Why large companies need to partner with more startups

As I observe the amount of digital transformation taking place globally, I can’t help looking back on the years I spent as a CIO and wondering, “what if?”

Specifically, what if I’d altered my vendor selection strategy and partnered with more startups when launching technology initiatives rather than relying almost exclusively on market-leading enterprises? Would the outcomes have been better? Worse? Any different at all? 

There’s a reason for this self-reflection.

Across most industries, CEOs are calling upon CIOs and CTOs to align their digital investments with overarching business objectives, prioritizing projects that can yield the most positive financial impact. However, Gartner® research shows that 52% of CEOs believe their companies’ digital initiatives are taking too long to realize the value that leadership expects.¹

Therein lies the rub. It’s difficult to substantially alter your business trajectory or contribute to goals beyond the underlying IT imperatives of your technology project—let alone effect change at a rapid pace—if you don’t challenge traditional thinking and approach problems creatively.  

That’s why many organizations should consider taking the leap of faith I wish I’d taken more often and partner with pioneering startups.

The benefits of startup partnerships

Startups and lesser-known technology providers that understand your industry and engineer specialized products and services can enhance your digital projects in numerous ways. Advantages of forging business relationships with these companies include:  

• Agility. Many IT startups were founded to accelerate transformation. When you partner with these firms, you benefit from the speed and agility with which they can make decisions and adjust to change. 
• Ingenuity. Leveraging the intelligence and core competencies of startups reduces the amount of IT “chores” your company must perform, freeing your internal teams to drive innovation across your organization.
  
• Affordability. Startup companies routinely build some degree of elasticity into their pricing and are typically more open than industry leaders to negotiating costs or discussing value-adds.   
  

The downside of startups

Benefits aside, Gartner also finds that only 28% of today’s CIOs are using startups for the technological capabilities they can provide.¹ Common reasons may include: 

• Lack of brand recognition. The value associated with an established brand offers peace of mind that startups can’t replicate—but not working with a firm because it isn’t a recognized market leader effectively stifles the competition that drives growth.

• Uncertainty about the future. Financial stability and workload scalability are both valid concerns when partnering with startups. However, you can ease anxieties about the future by structuring agreements to share risks (see below) and provide warrants or other compensation if the startup is acquired, ceases operations, or can’t honor its service-level agreements (SLAs).

• Security concerns and vulnerabilities. Companies with wider footprints are by no means immune to data breaches² and other cyber threats, but the additional resources that larger organizations invest in cybersecurity provide layers of protection that many startups often can’t offer.³   

Three keys to working effectively with startups

If you’re thinking about working with a startup or are assessing different vendors to address specific technology needs, these three keys can lay the foundation for a successful partnership:

1. Remain open to change. When partnering with startups, approach every situation objectively and welcome new ways of problem-solving.
   
   For example, our Cloud Advisory team is currently working with a leading manufacturer of machines for the pulp and paper industry to assess the cloud readiness of the company’s existing application landscape. Part of the IT strategy is to create a business case for running the organization’s workload on a public cloud and compare costs among different hyperscalers.
   
   Rather than going the conventional route of engaging an enterprise software provider, we’ve partnered with an Austria-based startup. The company provides an innovative solution for evaluating the current IT environment and deriving related costs for the cloud migration, application modernization, and running the workload in the cloud.
   
   Collaborating with a startup for this engagement allows us to work faster and address issues more quickly, all while meeting an accelerated transformation timeline that would have been problematic if we’d performed the workload analysis and data collection for the hyperscaler cost comparisons using traditional methods.
   
   Plus, the startup’s product team has remained involved throughout the process, providing support and solution adjustments that a larger company may not have been willing or able to make.
   
   
2. Start small and expand. Enterprise solutions providers typically want to win your end-to-end business, from inquiry to remittance cycle. Conversely, startups are often content to focus on select areas within the digital ecosystem, which enables them to deliver targeted value on a specific project. Use these differences to your advantage.
   
   While at Verizon, I forged some powerful business relationships by assigning a small segment of a specific transformation initiative to a specialty IT firm and allowing them to prove their capabilities. If their service met or exceeded my expectations, I began using the company for future projects.
   
   It may require more coordination on your part to work with multiple specialty firms instead of one large provider. However, single-source engagements often produce incremental improvements whereas startup partnerships can deliver true innovation.
   
   
3.  Share risks and rewards. As part of your due diligence, confirm that the vision and capabilities of potential partners align with your project objectives and desired outcomes. This step helps to minimize risks and maximize rewards for all parties.
   
   On the other hand, if you’re working with a systems integrator or third-party advisor, involve them in the evaluation process. They can vet the company or identify other suitable partners and then ensure their product or service will integrate properly with your platforms and applications. A brand-neutral consulting partner with a broad ecosystem can simplify the process further, helping you identify the best startups based on your business needs and desired outcomes.
   
   For instance, a multinational automotive manufacturer we work with is considering options to improve worker safety and enhance security at several of its European factories. Rather than recommending a traditional solution, our team is collaborating with a California software startup to develop proofs of concept for using AI-enabled drones to conduct safety checks, equipment inspections, and perimeter surveillance.
   
   Once testing is complete, we’ll help the customer decide whether to use the technology or search for other solutions based on data instead of assumptions or preferences. Either way, all parties benefit.
   
   We’ll deepen our internal knowledge of AI and machine learning (ML), while our startup partner will gain experience navigating the complexities of enterprise-level transformations. Most importantly, the customer will enjoy all the advantages of the relationship and be insulated from any issues that could arise if the startup goes public, is acquired, or ceases operations over the course of the project.

A final thought on working with startups

Partnering with a startup isn’t always easy. It takes resolve and a willingness to question what was once unquestionable. But if you commit to the process and embrace the creativity that distinctive thinking can cultivate, you may ultimately benefit from greater innovation, increased savings, and better outcomes all around.

Vic Bhagat is the Senior Vice President and Global Advisor of Kyndryl's Advisory Practice, a role in which he assists customers with designing and deploying advanced technology environments. Previously, he served as Senior Vice President and CIO of Verizon Enterprise Solutions and Executive Vice President and CIO of EMC. 

1 Gartner CIO Agenda 2023, 2023, as on 24th May 2023. GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.
2 The 15 biggest data breaches of the 21st century, CSO, November 2022 
3 Why Small and Medium-Sized Companies Face More Cyber Challenges Than Large Ones: Survey, Forbes, July 2022