Users eye startups with caution

These are tough times for technology vendors in general, but particularly for startups seeking a foothold in corporate environments. Some IT managers who were already wary of such companies said at Gartner Inc.’s Symposium/ITxpo 2002 conference in San Diego that they’re being even more cautious now.

Startups indicated that they’re feeling the pain. Users are “less willing to distinguish themselves by pushing the envelope,” said Jackie Gilbert, vice president of marketing at Journee Software Corp., an Austin, Tex.-based developer of data integration technology that was one of 10 start-ups picked by Gartner for a spotlight position on the expo floor.

The business prospects for many start-ups aren’t good. Based on historical patterns, about 80 per cent aren’t likely to survive long term, said Gartner analyst Ken Dulaney.

IT managers agreed that taking a chance on an emerging company can be a big risk. But there are still valid reasons for considering start-ups, some conference attendees said. “Maybe they have a really compelling case for a product or service that you need,” said Charles Benedict, senior vice-president and chief technical officer at Countrywide Insurance Services Inc. in Simi Valley, Calif. A hungry company that “seems to match where you’re trying to go” may also give you more attention than larger vendors do, he said.

Terry Keith, director of management services enterprise technology solutions at Universal Underwriters Group in Overland Park, Kan., said start-ups often offer less-expensive ways to solve business problems. Still, Keith said he would move cautiously in dealing with one. Universal Underwriters would initially use such a company’s technology for a pilot project. “We would . . . try it. Watch it closely. See what we get out of it,” Keith said.

But Todd Duran, manager of enterprise architecture at Gordon Food Service, a food distributor in Grand Rapids, Mich., said he wouldn’t consider a start-up at all. “Most of the time, they would be expecting us to take all the risk,” he said.

Dulaney said companies can do a number of things to protect themselves in case a start-up fails, such as setting up source-code escrow agreements and including nonperformance clauses in contracts. But users may have to cut their ties with struggling start-ups, Dulaney advised. Companies often “keep working with the vendor, hoping it will get better,” he said, noting that in many cases, it never does.