The Benefits of Working With Tech Startups

Using the services of a startup has its pitfalls, but can provide significant price and other competitive advantages.
Posted September 7, 2006
By

Eric Spiegel

Eric Spiegel


“I hope my customers don’t read this!” This was the thought floating around my brain as I wrote this article about how companies can benefit from working with startup technology firms.

I surmised I might actually be providing them with insights that will give an upper hand in sales negotiations. But the more I worked through it, I realized revenue for an early stage startup wasn’t as important as reference-able customers that provided great feedback to make the product stronger and build market share.

The challenge that early stage firms encounter is that customers don’t usually understand they need to deal differently with a startup than an established technology vendor. Let’s be clear what “early stage” means. A company with 50 employees, a few million in revenue and a version three product is not early stage. A company with a handful of employees and almost no revenue with a version one (or beta) product is most definitely early stage.

Why would any customer want to deal with such a small entity? Although the risk is enormous, the reward can be worth it. Working with an innovative new product from an early stage vendor can save the customer money and provide competitive advantages. You’ll receive more personalized customer service -- most likely from the founders. And you can negotiate customizations that are particular to your business.

However, you simply cannot expect the sophistication of a larger established vendor. The nice thing is you can also not expect to deal with a large bureaucratic process. Early stage vendors can respond quickly to your needs because they only have a few customers – or you may be their only customer at the start.

You can take advantage of this by establishing relationships with the founders and not just an account manager. This gives you access to the brains behind the innovative product and will provide you with an established influence at the firm’s top levels as the company matures. If you have a problem, you can pick up the phone and talk directly to the chief software architect.

By working with an early stage vendor, you can gain a competitive advantage on your competitors who aren’t willing to take this risk. You’ll have first access to thought-leaders and an innovative product. This will enable you to build and fine tune processes and best practices to get the most out of the new product. When your competition finally discovers the vendor, you will be light years ahead in getting the most out of this investment.

In most cases, the early stage vendor you have discovered will not have a product that fully meets your needs. But that is ok. If the product initially can provide a leap in productivity, effectiveness and/or cost savings it will be well worth spending time working with the vendor to add features to meet your additional requirements. And you’ll find the vendor will bend over backwards to make their first customers happy. (This is where I started to think I shouldn’t share this with our customers.)

Now the reality is that the first installs and product reviews will probably not go well. Remember, this is a brand new technology that most likely has only been tested in a lab environment. There is nothing like a heterogeneous, complex customer environment to test a new product. It should go without saying that you should never install any product into production without first running it through your own testing.

But these are growing pains you must anticipate. It is like raising a child. You’ll have to go through the pains of spilt milk and temper tantrums, but as the child matures, you can start to realize the benefits. As the vendor provides you with new patches and releases that your feedback helped shape, you’ll start to realize the benefits as well. And your influence on features at this early stage will ensure the final product meets your ultimate expectations.

As I first mentioned, it isn’t about the revenue for early stage vendors. This gives you an advantage on pricing. But let’s be careful not to be short sighted. It is ok to get a great deal on an early stage product, but ultimately you need the company to succeed. The good news is that you can help facilitate their success. In exchange for a significant discount, you can provide the following:

Feedback -- The most important benefit to an early stage vendor is real market feedback on their products’ features and how they perform. This will allow them to improve product quality as well as adding relevant features that will help them build their market share.

Reference -- There are two types of references. A simple one-liner marketing quote they can use on their web site or in marketing collateral is usually sufficient. You can even have the vendor write it for you, as long as you have final approval. But a second way you can help is to be a callable reference. This takes more of your time, but can be very effective in helping the vendor close similar-sized customers. You can always put a limit on the number of calls you are willing to receive each month.

Case Study -- This will obviously take some of your time, but the vendor can do most of the legwork. They can write the case study and have you just provide the data. Simply provide information on how their product saves you time and money. Just make sure they don’t exaggerate (too much).

Speaking -- If you don’t mind public speaking, there could be opportunities for you to help promote the product. Many companies will pay for you to attend a conference where you can deliver a presentation about the product. There is nothing like a real, live customer giving a product props. If you don’t want to travel, then consider being a guest presenter on a webinar.

Publicity -- Much of the success of a new product will be word of mouth and the number one way to accomplish this is through promotion on blogs or message boards. Being interviewed about the product in published web or print articles is another way to spread the word. But there is nothing like responding to a message board or blog comment posting that asks how to solve a problem that the product resolves.

If you are willing to take a risk and your organization is supportive, then dealing with early stage vendors makes a lot of good business sense. You’ll meet your own needs and provide the vendor with much needed feedback, references and publicity.

On second thought, maybe I’ll actually email my customers this article.






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