Tech Startup Products For Enterprises Still Face Resistance When it Comes to Revenue

Angus Loten reported in Thursday’s Wall Street Journal that, “When Haier America’s Deanna Johnston needs to update or fill gaps in the company’s information-technology systems, she looks at products and services offered by startups.

“But even after a trial run, she rarely buys them, Ms. Johnston said.

“Instead the appliance maker’s chief information officer said she often uses cheaper prices offered by startups as a bargaining chip in price negotiations for similar tools sold by large enterprise IT vendors.”

The Journal article stated that, “As Haier and other large corporations become increasingly digital, they are spending more time checking out technology offered by small, independent tech firms.

Yet startup products and services for enterprises, while more accepted than a few years ago, still face significant resistance on the path toward revenue, CIOs and industry analysts say.”

Thursday’s article explained that, “Only 23% of 112 large corporations in a recent survey said working with startups was very important, according to MassChallenge, a startup accelerator, and software consulting firm Imaginatik PLC. Respondents included insurers, manufacturers and software firms, among other companies across a range of industries, roughly half of which had at least 10,000 employees and more than $5 billion in annual revenue.

“Jonathan Lehr, managing director of Work-Bench Ventures, a venture-capital firm for enterprise tech startups, said the problem can be simply ‘getting in the door and then demonstrating value,’ rather than offering lots of free trials that don’t convert into paid licenses.”

The Journal article added that, “A handful of enterprise IT startups are fetching billion-dollar valuations. In North America, 51 of 94 startups with valuations over $1 billion—known as ‘unicorns‘—sell business technology, according to CB Insights.”

Mr. Loten also pointed out that, “Revenue-generating IT startups can become attractive targets for acquisitions, leaving CIOs to speculate about the fate of fledgling products and services once they are swallowed up by larger vendors, said Jim Ferrato, CIO of call center operator IBEX Global Solutions PLC…[H]aier’s Ms. Johnston said she agrees that startups are best deployed for functions that aren’t essential to core business operations. For instance, the company is currently using a free employee iPad check-in tool developed by a startup, she said. ‘If they go out of business, we’ll just switch over to a paid version with little disruption.'”

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