Startup companies will often innovate and bring a unique product to market that can have high value for customers. The product may fit a specific need or solve a problem in a unique and economical manner.
These innovations are good for the overall industry and should be encouraged. A startup’s success is measured in products sales, although the goal of many startups is to see their products and technologies acquired by larger vendors. However, even a startup that gets acquired usually needs to have success during its critical initial go-to-market phase.
If you want to take advantage of the innovations by startups, there are a few things to consider. There is always a risk in buying from a startup, but the risk can be reduced by evaluating the company as well as the product.
These are key areas of the company you want to look at when evaluating a startup:
Management. First, look at the experience that the senior staff has. Have these executives brought a storage system to market before? Have they worked at that senior level previously? Has the leadership of the company done a startup before? There’s no substitute for experience, and in a startup there are things to be learned that cannot be learned within a large company. Bringing a storage product to market and putting the infrastructure in place for support are incredibly complex tasks. Only people who have done it before will understand the requirements.
Funding. Does the startup have the necessary funding? Many startups are funded by venture capital companies and receive only enough funding to reach the next milestone. Some of the VCs have a template of how they think a startup should progress. That template is based on the last successful startup that VC is familiar with. The VC will put a sequence in place to mirror the last startup, even if there is little or no relationship between the types of products involved. If the startup has a different development or delivery sequence than the template, VCs may withhold funds, change the management, or drop funding because they don’t believe they will get the expected payback. If the startup has enough funds to deliver the product and continue support, then that risk is alleviated.
Product support. Has the support structure been set up? Are the multiple levels of support available and is it staffed? What is the availability of on-site support and the coverage?
Board. Do their board members have a storage background? Storage has critical requirements and there is a cadence of how and when customers purchase storage. If the board that is assigned by VCs lacks a storage background, the startup can go in a wrong direction.
Spending habits. Does the company spend money wisely? Some startups have aggressive marketing leadership and spend some of the precious money needed to bring the product to market in questionable ways. Overdoing it on event sponsorships and engaging firms that publicize the company in marketing “reports” or positioning papers may be examples of money spent unwisely.
Stability. Has there been frequent executive turnover? Sometimes when the inevitable development delay comes or the startup does not match the VCs’ poorly conceived template, the VCs will find new executives they think can do the job. You should be concerned if this has happened more than once.
Partners. Who are the startup’s “friends”? The network of partners, ISVs, and other companies working with the startup is important. These relationships are indicators of an ecosystem of support.
More detailed evaluation guides are available at the Evaluator Group website.
(Randy Kerns is Senior Strategist at Evaluator Group, an IT analyst firm).