I visited Cyprus recently to deliver two keynote speeches about digital business on behalf of a large telecoms client. During my presentation I explained why becoming a digital business was inevitable, how technology was driving the digital revolution and, through a series case studies, described how different organisations had already used technology to enable new business models, create new products and services, enhance existing offerings and transform their internal operations.
The audience at both events contained a mix of people including CEOs, CFOs and IT leaders from organisations of different sizes as well as founders of start-ups at various stages of their development. In the networking session after the events I was approached by a number of the startup founders who wanted to discuss topics such as how I thought their target markets would evolve, whether I could work with them in some capacity and how they can secure their first (paying) clients.
How to secure the first client – was the most popular topic and is a challenge that often leaves small businesses and start-ups in a catch-22 situation; to be considered as a credible vendor they need to have some reference clients but how do they get that first client without references? And potential clients also face a dilemma of their own as many CIOs are prevented from contracting with a startup by procurement rules that require reference sites, copies of accounts, financial guarantees, etc. And of course there are also many CIOs that are just reluctant to take a risk on an unproven product or vendor, particularly in organisations where failure is not accepted and is likely to damage the CIO’s reputation.
There is, however, some good news for startups as more companies are seeing them as a source of innovation and competitive advantage in digital markets. For example, Coca Cola has a mentoring programme through which it provides technology startups with advice and guidance on how to market their businesses to investors and customers. Coca Cola also introduces the startups to its partners and customers, and in return it gets exclusive access to the startups’ solutions for the seven-month period that they are in its mentoring programme.
During 2014 GE Healthcare opened a Health Innovation Village at its Finnish headquarters in Helsinki, which houses over 20 health tech start-ups operating in the fields of wireless technologies, sensors, apps and cloud services.
Meanwhile in the UK John Lewis has established its JLAB initiative through which it provided £12,500 of funding to five technology start-ups and also gave them access to its incubation centre in Canary Wharf, APIs and mentoring from the retailer’s own executives as well as experienced entrepreneurs. And NBCUniversal is funding UK tech start-ups from the media sector through its NBC Media Labs programme, which also operates in New York and Los Angeles.
But not every organisation can provide the level of support to start-ups that large businesses such as Coca Cola and John Lewis can offer. The majority of CIOs do not have the budget to create a dedicated facility for use by startups. And neither can they provide funding for a business that may develop a solution that might create some value at some point in the future.
But that is not to say that CIOs with limited budgets should not spend time engaging with the startup community as well as other external parties. In Disrupt IT I explain how external engagement is an important activity of the Technology and Service Broker IT function; customers, partners, technology vendors, startups, analysts and academic institutions are all potential sources of information, ideas and insight as to how technology may be applied within the organisation to drive revenue and value.
When looking at the IT vendor space it is important that CIOs look beyond their existing suppliers and even to companies that do not currently operate in their markets. It is unlikely that a radical idea or solution will come from a supplier that already works with a number of the main players within a market. The main focus of these vendors is maintaining the revenue streams that come from their established products and services and, unless they want to disrupt their own business model, they will not want to put these at risk. In addition, the main suppliers within a sector are also likely to be sharing any new ideas with a number of their clients so real competitive advantage is unlikely to be gained through these channels alone.
Startups on the other hand are not constrained by the need to protect existing revenue streams. They are free to try to new things, create new models and be flexible about the direction their product takes. It is no coincidence therefore that many of the recent examples of markets being disrupted involve a startup that has used technology to better meet customer needs.
So how can the typical budget-constrained CIO get involved with the startup community without breaching procurement rules so that they too can gain access to potentially game-changing ideas and solutions? There are plenty of alternative ways to support a startup that do not involve investment, office space or a purchase order. CIOs just need to think creatively about what resources they have at their disposal that may be of use to a new business. For example, providing access to key personnel within the organisation or facilitating meetings with the organisation’s customers and suppliers can provide a startup with contacts, information and insights that it would not otherwise obtain. Or the CIO could provide a startup with access to the company’s data or they could offer to pilot new products within their business. As well as providing the startup with feedback about how their product performs in the real world, a pilot can also help the CIO to build support within other functions for using a new solution from a new vendor.
To get started I would encourage all CIOs to take an hour or two out of their diary every month just to meet with a startup. Use it as an opportunity to learn from them, pick their brains and see what ideas they can give you. And during these meetings think about what you can offer them in return and be open to potential partnerships or less formal collaborations. Because the next startup you meet might just have something that will make a significant difference to your business.