How to engage with a SaaS startup – A letter to the CIO, CSO and CTO
Are you open to change?
Innovation is the new currency of competitive advantage. The future belongs to innovative leaders who can discern the trends and are not afraid to be pioneers and trendsetters that seize the attendant opportunities. A company’s adaptability and comfortability with change, one could argue, is its lifeblood.
Customers demand more; faster and cheaper. The DNA of startups predisposes them to be fast, and cost-effective in their operations. Consequently, large corporation see wisdom in collaborating with startups to lend scalability, innovativeness and speed to their operations. According, to a study conducted by KPMG, 90% of corporates said that they required startups to enable them to innovate (KPMG, 2015). Ironically, while corporations want to improve their competitive edge by embracing startups, they make the process of collaboration laborious. For many startups, getting approvals and security clearances can be an uphill battle that can taint the experience of the engagement.
In a recent transaction with a large and well known financial firm (now a customer), getting from inquiry to acquisition was exasperating. In my case, there were several rounds of grueling and extensive discussions with legal, involving at a certain point seven lawyers, with the customer. These legal discussions easily spanned 2 months and most the time was spent primarily on the Master Service Agreement (MSA). The impact of lengthy and sometimes convoluted discussions on my time and resources was that I ended up spending 50% of the yearly contract value on legal bills. Was spending a lot of time hashing out legal (battling with 7 lawyers) issues, security (filling out extensive security questionnaire (one of which had 250 questions) issues, operations, human resources issues to sign an agreement necessary? Maybe. However, was it practical for both parties involved? Maybe not. The right Corporate–Startup collaborations are hugely beneficial for both sides. Presently, however, there remain significant hurdles which can make these relationships difficult to initiate, manage and bring to fruition.
Where do we go from here?
It is imperative for large companies to understand that at their core, corporations and startups are very different, and always will be. For instance, the General Terms and Conditions implemented by large organizations are generally fit for purpose when dealing with other large organizations, and not startups. Therefore, forcing startups to pass through rigorous processes designed for vetting other large companies when evaluating them for a transaction is not practical and neither is it feasible.
For corporations to remain innovative and competitive, it’s imperative that they increase their relationships with SaaS Startups. As business models change, boutique SaaS companies will be the most likely to provide the agility, flexibility, customer success and solutions that large corporations need to remain relevant in their industry. Fortune 1000 or such large corporations must align their current strategies to leverage the new age technologies that startups can provide. This will require that they do several processes and procedures differently.
Furthermore, it is important to offer a clear and separate process for dealing with Startups. Corporations need mechanisms to work on partnerships quickly. Successful startup partnerships depend on being loose, fast, and efficient—just like a typical Startup. Having this setup, allows both sides to uncover potential hurdles, experiment and/or fail fast.
While lengthy up-front negotiations over IP concerns, access to talent, and expected time commitments may protect against security vulnerabilities, they may equally lead to gridlock, and failure. Therefore, it is important to create separate internal processes for cultivating business relationships with Startup. Work early and often with internal departments—such as Legal, Procurement, PR, and others (depending on the organization)—to make sure everyone is on the same page and understands agreed-upon guardrails (KPMG, 2015). It is mission critical to devote dedicated people to working with startups and take them out of the Corporate structure so that they can act and move faster so they are more in line with Startup speed. Startups work against time and Corporates usually go with time (KPMG, 2015). Consider ways to simplify processes, to have a clear entry process, relax KPIs and involve top management to reduce career risk for employees (KPMG, 2015).
The appraisal criteria and processes required by corporates can be exacting and time-consuming. For example, to be registered as a preferred vendor or partner or even procured as a solution, may mean that the Startup is required to produce substantial documentation to pass a security or legal assessment. Subsequently, the corporate often needs time to review the submitted information and perform their due diligence before they can express a final judgment on the feasibility of collaboration with the startup. Many of these evaluative steps occurring even before the Startup has even had a chance to give a demonstration of their solution.
Some practical steps
- Optimize Evaluation Process: Virtual Private Network (VPN)’s and compliance and policies are major deterrents in the collaboration between Corporations and Startups because Corporations are cautious of opening up their environment to external partners. However, for a collaboration to be successful, some level of vulnerability is inevitable. Therefore, Centers of Excellence (CoE) should be setup to conduct evaluations without red-tape. Corporations should consider having a ‘sandbox’ or a ‘Playground’ ready (an environment that replicates your org, maybe outside the VPN, for example) for evaluation purposes.
- Furthermore, invest in additional security measures that can protect your company when you on board a startup.
- Find the shortest route to procurement: Large organizations should find the shortest route to a demo. Many times, big companies subject Startup companies to rigorous assessment processes, thereby, consuming significant amounts of time and resources. Sometimes, the result of these assessments does not culminate in a procurement. Therefore, it can be beneficial for large organizations to dedicate some time to pre-test the product/service internally. If internal tests are positive, only then ask the startup to go through the whole accreditation/assessment process.
- Corporates need to realize that contracts with Startups are seldom as iron clad as those with large companies. Thus, making them relatively easy to terminate. As such, large companies can save time on the front end by spending time evaluating as opposed to drawing up contracts.
Pay asking price: Comparatively speaking, conducting business with Startups comes at a relatively low cost. Having said that, large companies can aid financial growth for Startups by paying their asking price rather than looking for ways to beat down prices. Pay a fair price so that startups can invest back into research and product development.
Simplify legal matters: RFP (Request for Proposal), MSA, NDA and other legal requirements are often very exacting. Corporations may suggest that the Startup enlist the services of a lawyer to deal with contractual matters. While Startups will comply, it is important not to bug them down with extensive legal contracts, it is advisable for corporates to create a separate legal assessment track for Startups. For example, one cannot reasonably ask a startup to provide a10 million-dollar insurance coverage when one is paying a startup $10k/year. Simplify contracts as much as possible so startups can minimize legal costs and control their meagre finances.
- Own a separate legal evaluation process: Have a separate legal evaluation process for startups implementing technologies such as SaaS, IoT, etc. For example, Have SIMPLE SaaS, IT, Hardware, Database templates ready for new technologies like IoT, SaaS, BigData.
When Corporations and Startups establish a successful collaboration, it can be powerful. To effectively harness this power, the onus falls on both entities to build infrastructures to help facilitate the collaboration process. At AutoRABIT, we have an extensive experience of successfully working with major corporations. We have the nimbleness, scalability and speed to enable your team to achieve Salesforce Release Management as efficiently as possible. Please reach out to us at firstname.lastname@example.org for more information on how we can be of help. Let’s collaborate!