David and Goliath: Choosing a startup versus an established vendor

How do you choose between the relative safety of an established software provider versus a hot new startup for your enterprise software needs? Here are some guidelines.
Written by Patrick Gray, Contributor
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One of the hottest areas of an already blazing tech startup market is enterprise software. After a run of consumer-focused startups, venture capital has turned its attention to the enterprise market, funding a raft of software startups that promise to change the face of enterprise computing. The promises of startup-driven enterprise software are compelling. There's no legacy 'baggage' from decades of evolution from the dark days of mainframe or client-server computing, and most of these offerings are designed with mobile, cross-platform, and a high-end user experience front and center.

The streamlined front-ends and compelling mobile capabilities lose some of their luster when one looks at the wasteland of failed software startups. The best interface and most compelling functionality in the world isn't worth much if the company that created the software fails a few months after you install it, and dated applications look far less unsavory when supported by a company that's been around for decades rather than days. When trying to determine whether to purchase software from an established vendor versus a startup, consider these guidelines:

You're buying the company, not just the software

When making a software purchase, you're not just buying the technology, you're also in essence buying into that company. It's the entity that will be supporting you though implementation and maintenance, and also the company that you'll work with to resolve any problems. The major advantage to an established player is that you generally know what to expect, either through your own dealings with the company or through the IT press and peers in the industry. While the rumors may not be positive, at least you're entering a relationship with known pitfalls. However, in some spaces established vendors occasionally act more like startups, particularly if they're entering a new market and you're an early adopter of a new product.

What does it take to launch a startup? Find out with Launching a startup: A primer for new entrepreneurs from ZDNet's sister site Tech Pro Research.

With a startup, there are more unknowns. As an early customer, the startup may bend over backwards to please you, and even allow you to help define the future direction of the software. Alternatively, the startup may use your purchase to fund development of other applications, or may change direction at the latest whim of VCs or CEOs with limited attention spans. For a critical application, spend some time with the leadership of the startup, and make sure you understand their direction and commitment to the technology you're buying. Anything and everything is subject to change, but you should be able to sense whether the product you're buying fits into the long-term vision of the startup, or is a stepping stone to something else.

Price the risk

Purchasing any software has several associated risks. Even the best application from an established company could be implemented improperly, or not meet your core needs. When comparing software from an established vendor versus a startup, look at the risks associated with each and determine a ballpark price to mitigate that risk. If the startup goes out of business, what's the cost to switch to another software provider, or function without that software? If your established vendor raises their maintenance fees or requires a more complex (and thus costly) implementation, what are the costs associated with that?

Identifying and pricing every single risk is an impossible exercise, but you may be surprised to discover that some risks are less costly than anticipated. A difficult implementation of established technology might cost significantly more than a startup that closes shop, or that extremely low monthly fee from the startup might mask a massive cost should the company change direction, versus an established player. Rather than fearing the unknown, the main goal of this exercise is putting a price and board mitigation plan in place to determine how impactful the risks really are.

Start small(er)

Whether you're working with an established Fortune 100 company or a year-old startup, it may be worthwhile to start with a smaller engagement to test the waters. Implement a small trial of a new application or technology, or perhaps use the software to augment existing systems, rather than replace a core application. Not only does this allow you to test the technology itself, but you can also see how the vendor responds to the inevitable challenges you'll encounter along the way. Furthermore, a limited implementation may allow you to experience removing the technology, an event that could occur with even an established vendor that discontinues or drastically modifies an application or technology.

Superficially, it's easy to dismiss startups as too risky, and flock to an established provider with thousands of customers and a lengthy track record in business. However, any technology investment is subject to risks, and they should be understood and priced as part of a decision. Furthermore, exceptional customer service and an ability to set the direction of the technology is more likely to be the domain of the startup, and may be a compelling selling point. Rather than dismissing the startup or established provider out of turn, do your homework and make the decision that's right for your company and specific situation.

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