their innovation strategy, precisely because they realise that their own corporate nature makes internal innovation difficult.

"This is especially true in the digital and high-tech sectors. Working as suppliers, startups can be a much faster way to innovate. However, large firms should be exploring more partnering types than just procurement relationships," he says.

And what should the CIO be aware of when dealing with a startup?

Haley says that there are many cultural, structural, behavioural and process-related barriers that get in the way. But speed really matters to startups – everything has a huge opportunity cost to a small firm, and delays can be fatal.

"To overcome these barriers, a clear positive message from the top of the organisation is vital. It is also important to think about why you are dealing with startups, where the real mutual benefit can be found, and what programme will best suit these objectives."

Haley says a corporate accelerator, for instance, might be appropriate, but there are many other possible models.

Established infrastructure

Michael Cooper, CTO of Radianz Services at BT, says that for both parties, the ability to de-risk the engagement is advantageous. He says that one way that CIOs can overcome this is to identify startups that are associated with or supported by established infrastructure, platform and service providers – particularly those with a financial markets pedigree and focus.

"For example, BT recently launched an initiative to host FinTech startup solutions in the data centres, or on the growing number of cloud computing services connected to the BT Radianz cloud – which is the world's largest secure networked financial services cloud community," he says.

Cooper adds that this sort of thing provides FinTech and startup companies of all sizes with a ready-to-exploit market reach, along with the scale and flexibility to deliver services to major financial institutions.