Special Feature
Part of a ZDNet Special Feature: Enterprise Startups: Risk vs. Reward

Getting started with startups: Five ways to make it work

Working with startups can offer big benefits to large businesses: but how do you manage the process to ensure success? Here are some tips from the experts.

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CIOs are expected to source the best ideas from internal and external sources. When it comes to startup companies, how can CIOs work with new partners and use their ideas to improve the business?

1. Recognise the opportunity for disruptive change

Ian Cohen, group CIO at insurance specialist JLT, says he is amazed how few CIOs are actively engaged in startup communities -- not just around Shoreditch, but all over London and Manchester.

"It's almost as if CIOs feel intimidated because these companies are operating at a pace and with a vocabulary that they are just not familiar with," he says.

Cohen says intimidation is not a new phenomenon. He remembers similar sentiments during the first e-commerce wave of the 1990s, and suggests such hesitancy is probably traceable back to the earliest innovation cycles.

"People who have been successful at status quo rarely see or recognise the opportunities for disruptive change that new entrants recognise with laser-like clarity," he says.

There is, says Cohen, a genuine power shift taking place: "Startups today are fully-fledged commando units, armed with new technologies, behaviours, and commercial acumen. If you're not using this armoury on your competitors, these new companies are ready to displace you. Just take a look at what companies like Uber, Airbnb and Coursera have achieved in next to no time." CIOs must experiment, says Cohen: "Dive in, engage and learn -- get experienced."

"It's not frightening to stand up a whole system over a weekend at a hackathon -- it's exhilarating," maintains Cohen. "Try new tools and techniques, such as Node.js, React, Elasticsearch and Jitterbit, or at least engage with companies that do. What have you got to lose?"

2. Get internal stakeholders involved early

Neil Ward-Dutton, research director and co-founder at MWD Advisors, says CIOs who work with startups must be prepared for a change in working methods and a series of internal battles.

Those changes could come as a shock to IT leaders who are used to the methods of traditional vendors.While big names providers, like Oracle and IBM, will have an established way of working, startups will not be process heavy.

Smaller companies will be more open to working collaboratively in order to think about how their technology can be adopted to suit particular business needs. That flexibility sounds great in practice, but Ward-Dutton warns of downsides.

"These startups might not have a legal department and they might not even have an established sales process," he says. "This could present a significant challenge for your procurement team, who are likely to have strong rules in regards to suppliers and their trading histories and methods."

The end result, says, Ward-Dutton, is that CIOs might need to fight internal battles. "So have an upfront conversation with your procurement people," he says. "Engage them early and find out how you can overcome the challenges. And get some executive sponsorship, so someone senior in the business also has a stake in your project."

3. Focus on value, not perceptions

Manufacturing might be seen by some as a traditional sector with an intransigent way of working, but that description does not sit well with Doug May. The business systems director at LoneStar Group leads IT at the global manufacturing specialist by finding novel ways to solve the challenges faced by his colleagues across the business.

"If you've got a problem to solve, look at the options and be prepared to experiment," he says, referring to his willingness to try new approaches to IT procurement, including working with startup organisations.

According to May, the key is making sure IT always delivers best value for the rest of the business. "One of the biggest risks I took was to introduce a startup to provide our business with a web-based data warehouse and business intelligence system," he recalls.

"It had to cover all ten of our businesses ERP systems, a task that everybody told me was not possible," he says. "In order to get the vendor approved, we looked at their cash flow forecasts, current customers, and also spoke with their backers. Then, and only then, did we start to use the startup. That said, the product proved to be so successful that our VC owners have used it in their other businesses."

4. Don't be scared to ask for help

Alan W. Brown, professor of entrepreneurship and innovation at Surrey Business School, recognises that it can be tough for traditional enterprises to engage with startups, especially as many companies will have strict rules regarding procurement and governance.

However, the effort is worth making, particularly if CIOs can see beyond the bluster and hype. "The media tends to fixate on small, fast-growth businesses, particularly in the technology sector," he says. "But in many areas of business, there are niche suppliers that start to grow because of the trust shown in them by a single, big-brand business."

Brown, who is also executive chairman of Unities, a specialist organisation that helps big firms engage with academic expertise, says there is now more awareness of the power of the startup. "Most big businesses will have a part of the organisation that is geared towards the small stakeholder community," he says.

Google, for example, has a campus where small businesses can work within their established corporate environment. Other big IT firms, such as IBM and Samsung, have also worked hard to find ways to bring startups into their corporate environment. Such initiatives, says Brown, help create a symbiotic relationship where both sides can benefit from proximity. "Startups don't naturally congregate," says Brown. "If you're looking to access any market, and it's diffuse, how can you go about marshalling those firms and their ideas? As a big company, you need to know where to look for the best ideas."

5. Create an internal startup culture

Of course, looking for inspirational ideas from outside the company is just one approach. Mark Foulsham, group CIO at insurance specialist esure, says innovation is all about incremental improvement. Internal employees are crucial to this aim.

"The best ideas come from group sourcing," says Foulsham. "I'm a big believer in pooling talent. We have an internal ideas forum called Organised Feedback, which is a cloud-based collaboration platform that provides a social mechanism for people to send in their innovative ideas."

These ideas are collected and scored by peers. An underlying algorithm helps Foulsham and his executive colleagues calculate the potential value of projects. This mechanism helps the IT team to decide which ideas are best and which concepts will work for the business.

"I then stand up in front of the team on a monthly basis and give examples of how some of these ideas have been taken forward," he says. "Our approach allows me to lead innovation, but not in the classic sense of leadership. Innovation requires a feedback loop."

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