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Tech vendor startups gain ground

Cindy Waxer | June 10, 2014
When it came time to select a new human resources management system, William Graff, senior vice president at Cerner Technology Services, had his pick of offerings from deep-pocketed, well-established vendors. Yet Cerner opted for a tool from a little-known startup. "The functionality was richer, the pricing model was more in line with the value we were expecting, and they were more willing to negotiate a better price," says Graff.

When it came time to select a new human resources management system, William Graff, senior vice president at Cerner Technology Services, had his pick of offerings from deep-pocketed, well-established vendors. Yet Cerner opted for a tool from a little-known startup. "The functionality was richer, the pricing model was more in line with the value we were expecting, and they were more willing to negotiate a better price," says Graff.

Welcome to the world of hot tech startups. Although high-tech businesses represented just 4.1% of all private-sector companies in 2011, high-tech ventures — and the entrepreneurs behind them — "are economic powerhouses, serving as key contributors to income generation, job creation and productivity growth," says a report from the Kauffman Foundation, an entrepreneurship advocacy organization.

University Health Network is another organization that's placing its bets on promising upstarts. "We have chosen to work with small startups, and I think we're going to see more of that," says Jim Forbes, UHN's CTO. "There are a lot of interesting smaller companies that are producing innovative products."

But choosing David over Goliath as an IT vendor requires weighing the risks — a startup could run out of money, suffer from poor management, be purchased by a bigger company or go out of business — against perks such as scrappy entrepreneurship, innovative products and potential for cost savings.

For James Levine, the decision to select business intelligence and analytics tools from New York-based startup SiSense over those of a larger vendor came down to deployment time. "When we started looking for business intelligence solutions, the ability to scale was important, cost was important, but most important was the implementation time — how quickly we could get the solution set up and with very minimal IT involvement," says Levine, a senior analyst at Act-On, a Beaverton, Ore.-based provider of marketing automation tools. "A single business analyst can implement SiSense, whereas with some of the larger tools, we had an entire team dedicated to the back end."

Another advantage of working with a startup is quality of service. "Startups have to earn your business and continue to earn your business," says Levine. "So they'll go above and beyond and out of their way to make sure that we're successful and happy."

Jerry Jao, founder of a 20-person marketing software provider called Retention Science, agrees. "Smaller companies are more attentive, and we're willing to spend the time to try to understand the client's business," he says. "Even as CEO, I might be intimately involved in your business, whether it's a contract negotiation, an implementation, dealing with day-to-day operations or making sure that client campaigns are successful. I'm on the ground running and working with our clients."

 

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